Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caed-2_09-cv-01739/USCOURTS-caed-2_09-cv-01739-6/pdf.json

Nature of Suit Code: 140
Nature of Suit: Negotiable Instruments
Cause of Action: 15:1601 Truth in Lending

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28 This matter is deemed suitable for decision without oral *

argument. E.D. Cal. R. 230(g).

1

IN THE UNITED STATES DISTRICT COURT

FOR THE EASTERN DISTRICT OF CALIFORNIA

MARK HUESTIS and DIANE HUESTIS, )

)

Plaintiffs, ) 2:09-cv-01739-GEB-DAD

)

v. ) ORDER GRANTING DEFENDANT’S

) MOTION TO DISMISS*

INDYMAC FEDERAL BANK; HOME LOAN )

SERVICING; INDYMAC BANK, F.S.B.; )

QUALITY LOAN SERVICE CORP.; )

MORTGAGE ELECTRONIC REGISTRATION )

SYSTEMS, INC.; ABSOLUTE LOANS, )

INC.; KEVIN DANIEL MCGILL, )

)

Defendants. )

)

Defendant Mortgage Electronic Systems, Inc. (“MERS”) filed a 

motion to dismiss Plaintiffs’ First Amended Complaint (“FAC”) under

Federal Rule of Civil Procedure 12(b)(6) for failure to state a claim

upon which relief can be granted, and under Federal Rule of Civil

Procedure 9(b) for Plaintiffs’ failure to plead their fraud claim with

sufficient particularity. Plaintiffs allege the following claims

against MERS concerning a mortgage loan on Plaintiffs’ residential

property: (1) negligence; (2) fraud; (3) violation of California

Business and Professions Code section 17200 et seq.; and (4) wrongful

foreclosure. MERS seeks dismissal of Plaintiffs’ claims against it,

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arguing “the FAC is vague and ambiguous and raises no cognizable

claims for relief above the speculative level.” (Mot. 6:3-4.)

I. LEGAL STANDARD

A Rule 12(b)(6) motion “challenges a complaint’s compliance 

with . . . pleading requirements.” Champlaie v. BAC Home Loans

Servicing, LP, No. S-09-1316 LKK/DAD, 2009 WL 3429622, at *1 (E.D.

Cal. Oct. 22, 2009). A pleading must contain “a short and plain

statement of the claim showing that the pleader is entitled to relief

. . . .” Fed. R. Civ. P. 8(a)(2). The complaint must “give the

defendant fair notice of what the [plaintiff’s] claim is and the

grounds upon which relief rests . . . .” Bell Atlantic Corp. v.

Twombly, 550 U.S. 544, 555 (2007). Further, “[a] pleading that offers

labels and conclusions or a formulaic recitation of the elements of a

cause of action will not do. Nor does a complaint suffice if it

tenders naked assertions devoid of further factual enhancement.” 

Ashcroft v. Iqbal, 129 S. Ct. 1937, 1949 (2009). 

To avoid dismissal, the plaintiff must allege “only enough

facts to state a claim to relief that is plausible on its face.” 

Twombly, 550 U.S. at 547. “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 for the misconduct

alleged.” Iqbal, 129 S. Ct. at 1949. Plausibility, however, requires

more than “a sheer possibility that a defendant has acted unlawfully.” 

Id. “When a complaint pleads facts that are merely consistent with a

defendant’s liability, it stops short of the line between possibility

and plausibility of entitlement to relief.” Id. (quotations and

citation omitted).

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In evaluating a dismissal motion under Rule 12(b)(6), the

court “accept[s] as true all facts alleged in the complaint, and

draw[s] all reasonable inferences in favor of the plaintiff.” Al-Kidd

v. Ashcroft, 580 F.3d 949, 956 (9th Cir. 2009). However, neither

conclusory statements nor legal conclusions are entitled to a

presumption of truth. See Iqbal, 129 S. Ct. at 1949-50.

MERS requests that judicial notice be taken of five 

documents related to Plaintiffs’ mortgage loan which are publically

recorded in the Official Records of El Dorado County: (1) the Deed of

Trust recorded October 5, 2006; (2) the Notice of Default and Election

to Sell recorded February 23, 2009; (3) the Notice of Trustee’s Sale

recorded June 2, 2009; (4) the Assignment of Deed of Trust recorded

April 9, 2009; and (5) the Trustee’s Deed Upon Sale recorded June 24,

2009. (Request for Judicial Notice (“RJN”) Exs. 1-5.) “[A]s a

general rule, a district court may not consider materials not

originally included in the pleadings in deciding a Rule 12 motion[,] 

. . . [however,] it may take judicial notice of matters of public

record and may consider them without converting a Rule 12 motion into

one for summary judgment.” United States v. 14.02 Acres of Land, 547

F.3d 943, 955 (9th Cir. 2008) (quotations and citations omitted). 

Exhibits 1-5 are publically recorded and may be considered in deciding

MERS’s dismissal motion. See Champlaie, 2009 WL 3429622, at *4

(finding judicial notice of recorded Notice of Default, Notice of

Trustee’s Sale, and Trustee’s Deed Upon Sale proper).

I. BACKGROUND

Plaintiffs completed a mortgage loan on their “residential 

property . . . located at 3704 Malachite Way, Rescue, County of El

Dorado, California” (“the Property”) on or about September 27, 2006.

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(FAC ¶¶ 8, 36.) “The terms of the Loan were memorialized in a

promissory note, which was secured by a Deed of Trust on the

Property.” (FAC ¶ 37.) “The Deed of Trust identified Fidelity

National Title Insurance Company as [t]rustee, and [] IndyMac Bank as

[the] [l]ender.” (Id.) The Deed of Trust also identified MERS as the

beneficiary and nominee for the lender and the lender’s successors and

assigns. (Id. ¶ 38.) Plaintiffs allege MERS is “engaged in the

business of holding title to mortgages.” (Id. ¶ 10.)

MERS executed an Assignment of Deed of Trust on January 29, 

2009, in which it assigned and transferred to IndyMac Federal Bank

F.S.B. “all beneficial interest under . . . [the] Deed of Trust dated

9/27/2006 executed by [Plaintiffs] Mark Huestis and Diane G. Huestis

. . . .” (RJN Ex. 4.) The Assignment was recorded on April 9, 2009. 

(Id.)

III. DISCUSSION

A. Plaintiffs’ Negligence Claim

MERS argues Plaintiffs’ negligence claim should be dismissed

because “MERS does not owe a duty to Plaintiffs.” (Id. 7:7.) 

Plaintiffs respond, “a general duty not to harm another is owed to

everyone.” (Opp’n 12:17.)

“The elements of a cause of action for negligence are: the 

defendant had a duty to use due care, . . . he or she breached that

duty, and . . . the breach was the proximate or legal cause of the

[plaintiffs’] resulting injur[ies].” Vasquez v. Residential Invs.,

Inc., 118 Cal. App. 4th 269, 278 (2004). “[T]he threshold element of

a cause of action for negligence is the existence of a duty to use due

care toward an interest of another . . . . Whether this essential

prerequisite has been satisfied in a particular case is a question of

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law.” Glenn K. Jackson, Inc. v. Roe, 273 F.3d 1192, 1196-97 (9th Cir.

2001) (quotations and citations omitted) (applying California law).

“Under California law, ‘as a general rule, 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.’” Bledea v. Indymac Federal Bank, No.

CIV S-09-1239 LKK/GGH, 2010 WL 715255, at *9 (E.D. Cal. Feb. 25, 2010)

(citing and quoting Nymark v. Heart Fed. Savings & Loan Assn., 231

Cal. App. 3d 1089, 1096 (1991)). “Thus, for a lender . . . to owe a

duty of care, the lender’s activities must have exceeded those of a

conventional lender or the activities must fit within some exception

to the ‘general’ rule.” Id. (citations omitted). 

Plaintiffs allege that “Defendants breached their duty of 

care to the Plaintiffs when they failed to maintain the original

Mortgage Note, failed to properly create original documents, failed to

make the required disclosures to Plaintiffs and instituted foreclosure

proceedings wrongfully.” (FAC ¶ 83.) Plaintiffs also allege

Defendants “breached their duty of care . . . when they took payments

to which they were not entitled, charged fees they were not entitled

to charge, and made or otherwise authorized negative reporting of

Plaintiffs’ creditworthiness to various credit bureaus wrongfully.” 

(FAC ¶ 84.)

“[T]aking payments, charging fees, and reporting on

creditworthiness are conventional activities for a lender.” Bledea,

2010 WL 715255,*10. These bare allegations do not show reason to

depart from Nymark’s general rule and impose a negligence duty of care

“with respect to these activities. Even assuming, however, that such

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a duty of care exists, plaintiffs’ allegations do not indicate that

any of these acts were a breach of said duty.” Id.

Nor have Plaintiffs cited “authority for the proposition

that MERS owed plaintiffs a duty to maintain documents [or] perform

its administrative duties . . . . Absent such authority, a pleading

of an assumption of duty by MERS, or a special relationship,

plaintiff[s] cannot establish MERS owed a duty of care.” Baisa v.

Indymac Federal Bank, No. CIV 09-1464 WBS JMF, 2009 WL 3756682, at *3

(E.D. Cal. Nov. 6, 2009) (citations omitted).

Additionally, “the FAC does not indicate which of the 

alleged actions apply to MERS. Defendant [MERS] should not be forced

to guess how its conduct was allegedly negligent.” Id. (citations

omitted); see also Champlaie, 2009 WL 3429622, at *25 (dismissing

negligence claim as to MERS supported by virtually identical

allegations). Therefore, Plaintiffs’ negligence claim against MERS is

deficient and is dismissed.

B. Plaintiffs’ Fraud Claim

MERS also seeks dismissal of Plaintiffs’ fraud claim, 

arguing it is conclusory, does not differentiate between the named

defendants, and fails to set forth required elements. (Mot. 9:12-27.) 

Plaintiffs respond, they have sufficiently pled their fraud claim. 

(Opp’n 13:23-27.)

Under California law, the elements of fraud are: 

(1) misrepresentation (including, false representation, concealment,

or nondisclosure); (2) knowledge of falsity; (3) intent to induce

reliance; (4) justifiable reliance; and (5) resulting damage. Lazar

v. Superior Court, 12 Cal. 4th 631, 638 (1996). However, a state

fraud claim pled in federal court must satisfy Federal Rule of Civil

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Procedure 9(b)’s “particularity” requirements. Vess v. Ciba-Geigy

Corp., 317 F.3d 1097, 1103 (9th Cir. 2003); see also Fed. R. Civ. P.

9(b) (requiring that “[i]n alleging fraud . . ., a party must state

with particularity the circumstances constituting fraud”). Therefore,

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

where and how’ of the misconduct charged.” Vess, 317 F.3d at 1106

(citation omitted). Further, “[t]he plaintiff must set forth what is

false or misleading about a statement, and why it is false.” Id.

(citation omitted). Lastly, “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.” Swartz v. KPMG LLP, 476 F.3d

756, 764-65 (9th Cir. 2007) (quotations and citations omitted).

Plaintiffs allege “Defendants [] developed a scheme to 

rapidly infuse capital into the home mortgage lending system” by

“pool[ing] mortgages into large trusts, securitizing the pool and

selling these securities on Wall Street as mortgage backed securities

. . . often for twenty or thirty times the original mortgage.” (FAC ¶

19.) However, “Plaintiff[s] ha[ve] not identified the role each

defendant played in this fraudulent scheme, when and where the scheme

occurred, or details on the specific misrepresentations involved in

the fraudulent scheme.” Sipe v. Countrywide Bank, -- F. Supp. 2d ---,

2010 WL 596322, at *13 (E.D. Cal. Feb. 16, 2010) (dismissing same

fraud claim as to MERS for failure to satisfy Rule 9(b)).

Plaintiffs also allege: 

MERS misrepresented to Plaintiffs on the Deed of

Trust that it is a qualified beneficiary with the

ability to assign or transfer the Deed of Trust

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and/or Note and/or substitute trustees under the

Deed of Trust. Further, Defendant MERS

misrepresented that it followed the applicable

legal requirements to transfer the Note and Deed of

Trust to subsequent beneficiaries.

(FAC ¶ 109.) Plaintiffs further allege these representations were

false, Defendants intended that Plaintiffs rely on these

misrepresentations, and that Plaintiffs reasonably relied on the

misrepresentations. (FAC ¶¶ 111-114.) However, “[m]issing from the

complaint are facts specifying the particular verbal or written

misrepresentations at issue, when they were made, where they were

made, and how or why there are false.” Sipe, 2010 WL 596322, at *14;

see also Morgera v. Countrywide Home Loans, Inc., No. 2:09-cv-01476-

MCE-GGH, 2010 WL 160348, at *6 (E.D. Cal. Jan. 11, 2010) (dismissing

same fraud claim as to MERS for failure to satisfy Rule 9(b) 

requirements); Webb v. Indymac Bank Home Loan Servicing, No. CIV 2:09-

2380 WBS DAD, 2010 WL 121084, at *4 (E.D. Cal. Jan. 7, 2010) (same). 

Further, Plaintiffs do not allege any resulting damages 

caused by MERS’s alleged fraudulent conduct. “[T]he pleading must

show a cause and effect relationship between the fraud and damages

sought; otherwise no cause of action is stated.” Commonwealth Mortg.

Assurance Co. v. Superior Court, 211 Cal. App. 3d 508, 518 (1989). 

Plaintiffs merely allege in a conclusory fashion that Plaintiffs were

“harmed and suffered damages” as a result of the fraud. (FAC ¶ 115.) 

“Absent facts to plausibly suggest a causal connection between the

alleged fraud and some damage to Plaintiff[s], the fraud claim is

insufficiently pled.” Sipe, 2010 WL 596322, at *14. Therefore,

Plaintiffs’ fraud claim is deficient and is dismissed.

//

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C. Plaintiffs’ UCL Claim

MERS also seeks dismissal of Plaintiffs’ claim under 

California Business and Professions Code section 17200 (the “UCL”),

arguing Plaintiffs have failed to allege facts supporting this claim

and that Plaintiffs have failed to identify a “pattern of behavior or

course of conduct” within the meaning of the statute. (Mot. 11:1-

12:25.) Plaintiffs counter that they have “alleged multiple

violations . . . of specific statutory and common law provisions[,]

. . . including claims for fraud and negligence[, which] are

incorporated into Plaintiffs’ UCL claim.” (Opp’n 18:2-6.)

“To bring a UCL claim, a plaintiff must show either an (1) 

unlawful, unfair or fraudulent business act or practice, or (2)

unfair, deceptive, untrue or misleading advertising. Because section

17200 is written in the disjunctive, it establishes three varieties of

unfair competition - acts or practices which are unlawful, or unfair

or fraudulent. A practice is prohibited as unfair or deceptive even

if not unlawful or vice versa.” Lippitt v. Raymond James Fin. Servs.

Inc., 340 F.3d 1033, 1043 (9th Cir. 2003) (quotations and citations

omitted). “[A]n action based on [Section 17200] to redress an

unlawful business practice ‘borrows’ violations of other laws and

treats these violations . . . as unlawful practices, independently

actionable under section 17200 et seq. and subject to the distinct

remedies provided thereunder.” Farmers Ins. Exchange v. Superior

Court, 2 Cal. 4th 377, 383 (1992) (quotations and citations omitted). 

“A plaintiff alleging unfair business practices under [the UCL] must

state with reasonable particularity the facts supporting the statutory

elements of the violation.” Khoury v. Maly’s of California, Inc., 14

Cal. App. 4th 612, 619 (1993).

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Plaintiffs allege in their FAC that “Defendants’ acts 

. . . constitute unlawful, unfair, and/or fraudulent business

practices, as defined in the California Business and Professions Code

Section 17200.” (FAC ¶ 120.) Further, Plaintiffs allege that “[a]s a

result of Defendants’ wrongful conduct, Plaintiffs have suffered

various damages and injuries . . . .” (Id. ¶ 121.) 

Plaintiffs’ UCL claim against MERS is vague and conclusory,

and does not differentiate between the conduct of MERS and the other

defendants. The allegations, therefore, fail to state with reasonable

particularity the facts supporting this claim. Therefore, this claim

is dismissed.

D. Plaintiffs’ Wrongful Foreclosure Claim

Lastly, MERS seeks dismissal of Plaintiffs’ wrongful 

foreclosure claim, arguing “MERS assigned its interest under the Deed

of trust . . . well before the foreclosure proceedings” and therefore

“played no role in the foreclosure proceedings.” (Mot. 13:6-10.) 

MERS also argues that under California Code of Civil Procedure section

725a and California Civil Code section 2924 possession of the note is

not required to institute a non-judicial foreclosure. (Mot. 14:5-

15:17.) Plaintiffs respond, arguing possession of the note is a

prerequisite to initiating a foreclosure sale, that “MERS failed to

comply with statutory requirements pertaining to the transfer of the

Note and Deeds,” and therefore “any foreclosure proceeding initiated

by the . . . [d]efendants would be illegal unless [] MERS . . . or any

other [d]efendant . . . can produce the Note . . . .” (Opp’n 22:4-

12.)

Plaintiffs allege in their FAC that “Defendants . . . were 

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not, and are not, in possession of the Note, are not beneficiaries,

assignees or employees of the person or entity in possession of the

Note, and are not otherwise entitled to payment.” (FAC ¶ 140.) 

Plaintiffs also allege “Defendants are not ‘person[s] entitled to

enforce’ the security interest on the Property, as that term is

defined in Commercial Code § 3301.” (Id.) Further, Plaintiffs allege

“Defendants also failed to properly record and give notice of the

Notice of Default . . . in violation of California Civil [C]ode §

2923.5.” (Id. ¶ 142.) Lastly, Plaintiffs allege that since

“Defendants” have received funds under the Troubled Asset Relief

Program (“TARP”), they are subject to the United States’ Treasury

Department’s guidelines for the Making Homes Affordable Program, and

were required to “suspend the foreclosure action to allow the

Plaintiffs to be considered for alternative foreclosure prevention

options.” (Id. ¶ 148.)

California Civil Code sections 2924 through 2941 govern nonjudicial foreclosures initiated under a deed of trust. “California

courts have consistently held that the Civil Code provisions ‘cover

every aspect’ of the foreclosure process and are ‘intended to be

exhaustive.’” Morgera, 2010 WL 160348, *7 (citing I.E. Associates v.

Safeco Title Ins. Co., 39 Cal. 3d. 281, 285 (1985) & Moeller v. Lien,

25 Cal. App. 4th 822, 834 (1994)); see also Castaneda v. Saxon Mortg.

Serv., Inc., -- F. Supp. 2d ---, 2009 WL 4640673, at *7 (E.D. Cal.

Dec. 3, 2009) (finding the California Commercial Code inapplicable to

non-judicial foreclosure because the “comprehensive statutory

framework . . . is intended to be exhaustive” (quotations and

citations omitted)). Therefore, “Plaintiff[s’] reliance on Cal. Comm.

Code § 3301 is misplaced” and Plaintiffs’ allegations under that

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section are insufficient to state a wrongful foreclosure claim. 

Morgera, 2010 WL 160348, at *7 (finding California Commercial Code

section 3301 inapplicable to non-judicial foreclosure proceedings). 

Under California Civil Code section 2924(a)(1), a nonjudicial foreclosure may be initiated by a “trustee, mortgagee, or

beneficiary, or any of their authorized agents . . . .” Cal. Civ.

Code § 2924(a)(1). However, contrary to Plaintiffs’ assertions, the

party initiating the foreclosure process need not be in possession of

the note. See Quintero Family Trust v. Onewest Bank, F.S.B., No. 09-

CV-1516-IEG (WVG), 2010 WL 392312, at *6 (S.D. Cal. Jan. 27, 2009)

(stating that “under California law there is no requirement for

production of the original note to initiate nonjudicial foreclosure

proceedings”); Morgera, 2010 WL 160348, at *7 (finding that “[t]here

is no requirement that the party initiating non-judicial foreclosure

proceedings be in possession of the original note”); Champlaie, 2009

WL 3429622, at *14 (concluding that “neither possession of the

promissory note nor identification of the party in possession is a

pre-requisite to non-judicial foreclosure); Castaneda, 2009 WL

4640673, at *7 (finding that “[u]nder California law, there is no

requirement for the production of the original note to initiate a nonjudicial foreclosure”). Accordingly, Plaintiffs’ allegation that MERS

was not in possession of the note does not state a wrongful

foreclosure claim. 

Plaintiffs also base their wrongful foreclosure claim on a 

violation of California Civil Code section 2923.5, alleging

“Defendants failed to properly record and give proper notice of the

Notice of Default.” (FAC 142.) The FAC does not indicate whether

MERS failed to properly give notice, and simply makes a general

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allegation against all defendants. “This general allegation gives

[MERS] insufficient notice of whether it has committed any conduct

that violates section 2923.5, and [MERS] should not be forced to guess

whether it is individually liable for this conduct.” Castenada, 2009

WL 4640673, at *8; see also Pok v. Am. Home Mortg. Serv., Inc., No.

CIV 2:09-2385 WBS EFB, 2010 WL 476674, at *7 (E.D. Cal. Feb. 3, 2010)

(finding that wrongful foreclosure premised on an allegation that

defendants violated section 2923.5 was “just a reiteration of

[P]laintiffs’ argument that defendants ‘must produce the note’ to

foreclose on their property.”).

Plaintiffs’ last allegation underlying their wrongful

foreclosure claim alleges “Defendants” were required to suspend the

foreclosure process due to Defendants’ alleged receipt of TARP funds.

However, even if MERS participate in the Making Homes Affordable

Program (“MHAP”), “there is no express private right of action against

TARP fund recipients.” Pantoja v. Countrywide Home Loans, Inc., 640

F. Supp. 2d 1177, 1185 (N.D. Cal. 2009) (finding no express or implied

right of action under TARP). Moreover, this allegation is again made

generally against all defendants. Therefore, Plaintiffs’ allegation

that “Defendants” violated MHAP and TARP by refusing to suspend the

foreclosure sale fails to state a wrongful foreclosure claim. 

Accordingly, Plaintiffs’ wrongful foreclosure claim against MERS is

dismissed.

IV. CONCLUSION

For the stated reasons, MERS’s motion to dismiss is GRANTED. 

Plaintiffs are granted leave to amend any claim that has been

dismissed, provided that the amended complaint is filed within 

///

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fourteen (14) days of the date on which this order is filed.

Dated: April 7, 2010

 

GARLAND E. BURRELL, JR.

United States District Judge

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