Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-casd-3_18-cv-02725/USCOURTS-casd-3_18-cv-02725-4/pdf.json

Nature of Suit Code: 220
Nature of Suit: Foreclosure
Cause of Action: 12:2601 Real Estate Settlement Procedures Act (RESPA) (findings &amp; purpose)

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UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF CALIFORNIA

ANNA LEVY, an individual; ANNA 

LEVY in a Representative capacity for her 

late Husband, Steven Augusta,

Plaintiff,

v.

FCI LENDER SERVICES, INC., a 

California Corporation; KEVIN PRINCE, 

in his individual and corporate capacity; 

MILES FARQUHAR in his individual 

and corporate capacity; SC FINANCIAL 

SERVICES, a California Corporation; 

ROGER SOKOLOFF FAMILY TRUST 

dated 6/26/17; MCKENNA DUGGAN 

FAMILY LIVING TRUST DATED 

2/5/2013; JAMES GARRY HEBERT; 

MICHELLE HEBERT; EDGEHILL 

INVESTMENTS, LLC; AND KS 

CAPITAL, INC. d/b/a PARSE 

MORTGAGE SERVICES; and DOES 1 

to 100, inclusive,

Defendants.

Case No.: 18cv2725-GPC(WVG)

ORDER

1) GRANTING LENDER 

DEFENDANTS’ MOTION TO 

DISMISS;

2) GRANTING KS CAPITAL INC.’S 

MOTION TO DISMISS; AND

3) GRANTING FCI LENDER 

SERVICES, INC.’S MOTION TO 

DISMISS

[Dkt. Nos. 105, 111, 112.]

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Before the Court is Defendants Roger Sokoloff, Trustee of the Roger Sokoloff 

Family Trust (erroneously sued as The Roger Sokoloff Family Trust Dtd 6/26/17); The 

McKenna Duggan Family Living Trust Dtd 2/5/2013; James Garry Hebert; Michelle

Hebert; and Edgehill Investments, LLC’s (“Lender Defendants”), motion to dismiss the 

second amended complaint pursuant to Federal Rule of Civil Procedure (“Rule”) 12(b)(6)

for failure to state a claim, or in the alternative, for a more definite statement under Rule 

12(e). (Dkt. No. 105.) Plaintiff Anna Levy filed an opposition and Lender Defendants

replied. (Dkt. Nos. 114, 120.) Defendant KS Capital, Inc. and FCI Lender Services also 

separately filed a motion to dismiss pursuant to Rule 12(b)(6), Rule 9(b), and 

alternatively, a motion for a more definite statement under Rule 12(e). (Dkt. Nos. 111, 

112.) Oppositions

1

and a joint reply were filed. (Dkt. Nos. 123, 124, 125.) Based on the 

reasoning below, the Court GRANTS Lender Defendants motion to dismiss; GRANTS 

KS Capital Inc.’s motion to dismiss; and GRANTS FCI Lender Services, Inc.’s motion to 

dismiss. 

Procedural Background

On October 23, 2018, Anna Levy (“Plaintiff” or “Anna”), suing on behalf of 

herself as an individual and in a representative capacity as executor of the estate of her 

late husband, Steven Augusta (“Steven” or “decedent”), filed a complaint in the Superior 

Court of the State of California for the County of San Diego against certain defendants 

for manipulating decedent into fraudulently obtaining a second mortgage loan in the 

amount of $450,000 on the family home causing Steven to commit suicide and causing 

the potential foreclosure on the family home. (Dkt. No. 1-2, Compl.)

On November 30, 2018, the case was removed to this Court. (Id.) On August 5, 

 

1

In her opposition, Plaintiff seeks leave to file an opposition brief that exceeds the 20-page limit 

pursuant to “Federal Rule 27(b)(2)(D).” (Dkt. Nos. 123-1, 124-1.) First, there is no Rule 27(b)(2)(D) 

and Rule 27 concerns Depositions to Perpetuate Testimony, not the length of an opposition brief. See

Fed. R. Civ. P. 27. Second, under S.D. Local Civil Rule 7.1(h), an opposition brief must not exceed a 

total of twenty-five pages in length. The opposition briefs are each 24 pages. Therefore, Plaintiff’s 

request seeking leave to file an oversized opposition brief is denied as unnecessary. 

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2019, pursuant to the Court’s order on Defendants The Roger Sokoloff Family Trust and 

Edgehill Investments, LLC’s motion to strike and quash service of summons and 

Defendant KS Capital Inc.’s motion to dismiss, Plaintiff filed a first amended complaint 

(“FAC”). (Dkt. No. 64.) On December 17, 2019, the Court granted in part and denied in 

part Defendant Kevin Prince’s motion to dismiss the first amended complaint with leave 

to amend and granted KS Capital, Inc.’s motion to dismiss the first amended complaint 

and motion for more definite statement with leave to amend. (Dkt. No. 100.) On January 

16, 2020, Plaintiff filed the operative second amended complaint (“SAC”) against 

Defendants Miles Farquhar (“Farquhar”), Kevin Prince (“Prince”), FCI Lender Services, 

Inc. (“FCI Lender”), SC Financial Services (“SC Financial”), the Roger Sokoloff Family 

Trust dated 6/26/17 (“Roger Trust”), the McKenna Duggan Family Living Trust dated 

2/5/2013 (“McKenna Trust”), James Garry Hebert (“James Hebert”), Michelle Hebert, 

Edgehill Investments, LLC (“Edgehill Investments”), and KS Capital Inc., dba Parse 

Mortgage Services (“KS Capital”). (Dkt. No. 101, SAC.) The SAC alleges the 

following thirteen causes of action: 1) violation of Truth in Lending Act (“TILA”) and 

Regulation Z against all Defendants; 2) violation of Real Estate Settlement Procedures 

Act (“RESPA”) against all Defendants; 3) concealment against all Defendants; 4) 

intentional misrepresentation as to Defendants FCI Lender, Prince, Farquhar, SC 

Financial and KS Capital; 5) negligent misrepresentation as to Defendants FCI Lender, 

Prince, Farquhar, SC Financial and KS Capital;; 6) unlawful and unfair business 

practices, Cal. Bus. & Prof. Code sections 17200 against Defendants FCI Lender, Prince, 

Farquhar, SC Financial and KS Capital;; 7) negligence as to all Defendants; 8) breach of 

fiduciary duty as to all Defendants; 9) breach of duty of loyalty as to all Defendants; 10)

breach of covenant of good faith and fair dealing against all Defendants; 11) declaratory 

relief as to Defendants Roger Trust, McKenna Trust, James Hebert, Michelle Hebert, 

Edgehill, FCI Lender, Farquhar, SC Financial and KS Capital; 12) injunctive relief as to 

Defendants Roger Trust, McKenna Trust, James Hebert, Michelle Hebert, Edgehill, FCI 

Lender, Farquhar, SC Financial and KS Capital; and 13) conspiracy to violate TILA & 

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Regulation Z against all Defendants. (Dkt. No. 101, SAC.) 

On January 31, 2020, Lender Defendants filed a filed a motion to dismiss which is 

fully briefed. (Dkt. Nos. 105, 114, 120.) Defendants SC Financial and Farquhar filed 

their answers on February 21, 2020. (Dkt. Nos. 109, 110.) Defendant Prince was granted 

leave to file an answer fourteen days after the Court rules on the pending motions. (Dkt. 

Nos. 104, 107.) On February 21, 2020, Defendants FCI Lender and KS Capital filed their 

motions to dismiss which are fully briefed. (Dkt. Nos. 111, 112, 123, 124, 125.) 

Factual Background

Decedent Steven Augusta and his wife, Anna Levy, owned and lived in a single 

family residence (“Family Home”) located at 122 North Helix Avenue, Solana Beach, 

CA 92075 with their two daughters, ages 9 and 11. (Dkt. No. 101, SAC ¶¶ 3, 35.) The 

Family Home was never rented or leased from January 1, 2007 through the present. (Id.

¶ 35.) Anna was married to Steven from March 21, 2007 until his death on April 18, 

2018. (Id. ¶ 36.) Anna and Steven separated on January 21, 2018. (Id.) During the 

marriage, the decedent handled all of his finances until his death on April 18, 2018. (Id.) 

Anna had no knowledge about any of Steven’s actions concerning the fraudulent loan. 

(Id. ¶ 38.) 

Steven and Defendant Prince were friends before engaging in the alleged 

fraudulent loan. (Id. ¶ 40.) Around September 2017, Steven consulted with Prince about 

taking out a second mortgage on the Family Home in the amount of $450,000. (Id. ¶ 37) 

Because Steven was not able to obtain a conventional loan, with the help of Prince, he 

created fake information and documents to qualify for a loan. (Id. ¶¶ 39, 40.) Prince 

advised Steven on the procedures he needed to take to obtain the loan. (Id. ¶ 40.) For 

example, Prince told Steven to falsely state he sought a business loan in order to “fund 

his municipal bond business.” (Id.) They created a fake lease agreement to represent that 

the Family Home was a rental property, when it was not, in order to create the appearance 

that Steven earned more income than he really made so he could qualify for the loan. 

(Id. ¶¶ 39, 40; id., Ex. 1.) 

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With Prince’s guidance and instruction, Steven completed and signed a Uniform 

Residential Loan Application where Steven wrote his monthly income was $30,000 per 

month even though he was actually making a little over $100,000 per year, or about 

$8,000 per month. (Id. ¶ 42; id., Ex. 2.) At the time, Steven did not provide recent 

paystubs from 2017 showing his income which was barely $6,000 per month. (Id. ¶ 42.) 

He also indicated that the Family Home was his primary residence. (Id.) In an email 

between Steven and Prince on September 23, 2017, Prince provided Steven with 

instructions on how to proceed further in obtaining the loan fraudulently. (Id. ¶ 43.) 

In September 2017, Steven approached two lending companies and received 

conditional approval letters but those companies ultimately decided against providing the 

loan. (Id. ¶ 44.) As a result, Prince put Steven in touch with Defendant Farquhar, a 

mortgage broker or loan agent, and his own company, Defendant SC Financial. (Id. ¶¶

44, 46.) Despite apparent discrepancies in the loan, SC Financial extended a loan to 

Steven. (Id. ¶ 46.) Farquhar knew or should have known the terms of the loan were 

fraudulent. (Id. ¶ 49.) Defendant FCI Lender serviced the loan and collected the 

payments from Steven until his death on April 18, 2018. (Id. ¶ 46.) “The Promissory 

Note and Deed of Trust were subsequently entered into and signed by Defendants 

ROGER TRUST, MCKENNA TRUST, JAMES HEBERT, MICHELLE HEBERT, 

EDGEHILL, and KS CAPITAL acting as the loan agent, making each of them a party to

the fraudulent lending transaction.” (Id. ¶ 48.) 

Farquhar knew or should have known the terms of the loan were fraudulent 

because several emails were exchanged between Steven and Farquhar where Steven 

and/or Prince provided him paperwork which put him on notice of deficiencies and 

discrepancies surrounding the conditions of the loan. (Id. ¶ 49.) In an email dated 

October 18, 2017, Prince informed Farquhar that he would provide him with “anything 

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he needed to facilitate a quick funding.” (Id. ¶ 50; id., Ex. 5

2

.) This statement shows that 

Prince was desperate for a loan and was willing to take any steps necessary, such as 

providing fraudulent information, in order to obtain he loan. (Id. ¶ 52.) On October 19, 

2017, Steven submitted a Business Purpose Letter to Prince stating that the loan was for a 

business purpose yet Prince and Farquhar knew or should have known that the loan was 

not a business loan but a loan on the family home. (Id. ¶ 53; id., Ex. 7.) Another email 

on October 19, 2017 demonstrates Prince’s explicit instruction to Steven on what a good 

Letter of Explanation should state which evidences influence to commit fraud. (Id. ¶ 54;

id., Ex. 8.) On October 20, 2017, Prince sent an email to Steven stating he needed a 

Letter of Intent (LOI) “back signed and dated” which evidences further fraud and 

dishonest intent by Prince and Farquhar. (Id. ¶ 55; id., Ex. 9.) On October 25, 2017, 

Farquhar sent an email to Prince acknowledging there was a notice of default on the 

existing second mortgage but stated he would reach out to some investors who may not 

have a problem with that. (Id. ¶ 56; id., Ex. 10.) On October 27, 2017, Steven emailed 

Farquhar a copy of his homeowners insurance policy which listed the Family Home 

address and Farquhar responded by asking Steven where he was living, and to send his 

address and asked whether he owned or rented the property. (Id. ¶ 57; id., Ex. 11.) This 

email clearly shows that Farquhar was clearly aware that Steven’s home address was the 

Family Home address and knowing that the Family Home was not a rental property, a 

loan could not have been lawfully created absent all the required disclosures for a 

residential mortgage loan. (Id. ¶ 57.) 

Throughout the entire process from applying for the fraudulent loan, obtaining 

approval of the fraudulent loan and receiving the actual funds, Prince acted as a liaison 

between Steven and FCI Lender, Farquhar and SC Financial. (Id. ¶ 58.) The Family 

Home was acquired during their marriage so Anna has a community property interest in 

 

2 The Court notes that Exhibits 5 and 6 are identical. 

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the Family Home. (Id. ¶ 59.)

On April 18, 2018, Steven committed suicide by hanging himself with an electrical 

cord in his RV. (Id. ¶ 63.) After his death, Anna began receiving Notices of Default 

from FCI Lender about delinquent mortgage payments in May 2018. (Id. ¶ 64.) She 

continues to receive the Notices and threats of foreclosure. (Id.) Plaintiff argues that 

Defendants knew or should have known Steven could not pay the loan due to his 

financial state and the loan was void from its inception as violative of the Truth in 

Lending Act (“TILA”) and the Real Estate Settlement Procedures Act (“RESPA”). (Id. ¶

65.) Plaintiff will suffer enormous detriment and a forfeiture of her long-time family 

home through no involvement or fault of her own but rather, the fraudulent acts of Steven 

and each Defendant. (Id. ¶ 66.) On March 15, 2019, Anna was appointed by the probate 

court as the executor of Steven’s estate in Case No: 37-2018-00021266-PR-PL-CTL. (Id.

¶ 11.) 

Discussion

A. Legal Standard on Federal Rule of Civil Procedure 12(b)(6) 

Federal Rule of Civil Procedure12(b)(6) permits dismissal for “failure to state a 

claim upon which relief can be granted.” Fed. R. Civ. P. 12(b)(6). Dismissal under Rule 

12(b)(6) is appropriate where the complaint lacks a cognizable legal theory or sufficient 

facts to support a cognizable legal theory. See Balistreri v. Pacifica Police Dep’t., 901 

F.2d 696, 699 (9th Cir. 1990). Under Rule 8(a)(2), the plaintiff is required only to set 

forth a “short and plain statement of the claim showing that the pleader is entitled to 

relief,” and “give the defendant fair notice of what the . . . claim is and the grounds upon 

which it rests.” Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007). 

A complaint may survive a motion to dismiss only if, taking all well pleaded 

factual allegations as true, it contains enough facts to “state a claim to relief that is 

plausible on its face.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Twombly,

550 U.S. at 570). “A claim has facial plausibility when the plaintiff pleads factual 

content that allows the court to draw the reasonable inference that the defendant is liable 

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for the misconduct alleged.” Id. “Threadbare recitals of the elements of a cause of 

action, supported by mere conclusory statements, do not suffice.” Id. “In sum, for a 

complaint to survive a motion to dismiss, the non-conclusory factual content, and 

reasonable inferences from that content, must be plausibly suggestive of a claim entitling 

the plaintiff to relief.” Moss v. U.S. Secret Serv., 572 F.3d 962, 969 (9th Cir. 2009) 

(quotations omitted). In reviewing a Rule 12(b)(6) motion, the Court accepts as true all 

facts alleged in the complaint and draws all reasonable inferences in favor of the plaintiff. 

al Kidd v. Ashcroft, 580 F.3d 949, 956 (9th Cir. 2009).

Where a motion to dismiss is granted, leave to amend should be granted “unless 

the court determines that the allegation of other facts consistent with the challenged 

pleading could not possibly cure the deficiency.’” DeSoto v. Yellow Freight Sys., Inc.,

957 F.2d 655, 658 (9th Cir. 1992) (quoting Schreiber Distrib. Co. v. Serv-Well Furniture 

Co., 806 F.2d 1393, 1401 (9th Cir. 1986)). In other words, where leave to amend would 

be futile, the Court may deny leave to amend. See Desoto, 957 F.2d at 658; Schreiber,

806 F.2d at 1401. 

B. Legal Standard on Federal Rule of Civil Procedure 9(b)

Where a plaintiff alleges fraud in the complaint, Rule 9(b) requires a plaintiff to 

“state with particularity the circumstances constituting fraud or mistake. Malice, intent, 

knowledge, and other conditions of a person's mind may be alleged generally.” Fed. R. 

Civ. P. 9(b). Rule 9(b) requires that the circumstances constituting the alleged fraud “be 

‘specific enough to give defendants notice of the particular misconduct . . . so that they 

can defend against the charge and not just deny that they have done anything wrong.’” 

Kearns v. Ford Motor Co., 567 F.3d 1120, 1124 (9th Cir. 2009) (internal quotation 

omitted). A party must set forth “the time, place, and specific content of the false 

representations as well as the identities of the parties to the misrepresentation.” Odom v. 

Microsoft Corp., 486 F.3d 541, 553 (9th Cir. 2007) (internal quotation marks omitted). 

As such “[a]verments of fraud must be accompanied by ‘the who, what, when, where, 

and how’ of the misconduct charged.” Kearns, 567 F.3d at 1124 (citing Vess v. CibaCase 3:18-cv-02725-GPC-AHG Document 126 Filed 04/06/20 PageID.<pageID> Page 8 of

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Geigy Corp. U.S.A., 317 F.3d 1097, 1106 (9th Cir. 2003)). Rule 9(b) also applies to 

claims that are “grounded in fraud” or “sound in fraud.” Vess v. Ciba-Geigy Corp., 

U.S.A., 317 F.3d 1097, 1103-04 (9th Cir. 2003). Thus, to satisfy the specificity 

requirement of Rule 9(b), a plaintiff is required “to plead evidentiary facts” and the court 

must “consider what inferences these facts will support—despite the pitfalls and 

inefficiencies of such an analysis at the pleading stage. . . .” Fecht v. Price Co., 70 F.3d 

1078, 1082 (9th Cir. 1995). 

As to multiple fraud defendants, a plaintiff “must provide each and every 

defendant with enough information to enable them ‘to know what misrepresentations are 

attributable to them and what fraudulent conduct they are charged with.’” Vegas v. 

JPMorgan Chase Bank, N.A., 654 F. Supp. 2d 1104, 1115 (E.D. Cal. 2009) (quoting 

Pegasus Holdings v. Veterinary Centers of America, Inc., 38 F. Supp. 2d 1158, 1163 

(C.D. Cal. 1998)). In such a context, a plaintiff must, at a minimum, “identif[y] the role 

of [each] defendant[ ] in the alleged fraudulent scheme.” Moore v. Kayport Package 

Express, Inc., 885 F.2d 531, 541 (9th Cir. 1989). A plaintiff cannot lump multiple 

defendants but must state the allegations as to each defendant separately concerning that 

defendant’s alleged participation in the fraud. Swartz v. KPMG LLP, 476 F.3d 756, 764-

65 (9th Cir. 2007) (quotation omitted). As to a fraud action against a corporation, a 

plaintiff must “allege the names of the employees or agents who purportedly made the 

fraudulent representations or omissions, or at a minimum identify them by their titles 

and/or job responsibilities.” UMG Recordings. Inc. v. Global Eagle Ent’m, Inc., 117 F.

Supp. 3d 1092, 1108 (C.D. Cal. 2015). 

C. Legal Standard on Federal Rule of Civil Procedure 12(e)

Rule 12(e) provides that a “party may move for a more definite statement of a 

pleading to which a responsive pleading is allowed but which is so vague or ambiguous 

that the party cannot reasonably prepare a response.” Fed. R. Civ. P. 12(e). However, a 

motion for a more definite statement must be considered in light of the liberal pleading 

standards of Rule 8(a) (a complaint need only be a “short and plain statement of the claim 

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showing that the pleader is entitled to relief [.]”). Sagan v. Apple Computer, Inc., 874 F. 

Supp. 1072, 1077 (C.D. Cal. 1994). Accordingly, motions for a more definite statement 

are generally viewed with disfavor and are rarely granted. Margarita Cellars v. Pac. 

Coast Packaging, Inc., 189 F.R.D. 575, 578 (N.D. Cal. 1999). In assessing a motion 

under Rule 12(e), a court considers whether the complaint provides the defendant with a 

sufficient basis to frame a responsive pleading. Federal Sav. and Loan Ins. Corp. v. 

Musacchio, 695 F. Supp. 1053, 1060 (N.D. Cal. 1988). Generally, the court will require a 

more definite statement only when the pleading is “so vague or ambiguous that the 

opposing party cannot respond, even with a simple denial, in good faith or without 

prejudice to himself.” Delta Educ., Inc. v. Langlois, 719 F. Supp. 42, 50 (D.N.H. 1989); 

Bureerong v. Uvawas, 922 F. Supp. 1450, 1461 (C.D. Cal. 1996) (“[A] motion for a more 

definite statement should not be granted unless the defendant literally cannot frame a 

responsive pleading.”). 

D. Lender Defendants’ Motion to Dismiss

Lender Defendants move to dismiss the third cause of action for concealment;

seventh cause of action for negligence, eighth cause of action for breach of fiduciary 

duty, ninth cause of action for breach of duty of loyalty, tenth cause of action for breach 

of covenant of good faith and fair dealing and twelfth cause of action for injunctive relief 

for failure to state a claim under Rule 12(b)(6).3 Alternatively, they seek a more definite 

statement under Rule 12(e). Plaintiff contends she has sufficiently alleged facts to 

support these causes of action. 

 

3 Lender Defendants do not move to dismiss the first cause of action for violation of TILA and 

Regulation Z, second cause of action for violation of RESPA, eleventh cause of action for declaratory 

relief and the thirteenth cause of action for conspiracy to violate TILA and Regulation Z. The Court 

notes that while the introductory paragraph moves to dismiss the claim for declaratory relief and claim 

for conspiracy to violate TILA and Regulation Z, (Dkt. No. 105-1 at 11), no arguments are made on 

these causes of action and the conclusion paragraph in the motion does not move to dismiss them. (Id.

at 21.) 

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1. Concealment, Negligence, Breach of Fiduciary Duty, and Breach of 

Duty of Loyalty 

The SAC alleges causes of action for concealment, negligence, breach of fiduciary 

duty, and breach of duty of loyalty. On these claims, the SAC maintains that the “loan 

contract” created a fiduciary relationship between Lender Defendants and Steven to act 

for the benefit of Steven as his lender and in approving and disbursing the loan to him. 

(Dkt. No. 101, SAC ¶¶ 91, 132, 140, 149.) Steven impliedly placed his trust and 

confidence in them that they would properly inform him of and execute the terms of the 

loan. (Id. ¶¶ 91, 140.) The negligence claim additionally asserts that Lender Defendants 

had a duty to exercise reasonable care and skill in performing their duties by disclosing 

the true facts to Steven. (Id. ¶ 133.) They breached their duty to Steven by “inducing 

[him] to improperly sign fraudulent documents containing false representations, 

suppressions, and concealments, failing to counsel, failure to inform and explain, and 

charging excessive, unconscionable fees despite knowledge that [his] financial statements 

were false.” (Id. ¶ 134.)

“The elements of fraudulent concealment are: (1) the defendant concealed or 

suppressed a material fact; (2) the defendant was under a duty to disclose the fact to the 

plaintiff;4(3) the defendant intentionally concealed or suppressed the fact with the intent 

to defraud the plaintiff; (4) the plaintiff was unaware of the fact and would not have acted 

as he did if he had known of the concealed or suppressed fact; and (5) as a result of the 

 

4

“To maintain a cause of action for fraud through nondisclosure or concealment of facts, there must be 

allegations demonstrating that the defendant was under a legal duty to disclose those facts.” Los 

Angeles Memorial Coliseum Com. v. Insomniac, Inc., 233 Cal. App. 4th 803, 831 (2015) (emphasis 

added). There are four circumstances under which that duty arises: “(1) when the defendant is in a 

fiduciary relationship with the plaintiff; (2) when the defendant had exclusive knowledge of material 

facts not known to the plaintiff; (3) when the defendant actively conceals a material fact from the 

plaintiff; and (4) when the defendant makes partial representations but also suppresses some material 

facts.” Burch, 34 Cal. App. 5th at 349 (citation omitted). In this case, Plaintiff argues there was a 

fiduciary duty between Lender Defendants and Steven. 

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concealment or suppression of the fact, the plaintiff sustained damage.” Burch v. 

CertainTeed Corp., 34 Cal. App. 5th 341, 348 (2019) (citation omitted).

“The elements of a cause of action for breach of fiduciary duty are: (1) the 

existence of a fiduciary duty; (2) the breach of that duty; and (3) damage proximately 

caused by that breach.” IIG Wireless, Inc. v. Yi, 22 Cal. App. 5th 630, 646 (2018) 

(citation omitted). “The elements of a cause of action for breach of a duty of loyalty, by 

analogy to a claim for breach of fiduciary duty, are as follows: (1) the existence of a 

relationship giving rise to a duty of loyalty; (2) one or more breaches of that duty; and (3) 

damage proximately caused by that breach.” Huong Que, Inc. v. Luu, 150 Cal. App. 4th 

400, 410 (2010) (citation omitted). Under California law, the elements of a claim for 

negligence are that: (1) defendant had a legal duty to plaintiff, (2) defendant breached this 

duty, (3) defendant was the proximate and legal cause of plaintiff’s injury, and (4) 

plaintiff suffered damage. Merrill v. Navegar, Inc., 26 Cal. 4th 465, 500 (2001). “The 

existence of a legal duty to use reasonable care in a particular factual situation is a 

question of law for the court to decide.” Vasquez v. Residential Invs., Inc., 118 Cal. App. 

4th 269, 278 (2004). The causes of action for concealment, breach of fiduciary duty, 

breach of duty of loyalty and negligence all require the allegation of either a fiduciary 

duty or ordinary duty of care between Lender Defendants and the decedent. 

Lender Defendants argue that Plaintiff has not alleged facts that they, as lenders, 

had a fiduciary duty or a duty of care to Steven, the borrower. Plaintiff responds that 

under the authority of Nymark v. Heart Fed. Sav. & Loan Ass'n, 231 Cal. App. 3d 1089

(1991), by providing a risky loan to Steven, Lender Defendants were acting beyond the 

traditional role of a conventional lender. 

As a general rule, under California law, “a financial institution owes no duty of 

care to a borrower when the institution’s involvement in the loan transaction does not 

exceed the scope of its conventional role as a mere lender of money.” Nymark, 231 Cal. 

App. 3d at 1095-96. Furthermore, because there is no duty of care when the lender is 

merely lending money, a lender also owes no fiduciary duty of care to a borrower in an 

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arm’s length financial transaction. Ragland v. U.S. Bank National Assn., 209 Cal. App.

4th 182, 206 (2012). As noted by the court of appeal in Nymark, “[t]he relationship 

between a lending institution and its borrower-client is not fiduciary in nature.” Nymark,

231 Cal. App. 3d at 1093 n. 1 (citing Price v. Wells Fargo Bank, 213 Cal. App. 3d 465, 

476–478 (1989)). Because a commercial lender is entitled to pursue its own economic 

interests in a loan transaction, a fiduciary relationship between a lender and a borrower 

“is inconsistent with the obligations of a fiduciary which require that the fiduciary 

knowingly agree to subordinate its interests to act on behalf of and for the benefit of 

another.” Id. 

However, “liability to a borrower for negligence arises only when the lender 

actively participates in the financed enterprise beyond the domain of the usual money 

lender.” Nymark, 231 Cal. App. 3d at 1096. “Normal supervision of the enterprise by 

the lender for the protection of its security interest in loan collateral is not ‘active 

participation’ [in the financed enterprise beyond that of the ordinary role of a lender in a 

loan transaction].” Id. at 1097 (quoting Wagner v. Benson, 101 Cal. App. 3d 27, 35

(1980)). Factors that support a lender’s active participation in a borrower’s business is 

extensive control and shared profits. Wagner, 101 Cal. App. 3d at 35 (citing Connor v. 

Great Western Sav. & Loan Ass’n., 69 Cal. 2d 850, 864 (1969) (lender was active 

participant in the home construction enterprise as it had the right to exercise extensive 

control over the enterprise and in addition to interest on the loan, it received substantial 

fees for making the loan)).

5

 

 

5 Plaintiff argues that Biakanja factors cited in Nymark support her position. In Nymark, the court of 

appeal alternatively applied the Biakanja factors to determine whether the financial institution was 

acting beyond the usual domain of money lending. Nymark, 231 Cal. App. 3d at 1098. These factors 

are “the extent to which the transaction was intended to affect the plaintiff, the foreseeability of harm to 

him, the degree of certainty that the plaintiff suffered injury, the closeness of the connection between the 

defendant's conduct and the injury suffered, the moral blame attached to the defendant's conduct, and the 

policy of preventing future harm.” Id. at 1098 (quoting Biakanja v. Irving, 49 Cal. 2d 647, 650 (1958)). 

However, Biakanja only applies in the absence of privity of contract. See Beacon Residential Cmty. 

Assn. v. Skidmore, Owings & Merrill LLP, 59 Cal. 4th 568, 578 (2014) (“Biakanja set forth a list of 

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In opposition, Plaintiff claims that the Lender Defendants took actions that 

exceeded those of a conventional lender, and therefore, a fiduciary relationship or duty 

was created between them and the decedent. (Dkt. No. 114, P’s Opp. at 4.6) First, 

Plaintiff argues that Lender Defendants’ active participation in fraudulent conduct 

constitutes conduct beyond the domain of usual money lending. In support, she refers to 

the October 25, 2017 email from Farquhar to Prince stating “I knew he was behind but 

didn’t realize NOD was filed . . . I will be reaching out to some of my investors who may 

not have a problem with that . . . .” (Dkt. No. 101, SAC ¶ 56.) Based on this email, 

Plaintiff asks the Court to draw an inference that Lender Defendants knew about and 

were willing to perpetrate the fraud. (Dkt. No. 114 at 6.) 

While Plaintiff is correct that the Court may make reasonable inferences from the 

allegations in the SAC, see al Kidd, 580 F.3d at 956, it is not required to make inferences 

based on speculation. See Sprewell v. Golden State Warriors, 266 F.3d 979, 988 (9th Cir.

2001) (this court is not “required to accept as true allegations that are merely conclusory, 

unwarranted deductions of fact, or unreasonable inferences.”); In re Syntex Corp. Sec. 

Litig., 95 F.3d 922, 926 (9th Cir. 1996) (“However, conclusory allegations of law and 

unwarranted inferences are insufficient to defeat a motion to dismiss for failure to state a 

claim.”). While a complaint need not provide detailed factual allegations, it must allege 

facts sufficient to raise a right to relief that rises above the level of mere speculation. 

Twombly, 127 S. Ct. at 1969. Here, an inference that Lender Defendants knew and were 

willing to perpetrate the alleged fraud based on comments in an email between two 

mortgage brokers, Farquhar to Prince, is based on speculation and not reasonable. There 

are no facts or reasonable inferences to link Farquhar’s statements to the Lender 

 

factors that inform whether a duty of care exists between a plaintiff and defendant in the absence of 

privity.”); Bily v. Arthur Young & Co., 3 Cal. 4th 370, 397 (1992), as modified (Nov. 12, 1992) (citing 

Biakanja as “a checklist of factors to consider in assessing legal duty in the absence of privity of 

contract between a plaintiff and a defendant”). Here, because Steven and Lender Defendants were in 

privity of contract, (Dkt. No. 101, SAC ¶ 48), the Biakanja factors do not apply. 

6 Page numbers are based on the CM/ECF pagination. 

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Defendants. 

Second, Plaintiff summarily argues that Lender Defendants acted outside their 

normal lending role because conventional lenders do not make “excessive loan share rate 

loans on defaulted home loans made to look like commercial loans by their agents who 

package them. It is out of the normal underwriting to be emailing lenders as they create 

the packaging of the loan.” (Id.) Plaintiff provides no legal authority in support of her 

position or factual support about how conventional lenders underwrite a loan. Moreover, 

she has not provided any emails between Lenders Defendants and Farquhar or any facts 

that Farquhar was acting as an agent for Lender Defendants. Furthermore, the SAC fails 

to provide any allegation of any relationship or communication between the Lender 

Defendants and Steven. Besides being a party to the Deed of Trust and Promissory Note 

evidencing the loan and related security interest, the SAC wholly fails to allege facts that 

the Lender Defendants were engaged in the alleged fraudulent loan transaction. Finally, 

Plaintiff has not provided any authority that because a lender makes riskier loans, it is 

acting outside its traditional role as a lender. Here, the SAC does not any allege any 

“active” conduct by Lender Defendants that go beyond the scope of lending money to 

Steven to support a duty of care between them and Steven under Nymark. Therefore, 

Plaintiff has failed to allege both a fiduciary duty and an ordinary duty of care by Lender 

Defendants to Steven. 

Likewise, Plaintiff’s citation to Daniels v. Select Portfolio Serv., Inc., 246 Cal.

App. 4th 1150, 1180 (2016) for the proposition that a loan servicer owed a duty of care to 

a borrower is inapplicable because the borrower presented allegations of fraudulent 

conduct involving the servicer’s alleged fraudulent conduct during a loan modification. 

Here, there is no allegation of fraudulent conduct regarding the servicing of Steven’s 

loan. Further, Plaintiff’s reference to Lona v. Citibank, N.A., 202 Cal. App. 4th 89, 95 

(2011) is also not supportive as the case did not address whether a lender owes a duty of 

care to a borrower. 

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Because Plaintiff has not alleged a breach of these duties, the causes of action for 

concealment, negligence, breach of fiduciary duty and breach of duty of loyalty must fail. 

The Court GRANTS Lender Defendants’ motion to dismiss these causes of action.

7

2. Breach of the Covenant of Good Faith and Fair Dealing

The SAC claims that the breach of covenant of good faith and fair dealing arising 

from the loan contract prohibited the Lender Defendants from taking actions that would 

unlawfully deny Steven of the protection that should have been attached to the 

agreement. (Dkt. No. 101, SAC ¶ 155.) Lender Defendants took actions “calculated to 

prohibit and deprive Steven of the benefits for which he bargained for”, (id. ¶ 157), and 

they “refused to perform their obligations to Steven for the purpose of denying him the 

benefits that would have come with the proper residential loan.” (Id.) 

Lender Defendants argue that Plaintiff has failed to allege facts to support a breach 

of the covenant of good faith and fair dealing based on the Deed of Trust and Promissory 

Note because Steven received the funds under the loan. Plaintiff does not provide a 

response to Defendants’ argument. 

“‘Every contract imposes upon each party a duty of good faith and fair dealing in 

its performance and its enforcement.’” Carma Developers (Cal.), Inc. v. Marathon Dev. 

Cal., Inc., 2 Cal. 4th 342, 371 (1992) (citing Rest. 2d Contracts, § 205). “This covenant 

[of good faith and fair dealing] not only imposes upon each contracting party the duty to 

refrain from doing anything which would render performance of the contract impossible 

 

7 The Court also notes that the claims for fraudulent concealment and negligence, which sound in fraud, 

must comply with Rule 9(b) which requires a party alleging fraud to “state with particularity the 

circumstances constituting fraud.” Fed. R. Civ. P. 9(b). “[W]hile a federal court will examine state law 

to determine whether the elements of fraud have been pled sufficiently to state a cause of action, the 

Rule 9(b) requirement that the circumstances of the fraud must be stated with particularity is a federally 

imposed rule.” Kearns, 567 F.3d at 1125 (internal quotation marks and citation omitted). “Averments of 

fraud must be accompanied by ‘the who, what, when, where, and how’ of the misconduct charged. ‘[A] 

plaintiff must set forth more than the neutral facts necessary to identify the transaction. The plaintiff 

must set forth what is false or misleading about a statement, and why it is false.’” Vess, 317 F.3d at

1106 (citations omitted). Here the concealment and negligence claims fails to comply with Rule 9(b) as 

there are no specific allegations as to each Lender Defendants conduct in the alleged fraud. 

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by any act of his own, but also the duty to do everything that the contract presupposes 

that he will do to accomplish its purpose.” Harm v. Frasher, 181 Cal. App. 2d 405, 417 

(1960) (citing Bewick v. Mecham, 26 Cal. 2d 92, 99 (1945)). “It is universally recognized 

the scope of conduct prohibited by the covenant of good faith is circumscribed by the 

purposes and express terms of the contract.” Carma Developers, 2 Cal. 4th at 373. The 

covenant “cannot impose substantive duties or limits on the contracting parties beyond 

those incorporated in the specific terms of their agreement.” Guz v. Bechtel Nat. Inc., 24 

Cal. 4th 317, 349-50 (2000). 

In this case, the loan contracts between Lender Defendants and Steven were the 

Deed of Trust and Promissory Note. (Dkt. No. 101, SAC ¶¶ 48, 85.) Besides conclusory 

allegations, Plaintiff has failed to allege conduct by Lender Defendants that violated the 

terms of their agreement or conduct that prohibited the performance of the contract. As 

one court notes, “[t]he purpose of the note and deed of trust is that respondents shall have 

the use of the funds loaned on the terms and at the interest rate specified in the note, and 

that appellant shall have the security provided by the deed of trust.” Milstein v. Sec. Pac. 

Nat’l Bank, 27 Cal. App. 3d 482, 487 (1972). Here, there is no allegation that Steven was

not provided the funds from the loan, and in turn, Lender Defendants obtained a security 

interest in the Family Home. These are obligations contemplated under the Deed of Trust 

and Promissory Note. Thus, the Court GRANTS Lender Defendants’ motion to dismiss 

the claim for breach of the covenant of good faith and fair dealing. 

3. Injunctive Relief 

The twelfth cause of action for injunctive relief seeks to enjoin all Lender 

Defendants from removing, evicting, or in any way interfering with Plaintiff’s quiet and 

exclusive possession and occupancy of the Family Home, and to enjoin a trustee’s sale of 

the Family Home. (Dkt. No. 101, SAC ¶ 173.) 

Lender Defendants move to dismiss the injunctive relief cause of action arguing it 

is not a cause of action but, rather, a form of relief sought. Plaintiff responds that 

because she was granted a temporary restraining order, on November 1, 2018, while the 

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case was in state court, she is entitled to injunctive relief. Lender Defendants reply that 

there can be no inferences drawn from the temporary restraining order issued in state 

court because Lender Defendants were not parties to the action at that time, the TRO was 

issued ex parte and expired 15 days after the order was issued, and no further hearing on 

an order to show cause regarding a preliminary injunction was ever heard. Therefore, the 

TRO has no legal effect. The Court agrees that the prior TRO issued in state court does 

not support the injunctive relief in this case. 

Injunctive relief is a remedy and not a separate cause of action. See Long v. JP 

Morgan Chase Bank, Nat. Ass'n, 848 F. Supp. 2d 1166, 1180 (D. Haw. 2012) (citing

Kendall v. Visa U.S.A., Inc., 518 F.3d 1042, 1051 (9th Cir. 2008)). “Injunctive relief may 

be available if Plaintiffs are entitled to such a remedy on an independent cause of action.” 

Ramos v. Chase Home Finance, 810 F.Supp.2d 1125, 1132 (D. Haw. 2011). 

Plaintiff may be entitled to injunctive relief if she eventually prevails on an 

independent claim and meets the necessary test for injunctive relief under Rule 65; 

however, it is not necessary to assert it as a cause of action to obtain such relief. 

Accordingly, the Court GRANTS Lender Defendants’ motion to dismiss the injunctive 

relief as a cause of action. 

In sum, the Court GRANTS Lender Defendants’ motion to dismiss the third cause 

of action for concealment; seventh cause of action for negligence, eighth cause of action 

for breach of fiduciary duty, ninth cause of action for breach of duty of loyalty, tenth

cause of action for breach of covenant of good faith and fair dealing and twelfth cause of 

action for injunctive relief. 

/ / /

/ / /

/ / /

/ / /

/ / /

/ / /

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E. Defendants KS Capital, Inc. and FCI Lender Services, Inc.8

KS Capital and FCI Lender both move to dismiss all thirteen claims against it 

under Rule 12(b)(6) for failure to state a claim, Rule 9(b) for failing to plead fraud 

allegations with particularity, and alternatively, Rule12(e) motion for a more definite 

statement.

9

 (Dkt. Nos. 111-1, 112-1.) KS Capital contends Plaintiff has failed to address 

the pleading deficiencies the Court noted in its order granting KS Capital’s prior motion 

to dismiss, (Dkt. No. 100 at 19-20). FCI Lender argues that the SAC merely lumps FCI 

Lender with the other defendants and does not provide specific allegations as to its

involvement in the alleged fraudulent loan transaction. Plaintiff opposes both motions 

arguing she has sufficiently alleged all the causes of action in the SAC. 

As a threshold matter, KS Capital asserts that the SAC fails to correct the 

deficiencies in the FAC and still fails to provide any assertions that it acted or failed to 

act and only provides conclusory allegations and lumps it with numerous defendants 

without specifically stating which defendant was involved in what action or inaction. 

The Court agrees. Similar to the FAC, there are only two paragraphs in the SAC that 

specifically reference Defendant KS Capital. In describing KS Capital, the SAC alleges 

that KS Capital “transacts or has transacted business with Steven Augusta, residing in 

San Diego County, as a loan servicer and/or mortgage broker. At all times material to 

this complaint, acting alone or in concert with others, KS CAPITAL advertised, 

 

8 The Court notes that SC Capital and FCI Lender separately filed motions to dismiss. (Dkt. Nos. 111, 

112.) Both entities are represented by the same counsel and both motions are nearly identical in 

organization and argument. Plaintiff filed two separate oppositions to address each Defendant’s motion, 

yet the oppositions are nearly identical. Therefore, in order to avoid duplication of analysis, the Court 

considers the motions of SC Capital and FCI Lender together. On reply, SC Capital and FCI lender 

even filed a joint reply. (Dkt. No. 125.) 

9

In their motions to dismiss, KS Capital and FCI Lender filed requests for judicial notice (“RJNs”) of 

nearly identical documents consisting of documents from the Official Records of the San Diego County 

Recorder’s Office and loan documents that are referenced in the SAC. (Dkt. No. 111-2, FCI Lender’s 

RJN; Dkt. No. 112-2, KS Capital’s RJN.) Plaintiff opposes the RJNs. Because Plaintiff opposes the 

RJNs, and the Court did not rely on the documents in the RJNs, the Court DENIES FCI Lender and KS 

Capital’s requests for judicial notice. 

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marketed, distributed, or sold the extension of credit to Steven Augusta residing in San 

Diego County and participated in the collection of those loans.” (Dkt. No. 101, SAC ¶ 

21.) Next, the SAC claims, “[t]he Promissory Note and Deed of Trust were subsequently 

entered into and signed by Defendants ROGER TRUST, MCKENNA TRUST, JAMES 

HEBERT, MICHELLE HEBERT, and EDGEHILL, with KS CAPITAL acting as the 

loan agent, making each of them a party to the fraudulent lending transaction.” (Id. ¶ 48.) 

Then, in an attempt to cure the deficiencies in the FAC, Plaintiff adds KS Capital along 

with the named Lender Defendants concerning the allegations of alleged fraud without 

providing any facts as to KS Capital’s conduct or role in the alleged fraudulent loan 

transaction. However, Lender Defendants’ role is distinct from KS Capital’s role in the 

loan transaction10 and the SAC fails to allege the alleged fraudulent conduct of KS 

Capital. As a result, Plaintiff has failed to satisfy Rule 8 and Rule 9.

Similarly, FCI Lender argues that the allegations against it do not state a claim 

because it is also lumped together with the other defendants without specific allegations 

as to its role in the alleged transaction. The SAC describes FCI Lender as a servicer 

and/or mortgage broker. (Dkt. No. 101, SAC ¶ 12.) As to specific allegations 

concerning FCI Lender, the SAC states it “serviced the fraudulent loan and collected the 

loan re-payments from STEVEN prior to his suicide on April 18, 2018.” (Id. ¶ 46.) 

 

10 While the SAC references KS Capital as a loan servicer, mortgage broker and loan agent, in the prior 

motion, Plaintiff acknowledged that KS Capital was not a lender as alleged in the FAC, but instead was 

the servicer of the loan. (See Dkt. No. 95 at 2, 10.) In its opposition, KS Capital admits that it “helped 

find the lenders to fund the loan but had no direct involvement with Steven.” (Dkt. No. 112-1 at 9.) KS 

Capital explains that in its role as master servicer, it merely took the loan application prepared by Steven 

and his broker SC Financial and sought to see if lenders might be interested in funding the loan. (Id.) 

Even if KS Capital took on a role as liaison between Steven/SC Financial and the Lenders, the SAC fails 

to allege facts sufficient to state a cause of action for fraud. However, to the extent that discovery 

reveals facts to support allegations of fraud against KS Capital, Plaintiff may file a “timely motion for 

leave to amend for good cause shown.” See Global Plastic Sheeting v. Raven Indus., Case No. 

17cv1670 DMS(KSC), 2018 WL 6920673, at *6 (S.D. Cal. May 31, 2018) (“Because Plaintiff has failed 

to correct the deficiencies noted in the Court's previous order, Defendant's motion to dismiss these 

claims is granted. Should discovery reveal facts supporting one or more of these claims, Plaintiff may 

file a timely motion for leave to amend for good cause shown.”). 

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“After STEVEN’s death, ANNA began receiving Notices of Default from FCI LENDER 

regarding delinquent mortgage payments around May 2018.” (Id. ¶ 64.) FCI Lender 

continues to send Notices of Default and threats of foreclosure to Plaintiff “knowing full 

well the fraudulent activity behind the loan, and continues to actively conceal those facts

from ANNA during their attempts to collect improper repayments.” (Id. ¶ 93 (emphasis 

in original).) As plead, it appears that FCI Lender was the servicer, not a mortgage 

broker in the loan transaction. The remaining numerous allegations lump FCI Lender 

with the Lender Defendants as well as allegations with the mortgage brokers, Prince and 

Farquhar, but the SAC does not specify the role of FCI Lender, as servicer, in the alleged 

fraudulent loan transaction. The role of lenders and mortgage brokers differ from the role 

of a servicer and the SAC fails to isolate FCI Lender’s role as the servicer from the other 

defendants. Accordingly, the SAC fails to comply with Rules 8 and 9 concerning FCI 

Lender. Nonetheless, in the interest of being complete, the Court considers each of the 

causes of action alleged against KS Capital and FCI Lender. 

1. Concealment, Intentional Misrepresentation, Negligent 

Misrepresentation, Negligence and UCL 

The SAC alleges claims of concealment, intentional misrepresentation, negligent 

misrepresentation, negligence and UCL claims based on the execution of an allegedly 

fraudulent loan. 

KS Capital and FCI Lender contend that all fraud tort claims fail under Rule 9(b). 

Plaintiff opposes arguing that where the defendants are the parties that possess all the 

information, she can state her facts with less specificity and particularity. 

As stated above, under Rule 9, a party must set forth “the time, place, and specific 

content of the false representations as well as the identities of the parties to the 

misrepresentation.” Odom, 486 F.3d at 553 (internal quotation marks omitted). As such 

“[a]verments of fraud must be accompanied by ‘the who, what, when, where, and how’ of 

the misconduct charged.” Kearns, 567 F.3d at 1124 (citation omitted). Rule 9(b) also 

applies to claims that are “grounded in fraud” or “sound in fraud.” Vess, 317 F.3d at

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1103-04. As to multiple fraud defendants, a plaintiff “must provide each and every 

defendant with enough information to enable them ‘to know what misrepresentations are 

attributable to them and what fraudulent conduct they are charged with.’” Vegas, 654 F. 

Supp. 2d at 1115 (citation omitted). In such a context, a plaintiff must, at a minimum, 

“identif[y] the role of [each] defendant[ ] in the alleged fraudulent scheme.” Moore, 885 

F.2d at 541. A plaintiff cannot lump multiple defendants but must state the allegations as 

to each defendant separately concerning that defendant’s alleged participation in the 

fraud. Swartz, 476 F.3d at 764-65. As to a fraud action against a corporation, a plaintiff

must “allege the names of the employees or agents who purportedly made the fraudulent 

representations or omissions, or at a minimum identify them by their titles and/or job 

responsibilities.” UMG Recordings. Inc., 117 F. Supp. 3d at 1108. 

Here, Plaintiff has failed to comply with Rule 9(b) for the fraud causes of action of 

concealment, intentional and negligent misrepresentation as well as the causes of action 

grounded in fraud of negligence and UCL claim. See Kearns, 567 F.3d at 1126–27 

(applying Rule 9(b) to fraud claims under the UCL); Gibson v. Credit Suisse AG, 787 F.

Supp. 2d 1123, 1136 (D. Idaho 2011) (negligence sounding in fraud must comply with 

Rule 9(b)). Plaintiff lumps KS Capital with the Lender Defendants without specifically 

alleging the conduct of KS Capital, as a loan agent/servicer, in the alleged fraudulent loan

transaction. Similarly, the SAC lumps FCI Lender with the Lender Defendants and also 

with the mortgage brokers without specifically alleging FCI Lender’s conduct in the 

alleged fraud. While Plaintiff may be given leniency in pleading fraud if the facts are in 

the possession of the defendants in limited cases of securities fraud, United States ex rel. 

Lee v. SmithKline Beecham, Inc., 245 F.3d 1048, 1052 (9th Cir 2001) (“Rule 9(b) may be 

relaxed to permit discovery in a limited class of corporate fraud cases where the evidence 

of fraud is within a defendant's exclusive possession.”); however, “[t]o overcome such 

difficulties in cases of corporate fraud, the allegations should include the 

misrepresentations themselves with particularity and, where possible, the roles of the 

individual defendants in the misrepresentations.” Moore v. Kayport Package Exp., Inc., 

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885 F.2d 531, 540 (9th Cir. 1989). Even if the fraud pleading leniency afforded to 

securities fraud plaintiffs applied in this case, Plaintiff presents no specific acts or 

inaction as to KS Capital and FCI Lender that would create a reasonable inference or 

basis to connect SC Capital and FCI Lender’s involvement in the alleged

misrepresentation. Accordingly, the Court GRANTS KS Capital and FCI Lender’s 

motion to dismiss the concealment, intentional misrepresentation, negligent 

misrepresentation, negligence and UCL claims. 

2. Breach of Fiduciary Duty and Breach of Duty of Loyalty

The SAC alleges a breach of fiduciary duty and breach of duty of loyalty against 

KC Capital and FCI Lender arguing there was a fiduciary relationship created between 

them and Steven. (Dkt. No. 101, SAC ¶¶ 140-47; 149-53.)

KS Capital and FCI Lender argue the claims for breach of fiduciary duty and 

breach of duty of loyalty fail because there is no fiduciary relationship between them, as 

servicers, and Steven. (Dkt. No. 111 at 17; Dkt. No. 112-1 at 18.) Plaintiff opposes

arguing there is a fiduciary duty.

11

“The elements of a cause of action for breach of the duty of loyalty are virtually 

identical to those for breach of fiduciary duty.” E.D.C. Techs., Inc. v. Seidel, 216 F.

Supp. 3d 1012, 1016 (N.D. Cal. 2016). The Ninth Circuit has described the duty of 

loyalty as a “fiduciary-like” duty. Thorman v. American Seafoods, Co., 421 F.3d 1090, 

1098 (9th Cir. 2005); Otsuka v. Polo Ralph Lauren Corp., No. C 07–02780 SI, 2007 WL 

3342721, at *3 (N.D. Cal. Nov. 9, 2007) (construing claim styled as breach of fiduciary 

duty as claim for breach of the duty of loyalty); Fowler v. Varian Assocs., Inc., 196 Cal. 

App. 3d 34, 42 (1987) (characterizing a duty of loyalty owed by an employee as a 

fiduciary duty). Therefore, both causes of action require the existence of a fiduciary 

 

11 In her argument, Plaintiff appears to improperly conflate the standard for fiduciary duty with the 

ordinary duty of care. (Dkt. No. 123 at 12-17; Dkt. No. 124 at 12-17.)

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duty. See IIG Wireless, Inc., 22 Cal. App. 5th at 646; Huong Que, Inc., 150 Cal. App. 4th 

at 410. 

California courts have held that there is no fiduciary duty between a lender and 

borrower. See Ragland, 209 Cal. App. 4th at 206 (no fiduciary duty between lender and 

borrower in an arms-length transaction); Perlas v. GMAC Mortg., 187 Cal. App. 4th 429, 

436 (2010) (“there is no fiduciary relationship between the borrower and lender.”); 

Nymark, 231 Cal. App. 3d at 1093 n. 1 (“[t]he relationship between a lending institution 

and its borrower-client is not fiduciary in nature.”). Similarly, courts have held that there 

is no fiduciary duty between a servicer and a borrower. See Castaneda v. Saxon 

Mortgage Services, Inc., 687 F. Supp. 2d 1191, 1198 (E.D. Cal. 2009); Moreno v. 

Citibank, N.A., No. C09-5339 CW, 2010 WL 1038222, at *3 (N.D. Cal. Mar. 10, 2010) 

(“Courts have similarly concluded that loan servicers do not owe a fiduciary duty to

borrowers”). Accordingly, Plaintiff’s claims for breach of fiduciary duty and breach of 

duty of loyalty fail to state a claim and must be dismissed.

3. Breach of the Covenant of Good Faith and Fair Dealing

Plaintiff alleges breach of the convent of good faith and fair dealing against 

Defendants KS Capital and FCI Lender. (Dkt. No. 101, SAC ¶¶ 155-59.) 

KS Capital and FCI Lender move to dismiss this claim because they are not 

alleged to be a party to any contract with Steven. (Dkt. No. 111-1 at 18; Dkt. No. 112-1 

at 18-19.) Plaintiff opposes arguing that there was privity of contract between KS Capital 

and FCI Lender with Steven because there was a duty of care under the Biakanja factors. 

(Dkt. No. 123 at 17-18; Dkt. No. 124 at 17-18.) 

Plaintiff provides no legal authority to support her position and the Court questions 

her argument. A breach of the covenant of good faith and fair dealing requires an 

underlying contract. See Carma Developers, 2 Cal. 4th at 373 (“It is universally 

recognized the scope of conduct prohibited by the covenant of good faith is 

circumscribed by the purposes and express terms of the contract.”). The SAC does not 

allege a contractual relationship between KS Capital and Steven or between FCI Lender 

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and Steven. Accordingly, the Court GRANTS dismissal of the claim for breach of the 

covenant of good faith and fair dealing. 

4. TILA and Regulation Z

The SAC alleges KS Capital and FCI Lenders as well as all the defendants failed to 

properly deliver proper TILA disclosures in violation of Regulation Z, violated 15 U.S.C. 

§ 1632 by failing to properly make the required Good Faith Interest material disclosures 

of the loan terms, and failed to provide additional disclosures based on Steven’s high cost 

loan. (Dkt. No. 101, SAC ¶¶ 73-76.) 

Defendants argues that since they are only servicers and not owners or assignees of 

the loan, they are not liable under TILA. (Dkt. No. 111-1 at 15-16; Dkt. No 112-1 at 1-

17.) Plaintiff replies that both defendants are liable as “agents” of the Lender Defendants 

and had authority to represent and bind them to any acts taken regarding the loan 

documents. (Dkt. No. 123 at 21-23; Dkt. No. 124 at 21-23.) She argues that KS Capital

directed and authorized the lenders’ willful misconduct and fraudulent misrepresentations 

in obtaining the loan from Steven. (Dkt. No. 123 at 22; Dkt. No. 124 at 22.) Further 

Plaintiff contends that KSC “took on the loan obligation when it expressly authorized the 

agent role and assumed liability for willful misconduct.” (Dkt. No. 123 at 22; Dkt. No. 

124 at 22.) 

TILA provides that “[a] servicer of a consumer obligation arising from a consumer 

credit transaction shall not be treated as an assignee of such obligation for purposes of 

this section unless the servicer is or was the owner of the obligation.” 15 U.S.C. §

1641(f). Section 1641(f)(2) further states,

(2) Servicer not treated as owner on basis of assignment for 

administrative convenience.

A servicer of a consumer obligation arising from a consumer credit 

transaction shall not be treated as the owner of the obligation for purposes of 

this section on the basis of an assignment of the obligation from the creditor 

or another assignee to the servicer solely for the administrative convenience 

of the servicer in servicing the obligation. 

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15 U.S.C. § 1641(f)(2). “Subsection (f), in keeping with the theme of § 1641 as a whole, 

and the other subsections of § 1641, addresses only the assignee liability of a servicer, 

and sets out a general rule that a servicer must be the assignee-owner of the obligation to 

incur assignee liability. Gale v. First Franklin Loan Servs., 701 F.3d 1240, 1245 (9th

Cir. 2012); Rinegard-Guirma v. Bank of America, N.A., No. 3:10–cv–01065–PK, 2012 

WL 1110071, at *10 (D. Or. Apr. 2, 2012) (“In other words, it is precisely the servicer's 

acquisition of ownership of the loan through ‘an assignment of the obligation from the 

creditor or another assignee,’ 15 U.S.C. § 1641(f)(2), that transforms the servicer from an 

entity with no liability under § 1641(f)(2) to one that can be held liable.”). 

Here, Plaintiff claims that KS Capital and FCI Lender are liable as agents of the 

Lender Defendants and “took on the loan obligation when it expressly authorized the

agent role and assumed liability for willful misconduct. This is confirmed by the 

Servicing Agreement and is another fact subject to discovery.” (Dkt. No. 124 at 22; see 

also Dkt. No. 123 at 22 (“FCI took on the loan obligation when it expressly consented to 

and adopted the loan servicer role and assumed liability for willful misconduct. This is 

confirmed by the multiple agreements between STEVEN and FCI and is another fact 

subject to discovery.”) Yet, Plaintiff fails to provide legal authority that an assignee to a 

loan obligation can be created through an agency relationship. Plaintiff has failed to 

allege any facts that KS Capital and FCI Lender were assigned ownership of the loan 

obligation to be liable under TILA. Accordingly, the Court GRANTS KS Capital and 

FCI Lender’s motions to dismiss the TILA/Regulation Z cause of action. Consequently, 

because the Court dismisses the TILA cause of action the Court necessarily DISMISSES 

the cause of action for Conspiracy to Violate TILA and Regulation Z.

5. RESPA 

The SAC alleges a RESPA violation of 12 U.S.C. § 2607(a). (Dkt. No. 101, SAC 

¶¶ 87, 88.) Plaintiff claims that by charging a high commercial interest rate, at the end of 

the loan, Steven would have ended up paying about $800,000 more than he would have 

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paid if he had obtained a residential loan and this excessive amount constitutes a 

kickback barred by RESPA. (Id.) 

KS Capital and FCI Lender both maintain that the RESPA claims against them fail 

because the SAC does not allege they failed to comply with any required RESPA 

disclosures or notices and fail to allege actual damages as a result of the alleged RESPA 

violations. (Dkt. No. 111-1 at 16; Dkt. No. 112-1 at 17.) Plaintiff opposes arguing 

because KS Capital and FCI Lender owed a duty to Steven, this same duty applies to the 

RESPA claim. (Dkt. No. 123 at 23; Dkt. No. 124 at 23.) 

As an initial matter, Plaintiff makes a summary legal conclusion, without legal 

support, that if a duty of care exists, that duty also applies to a RESPA claim. Again, the 

Court questions the legal soundness of Plaintiff’s argument. Plaintiff further argues that 

section 8(a) of the RESPA was violated because the higher cost loan to Steven would 

have required him to pay about $800,000 more than he would have paid with a residential 

loan and such monies constitute an improper kickback.

12 U.S.C. § 2607(a) provides,

(a)Business referrals. No person shall give and no person shall accept any 

fee, kickback, or thing of value pursuant to any agreement or understanding, 

oral or otherwise, that business incident to or a part of a real estate 

settlement service involving a federally related mortgage loan shall be 

referred to any person.

12 U.S.C. § 2607(a). (Dkt. No. 101, SAC ¶ 87.) By its language, this provision relates to

obtaining business referrals through kickbacks. Here, the SAC does not state such an 

allegation. Moreover, the alleged kickback of $800,000, even if the provision applied, 

would make the owner of the loan liable, not the servicer. The SAC does not provide any 

allegations that KS Capital, as the master servicer, or FCI Lender, as the servicer, would 

have been subject to the $800,000 alleged kickback based on the higher interest rate. 

Accordingly, Plaintiff has failed to allege a violation of RESPA against KS Capital and 

FCI Lender. 

/ / /

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6. Declaratory and Injunctive Relief

Defendants argue that the declaratory and injunctive relief causes of action should 

be dismissed because they are remedies, not separate causes of action. (Dkt. No. 111-1 at 

18; Dkt. No. 112-1 at 19.) Plaintiff disagrees. (Dkt. No. 123 at 18; Dkt. No. 124 at 18.)

Because the Court dismisses all claims against KS Capital and FCI Lender, the 

Court also GRANTS dismissal of the relief sought for declaratory and injunctive relief. 

See Solano v. Affinia Default Servs., LLC, 768 Fed. App’x 725, 726 (2019) (“Because all 

of [plaintiff’s] claims were properly dismissed, the district court properly denied 

[plaintiff’s] requests for declaratory and injunctive relief because Solano had no claim 

upon which to request relief or remedies”) (citing Mt. Graham Red Squirrel v. Madigan, 

954 F.2d 1441, 1450 (9th Cir. 1992) (when underlying claims have been decided, the 

reversal of a denial of preliminary injunctive relief would have no practical 

consequences, and the issue is therefore moot); Stock W., Inc. v. Confederated Tribes of 

the Colville Reservation, 873 F.2d 1221, 1225 (9th Cir. 1989) (in order “[t]o obtain 

declaratory relief in federal court, there must be an independent basis for jurisdiction”)). 

Accordingly, the Court GRANTS dismissal of the declaratory and injunctive claims for

relief as to KS Capital and FCI Lender. 

F. Leave to Amend

In the event the Court grants the motion to dismiss, Plaintiff seeks leave to file a 

third amended complaint (“TAC”). All moving Defendants oppose. To date, Plaintiff 

has already been granted leave to file two amended complaints and the Court has laid out 

the legal standards to support allegations under Rule 8 and Rule 9(b). Plaintiff cannot be 

granted unlimited attempts to amend her complaint.12 Further, based on arguments 

presented in Plaintiff’s oppositions, it does not appear she will be able to cure the 

deficiencies in her allegations. The key allegations of fraud concern loan origination and 

 

12 The Court also notes that the original complaint was filed in state court on October 23, 2018 almost a

year and a half ago, and the case is still in its pleading stage. 

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not servicing or the lending of the money. Therefore, any attempts to extend the liability 

to the servicers or the lenders would appear to be futile. Thus, the Court DENIES 

Plaintiff’s request for leave to file a TAC. See Desoto, 957 F.2d at 658; Schreiber, 806 

F.2d at 1401. Because the Court GRANTS dismissal without leave to amend, the Court 

need not address the Defendants’ motion for a more definite statement. 

Conclusion

Based on the above, the Court GRANTS Lender Defendants’ motion to dismiss the

third cause of action for concealment; seventh cause of action for negligence, eighth

cause of action for breach of fiduciary duty, ninth cause of action for breach of duty of 

loyalty, tenth cause of action for breach of covenant of good faith and fair dealing and

twelfth cause of action for injunctive relief. The Court also GRANTS KS Capital and 

FCI Lender’s motions to dismiss all claims against them. The Court vacates the hearing 

set on April 10, 2020. 

IT IS SO ORDERED. 

Dated: April 6, 2020

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