Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-casd-3_10-cv-01910/USCOURTS-casd-3_10-cv-01910-0/pdf.json

Nature of Suit Code: 220
Nature of Suit: Foreclosure
Cause of Action: 15:1601 Truth in Lending

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UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF CALIFORNIA

SCOTT KMETY, an individual, DARLA

KMETY, an individual,

Plaintiff,

CASE NO. 10cv1910-LAB (RBB)

ORDER GRANTING IN PART

MOTION TO DISMISS; AND

ORDER TO SHOW CAUSE WHY

TILA AND RESPA CLAIMS

SHOULD NOT BE DISMISSED

WITH PREJUDICE

[Docket number 5.]

vs.

BANK OF AMERICA, INC., a

corporation; MORTGAGE ELECTRONIC

REGISTRATION SYSTEMS, a

corporation; RECONSTRUST

COMPANY, a trustee; and DOES 1

through 20,

Defendants.

Plaintiffs, homeowners whose residence was threatened with foreclosure, brought this

action in California state court. Defendants removed it to this Court, citing federal question

jurisdiction based on the complaint’s claims under the Real Estate Settlement Practices Act

(RESPA), 12 U.S.C. §§ 2605 et seq., and the Truth in Lending Act (TILA), 15 U.S.C.

§§ 1601 et seq. One of the other claims mentions TILA and RESPA as well. Defendants

also identified supplemental jurisdiction as the basis for remaining claims. Defendants then

moved to dismiss.

Case 3:10-cv-01910-LAB-BLM Document 10 Filed 09/30/11 Page 1 of 7
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I. Legal Standard

A Rule 12(b)(6) motion to dismiss tests the sufficiency of the complaint. Navarro v.

Block, 250 F.3d 729, 732 (9th Cir. 2001). In ruling on a motion to dismiss, the Court accepts

all allegations of material fact in the complaint as true and construes them in the light most

favorable to the non-moving party. Cedars-Sinai Medical Center v. National League of

Postmasters of U.S., 497 F.3d 972, 975 (9th Cir. 2007). 

The scope of review on a motion to dismiss for failure to state a claim is ordinarily

limited to the contents of the complaint as well as any "documents whose contents are

alleged in a complaint and whose authenticity no party questions, but which are not

physically attached to the pleading . . . .“ Branch v. Tunnell, 14 F.3d 449, 454 (9th Cir.1994),

overruled on other grounds by Galbraith v. County of Santa Clara, 307 F.3d 1119 (9th Cir.

2002). The court may treat such a document as "part of the complaint, and thus may assume

that its contents are true for purposes of a motion to dismiss under Rule 12(b)(6)." United

States v. Ritchie, 342 F.3d 903, 908 (9th Cir. 2003).

Under Fed. R. Civ. P. 12(b)(6), claims may be dismissed where the running of the

statute of limitations is apparent on the face of the complaint. Cervantes v. Countrywide

Home Loans, Inc., ___ F.3d ___, 2011 WL 3911031, slip op. at *8 (9th Cir. Sept. 7, 2011).

If the running of the limitations period appears on the face of the complaint, the Court

considers whether the complaint, construed with the required liberality, would support a 

determination of tolling. Id.

In Cervantes, the panel first determined the running of the limitations period was

"apparent on the face of the complaint because the plaintiffs obtained their loans in 2006,

but commenced their action in 2009." 2011 WL 3911031, slip op. at *8. The panel then

considered whether the plaintiffs had "demonstrated a basis for equitable tolling of their

claims." Id. Where, as here, Defendants have raised statute of limitations as a defense,

the Court first considers whether the running of the statute is apparent on the face of the

complaint, then considers whether the complaint adequately pleads facts to show that tolling

is available and could render the claim timely.

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II. Discussion

Defendants have raised the limitations period as a defense to both the TILA and

RESPA claims. Defendants point out Plaintiffs entered into the loan in September, 2005 but

did not file this action until June, 2010, nearly five years later. Depending on the type of

claim, a TILA or RESPA claim may be subject to either a 1-year or 3-year limitations period.

Because both claims would have accrued at or near the time the loan was entered into, see

King v. California, 784 F.2d 910, 915 (9th Cir. 1986), it appears both federal claims are timebarred unless tolling is available.

While the complaint’s factual allegations don’t appear to mention the date the loan

was entered into, the allegations do refer to the loan documents. Defendants have attached

the note as an exhibit to their motion to dismiss, and Plaintiffs don’t question its authenticity

Plaintiffs agree their original loan (entered into in 2004) was refinanced under a new deed

of trust in September, 2005. (Opp’n to Mot. to Dismiss, 1:15–18.) 

Defendants have also attacked the sufficiency of the allegations.

A. TILA Claims

The complaint’s TILA claims are based on alleged failure to provide Plaintiffs with

accurate disclosures and information. Among the allegedly omitted disclosures was

information about the right to rescind. Plaintiffs now seek to exercise that right, and to

rescind the loan. (Compl., ¶¶ 81–87.) 

In response to the tolling defense, Plaintiffs have almost nothing to say, except to

conclude they sufficiently pleaded facts showing that tolling was appropriate. (Opp’n to Mot.

to Dismiss at 9:23–24.) The Court has reviewed the complaint, however, and has found no

factual allegations to show why Plaintiffs were prevented from discovering the lack of

disclosures earlier, or were delayed in bringing this action. General allegations that

Defendants colluded and hid facts are insufficient under the pleading standard. And the lack

of disclosures itself (Compl., ¶ 83) is no cause for tolling. See Hubbard v. Fidelity Fed'l

Bank, 91 F.3d 75, 79 (9th Cir. 1996) (per curiam) (declining to toll TILA's statute of limitations

/ / /

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when "nothing prevented [the borrower] from comparing the loan contract, [the lender's]

initial disclosures, and TILA's statutory and regulatory requirements").

Furthermore, to the extent Plaintiffs’ claim seeks rescission, it is not subject to

equitable tolling. See Beach v. Ocwen Fed’l Bank, 523 U.S. 410, 413 (1998) (holding that

a borrower’s right of rescission under TILA expires in three years after the date of the

consummation of the transaction, or when the property is sold, “even if the required

disclosures have never been made.”) To the extent Plaintiffs seek other remedies, the

pleadings suggest they cannot plead facts showing they are entitled to tolling, because the

alleged TILA violations consisted of failure to make required disclosures at the time the

agreement was executed. Even if Plaintiffs didn’t actually become aware of the

nondisclosures until later, it appears they were in possession of all the facts that would have

put them on notice of TILA violations at that time—or, allowing for some time for Plaintiffs

to reviewthe documents and begin performing under the agreement, shortly afterwards.See

King, 784 F.2d at 915; Hubbard, 91 F.3d at 79.

It therefore appears that Plaintiffs’ TILA claims are time-barred and tolling will not

render them timely. 

As an additional matter, the Court would dismiss the claim for rescission based on the

“tender rule.” While Defendants acknowledge they have not alleged the ability to pay, they

argue they are not required to do so because the rule does not apply to TILA claims. To the

extent a plaintiff seeks rescission under TILA, however, the Court may apply the rule. See,

e.g., Park v. Wachovia Mortgage, 2011 WL 98408, slip op. at *7 (S.D.Cal., Jan. 12, 2011).

It is appropriate to apply this rule here, to avoid deciding moot issues or granting

meaningless relief.

B. RESPA Claims

The complaint doesn’t specify under which section of RESPA remedies are sought.

In their motion to dismiss, Defendants suggest it must be 12 U.S.C. § 2607, because it deals

with alleged kickbacks. In their opposition, Plaintiffs appear to agree with this

characterization.

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 For a definition of Yield Spread Premiums, see Bjustrom v. Trust One Mortgage 1

Corp., 322 F.3d 1201, 1204 n.2 (9th Cir. 2003).

 A HUD-1 Settlement Statement provides a large amount of information about the 2

loan. Its stated purpose is “to give [the borrower] a statement of actual settlement costs.”

See Freeman v. Quicken Loans, Inc., 2009 WL 2448033 at *1 n.1 (E.D.La., Aug. 10, 2009)

(discussing statutory and agency requirements for the HUD-1 Settlement Form).

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Plaintiffs allege that they paid a Yield Spread Premium (YSP) for three years, after 1

which their payment remained the same, with the extra going to the lender rather than to the

broker after that time. The alleged kickbacks, therefore, occurred as soon as Plaintiffs

began making payments.

Claims under § 2607 are subject to a one-year statute of limitations. 12 U.S.C.

§ 2614. Any RESPA claim probably accrued at the time the loan was entered into, and

when the alleged kickbacks began. Ordinarily, the YSP is disclosed on a HUD-1 Settlement

Statement. Bjustrom, 322 F.3d at 1204. If Plaintiffs did not receive such a form, they would 2

have been on notice that the form had not been provided. Plaintiffs’ opposition to the motion

to dismiss merely says they did not receive a “separate fee agreement” regarding the YSP.

Even assuming the accrual date of this claim occurred when the last of the payments had

been made, however, the RESPA claims are time-barred unless tolling applies.

Neither the complaint nor Plaintiffs’ opposition to the motion to dismiss has anything

to say about tolling for RESPA claims. As noted, generalized allegations about collusion and

deception are inadequate to meet the pleading standard.

Even assuming the RESPA claims are timely, the Court agrees they are inadequately

pleaded. “Yield spread premiums are not illegal per se, so whether they amount to a

prohibited referral in any particular case depends upon the services provided by the broker

and the total compensation paid for those services. “ Schuetz v. Banc One Mortgage Corp.,

292 F.3d 1004, 1014 (9th Cir. 2002). Plaintiffs must plead facts, not merely conclusions,

showing that the YSP was an illegal kickback in violation of § 2607. In spite of their request

for early discovery, it is unclear how they can in good faith make a RESPA claim but at the

same time claim they cannot yet plead any facts to show the YSP was unearned.

/ / /

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C. Other TILA or RESPA Allegations

As the Notice of Removal points out, the complaint mentions TILA and RESPA in its

first claim, for declaratory relief. The only place in this claim that these or other federal

statutes are mentioned is in paragraph 26, which argues that Defendants’ power of sale no

longer exists because of their violations of these statutes. The Complaint does not explain

what federal statute or law authorizes the cancellation of the power of sale under a deed of

trust. And even if there were such provisions in TILA or RESPA, they would be subject to

the same general statutes of limitations as other TILA and RESPA claims. 

In short, the brief mentions of TILA and RESPA (and other federal statutes not

discussed elsewhere) do not create a federal claim, nor would such a claim be viable. See

Merino v. Saxon Mortgage, Inc., 2011 WL 794988, slip op. at *4 (N.D.Cal., March 1, 2011)

(“[T]he fact that Plaintiff's complaint mentions several federal statutes, including in the

context of the claim under California Business and Professions Code section 17200, does

not establish federal subject matter jurisdiction.”) 

It is also worth mentioning that the complaint’s fourteenth cause of action, for

predatory lending under Cal. Bus. & Prof. Code § 17200, only mentions fraudulent practices

generally. Though it alleges the failure to disclose certain facts or to provide certain

information, it is predicated on general fraud or unfair dealing, not on a TILA or RESPA

violation.

III. Conclusion and Order

Defendants’ motion to dismiss is GRANTED IN PART. Because the complaint fails

to plead a viable TILA or RESPA claim, the complaint’s eighth and ninth causes of action are

DISMISSED WITHOUT PREJUDICE. Defendants’ motion to dismiss is DENIED WITHOUT

PREJUDICE as to the remaining claims.

Because it appears the two federal claims are time-barred and cannot be saved by

amendment, the Court is inclined to dismiss both claims with prejudice, and remand the

remaining state law claims. See 28 U.S.C. § 1367. Plaintiffs are therefore ORDERED TO

SHOW CAUSE why those two claims should not be dismissed with prejudice. They may do

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so no later than 14 calendar days from the date this order is issued, by filing a

memorandum of points and authorities not exceeding ten pages (not counting any lodged

or appended material). Alternatively, if they agree these two claims may be dismissed with

prejudice, they should file a notice so stating.

If Plaintiffs file a response opposing the dismissal, Defendants may file a reply,

subject to the same page limitations, within ten calendar days of the response’s filing date.

If Plaintiffs fail to show cause, or consent to dismissal of the claims, the complaint’s

eighth and ninth causes of action will be dismissed with prejudice and this action remanded

to state court. If Plaintiffs show they can successfully amend at least one claim arising under

federal law, Defendants may at that time renew their motion to dismiss.

IT IS SO ORDERED.

DATED: September 30, 2011

HONORABLE LARRY ALAN BURNS

United States District Judge

Case 3:10-cv-01910-LAB-BLM Document 10 Filed 09/30/11 Page 7 of 7