Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caed-2_09-cv-02228/USCOURTS-caed-2_09-cv-02228-1/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

EASTERN DISTRICT OF CALIFORNIA

----oo0oo----

DERALD PEAY AND DEBRA PEAY,

PlaintiffS,

 v.

MIDLAND MORTGAGE COMPANY;

MORTGAGE PROCESS CENTER;

QUALITY LOAN SERVICE CORP.;

MORTGAGE ELECTRONIC

REGISTRATION SYSTEMS, INC.;

U.S. BANK NA; RON ALLEN AND

ASSOCIATES; RONNIE D. ALLEN;

MARISSA BACO, and DOES 1-20

inclusive, 

Defendants. /

NO. CIV. 09-2228 WBS KJM

MEMORANDUM AND ORDER RE:

MOTION TO DISMISS

----oo0oo----

Plaintiffs Derald Peay and Debra Peay (“the Peays”)

filed this action against Midland Mortgage Company (“Midland”),

Mortgage Process Center (“Mortgage Process”), Quality Loan

Service Corp. (“Quality Loan”), Mortgage Electronic Registration

Systems, Inc. (“MERS”), U.S. Bank National Association (“U.S.

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Bank”), Ron Allen and Associates, Ronnie D. Allen, and Marissa

Baco alleging various state and federal claims relating to loans

they obtained to refinance their home in Grass Valley,

California. In their Second Amended Complaint (“SAC”),

plaintiffs assert ten causes of action against eight defendants. 

Midland and U.S. Bank move to dismiss plaintiff’s SAC

pursuant to Federal Rule of Civil Procedure 12(b)(6) for failure

to state a claim upon which relief can be granted. Midland and

U.S. Bank’s Motion to Dismiss challenges only the causes of

action that apply to them. (Mot. to Dismiss at 2.) Plaintiffs

did not oppose the motion. Nor did plaintiffs file a statement

of non-opposition pursuant to Local Rule 230(c). Therefore, the

hearing date of January 19, 2010 is VACATED pursuant to Eastern

District Local Rule 230(c), and the court takes defendants’

motion to dismiss under submission without oral argument.

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

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

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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). Additionally, “[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.

Reconstrust Co., No. 09-937, 2009 WL 2407396, at *3 (S.D. Cal.

Aug. 4, 2009) (quoting DiVittorio v. Equidyne Extractive Indus.,

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

Plaintiffs’ cause of action for fraud suffers from the

same problems noted by the court when it granted defendants’

motion to dismiss plaintiffs’ FAC: the SAC contains conclusory

allegations with respect to defendant Midland and is silent with

respect to defendant U.S. Bank. Specifically, plaintiffs allege

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that Midland did not give them notice that it had acquired the

servicing rights to plaintiffs’ mortgage, as required by law. 

(Id. ¶ 46.) Yet plaintiffs fail to state how or why this alleged

failure to give proper notice states a claim for fraud. 

Secondly, plaintiffs admit that Midland is their loan servicer,

yet allege that Midland had no legal right to collect monies from

them. (See SAC ¶¶ 8, 32, 46, 50, 70.) Plaintiffs fail to state

why Midland did not have the right to service their loan;

instead, plaintiffs generally allege that Midland “misrepresented

material facts” regarding their right to service plaintiffs’

loan, and allege that Midland was engaged in a civil conspiracy

with the other defendants in this case. (Id. ¶¶ 60, 62, 70.) 

Plaintiffs further allege that Midland fraudulently added

improper costs and charges to the amount owed by the plaintiffs. 

(Id. ¶ 58.) These vague allegations are mere conclusions that do

not enjoy a presumption of validity on a motion to dismiss, nor

do they attempt to meet the heightened pleading standards of Rule

9(b). Ashcroft v. Iqbal, 129 S. Ct. 1937, 1949 (2009). 

Regarding U.S. Bank, the only conduct by them alleged

in the SAC is that the trust into which plaintiffs’ mortgage was

pooled had a closing date of September 29, 2006, but the

Assignment of Deed of Trust was recorded on November 18, 2008.

(FAC ¶¶ 23-25, 48.) Plaintiffs make no effort, however, to plead

the elements of fraud or to meet the heightened pleading

standards of Rule 9(b). This cause of action will therefore be

dismissed as to U.S. Bank. 

B. Negligence

To prove a cause of action for negligence, plaintiffs

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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 (Ct. App. 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). 

Even though this court’s November 13, 2009 Order stated

that loan servicers do not owe a duty to the borrowers of the

loans they service, plaintiffs again assert in their SAC that

Midland owed them a duty of care. (SAC ¶ 123; see Docket No. 37

at 7-8); see also Watts v. Decision One Mortg. Co., No. 09-43

2009 U.S. Dist. LEXIS 59694 (S.D. Cal. July 13, 2009); Marks v.

Ocwen Loan Servicing, No. 07-2133, 2009 WL 975792, at *7 (N.D.

Cal. Apr. 10, 2009) (“[A] loan servicer does not owe a fiduciary

duty to a borrower beyond the duties set forth in the loan

contract.”) Midland, as the servicer of plaintiffs’ loan, owed no

special duty to prevent harm to plaintiffs, and so plaintiffs’

cause of action for negligence must fail as to Midland.

Plaintiffs further allege that defendant Midland was

negligent per se when it allegedly violated the statutory

requirements of the Real Estate Settlement Procedures Act

(“RESPA”), 12 U.S.C. § 2605(e), by failing to give proper notice

that it had obtained the servicing rights to plaintiffs’ mortgage

and by failing to respond to plaintiffs’ Qualified Written

Request (“QWR”) for information relating to the servicing of

their mortgage. (FAC ¶ 123.) Negligence per se is an

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evidentiary presumption that a party failed to exercise due care

if: 

(1) he violated a statute, ordinance, or regulation of

a public entity; 

(2) the violation proximately caused death or injury to

a person or property; 

(3) the death or injury resulted from an occurrence of

the nature within the statute, ordinance, or regulation

was designed to prevent; and 

(4) the person suffering the death or the injury to his

person or property was one of the class of persons for

whose protection the statute, ordinance, or regulation

was adopted. 

Cal. Evid. Code § 669. 

The negligence per se doctrine does not establish a

cause of action distinct from negligence. Cal. Serv. Station &

Auto. Repair Ass'n v. Am. Home Assurance Co., 62 Cal. App. 4th

1166, 1178 (1998) (“[A]n underlying claim of ordinary negligence

must be viable before the presumption of negligence of Evidence

Code section 669 can be employed.”). Rather, the negligence per

se doctrine treats a statutory violation as evidence of

negligence. See Sierra-Bay Fed. Land Bank Assn. v. Superior

Court, 227 Cal. App. 3d 318, 333 (1991) (“[I]t is the tort of

negligence, and not the violation of the statute itself, which

entitles a plaintiff to recover civil damages. In such

circumstances the plaintiff is not attempting to pursue a private

cause of action for violation of the statute; rather, he is

pursuing a negligence action and is relying upon the violation of

a statute, ordinance, or regulation to establish part of that

cause of action.”). Even if the four requirements of California

Evidence Code section 669 are met, the plaintiff is not entitled

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to a presumption of negligence in the absence of an underlying

negligence action. Coyotzi v. Countrywide Fin. Corp., No. 09-

1036, 2009 WL 2985497, at *6 (E.D. Cal. Sept. 16, 2009) (O’Neill,

J.) (quoting Quiroz v. Seventh Ave. Ctr., 140 Cal. App. 4th 1256,

1285 (2006)). 

Plaintiffs’ negligence per se claim fails because

Midland does not owe plaintiffs a duty of care. Plaintiffs

assert that Midland owed them a statutory duty of care, but do

not point to any provision in RESPA that creates such a duty. 

Furthermore, plaintiffs have not pled damages with respect to

Midland’s alleged failure under RESPA to give plaintiffs notice

that it had acquired the servicing rights to their mortgage. The

court, therefore, will dismiss this cause of action as to

Midland. 

C. Rosenthal Fair Debt Collection Practices Act

Plaintiffs have amended their sixth cause of action for

violations of the Rosenthal Fair Debt Collection Practices Act

(“RFDCPA” or “Rosenthal Act”), Cal. Civ. Code §§ 1788 et seq. to

complain only against defendant Midland. (SAC 23.) This cause

of action, however, continues to suffer from the same shortfalls

this court identified in its November 13, 2009 Order granting

defendants’ motion to dismiss. (See Docket No. 37 at 4-7.) 

Plaintiffs do not plead facts necessary to support the inference

that Midland is a “debt collector” under the RFDCPA;

specifically, that Midland engages in “debt collection,” that the

deed of trust memorializes a “consumer credit transaction,” and

that the amount owed under the deed of trust is a “consumer debt”

according to the RFDCPA. See Cal. Civ. Code § 1788.2(b)-(f)

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(West 2009); Izenberg v. ETS Svcs., LLC, 589 F. Supp. 2d 1193,

1199 (C.D. Cal. 2008) (“Because foreclosure does not constitute

debt collection under the RFDCPA, it does not appear that

plaintiff can cure this deficiency.”); see also Ines v.

Countrywide Home Loans, Inc., No. 08-1267, 2009 WL 4791863, at *2

(S.D. Cal. Nov. 3, 2008) (“Mortgage companies collecting debts

are not ‘debt collectors’”) (quoting Williams v. Countrywide Home

Loans, Inc., 504 F. Supp. 2d 176, 190 (S.D. Tex. 2007)). 

Plaintiffs cause of action for unfair debt collection practices,

therefore, cannot survive a motion to dismiss. 

D. Real Estate Settlement Procedures Act

Plaintiffs’ eighth cause of action against Midland for

violating the Real Estate Settlement Procedures Act of 1974

(“RESPA”), 12 U.S.C. § 2601 (2006), fails to address the

shortfalls identified by the court in its November 13, 2009 Order

granting defendants’ motion to dismiss plaintiff’s FAC. (Docket

No. 37 at 10-11.) Specifically, this court’s prior Order

explained that plaintiff’s RESPA claim failed because it did not

allege that plaintiffs suffered actual harm from Midland’s

alleged failure to comply with the notice of loan servicing and

QWR response provisions of RESPA. (Id. (citing cases)) While

plaintiffs’ SAC alleges that Midland failed to make corrections

to plaintiffs’ account in response to the QWR and that Midland

continued to provide information to consumer credit reporting

agencies regarding plaintiffs’ overdue payments, it fails to

allege that either of these actions caused plaintiffs actual

harm. (See SAC ¶¶ 179-181.) Rather, plaintiffs continue to

vaguely assert that they “continue to suffer damages and costs of

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suit.” (Id. ¶ 182.) This cause of action will therefore be

dismissed as to Midland. 

E. Conversion

Defendants also seek dismissal of plaintiffs’

conversion claim. “Conversion is any act of dominion wrongfully

exerted over another’s personal property in denial of or

inconsistent with his rights therein,” which includes assuming

“control or ownership over the property,” or applying the

property to one's own use. Messerall v. Fulwider, 199 Cal. App.

3d 1324, 1329 (1988) (citing Igauye v. Howard, 114 Cal. App. 2d

122, 126 (1952)). The basic elements of a conversion claim are:

(1) the plaintiff’s ownership or right to possession of personal

property; (2) the defendant’s disposition of the property in a

manner that is inconsistent with the plaintiff's property rights;

and (3) resulting damages. Fremont Indemnity Co. v. Fremont Gen.

Corp., 148 Cal. App. 4th 97, 119 (2007) (citing Burlesci v.

Petersen, 68 Cal. App. 4th 1062, 1066 (1998)). Legal title to

property is not necessary for an action for damages in

conversion; a plaintiff must only show that she was “entitled to

immediate possession at the time of conversion.” Messerall v.

Fulwider, 199 Cal. App. 3d 1324, 1329 (1988) (citing Bastanchury

v. Times-Mirror Co., 68 Cal. App. 2d 217, 236 (1945)). 

Despite this court’s November 13, 2009 Order dismissing

plaintiffs’ wrongful foreclosure claim, plaintiffs continue to

allege that California Commercial Code section 3301 applies to

the non-judicial foreclosure of their property. (SAC ¶¶ 195-198;

see Docket No. 37 at 16-17.) As this court has previously

stated, California Civil Code section 2924 governs non-judicial

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foreclosures. (Docket No. 37, at 16-17 (citing cases).) 

Plaintiffs’ newly styled conversion claim essentially alleges

that defendants cannot “produce the note,” and therefore have no

right to foreclose on their home. California law, however, does

not require the production of the original note to initiate a

non-judicial foreclosure sale. See Oliver v. Countrywide Home

Loans, Inc., No. 09-1381, 2009 WL 3122573, at *3 (E.D. Cal. Sept.

29, 2009) (Damrell, J.) (citing cases). This cause of action

will therefore be dismissed as to Midland and U.S. Bank. 

F. California Business & Professions Code § 17200

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). 

The court has already indicated it will dismiss

plaintiffs’ other causes of action for violation of the Rosenthal

Act, RESPA, negligence, conversion, and fraud against Midland and

U.S. Bank for failure to state a claim. Since plaintiffs have

failed to state a claim on any of these other grounds, and since

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those appear to be the sole basis for plaintiffs’ UCL claim, they

by necessity have failed to state a claim under the UCL. 

Accordingly, defendants U.S. Bank and Midland’s motion to dismiss

plaintiffs’ UCL cause of action will be granted with leave to

amend.

G. Leave To Amend

Counsel for plaintiffs has failed to comply with Local

Rule 230(c) by filing neither an opposition nor a notice of nonopposition to defendants’ motion to dismiss the SAC with

prejudice. “Valid reasons for denying leave to amend include

undue delay, bad faith, prejudice, and futility.” Cal.

Architectural Bldg. Prods. v. Franciscan Ceramics, 818 F.2d 1466,

1472 (9th Cir. 1988). Furthermore, while leave to amend must be

freely given, the court is not required to allow futile

amendments. See DeSoto v. Yellow Freight Sys., Inc., 957 F.2d

655, 658 (9th Cir. 1992); Klamath-Lake Pharm. Ass'n v. Klamath

Med. Serv. Bureau, 701 F.2d 1276, 1293 (9th Cir. 1983); see also

Reddy v. Litton Indus., Inc., 912 F.2d 291, 296-97 (9th Cir.

1990); Rutman Wine Co. v. E. & J. Gallo Winery, 829 F.2d 729, 738

(9th Cir. 1987). The court’s November 13, 2009 Order

specifically advised plaintiffs of the pleading defects and what

plaintiff needed to plead to rectify them, and gave plaintiff the

opportunity to file the SAC. As explained above, plaintiffs

SAC–-while over thirty pages long--fails to correct any of these

defects. 

It is clear that further amendment will not help

plaintiffs adequately plead at least some causes of action. 

Plaintiffs’ fraud claim must be dismissed with prejudice because

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it does not demonstrate a good faith effort to comply with Rule

9(b). See Spencer v. DHI Mortg. Co., No. 09-925, 2009 WL 1930161

(E.D. Cal. June 30, 2009) (dismissing the plaintiff's fraud claim

without leave to amend because it failed to satisfy Rule 9(b)'s

“‘who, what, when, where and how’ requirements” and was so

deficient as to “suggest no potential improvement from an attempt

to amend”). Plaintiffs’ negligence claim fails as a matter of

law because there is no fiduciary relationship between a loan

servicer and a borrower. See Marks v. Ocwen Loan Servicing, No.

07-2133, 2009 WL 975792, at *7 (N.D. Cal. Apr. 10, 2009). 

With respect to plaintiffs’ sixth and eighth causes of

action, the court previously apprised plaintiffs of the same

deficiencies that plague the SAC. (See Docket No. 37.) Since

the deficiencies have not been corrected, the court can only

conclude that plaintiffs do not intend to allege or are unwilling

or unable to properly plead claims for Rosenthal Act and RESPA

violations. Cf. Garcia ex rel. Marin v. Clovis Unified School

Dist., No. 08-1924, 2009 WL 2982900, at *9 (E.D. Cal. Sept. 14,

2009). To the extent that plaintiffs are again attempting to

allege such a claim, dismissal without leave to amend is

appropriate.

As to the remaining causes of action against defendants

Midland and U.S. Bank, plaintiffs are admonished that failure to

cure the defects identified in this Order is grounds for

dismissal without further leave to amend. 

H. Sanctions

If plaintiff's attorney had any opposition to the

motion to dismiss she should have filed one; if she had no

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

comply with the Local Rules. In Pok et al. v. Am. Home Mortgage

Serv. Inc. et al., No. 09-2385, Ms. Lapin flouted Local Rule

230(c) and filed her Opposition to a motion to dismiss nine days

late, after the court vacated the hearing date and took the

motion under submission without oral argument. (See Docket Nos.

21, 23.) Such repeated disregard for the Local Rules should not

go unsanctioned.

13

opposition the least she could have done was comply with Local

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

granting of defendants' motion. Instead, as she has done

before,1

 she ignored the Local Rule and did nothing in response

to the motion to dismiss her complaint. Counsel's failure to

comply with Local Rule 230(c) and timely file any response to

Midland and U.S. Bank’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.” Therefore, the court will sanction plaintiff's counsel,

Sharon L. Lapin, $200.00 payable to the Clerk of the Court within

ten days from the date of this Order, unless she shows good cause

for her failure to comply with the Local Rules.

IT IS THEREFORE ORDERED that defendants Midland and

U.S. Bank’s motion to dismiss the first, fifth, sixth, and eighth

causes of action of the Second Amended Complaint as against them

be, and the same hereby is, GRANTED without leave to amend.

IT IS FURTHER ORDERED that defendants Midland and U.S.

Bank’s motion to dismiss the seventh and tenth causes of action

of the Second Amended Complaint as against them be, and the same

hereby is, GRANTED with leave to amend.

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IT IS FURTHER ORDERED that within ten days of this

Order Sharon L. Lapin shall either (1) pay sanctions of $200.00

to the Clerk of the Court, or (2) submit a statement of good

cause explaining her failure to comply with Local Rule 230(c).

Plaintiffs have twenty days from the date of this Order

to file an amended complaint consistent with this Order. 

DATED: February 2, 2010

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