Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-casd-3_16-cv-00843/USCOURTS-casd-3_16-cv-00843-0/pdf.json

Nature of Suit Code: 220
Nature of Suit: Foreclosure
Cause of Action: 28:1446oc Notice of Removal - Other Contract

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UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF CALIFORNIA

KANCHANA KARUNARATNE, an 

individual; CARLA KARUNARATNE, 

an individual,

Plaintiffs,

v.

US BANK NATIONAL ASSOCIATION;

OCWEN LOAN SERVICING, LLC; 

MORTGAGE ELECTRONIC 

REGISTRATION SYSTEMS, INC.; 

WESTERN PROGRESSIVE, LLC; AND 

DOES 1 THROUGH 10, INCLUSIVE,

Defendants.

Case No.: 16-cv-843-JLS-KSC

ORDER GRANTING DEFENDANTS’ 

MOTION TO DISMISS PURSUANT 

TO FEDERAL RULE of CIVIL 

PROCEDURE 12(b)(6)

(ECF No. 9)

Presently before the Court is Defendants U.S. Bank National Association’s, Ocwen 

Loan Servicing, LLC’s, and Mortgage Electronic Registration Systems, Inc.’s (together, 

“Defendants”) Motion to Dismiss (“MTD”). (ECF No. 9.) Also before the Court is 

Defendants’ Request for Judicial Notice in Support of Motion to Dismiss (“RJN”). (ECF 

No. 10.) Having considered the parties’ arguments and the law, the Court hereby 

GRANTS both Defendants’ RJN and Defendants’ MTD.

/ / /

/ / /

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BACKGROUND

Plaintiffs reside in Escondido California and own real property at 1827 Almagro 

Lane, Escondido, California 92026 (the “Escondido Property”). (First Amended 

Complaint (“FAC”) ¶¶ 1–2.) In May of 2005, Plaintiffs obtained a mortgage loan (“the 

Loan”) from GreenPoint Mortgage Funding, Inc., in the principal sum of $635,200.00. 

(See FAC ¶¶ 13–14.) The Loan was reflected in a promissory note which was in turn 

secured by a Deed of Trust encumbering the Escondido Property. (See id.) The beneficial 

interest under the Deed of Trust was subsequently assigned to U.S. Bank as trustee for the 

CertificateHolders of the Merrill Lynch Mortgage Investors Trust, Mortgage Loan AssetBacked Certificates, Series 2005-A6. (See FAC ¶ 15; RJN Ex. 2.)

Various aspects of the Deed of Trust are governed by a Pooling and Servicing 

Agreement (“PSA”), Pooling and Servicing Agreement, SEC.GOV (Aug. 1, 2005), 

https://www.sec.gov/Archives/edgar/data/1338909/000088237705002597/d370128.htm, 

that, in part, set August 30, 2005 as the closing date for the Trust. (PSA art. I; see FAC 

¶¶ 18, 22–23, 26.) The PSA further stipulates that the agreement and all relevant 

certificates shall be governed by New York law, (PSA § 10.06), and requires any 

conveyance of a mortgage loan to include a valid Mortgage Note showing a complete chain 

of endorsement from the mortgage originator to the last endorsee, (see FAC ¶ 26; PSA 

§ 2.01).

On April 14, 2008 Plaintiffs filed a voluntary petition for relief under Chapter 7 of 

Title 11 of the United States Code in the United States Bankruptcy Court for the Southern 

District of California. (RJN Exs. 3, 6.) Plaintiffs obtained a Chapter 7 discharge on July 

14, 2008, and the Bankruptcy was terminated on July 17, 2008. (See id. Ex. 3.) 

Some years later, Plaintiff defaulted on approximately $259,592.23 worth of 

payments due on the Loan, and a Notice of Default and Election to Sell Under Deed of 

Trust was recorded against the property on October 23, 2015. (See FAC ¶ 16; RJN 4.) 

Plaintiffs failed to cure the default, and a Notice of Trustee’s Sale was recorded against the 

Property on March 4, 2016. (See FAC ¶ 94; RJN 5.)

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On February 17, 2016, Plaintiffs commenced this action by filing the Complaint in 

San Diego County Superior Court. (See Notice of Removal of Action Under 28 U.S.C. 

§ 1441(b), ECF No. 1.) Defendants removed the action to this Court on April 8, 2016, 

(id.), and on April 15, 2016 filed a Motion to Dismiss (ECF No. 4). Plaintiff filed the FAC 

on May 5, 2016 and several days later the Court denied as moot Defendant’s initial MTD 

(ECF No. 8), thus setting the stage for Defendant’s instant MTD (ECF No. 9).

LEGAL STANDARD

Federal Rule of Civil Procedure 12(b)(6) permits a party to raise by motion the 

defense that the complaint “fail[s] to state a claim upon which relief can be granted,” 

generally referred to as a motion to dismiss. The Court evaluates whether a complaint 

states a cognizable legal theory and sufficient facts in light of Federal Rule of Civil 

Procedure 8(a), which requires a “short and plain statement of the claim showing that the 

pleader is entitled to relief.” Although Rule 8 “does not require ‘detailed factual 

allegations,’ . . . it [does] demand[] more than an unadorned, the-defendant-unlawfullyharmed-me accusation.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. 

Corp. v. Twombly, 550 U.S. 544, 555 (2007)). In other words, “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 (citing Papasan v. Allain, 478 U.S. 265, 286 (1986)). “Nor does 

a complaint suffice if it tenders ‘naked assertion[s]’ devoid of ‘further factual 

enhancement.’” Iqbal, 556 U.S. at 677 (citing Twombly, 550 U.S. at 557).

“To survive a motion to dismiss, a complaint must contain sufficient factual matter, 

accepted as true, to ‘state a claim to relief that is plausible on its face.’” Id. (quoting 

Twombly, 550 U.S. at 570); see also Fed. R. Civ. P. 12(b)(6). A claim is facially plausible 

when the facts pled “allow[] the court to draw the reasonable inference that the defendant 

is liable for the misconduct alleged.” Iqbal, 556 U.S. at 677 (citing Twombly, 550 U.S. at 

556). That is not to say that the claim must be probable, but there must be “more than a 

sheer possibility that a defendant has acted unlawfully.” Id. Facts “‘merely consistent 

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with’ a defendant’s liability” fall short of a plausible entitlement to relief. Id. (quoting 

Twombly, 550 U.S. at 557). Further, the Court need not accept as true “legal conclusions”

contained in the complaint. Id. This review requires context-specific analysis involving 

the Court’s “judicial experience and common sense.” Id. at 678 (citation omitted). 

“[W]here the well-pleaded facts do not permit the court to infer more than the mere 

possibility of misconduct, the complaint has alleged—but it has not ‘show[n]’—‘that the 

pleader is entitled to relief.’” Id.

ANALYSIS

I. Request for Judicial Notice

Although within the context of a Motion to Dismiss under Federal Rule of Civil 

Procedure 12(b)(6) a Court generally may not consider matters outside of the pleadings, 

see Fed. R. Civ. P. 12(d), it is nonetheless “appropriate for the Court to take notice of 

‘relevant facts obtained from the public record . . . .’” See Papasan, 478 U.S. at 298; Harris 

v. Cty. of Orange, 682 F.3d 1126, 1132–33 (9th Cir. 2012) (noting that a court may “take 

judicial notice of undisputed matters of public record” and that “documents not attached to 

a complaint may be considered if no party questions their authenticity and the complaint 

relies on those documents” (citing Lee v. City of L.A., 250 F.3d 668, 688, 689 (9th Cir. 

2001)). 

Defendants move the Court to take judicial notice of seven exhibits in support of 

their MTD: (1) the Deed of Trust recorded in the Official Records of San Diego County, 

California; (2) the Assignment of Deed of Trust recorded in the Official Records of San 

Diego County, California; (3) the PACER Docket for Plaintiffs’ bankruptcy proceeding; 

(4) the Notice of Default recorded in the Official Records of San Diego County, California; 

(5) the Notice of Trustee’s Sale recorded in the Official Records of San Diego County, 

California; (6) the Bankruptcy Schedules Plaintiffs filed in the relevant bankruptcy 

proceedings; and (7) the PSA document on file with the SEC. (RJN 1–2; MTD 5 n.1.) 

Plaintiffs do not oppose Defendants’ requests. The Court finds that each document is

/ / /

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properly judicially noticed. Accordingly, the Court GRANTS Defendants’ requests for 

judicial notice.

II. MTD

Plaintiffs assert seven claims for relief: (1) Wrongful Foreclosure; (2) violation of 

California Civil Code § 2924(a)(6); (3) violation of California Civil Code § 2924.17; (4) 

violation of California’s Unfair Competition Law—California Business and Professional 

Code §§ 17200 et seq.;

1

(5) breach of the covenant of good faith and fair dealing; (6) 

declaratory relief; and (7) cancellation of written instruments. Defendants argue that none 

of Plaintiffs’ claims survive 12(b)(6) scrutiny and advance multiple arguments in support 

of this contention. Because Defendants’ arguments regarding judicial estoppel and the 

theory that Plaintiffs’ claims are the sole property of the 2008 bankruptcy estate have the 

potential to dispose of the entire case, the Court addresses these arguments first.

A. Judicial Estoppel and Plaintiffs’ Claims as Property of the Bankruptcy Estate

Defendants first argue that Plaintiffs should be judicially estopped from asserting 

any of the FAC’s claims or, in the alternative, that Plaintiffs lack standing to pursue the

claims because they initially comprised part of and now remain sole property of the 

bankruptcy estate, thus making the Chapter 7 trustee the only person with standing to 

prosecute Plaintiffs’ claims. (Defs.’ Mem. of P&A in Supp. of MTD (“Def.’s Supp.”) 4–

6.) These two arguments hinge on a common theory: Plaintiffs knew or should have known 

of the instant claims at the time of their 2008 bankruptcy filings. (Id.); see Hamilton v. 

State Farm Fire & Cas. Co., 270 F.3d 778, 784 (9th Cir. 2001) (noting that a bankruptcy 

debtor must disclose all assets and liabilities, including claims where “the debtor has 

knowledge of enough facts to know that a potential cause of action exists during the 

pendency of the bankruptcy”); In re JZ L.L.C., 371 B.R. 412, 418 (B.A.P. 9th Cir. 2007) 

 

1 Plaintiffs’ caption to the FAC lists claim four as “violation of California Bus. & Prof. Code § 17200 et. 

seq. & 17500 et seq.” (FAC 1 (emphasis added).) However, the corresponding section of Plaintiffs’ FAC 

lists and discusses only Defendants’ alleged violations of California Business and Professional Code 

§ 17200 et seq. (Id. at 14–15.) Accordingly, to the extent Plaintiffs assert any claim under California’s 

False Advertising Law, Cal. Bus. & Prof. Code § 17500 et seq., such a claim is currently invalidly pled.

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(noting that “property of the estate that is not scheduled and not otherwise administered 

before a case is closed is not abandoned to the debtor at the time of closing, but rather 

remains property of the estate—forever”). Defendants argue that applying such a theory is 

appropriate here because Plaintiffs’ claims all rely on the same alleged predicate fact that 

“the loan was not timely sold to the Trust,” and, because the closing date of the trust was 

August 30, 2005, the defect in the transfer of the Loan occurred, if ever, well before 

Plaintiffs filed the Bankruptcy petition. (Def.’s Supp. 5.) Thus, Plaintiffs knew or should 

have known of the defective transfer by 2008—approximately three years after the 

allegedly invalid transfer occurred. 

However, it appears that Plaintiffs allege in part that “the Assignment purporting to 

transfer beneficial interests to USBANK as trustee . . . occurred well after the Closing Date 

of the Securitized Trust,” “on or around October 2, 2013,” and that therefore the assignment 

“is VOID.” (See FAC ¶¶ 15, 72–73.) To the extent this correctly characterizes Plaintiffs’

argument, Defendants’ theory thus fails because Plaintiff could not possibly have known 

in 2008 that Defendants would later allegedly illegally assign the beneficial interest. To 

the extent this incorrectly characterizes Plaintiffs’ argument, see id. ¶¶ 28–30 (seemingly 

arguing, per Defendants’ characterization, that the requirements of the PSA were not met 

as of the 2005 closing date), the complaint nonetheless contains insufficient factual 

material for the Court to infer that Plaintiff in 2008 had or should have had knowledge of 

the relevant claims such that dismissal of Plaintiff’s claims would now be warranted under 

Defendant’s expansive and preclusive theory. See Hamilton, 270 F.3d at 784 (explaining 

that legal claims are encompassed by bankruptcy disclosure requirements only when “the 

debtor has knowledge of enough facts to know that a potential cause of action exists during 

the pendency of the bankruptcy” (emphasis added)). In short, taking the allegations under 

either interpretation in the light most favorable to the Plaintiffs, Defendants’ arguments 

here fail. 

The Court next turns to Defendants’ second-most-expansive argument: that 

Plaintiffs lack standing to challenge the loan assignment.

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B. Standing

Defendants argue that Plaintiffs lack standing to challenge the validity of the 

allegedly wrongful assignment because in the pre-foreclosure context “an unrelated third 

party to [an] alleged securitization . . . lacks standing to enforce any agreements, including 

the investment trust’s pooling and servicing agreement, relating to such transactions.” 

(MTD 7 (quoting Jenkins v. JP Morgan Chase Bank, N.A., 216 Cal. App. 4th, 497, 515 

(2013)); accord Christie v. Bank of New York Mellon, N.A., 617 F. App’x 680, 681 (9th 

Cir. 2015).) Plaintiffs urge that a recent California Supreme Court case, Yvanova v. New 

Century Mortgage Corp., 365 P.3d 845 (Cal. 2016), and its progeny alter the legal 

landscape so as to provide Plaintiffs standing in this pre-foreclosure context. (Pl.’s Opp’n 

9–11.) Although the Yvanova Court explicitly noted that “the use of a lawsuit to preempt 

a nonjudicial foreclosure . . . is not within the scope of our review,” 934 P.3d at 855, 

Plaintiffs assert that “[i]t is becoming ever so clear that Yvanova is currently being applied 

to pre-foreclosure matters,” (Pl.’s Opp’n at 11.) Plaintiff’s Opposition cites three 

California cases that, when the Opposition was filed, had recently been remanded by the 

California Supreme Court with directions to the Appellate Divisions to reconsider their 

holdings in light of Yvanova. After reviewing these cases, the Court agrees with 

Defendants that Plaintiffs lack pre-foreclosure standing to challenge the validity of the 

assignment under the PSA. 

As an initial matter, Plaintiffs’ citations to Castro v. IndyMac INDX Mortgage Loan 

Trust 2005-AR21, Super. Ct. No. INC1302920, 2015 WL 3562455 (Cal. Ct. App. June 9, 

2015), and Mendoza v. JPMorgan Chase Bank, 228 Cal. App. 4th 1020 (2014), are 

misplaced—both cases concerned suits brought post-foreclosure. See Castro, 2015 WL 

3562455, *1 (“Plaintiff and appellant Robert J. Castro was the owner of a La Quinta 

residence, which was sold in a statutory nonjudicial foreclosure sale . . . in May 2013, after 

Castro defaulted on his mortgage payments in 2008.”); Mendoza, 228 Cal. App. 4th at 1023 

(“In this case, we examine issues arising from plaintiff Maria Mendoza's purchase of a 

home with proceeds of a loan secured by a deed of trust, and the subsequent loss of the 

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home in a nonjudicial foreclosure sale.”). Further, the only one of Plaintiff’s cited cases 

that was indeed brought in the pre-foreclosure context has now been reconsidered by the 

Second District of the California Court of Appeals and the resulting opinion holds that 

Yvanova is not to be extended to the pre-foreclosure context. Keshtgar v. U.S. Bank, N.A., 

2d-cv-B246193, 2016 WL 4183750 (Cal. Ct. App. Aug. 8, 2016) (“Gomes and Jenkins

state valid reasons why such a preemptive action is not allowed. Nothing in Yvanova

affects the holding in those cases. In fact, Yvanova is quite careful to limit its holding to 

actions for wrongful foreclosure.”). And the Keshtgar opinion does not stand alone; 

Saterback v. JPMorgan Chase Bank, N.A., 245 Cal. App. 4th 808 (2016), another case 

remanded by the California Supreme Court due to the Yvanova decision, also refused to 

extend Yvanova to the pre-foreclosure context, id. at 815.

In sum, Plaintiffs lack standing in the pre-foreclosure context to challenge the 

validity of any assignment of the underlying Loan. Because Plaintiffs first, second, third,2

fourth, fifth, and seventh claims for relief all rely on Plaintiffs’ ability to challenge the 

validity of this assignment, (FAC ¶¶ 72–74, 76, 87–88, 98, 103–04, 107–08, 112–13, 120–

21, 130–31, 135–38; see also Pl.’s Opp’n 9–18), all of these claims are DISMISSED 

WITH PREJUDICE unless and until Plaintiffs’ property is nonjudicially foreclosed upon. 

Finally, Plaintiffs’ sixth claim for declaratory relief expressly relies on Plaintiffs’ other 

claims, (FAC ¶¶ 124–27; see also Pl.’s Opp’n 16–17), and accordingly is also 

DISMISSED WITH PREJUDICE unless and until Plaintiffs’ property is nonjudicially

foreclosed upon.

/ / /

/ / /

 

2 Plaintiffs arguably assert another discrete factual predicate for this claim, alleging that Defendants 

“fail[ed] to put the correct amount owed in the Notice of Default.” (FAC ¶ 105.) However, nowhere in 

the Complaint do Plaintiffs note the correct or incorrect amount owed nor the manner in which Defendants 

failed to review competent and reliable evidence to substantiate the borrower’s default and the right to 

foreclosure. Accordingly, this arguably discrete factual predicate falls well short of meeting the 

plausibility standard set forth in Twombly and Iqbal.

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CONCLUSION

Because Plaintiffs lack standing to challenge the validity of the underlying 

assignment of the Loan to the Deed of Trust, and because all of Plaintiffs’ claims at least 

partially rely on such challenge, all of Plaintiffs’ claims are DISMISSED WITH 

PREJUDICE unless and until Plaintiffs’ property is nonjudicially foreclosed upon.

IT IS SO ORDERED.

Dated: November 15, 2016

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