Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caed-2_09-cv-01239/USCOURTS-caed-2_09-cv-01239-4/pdf.json

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

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UNITED STATES DISTRICT COURT

FOR THE EASTERN DISTRICT OF CALIFORNIA

GHEORGE BLEDEA and 

ELISABETA BLEDEA,

NO. CIV. S-09-1239 LKK/GGH

Plaintiffs,

v.

 O R D E R

INDYMAC FEDERAL BANK, 

MORTGAGEIT, INC., MARIPOSA

MORTGAGE, INC., MORTGAGE

ELECTRONIC REGISTRATION

SYSTEM, INC., MARIO BURNIAS,

JOSE LUIS CALLEJA, BIC D.

PHO and DOES 1-20, inclusive, 

Defendants.

 /

Plaintiffs in this suit bring various claims arising out of

foreclosure on a mortgage. Plaintiffs’ first amended complaint

names eight defendants. Two defendants, Mortgage Electronic

Registration Systems Inc. (“MERS”) and MortgageIT, Inc.

(“MortgageIT”), have filed separate motions to dismiss all claims

against them. MortgageIT has also filed a motion to strike. The

court resolves these motions on the papers. For the reasons stated

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 The court notes that plaintiffs’ counsel has filed numerous 1

other actions before this court using nearly identical complaints.

For a more extensive discussion of a similar complaint, see

Champlaie v. BAC Home Loans Servicing, LLP, No. S-09-1316, 2009

U.S. Dist. LEXIS 102285, 2009 WL 3429622 (E.D. Cal. Oct. 22, 2009);

see also Baldain v. Am. Home Mortg. Servicing, Inc., No. CIV.

S-09-0931, 2010 U.S. Dist. LEXIS 5671, 2010 WL 56143 (E.D. Cal.

Jan. 5, 2010). Although these other cases are similar, the factual

allegations and arguments for dismissal in this case present

several different issues.

 The allegations described herein are taken from the 2

complaint and are taken as true for the purpose of the pending

motions only.

MERS requests that this court take judicial notice of

documents titled Deed of Trust, Assignment of the Deed of Trust,

Substitution of Trustee, and Notice of Trustee’s Sale. These

documents are public records, recorded in the Sacramento County

Recorder’s Office, and properly subject to judicial notice. Fed.

R. Evid. 210(d). The court may take judicial notice of these

documents without converting MERS’s motion to dismiss into a motion

for summary judgment. Plaintiffs have not objected to the request

for judicial notice. Accordingly, the court GRANTS MERS’s request

for judicial notice.

2

below, the motions to dismiss are granted in part, and the motion

to strike is granted in part.1

I. BACKGROUND2

This motion concerns plaintiffs’ first amended complaint

(“FAC”), which was filed in response to MERS’ motion to dismiss the

initial complaint. The FAC rendered the initial motion to dismiss

moot, and MERS has filed a renewed motion challenging all claims

against it. MortgageIT similarly moves to dismiss all claims

against it and to strike portions of the FAC. Of the six nonmoving defendants, one has been voluntarily dismissed (defendant

Indymac Federal Bank), and the remaining five have been served but

have not stated appearances in this case.

The FAC enumerates ten causes of action. Only four claims are

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brought against MERS, and nine are brought against MortgageIT.

Plaintiffs’ tenth claim, for wrongful foreclosure, is brought only

as to defendants Indymac Federal Bank and NDEX West. Because

Indymac has been dismissed and NDEX West is not a party to this

motion, the court does not discuss the allegations underlying the

wrongful foreclosure claim.

A. Plaintiffs’ Initial Loan

Plaintiffs allege that they were initially approached by

defendant Jose Luis Calleja (“Calleja”), an employee of defendant

Mariposa Mortgage, Inc. (“Mariposa”), regarding refinancing of

their home. FAC ¶¶ 7, 23. Calleja allegedly promised that he

could provide the “best deal” and “best interest rates” on the

market. FAC ¶ 25. Plaintiffs claim that Calleja offered them an

adjustable rate loan, and promised that if the payments became

unaffordable, the loan could be refinanced. FAC ¶ 28. Calleja

allegedly informed plaintiffs that the appraiser would “push” the

value of the property to ensure that the loan would be approved.

FAC ¶ 27. Plaintiffs claim to have protested this, but were told

not to worry about it. Id. 

Plaintiffs accepted Calleja’s offer to refinance, resulting

in a loan transaction which was completed on September 26, 2009.

FAC ¶ 31. However, plaintiffs allege that they were prevented from

knowing the details of the transaction, in that they were not given

copies of loan documents prior to closing, and at closing, not

given an explanation of the documents or adequate time to review

the documents. FAC ¶ 29.

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The loan’s terms were memorialized with a promissory note

secured by a deed of trust. FAC ¶ 31. See Yulaeva v. Greenpoint

Mortgage Funding, No. 09-1504, 2009 U.S. Dist. LEXIS 79094, *3-5,

2009 WL 2880393 *1-2 (E.D.Cal. Sept. 3, 2009). (E.D. Cal. Sept. 3,

2009) (summarizing California law regarding deeds of trust). The

deed of trust named Fidelity National Title as trustee and

MortgageIT, Inc. as lender (“MortgageIT”). FAC ¶ 31, MERS’s RFJN

Ex. A 1-2. MERS is listed as the beneficiary, acting solely as

nominee for the lender. FAC ¶ 32, MERS’s RFJN Ex. A, 2. 

B. Subsequent Sale of the Loan and Foreclosure

After the loan was completed, the right to receive payment

under the loan was sold on the secondary mortgage market. FAC ¶

34. Plaintiffs allege that this sale failed to comply with

applicable requirements, but plaintiffs fail to specify what those

requirements are. FAC ¶ 19. Plaintiffs allege that MERS does not

physically possess the promissory note, and that MERS is therefore

not entitled to conduct a non-judicial foreclosure. FAC ¶ 11.

Plaintiffs apparently stopped making payments owed on their

mortgage at some point. On February 23, 2009, defendant NDEX West,

LLC (“West”), purportedly acting as the agent of the beneficiary

under the deed of trust, filed a notice of default as to the

mortgage. FAC ¶ 43.

On March 19, 2009, MERS assigned the deed of trust to

defendant Indymac. This assignment was recorded on March 27, 2009.

MERS’s RFJN Ex. B. Plaintiffs contend that this assignment was

invalid because MERS lacked authority to so assign. FAC ¶ 37. On

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March 30, 2009, Indymac substituted defendant West as trustee on

the deed of trust. MERS’s RFJN Ex. C. On May 24, 2009, West

issued a notice of trustee’s sale, indicating that the mortgaged

property would be sold at auction on June 16, 2009. This notice

was recorded on May 29, 2009. MERS’s RFJN Ex. D. 

Plaintiffs’ opposition memorandum indicates that “On or about

July 16, 2009, Defendant NDEX issued a Trustee’s Deed Upon Sale,

naming Federal Deposit Insurance Corporation (“FDIC”) as Receiver

for Defendant Indymac Federal as the beneficiary.” Opp’n 14.

Although this sale allegedly occurred on July 16, 2009, no mention

of it is made in the FAC, which was filed on August 10, 2009.

II. STANDARDS

A. Standard for a Fed. R. Civ. P. 12(b)(6) Motion to Dismiss

A Fed. R. Civ. P. 12(b)(6) motion challenges a complaint’s

compliance with the pleading requirements provided by the Federal

Rules. In general, these requirements are provided by Fed. R. Civ.

P. 8, although claims that “sound[] in” fraud or mistake must meet

the requirements provided by Fed. R. Civ. P. 9(b). Vess v.

Ciba-Geigy Corp., 317 F.3d 1097, 1103-04 (9th Cir. 2003).

1. Dismissal of Claims Governed by Fed. R. Civ. P. 8

Under Federal Rule of Civil Procedure 8(a)(2), a pleading must

contain a “short and plain statement of the claim showing that the

pleader is entitled to relief.” The complaint must give defendant

“fair notice of what the claim is and the grounds upon which it

rests.” Twombly, 550 U.S. at 555 (internal quotation and

modification omitted). 

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To meet this requirement, the complaint must be supported by

factual allegations. Iqbal, 129 S. Ct. at 1950. “While legal

conclusions can provide the framework of a complaint,” neither

legal conclusions nor conclusory statements are themselves

sufficient, and such statements are not entitled to a presumption

of truth. Id. at 1949-50. Iqbal and Twombly therefore prescribe

a two step process for evaluation of motions to dismiss. The court

first identifies the non-conclusory factual allegations, and the

court then determines whether these allegations, taken as true and

construed in the light most favorable to the plaintiff, “plausibly

give rise to an entitlement to relief.” Id.; Erickson v. Pardus,

551 U.S. 89 (2007). 

“Plausibility,” as it is used in Twombly and Iqbal, does not

refer to the likelihood that a pleader will succeed in proving the

allegations. Instead, it refers to whether the non-conclusory

factual allegations, when assumed to be true, “allow[] the court

to draw the reasonable inference that the defendant is liable for

the misconduct alleged.” Iqbal, 129 S.Ct. at 1949. “The

plausibility standard is not akin to a ‘probability requirement,’

but it asks for more than a sheer possibility that a defendant has

acted unlawfully.” Id. (quoting Twombly, 550 U.S. at 557). A

complaint may fail to show a right to relief either by lacking a

cognizable legal theory or by lacking sufficient facts alleged

under a cognizable legal theory. Balistreri v. Pacifica Police

Dep’t, 901 F.2d 696, 699 (9th Cir. 1990).

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2. Dismissal of Claims Governed by Fed. R. Civ. P. 9(b)

A Rule 12(b)(6) motion to dismiss may also challenge a

complaint’s compliance with Fed. R. Civ. P. 9(b). See Vess, 317

F.3d at 1107. This rule provides that “In alleging fraud or

mistake, a party must state with particularity the circumstances

constituting fraud or mistake. Malice, intent, knowledge, and

other conditions of a person’s mind may be alleged generally.”

These circumstances include the “time, place, and specific content

of the false representations as well as the identities of the

parties to the misrepresentations.” Swartz v. KPMG LLP, 476 F.3d

756, 764 (9th Cir. 2007) (quoting Edwards v. Marin Park, Inc., 356

F.3d 1058, 1066 (9th Cir. 2004)). “In the context of a fraud suit

involving multiple defendants, a plaintiff must, at a minimum,

‘identif[y] the role of [each] defendant[] in the alleged

fraudulent scheme.’” Id. at 765 (quoting Moore v. Kayport Package

Express, 885 F.2d 531, 541 (9th Cir. 1989)). Claims subject to

Rule 9(b) must also satisfy the ordinary requirements of Rule 8.

B. Standard for a Fed. R. Civ. P. 12(f) Motion to Stirke

Rule 12(f) authorizes the court to order stricken from any

pleading “any redundant, immaterial, impertinent, or scandalous

matter.” A party may bring on a motion to strike within 20 days

after the filing of the pleading under attack. The court, however,

may make appropriate orders to strike under the rule at any time

on its own initiative. Thus, the court may consider and grant an

untimely motion to strike where it is proper to do so. See 5A

Wright and Miller, Federal Practice and Procedure: Civil 2d § 1380.

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Motions to strike are generally viewed with disfavor, and will

usually be denied unless the allegations in the pleading have no

possible relation to the controversy, and may cause prejudice to

one of the parties. Id.; see also Hanna v. Lane, 610 F. Supp. 32,

34 (N.D. Ill. 1985). If the court is in doubt as to whether the

challenged matter may raise an issue of fact or law, the motion to

strike should be denied, leaving an assessment of the sufficiency

of the allegations for adjudication on the merits. See 5A Wright

& Miller, supra, at § 1380.

III. ANALYSIS

The present motions concern all nine claims against

MortgageIT: (1) violation of the Truth in Lending Act (“TILA”), (2)

violation of the Real Estate Settlement Procedures Act (“RESPA”),

(3) violation of the Rosenthal Fair Debt Collection Practices Act

(“Rosenthal Act”), (4) fraud, (5) breach of fiduciary duty, (6)

negligence, (7) violation of the Unfair Competition Law (“UCL”),

(8) breach of contract, and (9) violation of the implied covenant

of good faith and fair dealing; and all four claims against MERS:

(1) fraud, (2) negligence, (3) violation of the UCL, and (4) breach

of the implied covenant of good faith and fair dealing.

Plaintiffs’ remaining claim for wrongful foreclosure is brought

only as to defendants other than the moving parties, and therefore

is not at issue here.

A. TILA

Plaintiffs’ first claim seeks civil damages and rescission

from MortgageIT under TILA. MortgageIT argues that damages are

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barred by the statute of limitations, and that plaintiffs’ claim

for rescission should be dismissed because plaintiffs have not

alleged that they can tender the consideration offered for the

loan.

1. Statute of Limitations

TILA provides a one-year statute of limitations for claims for

civil damages. 15 U.S.C. § 1640(e). Here, plaintiffs’ TILA claim

arises solely out of failure to make required disclosures at the

time the loan was entered, which was on or around September 26,

2006. FAC ¶ 31. The limitations period for plaintiffs’ TILA claim

began to run at that time, King v. California, 784 F.2d 910, 914

(9th Cir. 1986), and normally would have expired in September of

2007. Plaintiffs filed their claim on May 5, 2009.

The inquiry does not end here, because the running of the TILA

limitations period may be equitably tolled, King, 784 F.2d at 915.

Under Ninth Circuit authority, a motion to dismiss made on statute

of limitations grounds must be denied if the complaint “adequately

alleges facts showing the potential applicability of the equitable

tolling doctrine.” Cervantes v. City of San Diego, 5 F.3d 1273,

1277 (9th Cir. 1993); Huynh, 465 F.3d at 1003-04. Equitable

tolling may apply when a plaintiff could not have discovered the

basis for their claim, so the court turns to the bases alleged in

the FAC. Plaintiffs allege that defendant breached TILA by

failing to provide required disclosures prior to

consummation of the transaction; [] failing to make

required disclosures clearly and conspicuously in

writing; [] failing to timely deliver to Plaintiffs

notices required by TILA; [] placing terms

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prohibited by TILA into the transaction; and []

failing to disclose all finance charge details and

the annual percentage rate based upon properly

calculated and disclosed finance charges and

amounts financed.

FAC ¶ 60. Here, insofar as plaintiffs’ TILA claim is based on the

allegation that the required disclosures were not made prior to

completion of the transaction, plaintiffs’ allegations do not

support the inference that the basis for the TILA claim could not

have been discovered at the time of the initial transaction.

Plaintiffs’ allegations admit receiving the disclosures; they

merely argue that they should have been made earlier and more

clearly. Plaintiffs were therefore aware of the faulty disclosures

at the time the transaction was completed. Nor have plaintiffs

identified any potential barrier to bringing suit on this issue

prior to now. Under Lien Huynh, dismissal on statute of

limitations grounds is appropriate as to this basis for plaintiff’s

TILA claim. 465 F.3d at 1004.

2. Tender

The one year limitations period under 15 U.S.C. section

1640(e) does not apply to claims for rescission under 15 U.S.C.

section 1635. Defendants argue that plaintiffs’ TILA claim for

rescission should be dismissed for the separate reason that

plaintiffs have not alleged that they are able to tender the amount

borrowed. No binding authority addresses this issue, and district

courts in this circuit are divided as to whether such an allegation

is required. See, e.g., Valdez v. America’s Wholesale Lender, No.

C 09-02778, 2009 U.S. Dist. LEXIS 118241, *14 (N.D. Cal. Dec. 18,

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2009) (collecting cases), Singh v. Wash. Mut. Bank, No. C-09-2771,

2009 U.S. Dist. LEXIS 73315 *9-11 (N.D. Cal. Aug. 19, 2009) (same).

The effect of rescission is to undo the transaction. TILA

provides a default procedure for rescission, under which the

borrower first provides notice of rescission. 15 U.S.C. § 1635(b).

The creditor must then cancel any security interest and return any

money or property (such as earnest money) to the borrower. Id.

Once the creditor has done so, the borrower “shall tender the

property to the creditor, except that if return of the property in

kind would be impracticable or inequitable, the [borrower] shall

tender its reasonable value.” Id. See also 12 C.F.R. § 226.23

(implementing 15 U.S.C. § 1635(b)). Although this is the default

procedure, TILA provides the court with discretion to adopt

different procedures. 15 U.S.C. § 1635(b).

The Ninth Circuit interpreted this provision in Yamamoto v.

Bank of N.Y., 329 F. 3d 1167 (9th Cir. 2003). Yamamoto concerned

the timing of termination of the security interest, namely, whether

the security interest is terminated before or after the borrower’s

tender. Yamamoto held that in most cases the court should exercise

its discretion to modify the rescission procedure, making

rescission conditional on the borrower’s tender, such that the

security interest persists until tender is complete. Id. at 1172.

However, the court recognized that this modification might not be

appropriate in all cases. For example, termination of the security

may facilitate the borrower’s efforts to sell or refinance the

property offered as security, and thereby to complete tender. Id.

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at 1173 (noting, on summary judgment, that plaintiff had offered

no evidence that the continuing security interest had such an

effect).

Yamamoto did not concern a motion to dismiss, and did not

discuss whether ability to tender must be alleged in a claim for

rescission under TILA. As noted above, district courts are divided

as to whether such an allegation is required. As I previously

explained in a similar case, the discretion provided by 15 U.S.C.

§ 1635(b) is better exercised at a later stage of litigation. See

Baldain, 2010 WL 56143, *10, 2010 U.S. Dist. LEXIS 5671, *32. At

this stage, the court may reasonably infer that the borrower will

be able to tender by selling or refinancing the property purchased

with the loan. MortgageIT may attempt to refute this inference

(e.g., by showing that the property is now worth less than the

balance of the loan) at a later stage of litigation.

Defendant MortgageIT’s motion to dismiss is denied as to

plaintiffs’ TILA claim for rescission. Plaintiffs are cautioned,

however, that Yamamoto directs this court to require tender prior

to rescission in the majority of cases, and that plaintiffs will

need to meet this standard at subsequent stages.

B. RESPA

Plaintiffs’ fourth claim alleges that defendant MortgageIT

“violated RESPA at the time of closing on the sale of the Property

by failing to correctly and accurately comply with the disclosure

requirements provided therein.” FAC ¶ 84. RESPA provides several

different disclosure requirements, and plaintiffs’ allegation does

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Plaintiffs argue that this allegation constructively 3

identifies specific information that should have been disclosed,

because “the only disclosures mandated under RESPA at the time of

closing[] are those pertaining to escrow costs.” Opp’n, 16. Of

the two citations plaintiffs provide in purported support of this

argument, 12 U.S.C. § 2601 is a statement of purpose containing no

requirements, and 12 C.F.R. § 3500.2(b) is not a valid citation.

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not identify what information MortgageIT failed to disclose, under

which section. MortgageIT contends that plaintiffs have not stated 3

a claim under either section 2605 or 2603, two RESPA sections that

require disclosures.

Plaintiffs and MortgageIT agree that plaintiffs have not

pleaded a claim under 12 U.S.C § 2605. Opp’n 16; Def. Mt’n 11.

Moreover, defendant’s argument that plaintiffs’ allegation states

no claim under 12 U.S.C. § 2603 is well taken. There is no private

right of action for disclosure violations under 12 U.S.C. § 2603.

Bloom v. Martin, 865 F. Supp 1377, 1384 (N.D. Cal. 1994). 

Plaintiffs’ opposition argues that “it remains unclear whether

Defendants named in this lawsuit, MortgageIT and included, received

‘kickbacks’ or referral fees disproportional to the work performed,

which is prohibited under [RESPA] 12 U.S.C. § 2607(a).” Opp’n 17.

The FAC does not allege that MortgageIT received such fees or

kickbacks. Plaintiffs may choose to add such an allegation in an

amended complaint, provided that they may do so while complying

with Fed. R. Civ. P. 11. Plaintiffs’ RESPA claim is therefore

dismissed without prejudice. 

C. Rosenthal Act

Plaintiffs’ second claim alleges that defendant MortgageIT

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violated California’s Rosenthal Fair Debt Collection Practices Act

(“Rosenthal Act”). The Rosenthal Act prohibits creditors and debt

collectors from, among other acts, making false, deceptive, or

misleading representations in an effort to collect a debt. Cal.

Civ. Code § 1788, et seq. A “debt collector” is “any person who,

in the ordinary course of business, regularly, on behalf of himself

or herself or others, engages in debt collection.” Cal. Civ. Code

§ 1788.2(c); see also Izenberg v. ETS Services, LLC, 589 F. Supp.

2d 1193, 1199 (C.D. Cal. 2008). Plaintiffs allege that defendant

MortgageIT is a debt collector who violated the Act by:

threaten[ing] to take actions not permitted by

law, including but not limited to: [1]

collecting on a debt not owed to [them], [2]

making false reports to credit reporting

agencies, [3] foreclosing upon a void security

interest, [4] foreclosing upon a Note of which

they were not in possession nor otherwise

entitled to payment, [5] falsely stating the

amount of a debt, [6] increasing the amount of

a debt by including amounts that are not

permitted by law or contract, [7] and using

unfair and unconscionable means in an attempt

to collect a debt.

FAC ¶ 70. MortgageIT argues that these allegations fail to satisfy

the applicable pleading requirements. The court will separately

address the allegations because each presents a separate theory of

liability. 

The first allegation does not describe false, deceptive, or

misleading representations. Plaintiffs apparently contend that

because of the conduct complained of in plaintiffs’ other claims,

no money was owed, and that MortgageIT should have known this.

Even if plaintiffs succeed on their other claims, such success will

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not mean that the loan was void at the time of the alleged conduct.

No false or misleading representation is implicated here.

Plaintiffs’ second allegation is that MortgageIT threatened

to make false reports to credit agencies. FAC ¶ 70. If plaintiff

intended to allege that MortgageIT actually made false reports, the

“basis of the claim” is fraud, such that it must satisfy the

requirements of Fed. R. Civ. P. 9(b). Vess, 317 F.3d at 1103-04.

The allegation plainly fails to meet these requirements. If,

however, this allegation is taken literally, as alleging that

MortgageIT threatened to make false reports, the claim does not

sound in fraud. Kearns v. Ford Motor Co., 567 F.3d 1120, 1125-26

(9th Cir. 2009). As to the merits of the claim, such threats are

prohibited under federal Fair Debt Collection and Practices Act,

and this prohibition is explicitly incorporated into the Rosenthal

Act. 15 U.S.C § 1692e(8) (prohibiting “[c]ommunicating or

threatening to communicate to any person credit information which

is known or which should be known to be false.”), Cal. Civ. Code

§ 1788.17 (FDCPA actionable under the Rosenthal Act). Insofar as

the literal interpretation is more favorable to plaintiffs at this

stage, the court adopts this interpretation here, and the motion

to dismiss is denied as to this theory of liability.

Allegations three and four identify conduct that is not

prohibited by the Rosenthal Act. Foreclosure on a property is not

a debt collection activity encompassed by the Rosenthal Act, and

as such, the threat of foreclosure is not prohibited. Cal. Civ.

Code §§ 1788.13, 2924(b); Champlaie, 2009 U.S. Dist. LEXIS 102285

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at *55-*56, 2009 WL 3429622 at *18.

Plaintiffs’ fifth allegation, that MortgageIT “threatened” to

falsely state the amount of Plaintiffs’ debt, approaches

incoherence when taken literally. FAC ¶ 70. Apart from threats made

to credit agencies, discussed above, plaintiffs apparently mean

that MortgageIT falsely stated the debt to them. This allegation

concerns particular false representations, thus sounds in fraud and

is subject to Rule 9(b)’s heightened requirements. Although

Plaintiffs have alleged the content of the false representation and

the identity of the parties, they have not alleged the time, place

or manner of the misrepresentation with sufficient particularity.

Accordingly plaintiffs have not met the pleading requirements for

their claim that MortgageIT falsely stated the amount of debt.

Plaintiffs’ sixth allegation is that MortgageIT wrongfully

increased the amount of debt by including amounts not permitted by

law. FAC ¶ 70. Section 1788.13(e) prohibits adding fees that may

not be lawfully added. This claim provides the minimal

particularity required by Rule 8.

Allegation seven, that defendants “threatened to . . . us[e]

unfair and unconscionable means in an attempt to collect a debt,”

without any indication as to what those means were, is plainly

conclusory.

Accordingly, some, but not all, of plaintiffs’ theories of

liability under the Rosenthal Act are sufficiently alleged.

Plaintiffs’ Rosenthal Act Claim may proceed on the basis of the

allegations that MortgageIT threatened to make false reports to

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credit agencies, and that MortgateIT wrongfully increased the

amount of debt by including amounts not permitted by law

D. Fraud 

Plaintiffs’ sixth claim alleges fraud by both MERS and

MortgageIT. Both defendants argue that plaintiffs have missed the

pleading standards of Fed. R. Civ. P. 9(b). 

The elements of a claim for intentional misrepresentation

under California law are: (1) misrepresentation (a false

representation, concealment or nondisclosure), (2) knowledge of

falsity, (3) intent to defraud (to induce reliance), (4)

justifiable reliance, and (5) resulting damage. Agosta v. Astor,

120 Cal. App. 4th 596, 603 (2004). The FAC’s allegations supporting

the claim for fraud are that:

Defendants, and each of them, have made

several representations to Plaintiffs with

regard to material facts. [¶] These

representations made by Defendants were false.

[¶] Defendants knew that these material

representations were false when made, or these

material representations were made with

reckless disregard for the truth. [¶]

Defendants intended that Plaintiffs rely on

these material representations. [¶] Plaintiffs

reasonably relied on said representations. [¶]

As a result of Plaintiffs’ reliance, they were

harmed and suffered damages.

FAC ¶¶ 100-105. These allegations fail to meet the specificity

required by Fed. R. Civ. P. 9(b). They refer to no specific

conduct, and give defendants no indication as to what conduct, if

any, underlies the fraud claims. The defendants are left to scour

the remainder of the complaint to determine which, if any, of the

allegations incorporated by reference plaintiffs intend as the

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basis for this claim. Accordingly, plaintiffs’ claim for fraud is

dismissed. 

E. Breach of Fiduciary Duty

Plaintiffs’ fifth claim alleges that MortgageIT breached a

fiduciary duty owed to plaintiffs. FAC ¶ 93, 95. MortgageIT denies

it owed plaintiffs any duty. 

Ordinarily, lenders owe borrowers no fiduciary duty. “[A]bsent

special circumstances . . . a loan transaction is at arm’s length

and there is no fiduciary relationship between the borrower and

lender.” Oaks Management Corporation v. Superior Court, 145 Cal.

App. 4th 453, 466 (2006) (collecting cases); Nymark v. Heart Fed.

Savings & Loan Assn., 231 Cal. App. 3d 1089, 1093 n.1 (1991).

Plaintiffs have identified no special circumstances here.

Plaintiffs alternatively argue that MortgageIT may be

vicariously liable under employer/employee, agency, and conspiracy

theories. According to plaintiffs, MortageIT entered agency

relationships with the brokers, and therefore became subject to the

brokers’ fiduciary duties. FAC ¶ 89, 91, 93. While plaintiffs

allege that MortgageIT provided incentives to the brokers,

plaintiffs have not alleged that MortgageIT exercised control over

the brokers’ conduct, or that the brokers had actual or apparent

authority to act on MortgageIT’s behalf. Accordingly, plaintiffs

have not alleged facts from which the court may plausibly infer

either an employment or an agency relationship. See Metropolitan

Water Dist. v. Superior Court, 32 Cal. 4th 491, 512 (2004)

(following the Restatement Second of Agency (1958), § 220), Cal.

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Civ. Code §§ 2299, 2300; J.L. v. Children’s Institute, Inc., 177

Cal. App. 4th 388, 403-404 (2009). Absent an indication that

MortgageIT owed a fiduciary duty to plaintiffs, MortgageIT cannot

be liable for civil conspiracy to breach that fiduciary duty.

Applied Equipment Corp. v. Litton Saudi Arabia Ltd., 7 Cal.4th 503,

511, 514 (1994), Champlaie, 2009 U.S. Dist. LEXIS 102285 at *62-65.

Plaintiffs claim for breach of fiduciary duty is dismissed.

F. Negligence

Plaintiffs’ third claim is for negligence against both

MortgageIT and MERS. Both defendants argue that plaintiffs have

failed to allege the elements of a claim for negligence.

MortgageIT further argues that plaintiffs’ negligence claim is time

barred.

1. Elements of a Negligence Claim

Under California law, the elements of a claim for negligence

are “(a) a legal duty to use due care; (b) a breach of such legal

duty; and (c) the breach as the proximate or legal cause of the

resulting injury.” Ladd v. County of San Mateo, 12 Cal. 4th 913,

917 (1996) (internal citations and quotations omitted). Of these

elements, defendants focus on duty. 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.” Nymark, 231 Cal. App. 3d at 1096. Thus, for a lender

such as MortgageIT to owe a duty of care, the lender’s activities

must have exceeded those of a conventional lender, id. at 1096-97,

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or the activities must fit within some exception to the “general”

rule, id. at 1098 (applying Biakanja v. Irving, 49 Cal. 2d 647, 320

P.2d 16 (1958)). This court recently evaluated Nymark’s

application to a fundamentally similar complaint in Champlaie, 2009

U.S. Dist. LEXIS 102285.

To determine whether either exception to Nymark applies, the

court looks to plaintiffs’ specific allegations. Plaintiffs allege

that MortgageIT and MERS

“failed to maintain the original Mortgage Note,

failed to properly create original documents, . . .

failed to make the required disclosures[,] . . .

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 ¶¶ 77-78. As to the allegations regarding maintenance of the

original note and creation of original documents, these are normal

activities for a lender, and there is no special reason to impose

a duty of care here.

Plaintiffs allege that defendants negligently “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 ¶ 78. Again, taking payments, charging fees, and

reporting on creditworthiness are conventional activities for a

lender. The court doubts that there are any compelling reasons to

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

sounding in negligence with respect to these activities. Even

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 The above interprets state law. Because defendants have not 4

addressed whether federal law permits a TILA violation to serve as

the basis for a state law negligence claim, the court does not

address this issue.

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assuming, however, that such a duty of care exists, plaintiffs’

allegations do not indicate that any of these acts were a breach

of said duty. Plaintiffs argue that defendants were not entitled

to receipt of these payments because the loan was itself invalid.

No authority indicates that any of the defects complained of in the

FAC rendered the loan void ab initio. Thus, nothing in the

complaint indicates that at the time these acts were performed,

defendants breached a duty by performing them.

Finally, plaintiffs contend that defendants negligently failed

to make required disclosures. FAC ¶ 77. Plaintiffs do not specify

the required disclosures, but elsewhere allege that MortgageIT

failed to make disclosures under TILA and RESPA. As explained

above, plaintiffs have failed to adequately allege a failure to

make any disclosures required by RESPA. As to TILA, MortgageIT has

not addressed the substance of the TILA claim, arguing for

dismissal on ancillary grounds. Assuming that plaintiffs have

adequately alleged a failure to make disclosures required by TILA,

it appears that, as a matter of California law, this failure sounds

in negligence. Champlaie, 2009 U.S. Dist. LEXIS 102285 at *75

(citing Biakanja, 49 Cal. 2d at 650 and Bily v. Arthur Young &

Co., 3 Cal. 4th 370, 399-405 (1992)).4

Plaintiffs have not alleged that MERS was required to make any

disclosures under TILA. Accordingly, the only surviving basis for

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 No party has addressed when this cause of action accrued. 5

Under California law, a cause of action accrues, and the statute

of limitations therefore begins to run, “when the cause of action

is complete with all of its elements.” Norgart v. Upjohn Co., 21

Cal.4th 383, 389 (1999). One element of a claim for negligence is

damages. As such, “the mere breach of a . . . duty does not

suffice to create a cause of action for negligence.” Sahadi v.

Scheaffer, 155 Cal. App. 4th 704, 715 (2007) (citing Budd v. Nixen,

6 Cal. 3d 195, 200 (1971)).

Here, plaintiffs have not identified what injury resulted from

the alleged negligent failure to make disclosures. Without knowing

what this injury is, the court cannot determine when plaintiffs

discovered it or should have discovered it. It is also true,

however, that absent an identifiable injury, plaintiffs’ claim

fails. Accordingly, the court cannot conclude that plaintiffs’

complaint supports the “potential applicability” of a delayed

accrual of plaintiffs’ claim, as distinct from equitable tolling.

C.f. Cervantes, 5 F.3d at 1277.

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plaintiffs’ negligence claim does not apply to MERS, and MERS’

motion to dismiss is granted in this regard.

2. Statute of Limitations

MortgageIT alternatively argues that even if plaintiffs have

alleged a breach of a duty sounding in negligence, any negligence

claim is time barred. In reviewing state law claims, federal

courts apply state law regarding the statute of limitations and

equitable tolling. Cervantes v. City of San Diego, 5 F.3d 1273,

1275 (1993). Under California law negligence claims have a two

year statute of limitations. Cal. Civ. Proc. § 335.1. Here, the

only surviving basis for plaintiffs’ negligence claim is the

failure to make disclosures on or about September 26, 2006. FAC ¶

31. The court assumes that the cause of action accrued at this

time. Accordingly, absent tolling, the limitations period expired 5

in September of 2008. Plaintiffs filed suit on May 5, 2009.

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Plaintiffs argue that they are entitled to equitable tolling

for the reasons discussed in the context of plaintiffs’ TILA claim.

As noted above, a failure to make disclosures does not itself

prevent a borrower from learning that the disclosures should have

been made, and plaintiffs have not alleged any further impediment.

In this regard, California and Federal law regarding equitable

tolling are similar. Accordingly, plaintiffs have not raised a

possibility of equitable tolling, and plaintiffs’ negligence claim

is therefore dismissed without prejudice.

G. Unfair Competition

California’s Unfair Competition Law, Cal. Bus. & Prof. Code

§ 17200, proscribes “unlawful, unfair or fraudulent” business acts

and practices. Plaintiffs’ allege UCL violations against

MortgageIT and MERS. Plaintiffs’ sole allegation directly in

support of their claim is that “Plaintiffs are informed and believe

that Defendants[‘] acts as alleged herein constitute unlawful,

unfair, and/or fraudulent business practices, as defined in the

California Business and Professions Code § 17200 et seq.” FAC ¶

108. Plaintiffs allege the faintest outline of a UCL claim.

The incorporated allegations fail to state a UCL claim based

on fraudulent or unfair business practices. As to fraud, Fed. R.

Civ. P. 9(b) applies to UCL claims sounding in fraud, and

plaintiffs have failed to meet ths standard. As to unfair business

practices, plaintiffs fail to provide defendants with any notice

as to which alleged acts, if any, constitute such practices.

Plaintiffs have, however, alleged various acts of unlawful

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California courts have held that a single act may give rise to UCL

liability. United Farm Workers of America, AFL-CIO v. Dutra Farms,

83 Cal. App. 4th 1146, 1163 (2000) (citing Stop Youth Addiction,

Inc., 17 Cal. 4th at 570).

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conduct. Plaintiffs have adequately alleged that MortgageIT acted

unlawfully by violating TILA. As to MERS, the FAC alleges that 6

MERS acted unlawfully by conducting business in California without

registering as a California corporation. FAC ¶¶ 9, 32. A foreign

corporation’s obligation to register arises under California

Corporations Code section 2105(a). MERS argues that it is exempted

from this obligation for the reasons explained in Benham v. Aurora

Loan Services, No. C-09-2059, 2009 U.S. Dist. LEXIS 78384, *14

(N.D. Cal. Sept. 1, 2009). Benham held that MERS was relieved of

the obligation to register because MERS fell into the exemption

provided by Corporations Code section 191(d)(3). This exemption

is only available to “foreign lending institutions.” Benham did

not discuss whether MERS was such an institution, and MERS offers

no argument on this issue here. Champlaie, 2009 U.S. Dist. LEXIS

102285 at *30-33, 2009 WL 3429622 at *10-11. Accordingly, the

court declines to follow Benham. Because MERS offers no further

argument, MERS has failed to meet its burden as the moving party,

and MERS’s motion to dismiss is denied as to this claim.

H. Breach of Contract

Plaintiffs’ eighth claim alleges a breach of contract against

MortgageIT, who moves to dismiss. A cause of action for breach of

contract requires: (1) that a contract exists between the parties,

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Promissory notes are contracts. Nicholson v. Smith, 98 Cal. 7

App. 2d 163, 163 (1950); see also Shipley Co. v. Rosemead Co., 100

Cal. App. 706, 712 (1929) (a “promissory note is, of course, a

contract”). 

Multiple papers executed as part of a single transaction may 8

be construed as a single contract. Cal. Civ. Code § 1642. Here, the

promises plaintiffs specify are not found in the language of the

note, or the deed of trust. Inasmuch as plaintiffs’ contract

allegations exceed the scope of the instruments, plaintiffs may

flirt with a claim for an oral contract, or an oral promise

integrated into the note. Plaintiffs have not pleaded such a claim,

however.

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(2) that the plaintiff performed his contractual duties or was

excused from nonperformance, (3) that the defendant breached those

contractual duties, and that plaintiff’s damages were a result from

the breach. Reichert v. General Ins. Co., 68 Cal. 2d 822, 830

(1968); First Commercial Mortgage Co. v. Reece, 89 Cal. App. 4th

731, 745 (2001).

Plaintiffs specify that the contract underlying this claim is

the promissory note itself. Opp’n 22. Plaintiffs allege that 7

Mortgage IT breached this contract by failing to deliver on the

promise of an affordable loan with the “best interest rates” on the

market, and refusing to refinance as promised. FAC ¶ 25, 113, 28.

However, plaintiffs’ assertions are refuted by the language of the

note itself, which imposes no such obligations on MortgageIT.8

I. Breach of the Implied Covenant of Good Faith and Fair Dealing

Plaintiffs ninth claim, and the last at issue in the motion

to dismiss, alleges breaches of the implied covenant of good faith

and fair dealing against MERS and MortgageIT, who move to dismiss.

Plaintiffs allege that MERS and MortgageIT breached the implied

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covenant of good faith and fair dealing by:

Failing to pay at least as much regard to

Plaintiff’s interests as to Defendant’s

interests; [i]nitiating foreclosure

proceedings on the property despite not having

the right to do so, and failing to comply

[with] the foreclosure requirements of

California law; [f]ailing to give requisite

notice before commencing foreclosure; [and]

[s]ending deceptive letters to Plaintiffs

advising Plaintiffs of their ability to short

sale their Property when Defendant had no

intention to conclude said short sale

transaction . . . 

FAC ¶ 121. As an initial matter, except for certain special

situations such as the relationship between an insurer and an

insured, the implied covenant of good faith and fair dealing does

not oblige a promisor to pay as much interest to the promisee’s

interest as to the promisor’s own. A claim for breach of the

implied covenant of good faith and fair dealing requires a

plaintiff to establish the existence of a contractual obligation

and conduct that frustrates the other party’s rights to benefit

from the contract. Racine & Laramie v. Dep’t of Parks & Rec., 11

Cal.App.4th 1026, 1031 (1992).

As to the remaining allegations, MERS argues that plaintiffs’

claim is flawed because it alleges no contractual relationship

between MERS and the plaintiffs, and duplicates a breach of

contract claim not pleaded against MERS. MERS M’tn 8-9. Plaintiffs’

Opposition specifies that the contract at issue is the deed of

trust, on which MERS is listed as lender’s nominee. Opp’n 16. 

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 MERS’s reply brief argues, for the first time, that the good 9

faith claim fails because the deed of trust explicitly permits MERS

to undertake the actions forming the basis of this claim. Because

this argument was raised for the first time in reply, it is

disregarded.

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Accordingly, MERS’ motion to dismiss this claim is denied.9

As to MortgageIT, some of plaintiffs’ allegations clearly can

not apply. Plaintiffs’ Opposition clarifies that plaintiffs’ theory

of liability for MortgageIT is that “MortgageIT placed Plaintiffs

into a toxic loan with predatory terms.” Opp’n 24. However, because

a claim for breach of the duty good faith is a claim that a

defendant deprived plaintiffs of benefits reasonably expected by

the parties under the contract, entry into the contract itself

cannot constitute a violation of the duty of good faith.

Accordingly, plaintiffs’ claim for breach of the implied covenant

of good faith and fair dealing is dismissed as to MortgageIT.

J. Motion to Strike

Defendant MortgageIT contends that substantial portions of

plaintiffs’ FAC should be stricken, including prayers for

attorney’s fees under the UCL, and punitive damages under TILA.

A motion to strike is proper where requests for relief are not

permitted as a matter of law. Wilkerson v. Butler, 229 F.R.D. 166,

17 (E.D. Cal. 2005). MortgageIT’s contention that attorney’s fees

are not recoverable under the UCL as a matter of law is well taken.

Cal-Tech Commc’ns, Inc. v. L.A. Cellular Tel. Co., 20 Cal. 4th 163,

179 (1999). Accordingly, the court strikes references to attorney

fees under the UCL from plaintiffs’ FAC.

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As to plaintiffs’ prayer for punitive damages, MortgageIT

argues specifically that punitive damages are not recoverable under

TILA, and that plaintiffs’ prayers for punitive damages as to the

state law claims fail to meet the requisite level of specificity,

or allege facts required to find punitive damages against a

corporate employer under California Civil Code § 3294(b). 

MortgageIT’s contention that punitive damages are not

available under TILA is an accurate statement of the law. Pelayo

v. Home Capital Funding, No. 08-CV-2030, 2009 U.S. Dist. LEXIS

44453, *25, 2009 WL 1459419, *9 (S.D. Cal. May 22, 2009). As to

MortgageIT’s argument that plaintiffs’ have failed to meet the

standards set by California Civil Code section 3294(b), this

section is a state procedural rule not implicated here. As to

MortgageIT’s general objection to punitive damages on the grounds

of specificity, the court is mindful of the principle that motions

to strike are disfavored, and the fact that plaintiffs will be

granted leave to amend their complaint. Accordingly, the court

finds defendant’s argument inadequate, and denies the motion to

strike as to the request for punitive damages.

IV. CONCLUSION

For the reasons stated above, the court GRANTS IN PART defendant

MERS’s motion to dismiss (Dkt. No. 22), MortgageIT’s motion to

dismiss (Dkt. No. 26), and MortgageIT’s motion to strike (Dkt. No.

30).

As to defendant MERS, the court:

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1. DENIES MERS’s motion to dismiss as to plaintiffs’

seventh claim (unfair competition) insofar as this claim

is premised on the failure to register to conduct

business in California, and as to plaintiffs’ ninth

claim (breach of the implied covenant of good faith)

2. DISMISSES WITHOUT PREJUDICE plaintiffs’ third claim

(negligence), sixth claim (fraud), and seventh claim

(unfair competition), insofar as this claim is based on

conduct other than that specified above.

As to defendant MortgageIT, the court:

1. DENIES MortgageIT’s motion to dismiss as to plaintiffs’:

a. first claim (TILA), insofar as it seeks rescission.

b. second claim (Rosenthal Act), insofar as it

premised on a threat to make false reports to

credit agencies, or wrongfully increase the amount

of debt by including amounts not permitted by law.

c. third claim (negligence) insofar as it is premised

on a failure to disclose under TILA.

d. seventh claim (unfair competition), insofar as it

is premised on violations of TILA.

2. DISMISSES WITHOUT PREJUDICE plaintiffs’ fourth claim

(RESPA), fifth claim (breach of fiduciary duty), sixth

claim (fraud), and ninth claim (breach of the implied

covenant of good faith). The court further DISMISSES

WITHOUT PREJUDICE plaintiffs’ first, second, third, and

seventh claims except as specified above.

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The court strikes the following references from plaintiffs’

FAC:

1. Prayers for attorney’s fees under the UCL.

2. Prayers for punitive damages under TILA.

Plaintiffs are granted twenty days from the date of this order in

which to file an amended complaint.

IT IS SO ORDERED.

DATED: February 25, 2010.

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