Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-casd-3_12-cv-01833/USCOURTS-casd-3_12-cv-01833-0/pdf.json

Nature of Suit Code: 290
Nature of Suit: Other Real Property Actions
Cause of Action: 12:1461 Homeowners Loan Act

---

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

UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF CALIFORNIA

GREGORIA G. CASTILLO, Trustee of the

Gregoria G. Castillo Separate Property Trust;

GREGORIA G. CASTILLO SEPARATE

PROPERTY TRUST,

Plaintiffs,

CASE NO. 12cv1833 - IEG (BGS)

ORDER:

(1) DENYING PLAINTIFFS’

MOTION TO REMAND [DOC. NO.

6];

(2) GRANTING IN PART

DEFENDANTS’ MOTION TO

DISMISS [DOC. NO. 4];

(3) REMANDING STATE LAW

CLAIMS;

AND

(4) DENYING AS MOOT

DEFENDANTS’ MOTIONS TO

STRIKE AND TO EXPUNGE LIS

PENDENS [DOC. NO. 4]

v.

BANK OF AMERICA, N.A.; BANK OF

NEW YORK MELLON, Alternative Loan

Trust 2006-OA2 Mortgage Pass-Through

Certificates, Series 2006-OA2, FKA Bank of

New York, As Trustee for the

Certificateholders of the CWalt, Inc..; DOES

1 THROUGH 100, inclusive,

Defendants.

Presently before the Court are Defendants Bank of America, N.A. (“BANA”) and Bank of

New York Mellon’s (“BNYM”) (together “Defendants”) motions to dismiss the complaint of

Plaintiffs Gregoria G. Castillo (“Castillo”) and Gregoria G. Castillo Separate Property Trust’s

(“Trust”) (together “Plaintiffs”), to strike, and to expunge the lis pendens. [Doc. No. 4.] Also

before the Court is Plaintiffs’ motion to remand. [Doc. No. 6.] For the following reasons, the

Court DENIES Plaintiffs’ motion to remand, GRANTS in part Defendants’ motion to dismiss,

- 1 - 12cv1833

Case 3:12-cv-01833-IEG-BGS Document 14 Filed 10/09/12 Page 1 of 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

REMANDS Plaintiffs’ state law claims, and DENIES AS MOOT Defendants’ motions to strike

and to expunge the lis pendens.

BACKGROUND

Plaintiffs allege that on or about January 25, 2006, Plaintiff Castillo obtained a loan from

Countrywide, through its trade name America’s Wholesale Lender (“AWL”), a Doe defunct

Defendant, in the amount of $750,000. [Doc. No. 1-1, Compl. ¶ 12; Doc. No. 4-1, P. & A. Supp.

Def.’s Mot. to Dismiss (“Def.’s Mot.”) at 2.] The loan was secured by a deed of trust to real

property located at 2735 Hornblend Street, San Diego, California 92109 (“Hornblend Property”). 

The deed of trust lists Castillo as the borrower, AWL as the lender, Mortgage Electronic

Registration Systems, Inc. (“MERS”) as the beneficiary, and CTC Real Estate Services as the

trustee. [Doc. No. 1-1, Compl. ¶ 20; Doc. No. 5-1, Request for Judicial Notice (“RJN”), Ex. 1,

Deed of Trust.]1 BANA services the loan. [Doc. No. 4-1, Def.’s Mot. at 2.] Plaintiffs allege that

1

 Defendants request that the Court take judicial notice of 11 documents: (1) a deed of trust

executed by Castillo relating to the Hornblend Property; (2) a quitclaim deed relating to the Hornblend

Property; (3) a second quitclaim deed relating to the Hornblend property; (4) an assignment of deed

of trust relating to the Hornblend Property; (5) a notice of default and election to sell under deed of

trust relating to the Hornblend Property; (6) a notice of trustee’s sale relating to the Hornblend

Property; (7) a notice of pendency of action relating to the Hornblend Property; (8) the docket of

Castillo’s bankruptcy petition, 12-00520-MM7 (“Bankruptcy Action”); (9) the debtor’s original

schedules in the Bankruptcy Action, filed on January 31, 2012; (10) the amended debtor’s schedules

in the Bankruptcy Action, filed on May 8, 2012; and (11) the Amended and Restated Commitment

to Purchase Financial Instrument and Servicer Participation Agreement (“SPA”) between BANA and

the Federal National Mortgage Association (“Fannie Mae”), executed on January 25 and 26, 2010. 

[Doc. No. 5, RJN.] 

Courts may take judicial notice of “a fact that is not subject to reasonable dispute because it: 

(1) is generally known within the trial court’s jurisdiction; or (2) can be accurately and readily

determined from sources whose accuracy cannot reasonably be questioned.” Fed. R. Evid. 201. 

Courts may take judicial notice of documents that are matters of public record or are quasi-public

documents. See Lee v. City of Los Angeles, 250 F.3d 668, 689 (9th Cir. 2001); Del Puerto Water

Dist. v. U.S. Bureau of Reclamation, 271 F.Supp.2d 1224 (E.D. Ca. 2003) (holding that Senate and

House reports, water permit applications, and copies of Bureau reports are public or quasi-public

records). A court may also consider “documents whose contents are alleged in a complaint and whose

authenticity no party questions, but which are not physically attached to the pleading . . . in ruling on

a Rule 12(b)(6) motion to dismiss.” Fecht v. Price Co., 70 F.3d 1078, 1080 n.1 (9th Cir. 1995)

(quoting Branch v. Tunnell, 14 F.3d 449 (9th Cir. 1994), overruled on other grounds by Galbraith v.

County of Santa Clara, 307 F.3d 1119 (9th Cir. 2002)).

Because Exhibits 1 through 7 are recorded in the Official Records of San Diego County, the

Court may take judicial notice of these documents as they are matters of public record. Therefore,

their authenticity is capable of accurate and ready determination by resort to sources whose accuracy

cannot reasonably be questioned. See Fed. R. Evid. 201(b). The Court also takes judicial notice of

Exhibits 8 through 10 which are public court records. See Reyn’s Pasta Bella, LLC v. Visa USA, Inc.,

- 2 - 12cv1833

Case 3:12-cv-01833-IEG-BGS Document 14 Filed 10/09/12 Page 2 of 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

during the process of applying for the loan, agents of AWL deceived Castillo by processing the

loan using falsely inflated income for Castillo, not verifying her true income, and preventing

Castillo from understanding her rights. [Doc. No. 1-1, Compl. ¶ 13.] Plaintiffs allege that BNYM

is the successor in interest to AWL, and that it therefore incurs all liability for AWL. [Id. ¶ 39.]

Defendants allege in their motion to dismiss that subsequently, on December 4, 2006,

Castillo recorded a quitclaim deed transferring her interest in the Hornblend Property to the Trust. 

[Doc. No. 4-1, Def.’s Mot. at 2; Doc. No. 5-1, RJN, Ex. 2, Quitclaim Deed.] Defendants further

allege in their motion that on February 28, 2007, the Trust recorded another quitclaim deed

transferring its interest in the Hornblend Property to Group Enterprise Management, LLC (“Group

Enterprise”). [Doc. No. 4-1, Def.’s Mot. at 2; Doc. No. 5-1, RJN, Ex. 3, Quitclaim Deed.] 

Plaintiffs argue in their reply to Defendants’ motion that they are unaware of the transfer to Group

Enterprises and that they did not authorize this transfer. [Doc. No. 8, Pl.’s Reply to Def.’s Mot. at

3]. On July 19, 2011, MERS assigned its interest in the deed of trust to BNYM in an assignment

of deed of trust. [Doc. No. 5-1, RJN, Ex. 4, Assn. of Deed of Trust.] 

Plaintiffs allege in their complaint that it became difficult for them to make the mortgage

payments due on the loan, and that they attempted to refinance or modify the terms of the loan. 

Plaintiff Castillo alleges that Defendants would not discuss refinancing or modifying the terms of

the loan with her. [Doc. No. 1-1, Compl. ¶ 21.] Plaintiffs allege that BNYM participates in the

federal government’s Home Affordable Modification Program (“HAMP”), which obligates it to

consider Plaintiffs for a loan modification. [Doc. No. 1-1, Compl. ¶¶ 30-32, 70-72.] In their

motion, Defendants clarify that BANA, and not BNYM signed the SPA to participate in HAMP. 

[Doc. No. 4-1, Def.’s Mot. at 12-13 & n.3; Doc. No. 5-2, Ex. 11, SPA.]

Plaintiffs subsequently defaulted on the loan, and Defendants recorded a notice of default

against the Hornblend Property on September 23, 2011. The notice of default showed that Castillo

442 F.3d 741, 746 n.6 (9th Cir. 2006) (holding that courts may take judicial notice of court filings);

Headwaters Inc. v. U.S. Forest Serv., 399 F.3d 1047, 1051 n.3 (9th Cir. 2005) (holding that courts may

take judicial notice of the docket in related cases). The Court may also take judicial notice of Exhibit

11, the SPA between BANA and Fannie Mae, which is a public record available through the U.S.

Department of the Treasury. Moreover, the Court may consider the SPA, which is not attached to the

pleading, because its contents are alleged in the complaint and Plaintiffs do not question its

authenticity. Accordingly, the Court GRANTS Defendants’ request for judicial notice.

- 3 - 12cv1833

Case 3:12-cv-01833-IEG-BGS Document 14 Filed 10/09/12 Page 3 of 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

was $134,586.23 in arrears as of September 22, 2011. [Id.; Doc. No. 5-1, RJN, Ex. 5, Notice of

Default.] Defendants subsequently filed a notice of trustee’s sale on December 27, 2011, setting a

sale date of January 18, 2012. [Doc. No. 1-1, Compl. ¶ 21; Doc. No. 5-1, RJN, Ex. 6.] 

Defendants allege that on January 17, 2012, Castillo filed for Chapter 7 bankruptcy in the

U.S. Bankruptcy Court for the Southern District of California. Defendants also allege that the

bankruptcy action remains open and that the scheduled sale has not occurred due to an automatic

stay. [Doc. No. 4-1, Def.’s Mot. at 3; Doc. No. 5-1, RJN, Ex. 7.] 

On June 25, 2012, Plaintiffs filed a complaint in state court against Defendants and

recorded a lis pendens against the Hornblend Property. [Doc. No. 1-1, Compl.; Doc. No. 1-2,

Notice of Pendency of Action.] On July 25, 2012, Defendants removed the action to this Court on

the basis of federal question jurisdiction and supplemental jurisdiction. [Doc. No. 1, Notice of

Removal.] In their complaint, Plaintiffs allege ten causes of action for: (1) fraud in origination of

loan; (2) wrongful foreclosure in violation of California Civil Code § 2923.5; (3) breach of

contract; (4) declaratory relief; (5) breach of implied covenant of good faith and fair dealing; (6)

rescission; (7) injunctive relief; (8) unfair and deceptive business act practices; (9) predatory

lending and violation of California Business and Professions Code § 17200; and (10) quiet title. 

[Doc. No. 1-1, Compl.] 

DISCUSSION

I. Plaintiffs’ Motion to Remand for Lack of Subject Matter Jurisdiction

The Court first addresses Plaintiffs’ motion to remand. [Doc. No. 6, Pl.’s Mot. to

Remand.] “The Supreme Court has instructed lower courts to resolve jurisdictional issues before

reaching the merits of a case.” Rivera v. R.R. Retirement Bd., 262 F.3d 1005, 1008 (9th Cir.

2001) (citing Steel Co. v. Citizens for a Better Env’t, 523 U.S. 83, 94 (1998) (rejecting doctrine of

“hypothetical jurisdiction”)). “Without jurisdiction the court cannot proceed at all in any cause. 

Jurisdiction is power to declare the law, and when it ceases to exist, the only function remaining to

the court is that of announcing the fact and dismissing the cause.” Steel Co., 523 U.S. at 94

(internal quotation marks omitted). Therefore, the Court must first determine if it has subject

- 4 - 12cv1833

Case 3:12-cv-01833-IEG-BGS Document 14 Filed 10/09/12 Page 4 of 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

matter jurisdiction before proceeding to the merits of this case. 

An action is removable to federal court only if it might have been brought there originally. 

See 28 U.S.C. § 1441(a). Federal courts are courts of limited jurisdiction and as such “possess

only that power authorized by Constitution and statute, which is not to be expanded by judicial

decree.” Kokkonen v. Guardian Life Ins. Co. of Am., 511 U.S. 375, 377 (1994) (internal citations

omitted). The court must presume that a case lies outside of its limited jurisdiction, and the burden

of establishing jurisdiction is on the party asserting it. Id. Lack of subject matter jurisdiction can

be raised at any time by any party or sua sponte by the court. Csibi v. Fustos, 670 F.2d 134, 136

n.3 (9th Cir. 1982).

“[D]istrict courts shall have original jurisdiction of all civil actions arising under the

Constitution, laws, or treaties of the United States.” 28 U.S.C. § 1331. The “federal question”

must be disclosed on the face of the complaint. Sparta Surgical Corp. v. Nat’l Ass’n of Securities

Dealers, Inc., 159 F.3d 1209, 1211 (9th Cir. 1998). Under the longstanding well-pleaded

complaint rule, this means that jurisdiction is proper “only when the plaintiff’s statement of his

own cause of action shows that it is based upon [federal law].” Vaden v. Discover Bank, 556 U.S.

49, 60 (2009) (internal quotation omitted).

In determining whether federal jurisdiction attaches to a state law claim that is predicated

on violations of federal law, a court must examine whether the “state-law claim necessarily raise[s]

a stated federal issue, actually disputed and substantial, which a federal forum may entertain

without disturbing any congressionally approved balance of federal and state judicial

responsibilities.” Grable & Sons Metal Products, Inc. v. Darue Engineering & Mfg., 545 U.S. 308,

314 (2005). “It is not enough that the court may have to interpret federal laws or regulations. 

‘Arising under’ jurisdiction exists only ‘where the vindication of a right under state law

necessarily turn[s] on some construction of federal law.’” William Schwarzer et al., CAL. PRAC.

GUIDE: FED. CIV. PRO. BEFORE TRIAL § 2:108 (2009) (quoting Merrell Dow Pharmaceuticals Inc.

v. Thompson, 478 U.S. 804, 808 (1986)). 

Plaintiffs argue that their complaint contains no claims that arise under federal law. They

argue that therefore, the action should be remanded to state court. [Doc. No. 6-1, P. & A. Supp.

- 5 - 12cv1833

Case 3:12-cv-01833-IEG-BGS Document 14 Filed 10/09/12 Page 5 of 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

Pl.’s Mot. to Remand.] Defendants argue that Plaintiffs’ “breach of contract claim is premised on

an agreement between Bank of America and the United States that explicitly provides it must be

interpreted according to federal common law.” [Doc. No. 11, Def.’s Opp. to Mot. to Remand at 1.] 

They also argue that Plaintiffs’ claim for declaratory relief is a “request for a declaration that

various laws—including two federal statutes—were violated by defendants.” Defendants assert

that supplemental jurisdiction is proper over the remaining state law claims because all of

Plaintiffs’ claims arise from a common nucleus of operative facts. [Id.] The Court will address

each of these potential bases for federal jurisdiction in turn.

A. Plaintiffs’ Breach of Contract Claim

Plaintiffs’ breach of contract claim alleges that Defendants breached their obligations under

the SPA, to which Plaintiffs are not a party, by failing to consider Plaintiffs for a loan

modification. Plaintiffs argue that they are intended beneficiaries of the SPA. [Doc. No. 1-1,

Compl. ¶¶ 70-75.] Defendants contend that Plaintiffs are not third-party beneficiaries of the SPA

and therefore have no right to enforce its terms. [Doc. No. 4-1, Def.’s Mot. at 12-14.]

In an action concerning alleged third-party beneficiaries under the Pharmaceutical Pricing

Agreement (“PPA”), the Ninth Circuit found that the action raised a federal question because the

PPA is “a contract[] entered into pursuant to federal law and to which the government is a party,

and which expressly provides that it shall be construed in accordance with Federal common law.” 

County of Santa Clara v. Astra USA, Inc., 588 F.3d 1237, 1243-44 (9th Cir. 2009), rev’d on other

grounds by Astra USA, Inc. v. Santa Clara County, 131 S. Ct. 1342 (2011). 

Similarly, the instant action involves a breach of contract claim that is premised on a

contract, the SPA, between BANA and the United States, operating through Fannie Mae. Further,

the SPA explicitly provides that it is governed by federal law. [Doc. No. 5-2, RJN, Ex. 11, SPA ¶

11.] In order to address this claim, the Court must determine whether Plaintiffs are third-party

beneficiaries, which will require the Court to address a question of federal law. Therefore,

Plaintiffs’ breach of contract claim arises under federal law as required by § 1331 because

Plaintiffs’ right to relief necessarily depends on the resolution of a substantial question of federal

law. See Copeland-Turner v. Wells Fargo Bank, N.A., No. CV-11-37-HZ, 2011 U.S. Dist. LEXIS

- 6 - 12cv1833

Case 3:12-cv-01833-IEG-BGS Document 14 Filed 10/09/12 Page 6 of 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

28093, at *13 (D. Or. March 17, 2011) (holding that based on Astra USA, Inc., a claim by plaintiff

that he is the third-party beneficiary of a contract between Wells Fargo and the federal government

would meet the “arising under” prong of § 1331); Phipps v. Wells Fargo Bank, N.A., No. CV F

10-2025 LJO SKO, 2011 U.S. Dist. LEXIS 10550, at *6 (E.D. Cal. Jan. 27, 2011) (“Federal law

controls the interpretation of a contract entered into pursuant to federal law and to which the

United States is a party.”); Marques v. Wells Fargo Home Mortg., Inc., No. 09-cv-1985-L(RBB),

2010 U.S. Dist. LEXIS 81879 (S.D. Cal. Aug. 12, 2010) (same). 

B. Plaintiffs’ Claim for Declaratory Relief

“[W]hen a claim can be supported by alternative and independent theories–one of which is

a state law theory and one of which is a federal law theory–federal question jurisdiction does not

attach because federal law is not a necessary element of the claim.” Rains v. Criterion Sys., Inc.,

80 F.3d 339, 346 (9th Cir. 1996). Plaintiffs’ claim for declaratory relief seeks a declaration that

the pending foreclosure sale is “in violation of Federal HOLA [Home Owners Loan Act]

provisions, Federal Mortgage Assistance Programs, in effect, TILA [Truth in Lending Act]

provisions, and State of California mortgage assistance programs.” [Doc. No. 1-1, Compl. ¶ 77] 

Plaintiffs’ request for declaratory relief does not necessarily turn on construction of federal law

because it may be sustained by a declaration that the pending foreclosure sale is in violation of

California mortgage assistance programs. See Merrell Dow Pharmaceuticals, 478 U.S. at 808. 

Because Plaintiffs’ request for declaratory relief can be supported by an alternate and independent

state law theory, the Court finds that this claim does not support federal question jurisdiction.

Because the Court finds that Plaintiffs’ breach of contract claim supports federal question

jurisdiction, the Court DENIES Plaintiffs’ motion to remand.

II. Defendants’ Motion to Dismiss

A motion to dismiss pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure tests

the legal sufficiency of the claims asserted in the complaint. Fed. R. Civ. P. 12(b)(6); Navarro v.

Block, 250 F.3d 729, 731 (9th Cir. 2001). The court must accept all factual allegations pleaded in

the complaint as true, and must construe them and draw all reasonable inferences from them in

- 7 - 12cv1833

Case 3:12-cv-01833-IEG-BGS Document 14 Filed 10/09/12 Page 7 of 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

favor of the nonmoving party. Cahill v. Liberty Mutual Ins. Co., 80 F.3d 336, 337-38 (9th

Cir.1996). To avoid a Rule 12(b)(6) dismissal, a complaint need not contain detailed factual

allegations, rather, it must plead “enough facts to state a claim to relief that is plausible on its

face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). 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.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009)

(citing Twombly, 550 U.S. at 556).

However, “a plaintiff’s obligation to provide the ‘grounds’ of his ‘entitle[ment] to relief’

requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of

action will not do.” Twombly, 550 U.S. at 555 (quoting Papasan v. Allain, 478 U.S. 265, 286

(1986)) (alteration in original). A court need not accept “legal conclusions” as true. Iqbal, 556

U.S. at 678. In spite of the deference the court is bound to pay to the plaintiff’s allegations, it is

not proper for the court to assume that “the [plaintiff] can prove facts that [he or she] has not

alleged or that defendants have violated the . . . laws in ways that have not been alleged.” 

Associated Gen. Contractors of Cal., Inc. v. Cal. State Council of Carpenters, 459 U.S. 519, 526

(1983). “Where 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.’” Iqbal, 556

U.S. at 1949 (quoting Twombly, 550 U.S. at 678).

In determining the propriety of a Rule 12(b)(6) dismissal, a court may not look beyond the

complaint for additional facts. United States v. Ritchie, 342 F.3d 903, 908 (9th Cir. 2003). 

Further, a court generally may not consider materials beyond the pleadings when ruling on a Rule

12(b)(6) motion. However, a court “may take judicial notice of matters of public record . . . as

long as the facts noticed are not subject to reasonable dispute.” Skilstaf, Inc. v. CVS Caremark

Corp., 669 F.3d 1005, 1016 n.9 (9th Cir. 2012).

A. Plaintiffs’ Breach of Contract Claim

The Court will first address Plaintiffs’ third cause of action for breach of contract, which

supplies federal question jurisdiction. Plaintiffs allege that BNYM breached the SPA, by its

failure to consider Plaintiff Castillo for an affordable loan modification. [Doc. No. 1-1, Compl. ¶¶

- 8 - 12cv1833

Case 3:12-cv-01833-IEG-BGS Document 14 Filed 10/09/12 Page 8 of 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

71-72.] Plaintiffs argue that as eligible borrowers, they are intended beneficiaries of the SPA,

entered into between BNYM and the U.S. government, operating through Fannie Mae. [Id. ¶¶ 70,

74.] Defendants clarify that BANA, and not BNYM, signed the SPA. [Doc. No. 4-1, Def.’s Mot.

at 12-13 & n.3; Doc. No. 5-2, Ex. 11, SPA.] Defendants argue that Plaintiffs are not third-party

beneficiaries of the SPA and that therefore, they have no right to enforce its terms. [Doc. No. 4-1,

Def.’s Mot. at 12-14.]

“To sue as a third-party beneficiary of a contract, the third party must show that the

contract reflects the express or implied intention of the parties to the contract to benefit the third

party.” Klamath Water Users Protective Assn. v. Patterson, 204 F.3d 1206, 1211 (9th Cir. 2000). 

The contract need not specifically identify the intended beneficiary, but the third party must fall

within a class clearly intended by the parties to benefit from the contract. Id. 

“Demonstrating third-party beneficiary status in the context of a government contract is a

comparatively difficult task,” Astra USA, Inc., 588 F.3d at 1244, because parties that benefit from

a government contract are generally assumed to be incidental beneficiaries, and may not enforce

the contract absent a clear intent to the contrary. Klamath, 204 F.3d at 1211. A court must

examine the “precise language of the contract for a ‘clear intent’ to rebut the presumption that the

[third parties] are merely incidental beneficiaries.” Orff v. United States, 358 F.3d 1137, 1145

(9th Cir. 2004). In Klamath, although the Ninth Circuit found that the contract in question was

entered into with the third party in mind, nothing in the contract demonstrated a clear intention to

grant the third party enforceable rights. Therefore, the Court found that the third party was not a

third-party beneficiary. Klamath, 204 F.3d at 1211-12. The Court held that “the recitation of

constituencies whose interest bear on a government contract does not grant these incidental

beneficiaries enforceable rights. Vague, hortatory pronouncements in the [c]ontract, by

themselves, are insufficient to support [the third party’s] claims that the United States and the

[contracting party] intended to assume a direct contractual obligation to [the third party].” Id. at

1212.

Similarly, although the SPA was entered into with borrowers in mind for the purpose of

minimizing foreclosures, Plaintiffs have not demonstrated clear intent in the contract to confer

- 9 - 12cv1833

Case 3:12-cv-01833-IEG-BGS Document 14 Filed 10/09/12 Page 9 of 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

third party enforceable rights on borrowers. Although Plaintiffs argue that eligible borrowers are

identified in the contract and may receive performance from Defendant, these statements are

insufficient to show an intent to confer enforceable rights on borrowers. See id. at 1212. In fact,

the SPA in ¶ 11(E) provides that the contract “shall inure to the benefit of . . . the parties to the

Agreement . . . .” [Doc. No. 5-2, RJN, Ex. 10-11.] 

Moreover, “numerous courts have determined that individual borrowers do not have

standing to sue under a HAMP SPA because they are not intended third-party beneficiaries of the

SPA.” Velasco v. Aurora Loan Serv. LLC, No. 2:11-cv-04784, 2012 U.S. Dist. LEXIS 21490, at

*6-7 (C.D. Cal. Feb. 21, 2012) (quoting Cleveland v. Aurora Loan Serv., LLC, No. C 11-0773,

2011 U.S. Dist. LEXIS 55168, at *11 (N.D. Cal. May 24, 2011) (collecting cases)); see also

Hoffman v. Bank of Amer., N.A., No. C 10-2171, 2010 U.S. Dist. LEXIS 70455, at *11-12 (N.D.

Cal. June 30, 2010) (collecting case). For example, in Hoffman, the court determined that the

borrower was “an incidental and not an intended beneficiary to the HAMP servicer’s agreement”

and that therefore the borrower did not have enforceable rights under the HAMP SPA. Id. (citing

Klamath, 204 F.3d 1206 and distinguishing Astra USA, Inc., 588 F.3d 1237). Even though the

Hoffman court recognized that HAMP’s intention was to minimize foreclosures and that the SPA

was entered into with third parties in mind, the court held that this was insufficient to show that the

contract was made with the clear intention to grant the third party enforceable rights. Hoffman,

2010 U.S. Dist. LEXIS, at *11-12.

Therefore, as borrowers, Plaintiffs lack standing to pursue their breach of contract claim

based on the SPA between BANA and Fannie Mae because they are not intended third-party

beneficiaries of the contract. Accordingly, Plaintiffs’ third cause of action for breach of contract

fails to state a claim and is DISMISSED with prejudice. 

B. Supplemental Jurisdiction over State Law Claims

With Plaintiffs’ sole claim supplying federal jurisdiction dismissed, only state law claims

remain. The Court has supplemental jurisdiction over these claims. Under 28 U.S.C. §

1367(c)(3), however, the Court “may decline to exercise supplemental jurisdiction over a claim . . .

if . . . [it] has dismissed all claims over which it has original jurisdiction.” A district court’s

- 10 - 12cv1833

Case 3:12-cv-01833-IEG-BGS Document 14 Filed 10/09/12 Page 10 of 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

decision whether to exercise supplemental jurisdiction after dismissing every claim over which it

had original jurisdiction is “purely discretionary.” Carlsbad Tech., Inc. v. HIF Bio, Inc., 556 U.S.

636, 639 (2009); accord Lacey v. Maricopa Cnty., 649 F.3d 1118, 1137 (9th Cir. 2011). In

exercising its discretion, the court may look to a host of factors, “including the circumstances of

the particular case, the nature of the state law claims, the character of the governing state law, and

the relationship between the state and federal claims.” City of Chicago v. Int’l College of

Surgeons, 522 U.S. 156, 173 (1997); see also United Mine Workers of Am. v. Gibbs, 383 U.S.

715, 726 (1966). In the usual case, where federal claims are dismissed before trial, “the balance of

factors ... will point toward declining to exercise jurisdiction over the remaining state law claims.” 

Gini v. Las Vegas Metro. Police Dep’t, 40 F.3d 1041, 1046 (9th Cir. 1994) (internal quotation

omitted); accord Religious Tech. Ctr. v. Wollersheim, 971 F.2d 364, 367-68 (9th Cir. 1992) (per

curiam); Scholar v. Pacific Bell, 963 F.2d 264, 268 n.4 (9th Cir. 1992).

In this case, looking at the balance of factors—including the fact that this case is still in its

infancy and that the present motions are the only motions that have been filed to date—the Court

believes it is more appropriate to decline to exercise supplemental jurisdiction over the remaining

state law claims and to remand those claims to state court. See Lacey, 649 F.3d at 1137; Gini, 40

F.3d at 1064. Accordingly, the Court REMANDS Plaintiffs’ remaining state law claims.

III. Defendants’ Motions to Strike and to Expunge the Lis Pendens

In addition to their motion to dismiss, Defendants also move to strike portions of Plaintiffs’

complaint and to expunge the lis pendens. [Doc. No. 4, Def.’s Mtns.] Because the Court

dismisses Plaintiffs’ breach of contract claim and declines to exercise jurisdiction over Plaintiffs’

remaining state law claims, the Court DENIES AS MOOT Defendants’ motions to strike and to

expunge the lis pendens.

CONCLUSION

For the reasons above, the Court:

1. DENIES Plaintiffs’ motion to remand; 

2. GRANTS in part Defendants’ motion to dismiss and DISMISSES WITH

- 11 - 12cv1833

Case 3:12-cv-01833-IEG-BGS Document 14 Filed 10/09/12 Page 11 of 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

PREJUDICE Plaintiffs’ third cause of action for breach of contract;

3. REMANDS to the San Diego Superior Court Plaintiffs’ first, second, and fourth

through tenth causes of action; and

4. DENIES AS MOOT Defendants’ motions to strike and to expunge the lis pendens.

IT IS SO ORDERED.

DATED: October 9, 2012 ________________________________

IRMA E. GONZALEZ

United States District Judge

- 12 - 12cv1833

Case 3:12-cv-01833-IEG-BGS Document 14 Filed 10/09/12 Page 12 of 12