Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-azd-2_10-cv-02658/USCOURTS-azd-2_10-cv-02658-0/pdf.json

Nature of Suit Code: 290
Nature of Suit: Other Real Property Actions
Cause of Action: 28:1441 Petition for Removal- Petition to Quiet Title

---

1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

WO 

IN THE UNITED STATES DISTRICT COURT 

FOR THE DISTRICT OF ARIZONA 

Daniel Schayes and Wendy Schayes, 

husband and wife, 

Plaintiffs, 

vs. 

T.D. Service Company of Arizona, current 

trustee, and Pennymac Loan Services, LLC, 

current beneficiary, et al., 

Defendants.

No. CV-10-02658-PHX-NVW

ORDER 

Before the Court is “Plaintiffs’ Motion to Remand” (Doc. 7) and “Defendant 

Pennymac Loan Services, LLC’s Motion to Dismiss Complaint” (Doc. 6). Defendant 

T.D. Service Company of Arizona has joined the motion to dismiss (Doc. 9). The Court 

will deny Plaintiffs’ motion, grant Defendants’ motion, and dissolve the temporary 

restraining order issued by the Maricopa County Superior Court. The Court will also 

grant Plaintiffs leave to amend their complaint. 

I. BACKGROUND 

The Court draws the following facts mostly from Plaintiffs’ haphazard complaint, 

as well as the documents that Plaintiffs submitted in preliminary injunction proceedings 

before the Maricopa County Superior Court. The Court will assume the truth of 

Plaintiffs’ plausibly alleged facts, as it must for purposes of the pending motion to 

dismiss. Knievel v. ESPN, 393 F.3d 1068, 1072 (9th Cir. 2005). 

Case 2:10-cv-02658-SRB Document 19 Filed 05/11/11 Page 1 of 15
- 2 - 

1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

Sometime before March 22, 2007, Plaintiffs Daniel and Wendy Schayes decided 

to buy a home in Arizona with financing of $1,295,000 provided by CitiMortgage, Inc.1

 

The Schayes filled out a loan application in which they accurately provided their thencurrent income, as well as supporting documentation in the form of tax returns for the 

previous two years. However, unknown to the Schayes, CitiMortgage’s local agent 

disregarded that income, replaced it with a lower figure, and then forwarded the 

application to the CitiMortgage underwriting department. This fictitious lower income 

figure prompted the underwriting department to treat the Schayes as riskier borrowers 

and therefore require them to pay a higher interest rate. Further, the underwriting 

department approved the Schayes for an adjustable-rate loan with a period of interestonly payments, rather than a fixed-rate loan. Before the loan closed, CitiMortgage told 

the Schayes that the loan product for which they had been approved was the only loan 

product for which they qualified, when in reality, their actual income would have 

qualified them for a better loan. 

The Schayes and CitiMortgage closed this loan transaction on March 22, 2007. 

As is typical in real estate transactions, the Schayes executed a promissory note in favor 

of CitiMortgage, and also a deed of trust securing that note. The loan documentation 

included a second home rider, suggesting that this Arizona home was not the Schayes’ 

primary residence. Various loan documents give a Florida residential address as the 

Schayes’ mailing address. 

The Schayes allege that their original loan documents were scanned and then 

destroyed to facilitate transferring and securitizing the Schayes’ loan through the 

Mortgage Electronic Registration System, commonly known as MERS. MERS was 

named as a nominal beneficiary under the deed of trust, on behalf of CitiMortgage. 

 1

 At one point, Complaint states that the Schayes borrowed $150,000, but it later 

says $1,295,000. (Compl. ¶¶ 6, 14.) The promissory note and deed of trust submitted by 

the Schayes confirms that they borrowed $1,295,000. 

Case 2:10-cv-02658-SRB Document 19 Filed 05/11/11 Page 2 of 15
- 3 - 

1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

Apparently through MERS, CitiMortgage eventually assigned the note and deed of trust 

to Defendant Pennymac Loan Servicing. 

At some unspecified point, the Schayes fell behind on this loan, allegedly because 

they could not afford the adjustable-rate payments. On August 13, 2010, Defendant T.D. 

Service Company of Arizona, designated by MERS as a successor trustee under the deed 

of trust, noticed a trustee’s sale to take place on November 17, 2010. On November 15, 

2010, the Schayes learned for the first time (from a lawyer they hired to review their 

situation) that CitiMortgage had approved the Schayes’ loan based on falsely deflated 

income. 

On November 16, 2010, the Schayes filed suit in Maricopa County Superior Court 

against T.D. Service Company and Pennymac, asserting four causes of action. First, they 

accuse Pennymac and T.D. Service Company of “intentional misrepresentation,” or 

common law fraud, based on CitiMortgage’s scheme to ensure a higher interest rate on 

the Schayes’ loan. The Schayes claim that Pennymac is liable for CitiMortgage’s actions 

because Pennymac “had knowledge [of those actions] and is not a bona fide purchaser as 

the defects are on the face of the loan documents and documents are missing that indicate 

that concealment has taken place.” (Compl. ¶ 37.) The Schayes do not explain how T.D. 

Service Company is liable for CitiMortgage’s actions. Second, the Schayes accuse 

Pennymac of statutory consumer fraud (citing A.R.S. § 44-1521 et seq.), also based on 

the theory that CitiMortgage defrauded the Schayes, and that Pennymac can be liable 

because it knew of the fraud when it took the note. Third, the Schayes ask for an 

accounting from Pennymac and from non-party MERS. Finally, the Schayes assert a 

quiet title action against Pennymac, arguing that unspecified offsets “are greater in 

amount than the sum that would otherwise be due under the promissory note, and/or 

Plaintiffs are entitled to rescission of the promissory note and deed of trust such that 

Defendants claim to the property is released.” (Compl. ¶ 56.) The Schayes claim 

significant economic damages, including at least $1.5 million in compensatory damages 

and at least $500,000 in emotional distress damages. 

Case 2:10-cv-02658-SRB Document 19 Filed 05/11/11 Page 3 of 15
- 4 - 

1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

The same day the Schayes filed their complaint, they moved for and were granted 

a temporary restraining order stopping the trustee’s sale. The Superior Court set an 

evidentiary hearing regarding the propriety of a preliminary injunction for January 6, 

2011. On December 13, 2010, Pennymac removed to this Court, claiming diversity 

jurisdiction. Pennymac asserts that the Schayes are Arizona residents (based on their 

ownership of the home at issue in this lawsuit), and that it and T.D. Service Company are 

California residents. Pennymac’s notice of removal states, “undersigned counsel avers 

that no defendant has objected to removal.” (Doc. 1 at 4.) On December 30, 2010, T.D. 

Service Company filed a notice of joinder in Pennymac’s removal. Pennymac and T.D. 

Service Company (collectively, “Defendants”) have now moved to dismiss, and the 

Schayes have simultaneously moved to remand. 

II. THE SCHAYES’ MOTION TO REMAND 

A. Legal Standard 

If a case filed in state court could have been filed in federal court, the defendant(s) 

in that case can sometimes remove it to federal court. 28 U.S.C. § 1441(b). “Could have 

been filed in federal court” is the most important prerequisite for removal, meaning that a 

federal court has original jurisdiction over the dispute. Original federal jurisdiction most 

commonly arises when the complaint raises an issue of federal law. 28 U.S.C. § 1331. 

However, if a lawsuit raises no issues of federal law (such as this one), district courts still 

have original jurisdiction over civil actions between citizens of different states where the 

amount in controversy exceeds $75,000 — so-called “diversity jurisdiction.” 28 U.S.C. 

§ 1332(a)(1). 

State court cases that could have been filed in federal court as a diversity 

jurisdiction cases can be removed to federal court under the following conditions. First, 

no defendant can be a resident of the forum state. 28 U.S.C. § 1441(b). Second, a 

defendant must file a notice of removal within thirty days of receiving the plaintiff’s 

complaint, and in any event, no later than one year after the action begins. Id. § 1446(b). 

Third, when a case involves multiple defendants, all defendants must consent to removal. 

Case 2:10-cv-02658-SRB Document 19 Filed 05/11/11 Page 4 of 15
- 5 - 

1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

Proctor v. Vishay Intertech. Inc., 584 F.3d 1208, 1225 (9th Cir. 2009). However, “the 

filing of a notice of removal [by one defendant] can be effective [as to all defendants] 

without individual consent documents on behalf of each defendant. One defendant’s 

timely removal notice containing an averment of the other defendants’ consent and 

signed by an attorney of record is sufficient.” Id. 

The removing party bears the burden of establishing federal subject matter 

jurisdiction. Emrich v. Touche Ross & Co., 846 F.2d 1190, 1195 (9th Cir. 1988). There 

is a strong presumption against removal jurisdiction. See Gaus v. Miles, Inc., 980 F.2d 

564, 566 (9th Cir. 1992). If at any time before final judgment it appears that the district 

court lacks jurisdiction over a case removed from state court, the case must be remanded. 

28 U.S.C. § 1447(c). 

B. Analysis of Diversity Jurisdiction in this Case 

1. Unanimity & Fraudulent Joinder 

The Schayes argue that removal was improper because T.D. Service Company did 

not file a consent to removal until December 30, 2010 — more than 30 days after it 

received the complaint, thus violating the statutory requirement that all parties remove 

within 30 days. See 28 U.S.C. § 1446(b). Defendants counter that Pennymac’s notice of 

removal sufficed for both Pennymac and T.D. Service Company. Pennymac is incorrect. 

The Ninth Circuit permits one defendant to remove on behalf of all defendants if that 

notice of removal states that all other defendants have consented to removal. Proctor, 

584 F.3d at 1225. Pennymac’s notice of removal, by contrast, says that “no defendant 

has objected to removal.” This does not suffice. And even if failure to object could be 

considered consent in some circumstances, it would not apply in this case because 

Pennymac’s notice of removal does not say whether it told T.D. Service Company that it 

intended to remove. 

Because removal statutes are construed strictly against the party attempting to 

remove, T.D. Service Company’s failure to consent to removal within the 30-day 

statutory window would normally require this Court to remand this case to state court. 

Case 2:10-cv-02658-SRB Document 19 Filed 05/11/11 Page 5 of 15
- 6 - 

1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

However, the requirement that all defendants consent to removal “does not apply to 

nominal, unknown or fraudulently joined parties.” United Computer Sys., Inc. v. AT&T 

Corp., 298 F.3d 756, 762 (9th Cir. 2002) (internal quotation marks omitted). The 

question in this case, then, is whether T.D. Service Company was fraudulently joined. 

“Fraudulent joinder is a term of art. If the plaintiff fails to state a cause of action 

against a resident defendant, and the failure is obvious according to the settled rules of 

the state, the joinder of the resident defendant is fraudulent.” McCabe v. Gen. Foods 

Corp., 811 F.2d 1336, 1339 (9th Cir. 1987). District court can find fraudulent joinder 

“[o]n the basis of the complaint alone.” Id. 

In this case, the Complaint alone demonstrates that the Schayes have obviously 

failed to state a cause of action against T.D. Service Company. The only cause of action 

asserted against T.D. Service Company is for common law fraud. However, the Schayes 

attribute all of the allegedly fraudulent action to CitiMortgage. They make no accusation 

against T.D. Service Company. They do not even attempt to hang CitiMortgage’s alleged 

wrongdoing around T.D. Service Company’s neck (in contrast to their accusation that 

Pennymac took the note from CitiMortgage with full knowledge of CitiMortgage’s 

fraud). Therefore, the Schayes have stated no cause of action against T.D. Service 

Company, and T.D. Service Company was a fraudulently joined party. 

The Schayes may have included T.D. Service Company to ensure that an 

injunction against the trustee’s sale would restrict the right party. However, that is not 

enough to keep T.D. Service Company in this case. Under the Arizona Deed of Trust 

Act, the trustee is a necessary party only in “legal actions pertaining to a breach of the 

trustee’s obligation.” A.R.S. § 33-807(E). Otherwise, 

[a]ny order of the court entered against the beneficiary is 

binding upon the trustee with respect to any actions that the trustee is authorized to take by the trust deed or by this chapter. If the trustee is joined as a party in any other action, the trustee is entitled to be immediately dismissed and to recover costs and reasonable attorney fees from the person joining the trustee. 

Case 2:10-cv-02658-SRB Document 19 Filed 05/11/11 Page 6 of 15
- 7 - 

1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

Id. Nothing in the Schayes’ complaint “pertain[s] to a breach of the trustee’s obligation.” 

Therefore, the Court will dismiss T.D. Service Company. T.D. Service Company may 

move for costs and attorneys fees at the close of this case. 

2. Citizenship 

Having dismissed T.D. Service Company, the Court must next decide whether the 

remaining parties — the Schayes and Pennymac — are citizens of different states. The 

Schayes’ citizenship is not clear. The Complaint alleges that they own a home in 

Arizona, but it does not allege that they are citizens of Arizona. Given that their Arizona 

home is a second home, and that the Schayes used a Florida address as their mailing 

address, it may be that they are citizens of Florida. 

Whether the Schayes are citizens of Arizona or Florida, they are still diverse from 

Pennymac. As an LLC, Pennymac “is a citizen of every state of which its 

owners/members are citizens.” Johnson v. Columbia Props. Anchorage, LP, 437 F.3d 

894, 899 (9th Cir. 2006). According to an affidavit submitted by Pennymac, its sole 

member (also an LLC), its member’s members (comprising individuals and LLCs), and 

its member’s members’ members (comprising individuals, a trust, and a corporation) are 

citizens of either California, Delaware, Massachusetts, or New York. None of these 

individuals or entities is a citizen of Arizona or California, and therefore Pennymac is not 

a citizen of Arizona or California. Thus, the Schayes and Pennymac are citizens of 

different states. 

3. Amount in Controversy 

Even though the Schayes and Pennymac meet the diversity-of-citizenship 

requirement, the amount in controversy must still be more than $75,000. In this respect, 

the Schayes strangely claim that “[t]here is no allegation in the complaint or prayer for 

relief in excess of the jurisdictional minimum.” (Doc. 7 at 14.) In reality, the Complaint 

(including the prayer for relief) repeatedly asks for amounts ranging from $500,000 to 

$1.5 million. The Court therefore finds that the amount in controversy exceeds $75,000. 

The Schayes’ attorney cannot in good faith assert otherwise. Accordingly, Pennymac has 

Case 2:10-cv-02658-SRB Document 19 Filed 05/11/11 Page 7 of 15
- 8 - 

1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

established federal jurisdiction under 28 U.S.C. § 1332(a)(1), and has filed a notice of 

removal within the required time limit. Removal was therefore proper. 

C. Abstention 

Although Pennymac has properly removed, the Court could still remand this case 

if it determines that it should abstain from deciding this dispute. Abstention is a rare 

commodity — federal courts have a “virtually unflagging obligation” to resolve disputes 

over which they properly have jurisdiction. Colo. River Water Conservation Dist. v. 

United States, 424 U.S. 800, 817 (1976). The Schayes nonetheless urge this Court to 

abstain based on the principle articulated by the Supreme Court in Burford v. Sun Oil 

Co.: 

Although a federal equity court does have jurisdiction of a particular proceeding, it may, in its sound discretion, whether 

its jurisdiction is invoked on the ground of diversity of citizenship or otherwise, refuse to enforce or protect legal rights, the exercise of which may be prejudicial to the public interest; for it is in the public interest that federal courts of 

equity should exercise their discretionary power with proper regard for the rightful independence of state governments in carrying out their domestic policy. 

319 U.S. 315, 317–18 (1943) (footnotes and internal quotation marks omitted). 

The Schayes believe that their lawsuit deserves Burford abstention because they 

raise important issues of Arizona domestic policy that Arizona state courts rarely have a 

chance to address: 

[H]ome foreclosures in the State of Arizona are governed by state law . . . . Arizona court dockets are filled with lawsuits 

by homeowners against their lenders, servicers, trustees, and 

investors. Lenders and other named defendants routinely remove the cases to federal court, in spite of the plaintiff’s choice of forum and in spite of the issues of state, not federal, 

concern. Continued federal court determination of these 

cases is disruptive of this State’s need to establish a coherent 

policy in resolving the homeowner lawsuits filed here. Many of the issues presented in Plaintiffs’ Complaint are issues of first impression . . . [such as their] argument that any entity attempting to foreclose should be required to provide conclusive proof that this entity, rather than any other, is entitled to payment under the note, and is entitled to foreclose 

on the deed of trust. See Complaint §§ 104, 105, 106, and Count One (§§112-134) and Count Two (§§135-153). 

Case 2:10-cv-02658-SRB Document 19 Filed 05/11/11 Page 8 of 15
- 9 - 

1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

(Doc. 7 at 6.) The problem with this argument — often called the “show me the note” 

theory2

 — is that “Complaint §§ 104, 105, 106, and Count One (§§112-134) and Count 

Two (§§135-153)” do not exist. Rather, the Schayes’ Complaint ends at paragraph 57, 

and Counts One and Two have nothing to do with this supposed question of first 

impression. Pennymac’s response pointed out as much, but the Schayes’ reply did not 

correct the argument. Instead, the Schayes’ attorney appears to have copied the argument 

verbatim from his original motion, including the erroneous citations.3

 (Doc. 14 at 6.) 

The closest the Schayes come to stating a “show me the note” argument is 

paragraph 54 of their Complaint, where they allege (as part of their quiet title cause of 

action) that 

the deed of trust specifically grants to the lender, and not to MERS, repayment, renewal, extensions and modifications of 

the promissory note, and indicates that MERS only holds “legal title” and not equitable title. Despite MERS owning no right to payment and having no ability to experience an event of default under the promissory note, MERS is nonetheless 

attempting to auction the Property through a trustee’s sale. Further, MERS has failed to show that any party with an ability to experience an event of default based on the 

promissory note has authorized MERS to conduct a trustee’s 

sale or transferred to MERS an interest in the promissory 

note. 

(Compl. ¶ 54 (citations omitted).) Assuming the Schayes actually state a “show me the 

note” argument here, the Court emphasizes that Burford abstention is a matter of 

discretion, Garamendi v. Allstate Ins. Co., 47 F.3d 350, 354–56 (9th Cir. 1995), and in 

any event, abstention is exceedingly rare, Colo. River Water Conservation Dist., 424 U.S. 

at 817. The Schayes’ possible “show me the note” argument does not merit such an 

 2 See Mansour v. Cal-Western Reconveyance Corp., 618 F. Supp. 2d 1178, 1181 

(D. Ariz. 2009) (collecting cases regarding “show me the note” theory). 

3

 A footnote in the Schayes’ motion suggests that such cut-and-paste lawyering 

began before this case. The footnote discusses sending paper copies of unpublished 

authority to Magistrate Judge Aspey. (Doc. 7 at 7 n.1.) Magistrate Judge Aspey has 

never been assigned to this case. 

Case 2:10-cv-02658-SRB Document 19 Filed 05/11/11 Page 9 of 15
- 10 - 

1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

extraordinary step. Therefore, the Schayes request to remand based on Burford 

abstention will be denied. 

III. DEFENDANTS’ MOTION TO DISMISS 

A. Legal Standard 

1. Rule 8(a) 

To state a claim for relief under Fed. R. Civ. P. 8(a), a plaintiff must make “‘a 

short and plain statement of the claim showing that the pleader is entitled to relief,’ in 

order to ‘give the defendant fair notice of what the . . . claim is and the grounds upon 

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

omitted). This “short and plain statement” must also be “plausible on its face.” Ashcroft 

v. Iqbal, 129 S. Ct. 1937, 1949 (2009). A claim is plausible if it contains sufficient 

factual matter to permit a reasonable inference that the defendant is liable for the conduct 

alleged. Id. “Determining whether a complaint states a plausible claim for relief . . . [is] 

a context-specific task that requires the reviewing court to draw on its judicial experience 

and common sense.” Id. at 1950. 

A proper complaint needs no “formulaic recitation of the elements of a cause of 

action,” see Twombly, 550 U.S. at 555, but the plaintiff must at least “allege sufficient 

facts to state the elements of [the relevant] claim,” Johnson v. Riverside Healthcare Sys., 

LP, 534 F.3d 1116, 1122 (9th Cir. 2008). All of the plaintiff’s plausible factual 

allegations are accepted as true and the pleadings are construed in a light most favorable 

to the plaintiff. Knievel, 393 F.3d at 1072. 

2. Rule 9(b) 

Under Fed. R. Civ. P. 9(b), “a plaintiff [alleging fraud] 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.” In re GlenFed, Inc. Sec. 

Litig., 42 F.3d 1541, 1548 (9th Cir. 1994) (en banc). The plaintiff can usually satisfy this 

requirement by alleging the identity of the person who made the misrepresentation; the 

time, place, content, and manner of the misrepresentation; the persons who heard, read, or 

Case 2:10-cv-02658-SRB Document 19 Filed 05/11/11 Page 10 of 15
- 11 - 

1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

otherwise received the misrepresentation; and the injury caused by reliance on the 

misrepresentation. 2 James Wm. Moore, Moore’s Federal Practice § 9.03[1][b] (3d ed. 

2010). 

Specifically with regard to allegations of identity, “there is no absolute 

requirement that where several defendants are sued in connection with an alleged 

fraudulent scheme, the complaint must identify false statements made by each and every 

defendant.” Swartz v. KPMG LLP, 476 F.3d 756, 764 (9th Cir. 2007). However, 

Rule 9(b) does not allow a complaint to merely lump multiple defendants together but requires plaintiffs to differentiate 

their allegations when suing more than one defendant and 

inform each defendant separately of the allegations 

surrounding his alleged participation in the fraud. . . . [A] 

plaintiff must, at a minimum, identify the role of each defendant in the alleged fraudulent scheme. 

Id. at 764–65 (alterations incorporated; citations and internal quotation marks omitted). 

B. The Schayes’ Fraud Causes of Action (Counts One & Two) 

1. Statutes of Limitations 

The statute of limitations for common law fraud is three years. A.R.S. § 12-

543(3). The statute of limitations for statutory causes of action, such as statutory 

consumer fraud, is one year. Id. § 12-541(5). Defendants argue that the Schayes missed 

both of these deadlines because the misrepresentation at issue “appears to concern the 

interest rate for the Loan” (Doc. 6 at 7), about which the Schayes knew no later than 

March 2007 when they signed the loan documents that spelled out the interest rate. 

Defendants misinterpret the Schayes’ Complaint. The misrepresentation the 

Schayes rely upon for their fraud claims was not the interest rate, but rather 

CitiMortgage’s substitution of a lower income on the Schayes’ loan application without 

the Schayes’ knowledge, followed by a misrepresentation that the loan for which they 

had been approved was the only loan for which they qualified based on their income. 

While the Court has reservations regarding whether out-of-state homebuyers looking for 

their second home, especially a home worth almost $1.3 million, would be 

unsophisticated enough to reasonably rely on a representation that they only qualified for 

Case 2:10-cv-02658-SRB Document 19 Filed 05/11/11 Page 11 of 15
- 12 - 

1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

an interest-only adjustable-rate loan, the Court must accept the allegation as true for 

purposes of the motion to dismiss. 

Accepting the Schayes’ claim of deception as true, the Court finds that — at least 

at this stage — the allegation that the Schayes did not discover CitiMortgage’s fraud until 

November 15, 2010 (when an attorney reviewed their entire loan file) is plausible. 

Because a cause of action for common law fraud does not accrue “until the discovery by 

the aggrieved party of the facts constituting the fraud or mistake,” A.R.S. § 12-543(3), 

and because the Schayes filed suit within three years of November 15, 2010, the Court 

finds that the common law fraud cause of action was timely filed — at least on the face of 

the complaint. Similarly, because in civil litigation generally, “accrual of a cause of 

action occurs when the plaintiff knows or, in the exercise of reasonable diligence, should 

know the facts underlying the cause,” City of Tucson v. Clear Channel Outdoor, Inc., 218 

Ariz. 172, 178–79, 181 P.3d 219, 225–26 (Ct. App. 2008), and because the Schayes filed 

suit within one year of November 15, 2010, the Court finds that the statutory consumer 

fraud cause of action was timely filed. 

Defendants nonetheless assert that tolling is not appropriate because 

“[t]he [fraudulent] concealment sufficient to toll the statute 

requires a positive act by the defendant taken for the purpose of preventing detection of the cause of action.” Perez v. First 

American Title Ins. Co., CV08-1184-PHX-DGC, 2010 WL 

1507012, at *2 (D. Ariz. Apr. 14, 2010) (citing Cooney v. Phoenix Newspapers, Inc., 160 Ariz. 139, 770 P.2d 1185, 

1187 (App. 1989)[)]. Here, the Schayes fail to assert any such act let alone one committed by Pennymac. 

(Doc. 6 at 9.) Defendants incorrectly interpret the authority they cite. Perez and Cooney 

both involved concealment of the means by which the plaintiff could learn about the 

cause of action. In Cooney, for example, a car backing out of a driveway struck the 

plaintiff as he rode his bicycle. Neither the driver of the car nor the plaintiff could see 

each other before the accident because of a six-foot hedge on one side of the driveway. 

The plaintiff did not notice the hedge at the time, and was not physically capable of 

revisiting the accident site until many months later. He eventually retained an attorney, 

Case 2:10-cv-02658-SRB Document 19 Filed 05/11/11 Page 12 of 15
- 13 - 

1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

and that attorney visited the accident site, but by that time the hedge had been trimmed to 

two-and-a-half feet. Not until the attorney deposed the driver did he learn that the hedge 

had originally been six feet. At that point, the plaintiff sought to sue the landowner in 

control of the hedge, against whom the statute of limitations had run. Plaintiff asked for 

tolling because the landowner’s choice to trim the hedge soon after the accident was 

allegedly an intentional attempt to conceal the facts that would have informed the 

plaintiff of his cause of action. Cooney, 160 Ariz. at 139–40, 770 P.2d at 1185–86. 

The Schayes need not satisfy the Cooney standard here. A scheme to defraud is by 

nature an attempt to conceal certain facts from the victim. At this stage, the Schayes have 

plausibly alleged their ignorance of the fraud until November 15, 2010, and they have 

filed suit within the required amount of time. 

2. Sufficiency of Pleadings 

Although the Schayes timely filed their fraud claims, their allegations do not meet 

the requirements of Fed. R. Civ. P. 9(b) because the Schayes do not identify the role that 

Pennymac or T.D. Service Company played in CitiMortgage’s alleged fraud. The 

Complaint contains no allegations that connect T.D. Service Company to the alleged 

fraud, and the closest the Complaint comes to implicating Pennymac in the fraud is the 

allegation that Pennymac “had knowledge [of the fraud] and is not a bona fide purchaser 

as the defects are on the face of the loan documents and documents are missing that 

indicate that concealment has taken place.” (Compl. ¶ 37.) But this confuses a potential 

UCC defense to payment with an affirmative cause of action. Whether or not 

CitiMortgage’s purported fraud excuses the Schayes from paying on the note, Pennymac 

is not independently liable for fraud simply because it took the note from CitiMortgage. 

Accordingly, the Schayes have not satisfied the heightened pleading requirements of Fed. 

R. Civ. P. 9(b), and the Court will dismiss counts one and two of the Schayes’ Complaint. 

The Court will nonetheless grant leave to amend, to permit the Schayes another 

opportunity to plead fraud with specificity, if they can do so within the requirements of 

Fed. R. Civ. P. 11. 

Case 2:10-cv-02658-SRB Document 19 Filed 05/11/11 Page 13 of 15
- 14 - 

1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

C. The Schayes’ Accounting Cause of Action (Count Three) 

The Schayes ask for an “accounting,” which they interpret as a requirement for 

Pennymac and MERS to turn over all information related to the loan. Actions for an 

accounting are usually reserved for situations in which one party entrusts property to 

another in a fiduciary relationship. Dooley v. O’Brien, 226 Ariz. 149, ¶ 21, 244 P.3d 586, 

591–92 (Ct. App. 2010). Absent a special agreement, a debtor-creditor relationship in 

Arizona is not a fiduciary relationship. See McAlister v. Citibank, 171 Ariz. 207, 212, 

829 P.2d 1253, 1258 (Ct. App. 1992) (bank owed no fiduciary duty to borrower); cf. 

Stewart v. Phoenix Nat’l Bank, 49 Ariz. 34, 44, 64 P.2d 101, 106 (1937) (special 

relationship between debtor and creditor existed only because bank officers and directors 

had been debtor’s financial advisors for 23 years). “There is no statutory requirement 

that the [homeowner/borrower] be supplied with a complete accounting,” Kelly v. 

NationsBanc Mortg. Corp., 199 Ariz. 284, 286–87, 17 P.3d 790, 792–93 (Ct. App. 2000), 

nor is there any Arizona authority otherwise establishing anything like a right to an 

accounting in these circumstances. Therefore, it is not clear that the Schayes are entitled 

to an accounting. 

However, the Schayes allege that they 

are informed and believe that their note may have already been paid by a third party either through a government program or through private mortgage or other counter party insurance. As a result, such information is necessary to determine if the security deed of trust was a valid lien against the Property and whether or not there was [sic] a valid 

trustee’s sale . . . . 

(Compl. ¶ 48.) If some third party has, in fact, already paid off the Schayes’ loan, the 

Schayes would have a valid defense to foreclosure, and such a defense is appropriate to 

assert in an action (such as this one) intended to halt the foreclosure. Unfortunately, the 

Schayes’ allegation is not “plausible on its face” and therefore fails the requirements of 

Fed. R. Civ. P. 8(a). In this Court’s judicial experience, and according to common sense, 

see Iqbal, 129 S. Ct. at 1950, third parties, governments, and insurers rarely pay off a 

private borrower’s mortgage debt, especially debt in the neighborhood of $1.3 million. 

Case 2:10-cv-02658-SRB Document 19 Filed 05/11/11 Page 14 of 15
- 15 - 

1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

Out of caution, the Court will allow the Schayes an opportunity to amend this 

allegation. If they take that opportunity, they must explain in detail how they were 

informed, or why they believe, that another party may have already paid off their debt. 

D. The Schayes’ Quiet Title Cause of Action (Count Four) 

The Schayes’ quiet title action is another unfortunate instance of distressed 

borrowers asking this Court to wipe away their debt and award them a free house. This 

Court has no power to do so. If the Schayes want to quiet title in their home, they must 

pay off the loan they used to buy the home. Eason v. IndyMac Bank, FSB, CV09-1423-

PHX-JAT, 2010 WL 1962309, at *2 (D. Ariz. May 14, 2010). Their Complaint contains 

no allegation that they are prepared to pay off the loan. The Court will therefore dismiss 

the quiet title cause of action. The Schayes may amend, but if they do so, they must 

allege in good faith that they are ready and able to tender the unpaid balance of their loan. 

E. The Temporary Restraining Order 

The Schayes’ complaint, in its current form, does not state a claim. Accordingly, 

it is an insufficient basis for a temporary restraining order. That order will therefore be 

dissolved. 

IT IS THEREFORE ORDERED that “Plaintiffs’ Motion to Remand” (Doc. 7) is 

DENIED, “Defendant Pennymac Loan Services, LLC’s Motion to Dismiss Complaint” 

(Doc. 6) is GRANTED, and Defendant T.D. Service Company of Arizona is 

DISMISSED. 

IT IS FURTHER ORDERED that the Schayes have until June 3, 2011, to file an 

amended complaint, if they so choose, that corrects the defects described in this order. 

IT IS FURTHER ORDERED that the temporary restraining order issued by the 

Maricopa County Superior Court on November 16, 2010, is DISSOLVED. 

Dated this 11th day of May, 2011. 

Case 2:10-cv-02658-SRB Document 19 Filed 05/11/11 Page 15 of 15