Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caed-2_10-cv-00516/USCOURTS-caed-2_10-cv-00516-1/pdf.json

Nature of Suit Code: 220
Nature of Suit: Foreclosure
Cause of Action: 28:1345 Foreclosure

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UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF CALIFORNIA

----oo0oo----

PETER SCHWARTZ and JULIE

RATHBONE,

Plaintiffs,

 v.

INDYMAC FEDERAL BANK; FIRST

MAGNUS FINANCIAL CORPORATION;

QUALITY LOAN SERVICE

CORPORATION; DEUTSCHE BANK

NATIONAL TRUST COMPANY, as

Trustee of the IndyMac IMSC

Mortgage Loan Trust 2007-F1,

Mortgage Pass-through

Certificates, Series 2007-F1

under the Pooling and

Servicing Agreement Dated May

1, 2007 by Onewest Bank FSB as

its Attorney in Fact; CHARTER

FUNDING; JAMES SHERGILL;

FEDERAL DEPOSIT INSURANCE

CORPORATION, as Reciever for

Indymac Federal Bank; and DOES

1-20, inclusive,

Defendants. /

NO. 2:10-cv-00516-WBS-JFM

MEMORANDUM AND ORDER RE:

MOTION TO DISMISS

----oo0oo----

Plaintiffs Peter Schwartz and Julie Rathbone filed this

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action against defendants IndyMac Federal Bank (“IndyMac”), First

Magnus Financial Corporation (“First Magnus”), Quality Loan

Service Corporation (“Quality Loan”), Deutsche Bank National

Trust Company (“Deutsche”), Charter Funding (“Charter”), and

James Shergill, alleging various state relating to loans they

obtained to purchase their home located at 2030 Hardwick Way in

Roseville, California. Defendant Deutsche now moves to dismiss

plaintiffs’ claims against it pursuant to Federal Rule of Civil

Procedure 12(b)(6) for failure to state a claim upon which relief

can be granted. 

I. Factual and Procedural Background

Plaintiffs allege that on April 28, 2006, defendant

Shergill, a loan officer for defendant Charter, offered

plaintiffs a residential mortgage loan. (Compl. ¶ 38.) Shergill

allegedly told plaintiffs that he could get them the “best deal”

and the “best interest rates” available on the market. (Id. ¶¶

38-39.) He allegedly informed plaintiffs that he could get them

a fixed rate loan for thirty years, but actually sold plaintiffs

“a loan with an adjustable rate rider that would negatively

amortize with large balloon payments.” (Id. ¶ 40.) Plaintiffs

aver that although they accurately described their income to

Shergill, he nevertheless over stated plaintiffs’ income on their

loan application. (Id. ¶¶ 40-41.) Plaintiffs also state that

Shergill told them that if the loan ever became unaffordable, he

would refinance it into an affordable loan. (Id. ¶ 43.)

On May 12, 2006, plaintiffs completed the loan for the

subject property. (Id. ¶ 46.) The terms of the loan were

memorialized in a Promissory Note, which was secured by a Deed of

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Trust on the Property. (Id.) The Deed of Trust identified

Fidelity National Title Company as Trustee and defendant First

Magnus as Lender. (Id.) Mortgage Electronic Registration

Systems, Inc. (“MERS”) was listed “as nominee for the Lender and

Lender’s successors and assigns, and the beneficiary.” (Id. ¶

47.) Plaintiffs allege that Citibank and IndyMac at some point

acquired unspecified interests in the loan. (Id. ¶ 48.) 

Plaintiffs defaulted on their loan, and as a

consequence, on June 2, 2009, a Notice of Default was filed in

Placer County, California, by Quality Loan. On or about

September 3, 2009, Quality Loan noticed the Trustee Sale of the

Property. Plaintiffs filed this action against defendants in

Placer County Superior Court on December 18, 2009. (Docket No.

2.) The action was removed to this court on March 3, 2010 due to

the presence of a federal government defendant after the Federal

Deposit Insurance Corporation was added as a party. (Id.) 

Before the court is defendant Deutsche’s motion to dismiss

plaintiffs’ complaint. (Docket No. 15.) Plaintiffs did not file

an opposition to the motion, nor did they file a statement of

non-opposition in accordance with Local Rule 230(c). 

II. Discussion

On a motion to dismiss, the court must accept the

allegations in the complaint as true and draw all reasonable

inferences in favor of the plaintiff. Scheuer v. Rhodes, 416

U.S. 232, 236 (1974), overruled on other grounds by Davis v.

Scherer, 468 U.S. 183 (1984); Cruz v. Beto, 405 U.S. 319, 322

(1972). To survive a motion to dismiss, a plaintiff needs to

plead “only enough facts to state a claim to relief that is

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plausible on its face.” Bell Atl. Corp. v. Twombly, 550 U.S.

544, 544, 127 S. Ct. 1955, 1974 (2007). This “plausibility

standard,” however, “asks for more than a sheer possibility that

a defendant has acted unlawfully,” and where a complaint pleads

facts that are “merely consistent with” a defendant’s liability,

it “stops short of the line between possibility and

plausibility.” Ashcroft v. Iqbal, 566 U.S. ---, ----, 129 S. Ct.

1937, 1949 (2009) (quoting Twombly, 550 U.S. at 556-57). 

A. Fraud

In California, the essential elements of a claim for

fraud are “(a) a misrepresentation (false representation,

concealment, or nondisclosure); (b) knowledge of falsity (or

‘scienter’); (c) intent to defraud, i.e., to induce reliance; (d)

justifiable reliance; and (e) resulting damage.” In re Estate of

Young, 160 Cal. App. 4th 62, 79 (2008). Under the heightened

pleading requirements for claims of fraud under Federal Rule of

Civil Procedure 9(b), “a party must state with particularity the

circumstances constituting the fraud.” Fed. R. Civ. P. 9(b). 

The plaintiffs must include the “who, what, when, where, and how”

of the fraud. Vess v. Ciba-Geigy Corp. USA, 317 F.3d 1097, 1006

(9th Cir. 2003) (citation omitted). “The plaintiff must set

forth what is false or misleading about a statement, and why it

is false.” Decker v. Glenfed, Inc., 42 F.3d 1541, 1548 (9th Cir.

1994). “[W]here multiple defendants are asked to respond to

allegations of fraud, the complaint must inform each defendant of

his alleged participation in the fraud.” Ricon v. Recontrust

Co., No. 09-937, 2009 U.S. Dist. LEXIS 67807 (S.D. Cal. Aug. 4,

2009) (quoting DiVittorio v. Equidyne Extractive Indus., 822 F.2d

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1242, 1247 (2d Cir. 1987)). 

Plaintiffs aver that Shergill, Charter, first Magnus

and Indymac made false representations to them. (Compl. ¶¶ 63,

68.) However, plaintiffs do not plead any specific

representations made by Deutsche to them, nor do they even allege

that they have ever communicated with Deutsche. The only

allegations that plaintiffs make that involve Deutsche are that

Deutsche was appointed Trustee of the IndyMac IMSC Mortgage Loan

Trust, (Id. ¶ 25), and that Deutsche failed “to observe the

applicable legal requirements for the transfer of a negotiable

instrument[] and interest[] in real property.” (Id. ¶ 29.) 

These allegations do not indicate what misrepresentations were

made by Deutsche, who made misrepresentations, or why they were

false. Such allegations fail to meet the requirements of Rule 8,

let along the heightened pleading standards of Rule 9. 

Accordingly, Deutsche’s motion to dismiss plaintiffs’ fraud claim

will be granted.

B. Negligence

To prove a cause of action for negligence, plaintiffs

must show “(1) a legal duty to use reasonable care; (2) breach of

that duty, and (3) proximate [or legal] cause between the breach

and (4) the plaintiff[s’] injur[ies].” Mendoza v. City of Los

Angeles, 66 Cal. App. 4th 1333, 1339 (1998) (citation omitted). 

“The existence of a legal duty to use reasonable care in a

particular factual situation is a question of law for the court

to decide.” Vasquez v. Residential Invs., Inc., 118 Cal. App.

4th 269, 278 (2004). 

While plaintiffs aver that defendants Shergill,

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Charter, First Magnus, and IndyMac owed them a duty of care, they

have not plead that defendant Deutsche owed them any duty. 

Plaintiffs state that Deutsche is Trustee of the IndyMac IMSC

Mortgage Loan Trust. (Compl. ¶ 25.) “There is no authority for

the proposition that a trustee under a deed of trust owes any

duties with respect to exercise of the power of the sale beyond

those specified in the deed.” I.E. Associates v. Safeco Title

Ins. Co., 39 Cal.3d 281, 288 (1985). Plaintiffs have failed to

specify any provision in deed of trust that creates a duty that

Deutsche has allegedly violated. 

Plaintiffs have also not adequately plead a causal

relationship between a breach of duty by Deutsche and a resulting

injury to themselves, nor have they even alleged injury. Their

claim that the harm that “plaintiffs [suffered] is directly

resulted to the defendants’ conduct” and that “as a result of

defendants’ negligence, plaintiffs suffered and continue to

suffer harm” is exactly the type of conclusory statement that

fails the pleading standard under Iqbal. (Compl. ¶¶ 128-29.) 

Plaintiffs’ negligence claim against Deutsche will therefore be

dismissed.

C. Wrongful Foreclosure

Plaintiffs’ Complaint purports to state a claim for

“wrongful foreclosure” against Deutsche. Wrongful foreclosure is

an action in equity, where a plaintiff seeks to set aside a

foreclosure sale. See Abdallah v. United Sav. Bank, 43 Cal. App.

4th 1101, 1009 (1996); Karlsen v. American Sav. & Loan Assn., 15

Cal. App. 3d 112, 117 (1971). Plaintiffs attempt to base this

claim first on California Commercial Code section 3301, alleging

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that Deutsche is not a beneficiary, assignee or employee of the

entity in possession of the note, and is therefore not a “person

entitled to enforce” the security interest on the property in

accordance with section 3301. (Compl. ¶ 156.) However, section

3301 reflects California’s adoption of the Uniform Commercial

Code, and does not govern non-judicial foreclosures, which are

governed by California Civil Code section 2924. See Gaitan v.

Mortg. Elec. Registration Sys., No. 09-1009, 2009 U.S. Dist.

LEXIS 97117 (C.D. Cal. Oct. 5, 2009). “The comprehensive

statutory framework established to govern nonjudicial foreclosure

sales is intended to be exhaustive.” Moeller v. Lien, 25 Cal.

App. 4th 822, 834 (1994). 

Plaintiffs’ claim that Deutsche was not entitled to

“utilize California Civil Code § 2924” to initiate nonjudicial

foreclosure proceedings is patently false. (Compl. ¶ 157). 

Plaintiffs’ have plead that Deutsche was a trustee of their loan,

who would clearly have been authorized to initiate foreclosure

proceedings under California law. See Cal. Civ. Code §

2924(a)(1) (authorizing “the trustee, mortgagee, or beneficiary

[of an interest in real property], or any of their authorized

agents,” to initiate non-judicial foreclosure proceedings in the

event of default). 

Plaintiffs also base their wrongful foreclosure action

on California Civil Code section 2923.5, arguing that

“[d]efendants failed to give proper notice of the Notice of

Default” on their property. (Compl. ¶ 159.) The Complaint does

not indicate whether Deutsche in particular failed to properly

give notice, and simply makes a general allegation as to all

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defendants. This general allegation gives Deutsche insufficient

notice of whether its conduct violated section 2923.5, and

Deutsche should not be forced to guess whether it is individually

liable for this claim. See Gauvin v. Trombatore, 682 F. Supp.

1067, 1071 (1988). Plaintiffs have failed to state a claim upon

which relief can be granted and the court will accordingly grant

Deutsche’s motion to dismiss plaintiffs’ wrongful foreclosure

cause of action. 

D. California’s Unfair Competition Law

California’s Unfair Competition Law (“UCL”), Cal. Bus.

& Prof. Code §§ 17200-17210, prohibits “any unlawful, unfair, or

fraudulent business act or practice.” Cal-Tech Communic’ns, Inc.

v. Los Angeles Cellular Tel. Co., 20 Cal. 4th 163, 180 (1999).

“By proscribing ‘any unlawful’ business practice, section 17200

‘borrows’ violations of other laws and treats them as unlawful

practices that the unfair competition law makes independently

actionable.” Id. (citation omitted). This cause of action is

generally derivative of some other illegal conduct or fraud

committed by a defendant, and “[a] plaintiff must state with

reasonable particularity the facts supporting the statutory

elements of the violation.” Khoury v. Maly’s of Cal., Inc., 14

Cal. App. 4th 612, 619 (1993). A plaintiff’s claim will fail if

it identifies “no particular section of the [§ 17200] statutory

scheme which was violated and fails to describe with any

reasonable particularity the facts supporting violation.” Id. at

619. 

Plaintiffs’ claims under the UCL are vague and

conclusory, simply alleging that “Defendant Deutsche’s

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negligence, fraud and illegal foreclosure activities, as alleged

herein, constitute unlawful, unfair, and/or fraudulent business

practices, as defined in the California Business and Professions

Code § 17200 et seq.” (Complaint ¶ 148.) The court has already

indicated it will dismiss plaintiffs’ other causes of action for

fraud, negligence, and wrongful foreclosure for failure to state

a claim. Since plaintiffs have failed to state a claim on any of

these other grounds, and since they appear to be the sole basis

for plaintiffs’ UCL claim, plaintiffs by necessity have failed to

state a claim against Deutsche under the UCL. Accordingly,

Deutsche’s motion to dismiss plaintiffs’ UCL cause of action will

be granted. 

E. Sanctions

If plaintiff’s attorney, Sharon Lapin, could not draft

a complaint that contained a single claim against Deutsche upon

which relief could be granted, she could have at least complied

with Local Rule 230(c) and told the court she had no opposition

to the granting of defendant’s motion. Instead, as she has

repeatedly done before1, she ignored the local rule and did

nothing in response to the motion to dismiss the complaint. 

Despite Ms. Lapin’s promises to the court that she would take the

1 This is not the first time Ms. Lapin has failed to

comply with Local Rule 78-230(c). See Inguez v. Bank of Am., No.

09-02903, 2010 U.S. Dist. LEXIS 18342, at *2 (E.D. Cal. Feb. 26,

2010); Reyes v. IndyMac Fed. Bank, No. 09-033822010, 2010 U.S.

Dist. LEXIS 18199, at *2 (E.D. Cal. Feb. 25, 2010); Mejia v.

Countrywide Home Loans, No. 09-2346, 2010 U.S. Dist. LEXIS 23436,

at *2 (E.D. Cal. Feb. 25, 2010); Peay v. Midland Mortgage Co., No. 09-2228 WBS KJM, 2010 WL 476677, at *6 (E.D. Cal. Feb. 3,

2010); Saldate v. Wilshire Credit Corp., 686 F. Supp. 2d 1051,

1056 (E.D. Cal. 2010). Such repeated disregard for the Local

Rules should not go unsanctioned.

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necessary steps to avoid these problems in the future, her

promises have been empty. Counsel’s failure to comply with Local

Rule 230(c) and timely file any response to Deutsche’s motion to

dismiss is inexcusable, and has inconvenienced the court by

forcing it to nevertheless examine the motion on the merits. 

Local Rule 110 authorizes the court to impose sanctions

for “[f]ailure of counsel or of a party to comply with these

Rules.” Because the court’s previous sanctions in the amounts of

$150.00, $200.00, and $250.00 were obviously insufficient to

induce Ms. Lapin to comply with the Local Rules, it is

unfortunately necessary to impose sanctions in a greater sum this

time.

IT IS THEREFORE ORDERED that Deutsche’s motion to

dismiss the claims against it be, and the same hereby is,

GRANTED;

AND IT IS FURTHER ORDERED that within ten days from the

date of this Order plaintiffs’ counsel, Sharon L. Lapin, shall

either pay to the court sanctions in the sum of $500.00, or shall

show good cause why such sanctions should not be imposed, for her

failure to comply with the Local Rules.

DATED: July 26, 2010

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