Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-casd-3_11-cv-00457/USCOURTS-casd-3_11-cv-00457-2/pdf.json

Nature of Suit Code: 370
Nature of Suit: Other Fraud
Cause of Action: 28:1331(a) Fed. Question: Real Property

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UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF CALIFORNIA

ROBERT H. ZAKAR, VALERIE ZAKAR,

Plaintiffs,

v.

CHL MORTGAGE PASS-THROUGH

TRUST 2006-HYB3 MORTGAGE PASSTHROUGH CERTIFICATES, SERIES 2006-

HYB3, et al.,

Defendants. 

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Case No.: 11cv0457 AJB (WVG)

ORDER GRANTING DEFENDANTS’

MOTION TO DISMISS

(Doc. 19)

Presently before the Court is Defendants’ motion to dismiss Plaintiffs’ Complaint. (Doc. No. 19.)

The motion is not opposed. For the following reasons, the motion is GRANTED with leave to amend. 

I.

BACKGROUND

In January 2006, Plaintiffs Robert and Valerie Zakar obtained a $792,000 loan in order to

purchase real property in San Diego. (Compl. Part IV. ¶ 19.) The note on the property is secured by a

Deed of Trust recorded on January 24, 2006. The Deed of Trust identifies America’s Wholesale Lender

(“AWL”) as the lender, ReconTrust Company, N.A. (“Recon”) as the trustee, and Mortgage Electronic

Registration Systems, Inc. (“MERS”) as the beneficiary. (Id. ¶ 21.)

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After Plaintiffs became delinquent on their mortgage payments, Recon recorded a Notice of

Default and Election to Sell Under the Deed of Trust on August 19, 2009. (Id. ¶ 25.) On April 5, 2010,

Recon recorded a Notice of Trustee’s Sale of the Property, referencing a sale date of April 26, 2010. 

(Id. ¶ 26.) The foreclosure sale scheduled for April 26th did not occur. On July 6, 2010, Recon filed a

Corporation Assignment of Deed of Trust (“Corporation Assignment”) in which MERS assigned its

beneficial interests under the Deed of Trust to “The Bank of New York Mellon FKA The Bank of New

York as Trustee for the Certificateholders CWMBS, Inc. CHL Mortgage Pass-Through Trust 2006-HYB

3 Mortgage Pass-Through Certificates, Series 2006-HYB3.” Plaintiffs allege that the foreclosure was

subsequently rescheduled for March 8, 2011. (Id. ¶ 45.)

Plaintiffs filed this action on March 4, 2011. The Complaint sets forth eleven causes of action:

(1) wrongful foreclosure by a stranger, (2) intentional fraud, (3) fraudulent concealment, (4) negligence,

(5) violation of the Racketeer Influenced and Corrupt Organizations Act (“RICO”), 18 U.S.C. 1961 et

seq., (6) violation of the Real Estate Settlement Procedures Act (“RESPA”), 12 U.S.C. § 2601 et seq.,

(7) violation of California Financial Code § 50505, (8) unfair debt collection practices under the

Rosenthal Act, California Code § 1788(e)-(f), and the Fair Debt Collection Practices Act (“FDCPA”),

15 U.S.C. 1692 et seq., (9) violation of California Civil Code § 2923.5, (10) violation of California Civil

Code § 2923.6, and (11) unlawful, unfair or deceptive practices.

On April 4, 2011, the Court issued an order denying Plaintiffs’ motion for a preliminary

injunction. (Doc. No. 21.) Defendants’ instant motion to dismiss was filed April 1, 2011, and is not

opposed.

II.

LEGAL STANDARD

A motion to dismiss under Rule 12(b)(6) tests the legal sufficiency of the pleadings and allows a

court to dismiss a complaint upon a finding that the plaintiff has failed to state a claim upon which relief

may be granted. See Navarro v. Block, 250 F.3d 729, 732 (9th Cir. 2001). The court may dismiss a

complaint as a matter of law for: (1) “lack of cognizable legal theory,” or (2) “insufficient facts under a

cognizable legal claim.” SmileCare Dental Grp. v. Delta Dental Plan of Cal., 88 F.3d 780, 783 (9th Cir.

1996) (citation omitted). However, a complaint survives a motion to dismiss if it contains “enough facts

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to state a claim to relief that is plausible on its face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570

(2007).

 Notwithstanding this deference, the reviewing court need not accept “legal conclusions” as true. 

Ashcroft v. Iqbal, -- U.S. -- , 129 S. Ct. 1937, 1949–50, 173 L.Ed.2d 868 (2009). It is also improper for

the court to assume “the [plaintiff] can prove facts that [he or she] has not alleged.” Associated Gen.

Contractors of Cal., Inc. v. Cal. State Council of Carpenters, 459 U.S. 519, 526 (1983). On the other

hand, “[w]hen there are well-pleaded factual allegations, a court should assume their veracity and then

determine whether they plausibly give rise to an entitlement to relief.” Iqbal, 129 S.Ct. at 1950. The

court only reviews the contents of the complaint, accepting all factual allegations as true, and drawing

all reasonable inferences in favor of the nonmoving party. al-Kidd v. Ashcroft, 580 F.3d 949, 956 (9th

Cir. 2009) (citations omitted).

III.

DISCUSSION

A. Statutes of Limitation

Defendants first argue that several of Plaintiffs’ claims are time-barred, since they arise from

alleged wrongdoing that occurred at or before the loan’s origination in January 2006. Plaintiffs did not

file the Complaint until March 2011, more than five years later. The following list summarizes the

applicable causes of action and statutes of limitation: 

! Intentional fraud (2nd claim): 3 years

! Fraudulent concealment (3rd claim): 3 years

! Negligence (4th claim): 2 years

! RICO (5th claim): 4 years

! RESPA (6th claim): 3 years

! Cal. Fin. Code § 50505 (7th claim, requires a RESPA violation): 3 years

Defendants further argue that equitable tolling does not salvage Plaintiffs’ claims because

Plaintiffs fail to allege why they could not have discovered the alleged wrongdoing earlier. They cannot

claim they lacked access to the publicly recorded loan documents. 

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The Court agrees that Plaintiffs’ allegations do not supply the requisite specificity to justify

equitable tolling. See, e.g., Casualty Ins. Co. v. Rees Inv. Co., 14 Cal. App. 3d 716, 719-20 (Cal. Ct.

App. 1971). However, the Court does not necessarily assume that the statutes of limitation started to run

at the loan’s 2006 origination, as Defendants claim. Therefore, Plaintiffs’ amended Complaint should

plead equitable tolling with specificity, and it should also address when each applicable statute of

limitation started to run. 

B. Failure to State a Claim Under Rule 12(b)(6)

In addition to the time-bar issue discussed above, Defendants argue that all of Plaintiffs’ causes

of action should be dismissed for failure to state a claim under Rule 12(b)(6). The causes of action are

addressed in turn. 

1. Wrongful Foreclosure by a Stranger

Plaintiffs’ first cause of action is for wrongful foreclosure by a stranger without the lawful ability

to foreclose. Specifically, they contest the validity of the Corporation Assignment of Deed of Trust

(“Assignment”), which was recorded on July 6, 2010 and purports to assign all beneficial interest from

MERS to “The Bank of New York Mellon.” Consequently, Plaintiffs argue that the beneficiary of the

mortgage note is currently unknown, which invalidates the foreclosure proceedings. However, the Deed

of Trust identifies Recon as the trustee. There is no indication that the Assignment displaced Recon

from its original capacity as trustee. Nor have Plaintiffs provided any authority suggesting that the

allegedly improper assignment of the beneficiary's interest precludes the trustee from instituting

foreclosure proceedings. Under California Civil Code § 2924(a)(1), the foreclosure process may be

conducted by the “trustee, mortgage or beneficiary or any of their authorized agents” (emphasis added). 

Because Recon recorded both the Notice of Default on April 9, 2009, and the Notice of Trustee's Sale on

April 5, 2010, it does not appear that Plaintiffs’ home is being unlawfully foreclosed upon by a stranger. 

As additional arguments, Defendants note that to have standing, a plaintiff challenging a

foreclosure sale must allege tender (i.e., that he can credibly repay the full amount of the debt). See, e.g.,

 Abdallah v. United Savings Bank, 43 Cal. App. 4th 1101, 1109 (1996). However, the Complaint does

not indicate that Plaintiffs have any ability to repay. Additionally, Defendants refute the alleged

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Commercial Code § 3301 violations by asserting that non-judicial foreclosure proceedings in California

are governed by Civil Code § 2924, not Commercial Code § 3301. See Quintero Family Trust v.

OneWest Bank, F.S.B., No. 09-CV-1561-IEG, 2010 WL 392312, *6 (S.D. Cal. Jan 27, 2010). 

For all of these reasons, the Court grants Defendants’ motion to dismiss the first cause of action,

with leave to amend.

2. Intentional Fraud

In their second cause of action, Plaintiffs allege intentional fraud, but they have not pled all of

the necessary elements of a fraud claim. One of the essential elements of fraud is the justifiable reliance

of the plaintiff. Lazar v. Superior Court, 12 Cal. 4th 631, 638 (1996). Plaintiffs contend that the

Defendants fraudulently recorded the Corporation Assignment with the forged signature of a notary. 

There is no indication, however, that Plaintiffs justifiably relied upon the allegedly fraudulent Corporation Assignment in any way. A fraud claim cannot succeed on its merits without evidence of justifiable

reliance. The Court therefore grants Defendants’ motion to dismiss the second cause of action, with

leave to amend.

3. Fraudulent Concealment

Plaintiffs’ third cause of action describes an overall scheme by Defendants to conceal vital

information from borrowers when originating, selling, and foreclosing upon mortgage loans. Defendants

argue that Plaintiffs have not pled the requisite particularity for a fraud claim, which is heightened when

pleading fraud against a corporate defendant. See Tarmann v. State Farm Mut. Auto. Ins. Co., 2 Cal.

App. 4th 153, 157 (Cal. Ct. App. 1991). Rather than allege specific facts against Defendants or their

employees, Plaintiffs’ claim is based on general allegations made against Defendants at large, including

Does 1-100. 

Defendants also argue that to the extent Plaintiffs base their fraud claims on alleged omissions,

these claims fail because Plaintiffs do not allege that Defendants owed them a legal duty of disclosure.

See Lovejoy v. At&T Corp., 92 Cal. App. 4th 85, 96 (Cal. Ct. App. 2001). Instead, as Defendants

contend, Plaintiffs allege nothing more than a routine mortgage lender/borrower relationship. Finally,

Plaintiffs fail to allege any out-of-pocket losses, a required element for both fraud claims. See Cal. Civ.

Code § 1709; Fladeboe v. American Isuzu Motors Inc., 150 Cal. App. 4th 42, 66 (Cal. Ct. App. 2007).

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For all of these reasons, the Court finds that Plaintiffs have failed to state a claim and grants

Defendants’ motion to dismiss the third cause of action, with leave to amend.

4. Negligence

Plaintiffs’ fourth cause of action alleges that the Defendants negligently breached their duty of

care to the Plaintiffs throughout the loan transaction. In order to establish negligence, Plaintiffs must

establish first that Defendants owed Plaintiffs a legal duty of care. See, e.g., Merrill v. Navegar, Inc., 26

Cal. 4th 465, 500 (Cal. 2001). The Complaint lists the various ways that Defendants allegedly breached

their duty to the Plaintiffs, but does not provide any statutory or common law basis for finding that a

legal duty existed. Accordingly, Plaintiffs have failed to state a claim for negligence, and the Court

grants Defendants’ motion to dismiss the fourth cause of action, with leave to amend. 

5. RICO

Plaintiffs’ RICO claim alleges that the Defendants engaged in a pattern of racketeering by

sending numerous loan-related documents in the mail with the intention of compelling Plaintiffs to part

with large sums of money or to abandon their property. Defendants argue that Plaintiffs fail to allege a

pattern of racketeering activity, a RICO enterprise, or injury in fact. Their conclusory allegations do not

allege specific facts to meet the pleading standard for a RICO claim. See, e.g., Pineda v. Saxon Mortg.

Servs., 2008 U.S. Dist. LEXIS 102439, at *11 (C.D. Cal. Dec. 10, 2008). The Court agrees and grants

Defendants’ motion to dismiss the fifth cause of action, with leave to amend.

6. RESPA

Plaintiff’s sixth cause of action alleges that the Defendants violated Section 2605 of RESPA by

(1) failing to comply with certain disclosure requirements at the closing on the property, and (2) failing

to provide a response to Plaintiffs’ Qualified Written Request within sixty days after receipt of the

request. Defendants argue that the RESPA claim fails because (1) RESPA does not provide a private

right of action related to loan disclosures, (2) Plaintiffs fail to allege actual damages, and (3) Plaintiffs

have not alleged any violation of RESPA in connection with their purported Qualified Written Request.

The Court therefore grants Defendants’ motion to dismiss the sixth cause of action, with leave to amend.

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7. California Financial Code

California Financial Code § 50505 provides that any person who violates any provision of

RESPA or its regulations has also violated Section 50505 of the California Residential Mortgage

Lending Act. Because the RESPA cause of action fails, so too does this claim. The Court therefore

grants Defendants’ motion to dismiss the seventh cause of action, with leave to amend.

8. Unfair Debt Collection Practices

Plaintiffs’ eighth cause of action contends that Defendants engaged in unfair debt collection

practices in violation of the Rosenthal Act and the FDCPA. Plaintiffs allege that Defendants acted

unlawfully in the following ways: calling Plaintiffs and threatening to take their home, falsely stating the

amount of a debt, increasing the amount of a debt by including amounts that are not permitted by law or

contract, and using unfair and unconscionable means in an attempt to collect a debt. 

However, the claim fails because Plaintiffs do not allege that Defendants are debt collectors or

that foreclosure pursuant to a deed of trust constitutes debt collection under these statutes. See Izenberg

v. ETS Servs., LLC, 589 F. Supp. 2d 1193, 1199 (C.D. Cal. 2008) (finding that plaintiffs had not pled an

FDCPA claim because foreclosing on a property pursuant to a deed of trust is not collection of a debt

within the meaning of the FDCPA); Castaneda v. Saxon Mortg. Servs., Inc., 687 F. Supp. 2d 1191, 1197

(E.D. Cal. 2009) (holding that foreclosure pursuant to a deed of trust does not constitute debt collection

under the Rosenthal Act). The Complaint also fails to provide sufficient factual detail regarding the

Defendants’ objectionable actions. The Court therefore grants Defendants’ motion to dismiss the eighth

cause of action, with leave to amend.

9. Civil Code § 2923.5

In their ninth cause of action, Plaintiffs’ allege that all of the Defendants except for Recon failed

to comply with the due diligence requirements in California Civil Code § 2923.5(a). This provision

prohibits mortgagees, trustees, beneficiaries, or authorized agents from filing a notice of default on an

owner’s principal residence until thirty days after contact is made with the owners or thirty days after

satisfying the statutory due diligence requirements. Cal. Civ. Code § 2923.5(a). 

As with the first cause of action above, this claim fails because Plaintiffs fail to allege tender and

thus lack standing. Additionally, there is no indication that any of the Defendants other than Recon filed

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a Notice of Default that would trigger Section 2923.5(a)’s requirements. The sole Notice of Default

mentioned in the Complaint was filed by Recon and accompanied by a declaration attesting to Recon’s

compliance with Section 2923.5. Thus, Plaintiffs have not sufficiently pled their ninth cause of action,

and the Court grants Defendants’ motion to dismiss it, with leave to amend.

10. Civil Code § 2923.6

Plaintiffs’ tenth cause of action alleges that Defendants violated California Civil Code §

2923.6(a) by failing to implement a loan modification or workout plan rather than foreclosing upon

Plaintiffs’ property. Defendants assert that this claim fails because the statute neither provides Plaintiffs

with a private cause of action, nor creates any obligation for Defendants to modify the Plaintiffs’ loan.

See, e.g., Pantoja v. Countrywide Home Loans, Inc., 640 F. Supp. 2d 1177, 1188 (N.D. Cal. 2009); Nool

v. Homeq Servicing, 653 F. Supp. 2d 1047, 1052 (E.D. Cal. 2009). Plaintiffs contend that a private right

of action exists for Section 2923.6 under California Business & Profession Code § 17200, but Plaintiffs

have not provided any authority suggesting that § 2923.6(a) imposes a duty on Defendants that would

result in liability to the Plaintiffs in this situation. The duties owed by loan servicers to the other

members of pooling and servicing agreements are irrelevant to Plaintiffs, who were not parties to the

agreements. Accordingly, Plaintiffs have failed to state a claim, and the Court grants Defendants’

motion to dismiss the tenth cause of action, with leave to amend. 

11. Unlawful, Unfair, or Deceptive Practices

Plaintiffs’ eleventh cause of action alleges unlawful, unfair, or deceptive practices by Defendants

in violation of California Business and Profession Code § 17200. This claim incorporates each of the

allegedly unlawful acts alleged in the preceding ten causes of action to create a separate cause of action

through Section 17200. Having found that Plaintiffs failed to state a claim in the preceding ten causes

of action, the Court reaches the same conclusion here, by virtue of the reasoning detailed above. The

Defendants’ motion to dismiss the eleventh cause of action is granted with leave to amend.

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K:\COMMON\BATTAGLI\DJ CASES\2 Orders to be filed\11cv457 Order Granting MTD.wpd 9 11CV0457

IV.

CONCLUSION

 For the foregoing reasons, the Court GRANTS Defendants’ motion to dismiss with leave to

amend. Plaintiffs have thirty (30) days to submit an amended Complaint correcting the deficiencies

noted herein. Failure to do so will result in the Court’s dismissal of this case.

IT IS SO ORDERED.

DATED: October 13, 2011

Hon. Anthony J. Battaglia

U.S. District Judge

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