Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-casd-3_08-cv-02228/USCOURTS-casd-3_08-cv-02228-2/pdf.json

Nature of Suit Code: 371
Nature of Suit: Truth in Lending
Cause of Action: 15:1601 Truth in Lending

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- 1 - 08cv2228

UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF CALIFORNIA

SUSAN SANTANA; and HURI MORENO,

Plaintiffs,

CASE NO. 08cv2228 JM (POR)

ORDER GRANTING MOTION FOR

vs. JUDGMENT ON THE PLEADINGS

FIRST NLC FINANCIAL SERVICES, LLC;

AMERICAN CAPITAL FINANCIAL

SERVICES, INC.; and SAXON

MORTGAGE SERVICES INC.,

Defendants.

Defendant Saxon Mortgage Services, Inc. (“Saxon”) moves for judgment on the pleadings.

Plaintiffs Susan Santana and Huri Moreno oppose the motion. Defendants First NLC Financial

Services, LLC (“NLC Financial”) and American Capital Financial Services, Inc. (“ACFS”) have yet

to appear in this action and did not file responses to the motion. Pursuant to Local Rule 7.1(d)(1), this

matter is appropriate for decision without oral argument. For the reasons set forth below, the motion

for judgment on the pleadings is granted.

BACKGROUND

Plaintiffs commenced this federal question action on December 2, 2008 by filing a complaint

for rescission and for damages under the Truth in Lending Act (“TILA”) and Home Ownership and

Equity Protection Act (“HOEPA”). Defendant NLC Financial is authorized to conduct consumer loan

operations in California, (Compl. ¶6), and is the lender of the underlying disputed mortgage

transaction. Defendant ACFS is the loan broker for Plaintiffs in this action, and Defendant Saxon the

loan servicer. (Compl. ¶7).

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- 2 - 08cv2228

Prior to entering into the underlying mortgage transaction, Plaintiffs’ home was subject to a

mortgage with an unpaid balance of $269,012.40, an interest rate of 5.99%, and monthly payments

of $1,292. (Compl. ¶13). In June 2006 a broker from ACFS contacted Plaintiff Santana with an offer

to refinance her home. Even though Plaintiff Moreno did not live at the home and informed ACFS

that he would not occupy nor make any loan payments, (Compl. ¶16), ACFS requested that he co-sign

for the loan, which he did. On September 29, 2006, Plaintiffs borrowed an additional $20,704 and,

after points, fees and property taxes, had a new loan in the principal amount of $306,000, a disclosed

interest rate of 12.99%, and payments of $2,360.37 per month for 24 months, $3,075.80 for six

months, $3,443.38 for six months, $3,472.94 for 323 months and a balloon payment of $230,493.45

on November 1, 2036. (Compl. ¶¶20, 21). Plaintiffs allege that they provided NLC with notice of

rescission on July 10, 2008 and that NLC has not responded to its notice of rescission. (Compl. ¶¶36,

37). 

Based upon the above generally described conduct, Plaintiffs seek to rescind the contract and

prosecute their claims for damages under TILA, HOEPA, and Cal.Bus. and Prof. Code §17200, et seq.

Saxon now moves for judgment on the pleadings on each claim. Plaintiffs oppose the motion.

DISCUSSION

Legal Standards

A Rule 12(c) motion challenges the legal sufficiency of an opposing party’s pleadings.

Fed.R.Civ.P. 12(c). Like a Rule 12(b)(6) motion, the court must assume the truthfulness of the

material facts alleged in the complaint and all inferences reasonably drawn from the allegations must

be construed in favor or the responding party. See General Conference Corp. of Seventh-Day

Adventists v. Seventh-Day Adventist Congregational Church, 887 F.2d 228, 230 (9th Cir. 1989); Hal

Roach Studios, Inc. v. Richard Feiner & Co. , 896 F.2d 1542, 1550 (9th Cir. 1990). Defendants are

not entitled to judgment on the pleadings if the complaint raises issues of fact, which, if proved would

support the Plaintiffs’ legal theories. See id.

For purposes of this motion, courts should grant 12(b)(6) relief only where a plaintiff's

complaint lacks a "cognizable legal theory" or sufficient facts to support a cognizable legal theory.

Balistreri v. Pacifica Police Dept., 901 F.2d 696, 699 (9th Cir. 1990). Courts should dismiss a

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complaint for failure to state a claim when the factual allegations are insufficient “to raise a right to

relief above the speculative level.” Bell Atlantic Corp v. Twombly, __550 U.S. __, 127 S.Ct. 1955

(2007) (the complaint’s allegations must “plausibly suggest[]” that the pleader is entitled to relief);

Ashcroft v. Iqbal, 129 S.Ct. 1937 (2009) (under Rule 8(a), well-pleaded facts must do more than

permit the court to infer the mere possibility of misconduct). The defect must appear on the face of

the complaint itself. Thus, courts may not consider extraneous material in testing its legal adequacy.

Levine v. Diamanthuset, Inc., 950 F.2d 1478, 1482 (9th Cir. 1991). The courts may, however,

consider material properly submitted as part of the complaint. Hal Roach Studios, Inc. v. Richard

Feiner and Co., 896 F.2d 1542, 1555 n.19 (9th Cir. 1989). 

Finally, courts must construe the complaint in the light most favorable to the plaintiff. Concha

v. London, 62 F.3d 1493, 1500 (9th Cir. 1995), cert. dismissed, 517 U.S. 1183 (1996). Accordingly,

courts must accept as true all material allegations in the complaint, as well as reasonable inferences

to be drawn from them. Holden v. Hagopian, 978 F.2d 1115, 1118 (9th Cir. 1992). However,

conclusory allegations of law and unwarranted inferences are insufficient to defeat a Rule 12(b)(6)

motion. In Re Syntex Corp. Sec. Litig., 95 F.3d 922, 926 (9th Cir. 1996).

The Motion

The HOEPA and TILA Claims

Saxon argues that Plaintiffs fail to state a claim under either HOEPA or TILA for failure to

adequately disclose the Annual Percentage Rate (“APR”) because the disclosed interest rate is less

than the triggering amount required for application of these statutes. The APR trigger for purposes

of HOEPA is set forth in 15 U.S.C. § 1602(aa)(1)(B). That section provides:

A mortgage referred to in this subsection means a consumer credit transaction that is

secured by the consumer’s principal dwelling, . . . if

(A) the annual percentage rate at consummation of the transaction will exceed by more

than 10 percentage points the yield on Treasury securities having comparable periods

of maturity on the fifteenth day of the month immediately preceding the month in

which the application for extension of credit is received by the creditor;

The TILA implementation regulation, known as Regulation Z, 12 C.F.R. §226.32, modifies HOEPA

coverage to when:

The annual percentage rate at consummation will exceed by more than 8 percentage

point for first-lien loans, or by more than 10 percentage points for subordinate-lien

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loans, the yield on Treasury securities having comparable periods of maturity to the

loan maturity as of the fifteenth day of the month immediately preceding the month in

which the application for extension of credit is received by the creditor.

Plaintiff alleges that the disclosed APR of 12.9972% is subject to HOEPA and TILA because

the “yield on the Treasury securities having comparable periods of maturity (i.e. 30 years) on the 15th

day of the month immediately preceding October 2006 (i.e. September 2006) was 4.92%. Thus, the

APR trigger for purposes of HOEPA is 12.9200% (i.e. 4.92% + 8%),” (Compl. ¶26). Plaintiffs then

conclude that the disclosed rate exceeds the triggering amount by .0772% and is therefore actionable.

The difficulty with Plaintiffs’ argument is that the base line Treasury APR is statutorily

calculated by looking to the rate “as of the fifteenth day of the month immediately preceding the

month in which the application for extension of credit is received by the creditor.” 12 C.F.R. §226.32.

As the complaint alleges that “Plaintiffs submitted their credit application in September 2006,”

(Comp. ¶26), the applicable rate corresponds to the APR rate as of the preceding month, August 2006.

As the Treasury rate on August 14, 2006 was 5.05%, (RJN, Exh. A), the triggering amount was

13.05%, an amount in excess of the disclosed APR of 12.9972%. Accordingly, HOEPA and TILA

do not apply to the disclosed APR.

Plaintiffs argue that the loan closed on October 2, 2006 and therefore the court should apply

the September 2006 Treasury rate. This argument is not supported by the statutory scheme which

provides that the applicable period is the “month immediately preceding the month in which the

application for extension of credit is received by the creditor.” 12 C.F.R. §226.32. Moreover,

Plaintiffs specifically allege that they “submitted their credit application in September 2006.” (Compl.

¶26). In light of this admission, the court grants the motion for judgment on the pleadings.

The §17200, et seq. Claims

Saxon moves to dismiss the §17200 claim on the ground that the alleged wrongful conduct is

not actionable in the case of the TILA or HOEPA related allegations, and that the generic allegations -

- “entering into loans with consumers in which they have charged interest rates above those allowable

by law” and “self-dealing at the expense of borrowers” (Compl. ¶46(a) and (b)) - - fail to state a claim

for relief. Section 17200 makes unlawful “three varieties of unfair competition – acts or practices

which are unlawful, or unfair, or fraudulent.” Cel-Tech Communications, Inc. v. Los Angeles Cellular

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Telephone Co., 20 Cal.App.4th 163, 180 (1999). 

Here, the court concludes that the above identified allegations of wrongdoing fail to state a

claim under §17200. With respect to allegations of unlawfulness based upon TILA or HOEPA

violations, for the above stated reasons, Plaintiffs fail to state a claim that the APR was

misrepresented. With respect to the “self-dealing at the expense of borrowers” claim, this allegation

is too conclusory and imprecise to state a claim. Plaintiffs argue that the complaint alleges that

“Defendants charged excessive interest,” “Defendants have engaged in a pattern or practice of

extending credit to consumers under high rate mortgages,” and “Defendants induced them to borrow

substantially more money than they were seeking and in an amount beyond their ability to repay.”

(Oppo. at p.5:18-22). The difficulty with these allegations is that Plaintiffs paint the lender, broker,

and loan services with the same brush, without distinguishing the role Saxon, as loan servicer, played

in the alleged §17200 scheme. While the court does not apply the Rule 9(b) standard to the §17200

claim, the claim must still comply with Rule 8. Plaintiff’s central allegation that Defendants engaged

in “self-dealing at the expense of borrowers” (Compl. ¶46(b)) is insufficient “to raise a right to relief

above the speculative level.” Twombly, __550 U.S. __, 127 S.Ct. 1955 (2007); Iqbal, - -S.Ct. - -,

2009 WL 1361536 (under Rule 8(a), well-pleaded facts must do more than permit the court to infer

the mere possibility of misconduct). Accordingly, the conclusory allegations of alleged wrongful acts

of unfair competition fail to state a claim.

In sum, the court grants the motion for judgment on the pleadings without prejudice. The court

declines Plaintiffs request that they be permitted to amend the complaint. However, nothing in this

order prevents Plaintiffs from timely moving to amend the complaint. Plaintiffs are advised that any

such motion must be accompanied by the proposed amended complaint.

IT IS SO ORDERED.

DATED: June 11, 2009

 Hon. Jeffrey T. Miller

 United States District Judge

cc: All parties

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