DAVID ALAN EZRA, District Judge.
Pursuant to Local Rule 7.2(d), the Court finds this matter suitable for disposition without a hearing. After reviewing Defendants U.S. Bank National Association as Trustee for the Benefit of Citigroup Mortgage Loan Trust, Inc. Asset-Backed Pass-Through Certificates Series 2007-AHL2 and Bank of America N.A.'s Motion to Dismiss and the supporting and opposing memoranda, the Court GRANTS USB and BofA's Motion to Dismiss Complaint. (Doc. # 8.) The Court also GRANTS Plaintiffs leave to amend the Complaint.
On July 29, 2010, Plaintiffs Michael A. Labuanan and Janell R.N. Lai-Labuanan ("Plaintiffs") filed a Complaint against Defendants U.S. Bank National Association as Trustee for the Benefit of Citigroup Mortgage Loan Trust, Inc. Asset-Backed Pass-Through Certificates Series 2007-AHL2 ("USB"), Bank of America fka Countrywide Home Loans, Inc. ("BofA")
Plaintiffs are "unsophisticated consumers in regards to credit transactions and both are domiciled in the State of Hawaii." (Id. ¶ 1.) On December 22, 2006, Plaintiffs entered into a loan transaction with Defendant AHL, the original lender for the loan, to refinance their property.
Plaintiffs claim that at the time of execution of the loan documents, they were "instructed to sign, but no explanation was given to Plaintiffs regarding the loan documents they were told to sign." (Id. ¶ 15.) They further claim that they were not provided two copies of the Notice of Right to Cancel and were not given a written document to retain for their own records. (Id. ¶ 17.) Plaintiffs additionally contend that on October 19, 2009, they made a request for rescission of their loan transaction but did not receive any response from BAC Home Servicing, LP, and that said request for rescission is reaffirmed by the filing of this action. (Id. ¶ 19.) They finally allege that the monthly payments required by the loan exceed Plaintiffs' combined gross monthly income from December 2006. (Id. ¶ 20.)
On October 12, 2010, Defendants USB and BofA filed a Motion to Dismiss ("Motion") for failure to state a claim upon which relief can be granted. ("Mot.," Doc. #8.) On December 20, 2010, Plaintiffs filed a Memorandum in Opposition to Defendants' Motion to Dismiss ("Opposition"). (Opp'n, Doc. # 16.) On December 27, 2010, Defendants USB and BofA filed a Reply in support of their Motion. (Reply, Doc. # 17.)
Pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure ("Rule"), a motion to dismiss will be granted where the plaintiff fails to state a claim upon which relief can be granted. Review is limited to the contents of the complaint. See Clegg v. Cult Awareness Network, 18 F.3d 752, 754 (9th Cir.1994). A complaint may be dismissed as a matter of law for one of two reasons: "(1) lack of a cognizable legal theory, or (2) insufficient facts under a cognizable legal claim." Robertson v. Dean Witter Reynolds, Inc., 749 F.2d 530, 534 (9th Cir.1984) (citation omitted). Allegations of fact in the complaint must be taken as true and construed in the light most favorable to the plaintiff. See Livid Holdings Ltd. v. Salomon Smith Barney, Inc., 416 F.3d 940, 946 (9th Cir.2005).
A complaint need not include detailed facts to survive a Rule 12(b)(6) motion to dismiss. See Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555-56, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). In providing grounds for relief, however, a plaintiff must do
A court looks at whether the facts in the complaint sufficiently state a "plausible" ground for relief. See Twombly, 550 U.S. at 570, 127 S.Ct. 1955. A plaintiff must include enough facts to raise a reasonable expectation that discovery will reveal evidence and may not just provide a speculation of a right to relief. Id. at 586, 127 S.Ct. 1955. When a complaint fails to adequately state a claim, such deficiency should be "exposed at the point of minimum expenditure of time and money by the parties and the court." Id. at 558, 127 S.Ct. 1955 (citation omitted). If a court dismisses the complaint or portions thereof, it must consider whether to grant leave to amend. Lopez v. Smith, 203 F.3d 1122, 1130 (9th Cir.2000) (finding that leave to amend should be granted "if it appears at all possible that the plaintiff can correct the defect") (internal quotations and citations omitted).
Federal Rule of Civil Procedure 9(b) requires that "[i]n alleging fraud or mistake, a party must state with particularity the circumstances constituting fraud or mistake." Fed.R.Civ.P. 9(b). Under Ninth Circuit law, "Rule 9(b) requires particularized allegations of the circumstances constituting fraud." In re GlenFed, Inc. Sec. Litig., 42 F.3d 1541, 1547-48 (9th Cir.1994) (en banc), superseded on other grounds by 15 U.S.C. § 78u-4.
In their pleadings, plaintiffs must include the time, place, and nature of the alleged fraud; "mere conclusory allegations of fraud are insufficient" to satisfy this requirement. Id. at 1548 (quoting Moore v. Kayport Package Express, Inc., 885 F.2d 531, 540 (9th Cir.1989)). "[T]he circumstances constituting the alleged fraud [must] `be specific enough to give defendants notice of the particular misconduct. . . so that they can defend against the charge and not just deny that they have done anything wrong.'" Kearns v. Ford Motor Co., 567 F.3d 1120, 1124 (9th Cir.2009) (quoting Bly-Magee v. California, 236 F.3d 1014, 1019 (9th Cir.2001)); see also Moore, 885 F.2d at 540 (finding that Rule 9(b) requires a plaintiff to attribute particular fraudulent statements or acts to individual defendants). However, "[m]alice, intent, knowledge, and other conditions of a person's mind may be alleged generally." Fed.R.Civ.P. 9(b); see also In re GlenFed, Inc. Sec. Litig., 42 F.3d at 1547 ("We conclude that plaintiffs may aver scienter . . . simply by saying that scienter existed."); Walling v. Beverly Enter., 476 F.2d 393, 397 (9th Cir.1973) (finding that Rule 9(b) "only requires the identification of the circumstances constituting fraud so that the defendant can prepare an adequate answer from the allegations" (citations omitted)).
For the reasons set forth below, the Court concludes that Defendants USB and BofA's Motion to Dismiss should be granted.
In Count I of the Complaint, Plaintiffs allege that they are entitled to rescission of the loan and recoupment
Section 1635(a), TILA's so-called buyer's remorse provision, gives borrowers three business days to rescind the loan agreement without penalty. 15 U.S.C. § 1635(a); Semar v. Platte Valley Fed. Sav. & Loan Ass'n, 791 F.2d 699, 701 (9th Cir.1986) (citing 15 U.S.C. § 1635(a)). To invoke this provision, the loan must be a consumer loan using the borrower's principal dwelling as security. 15 U.S.C. § 1635(a). If the lender fails to deliver certain forms or disclose important terms accurately, Section 1635(f) gives the borrower the right to rescind until "three years after the consummation of the transaction or . . . the sale of the property, whichever occurs first." 15 U.S.C. § 1635(f); see also King v. California, 784 F.2d 910, 913 (9th Cir.1986).
Here, Plaintiffs entered into the loan transaction on December 22, 2006 and initiated the instant lawsuit on July 29, 2010. Plaintiffs contend, however, that the three-year statute of limitations for invocation of the right to rescind has not expired, based on a letter they sent Defendants on October 19, 2009. Defendants respond that "Plaintiffs did not request a rescission of their loan transaction by way of a qualified written request within the three-year limitations period. . . ." (Reply at 3.) Plaintiffs attached to their Opposition the letter allegedly mailed on October 19, 2009.
Additionally, equitable tolling does not apply to rescission under TILA. Beach v. Ocwen Fed. Bank, 523 U.S. 410, 412, 118 S.Ct. 1408, 140 L.Ed.2d 566 (1998) (holding that "§ 1635(f) completely extinguishes the right of rescission at the end of the 3-year period"); see also Miguel v. Country Funding Corp., 309 F.3d 1161, 1164 (9th Cir.2002) (citing Beach and holding that "§ 1635(f) is a statute of repose, depriving the courts of subject matter jurisdiction when a § 1635 claim is brought outside the three-year limitation period"); King, 784 F.2d at 913 (characterizing Section 1635(f) as a "three-year absolute limitation" on Section 1635 rescission actions). As such, Plaintiffs' TILA Rescission claim is barred by the statute of limitations.
In addition to rescission, TILA authorizes civil liability in the form of actual damages, statutory damages, costs, and attorneys fees. 15 U.S.C. § 1640. Pursuant to Section 1640(e), there is a one-year statute of limitations for civil liability claims under TILA. Id. § 1640(e). The limitations period generally runs from the date of consummation of the transaction. King, 784 F.2d at 915. Here, as stated above, Plaintiffs entered into the loan transaction on December 19, 2006 and initiated the present lawsuit on July 29, 2010. As such, more than one year elapsed between the consummation of the loan and the filing of the instant action. Therefore, Plaintiffs' claim is barred by the statute of limitations unless equitable tolling applies.
As a general matter, "[e]quitable tolling may be applied if, despite all due diligence, a plaintiff is unable to obtain vital information bearing on the existence of his claim." Santa Maria v. Pac. Bell, 202 F.3d 1170, 1178 (9th Cir.2000); see also O'Donnell v. Vencor, Inc., 465 F.3d 1063, 1068 (9th Cir.2006) ("Equitable tolling is generally applied in situations `where the claimant has actively pursued his judicial remedies by filing a defective pleading during the statutory period, or where the complainant has been induced or tricked by his adversary's misconduct into allowing the filing deadline to pass.'" (quoting Irwin v. Dep't of Veterans Affairs, 498 U.S. 89, 96, 111 S.Ct. 453, 112 L.Ed.2d 435 (1990))). In a TILA damages action specifically, equitable tolling may suspend the limitations period "until the borrower discovers or had reasonable opportunity to discover the fraud or nondisclosures that form the basis of the TILA action." King, 784 F.2d at 915. However, when a plaintiff fails to allege facts demonstrating that the plaintiff could not have discovered the purported TILA violation with reasonable diligence, dismissal is appropriate and equitable tolling will not apply.
In this case, Plaintiffs allege that Defendants violated TILA by failing to provide Plaintiffs with two copies of the notice of the right to rescind. (Compl. ¶ 27.) As in Meyer and Hubbard, Plaintiffs fail to allege any facts to demonstrate that equitable tolling applies. Plaintiffs' assertion that Defendants "fraudulently misrepresented" (id. ¶ 102) and "fraudulent[ly] conceal[ed]" (id. ¶ 103) the terms of Plaintiffs' mortgage is conclusory and does not justify application of equitable tolling.
"[R]ecoupment is in the nature of a defense arising out of some feature of the transaction upon which the plaintiff's action is founded." Bull v. United States, 295 U.S. 247, 262, 55 S.Ct. 695, 79 L.Ed. 1421 (1935). The Supreme Court has confirmed that recoupment of damage claims survive TILA's one-year statute of limitations. Beach, 523 U.S. at 418, 118 S.Ct. 1408. However, to circumvent the statute of limitations, the recoupment claim must be asserted as a "defense" in an "action to collect a debt." 15 U.S.C. § 1640(e). Some courts have held that for a recoupment claim to survive a motion to dismiss, the plaintiff must show the following: "(1) the TILA violation and the debt are products of the same transaction; (2) the debtor asserts the claim as a defense; and (3) the main action is timely." Moor v. Travelers Ins. Co., 784 F.2d 632, 634 (5th Cir. 1986) (citing In re Smith, 737 F.2d 1549, 1553 (11th Cir.1984)); Agustin v. PNC Fin. Servs. Grp., 707 F.Supp.2d 1080, 1088 n.2 (D.Haw.2010).
Plaintiffs claim that they may "assert the TILA disclosure violations described herein as a recoupment in the amount of $2,000.00 and are entitled to a credit in that amount with regard to their tender obligation, if any, under TILA." (Compl. ¶ 39.) Nowhere do Plaintiffs assert TILA recoupment as a defense, nor do Plaintiffs point to any "action to collect a debt." Instead, the relevant action in the instant case is a foreclosure auction sale.
Additionally, Plaintiffs' conclusory statement that they are asserting the TILA violations as "claims and defenses" is insufficient to prove as much. (Compl. ¶ 39.) In Ortiz, after the lender filed notice of a nonjudicial foreclosure, but before the sale took place, the plaintiff initiated a lawsuit alleging TILA violations and attempting to assert a recoupment defense. Id. On these facts, the court concluded that "`[w]hen the debtor hales the creditor into court, the claim by the debtor is affirmative rather than defensive.'" Id. (quoting Moor, 784 F.2d at 634). In this case, there is no evidence that Defendants have initiated any sort of court proceeding against Plaintiffs. Plaintiffs' affirmative use of their claim for recoupment is improper and not within the scope of the TILA exception, which permits recoupment as a defensive claim only. As such, Plaintiffs' TILA recoupment claim fails.
Accordingly, the Court GRANTS the Motion to Dismiss as to Counts I and II and DISMISSES WITHOUT PREJUDICE Counts I and II as to all Defendants.
Count III of the Complaint alleges that Defendants violated RESPA by failing to provide Plaintiffs with a timely signed and dated Good Faith Estimate, as required by RESPA. (Compl. ¶¶ 43-46.)
First, RESPA imposes either a one-year or a three-year statute of limitations depending on the violation alleged. 12 U.S.C. § 2614 (proscribing a one-year statute of limitations for violations of Sections 2607 and 2608 and a three-year statute of limitations for violations of Section 2605). Because Plaintiffs' alleged RESPA claim arose out of the loan origination, which occurred more than three years before Plaintiffs filed the instant action, Plaintiffs' claim is barred by the statute of limitations. As discussed above, Plaintiffs are not entitled to equitable tolling because they have failed to allege specific facts showing why they could not bring their suit within the limitations period.
Accordingly, the Court GRANTS the Motion to Dismiss as to Count III and DISMISSES WITHOUT PREJUDICE Count III as to all Defendants.
Plaintiffs claim that Defendants AHL and BofA engaged in unfair or deceptive acts and practices ("UDAP") in violation of HRS §§ 480-2(a) and 481A-3. (Compl. ¶ 50-51.) HRS § 480-2(a) prohibits "[u]nfair methods of competition and unfair or deceptive acts or practices in the conduct of any trade or commerce. . . ." HRS § 481A-3 similarly prohibits "deceptive trade practice[s]." Plaintiffs contend that AHL and BofA violated the aforementioned statutes by: (1) targeting financially unsophisticated and otherwise vulnerable consumers for inappropriate credit products; (2) failing to adequately disclose the true costs and risks of the subject loan and its inappropriateness for Plaintiffs; (3) arranging a refinance loan that resulted in little net economic benefit to Plaintiffs with the primary objective of general fees; (4) falsifying the amount of Plaintiffs' income and amount and source of income on the loan application it prepared; (5) making the loan based on the value of the collateral, without regard to Plaintiffs' ability to repay the loan; (6) failing to provide Plaintiffs with a timely Good Faith Estimate "GFE"; and (7) attempting to deprive Plaintiffs of their legal right to cancel the loan. (Compl. ¶ 53.)
In their Motion to Dismiss, Defendants USB and BofA argue that "BofA was not the original lender and has no contractual relationship to Plaintiffs." (Mot. at 17.) They cite to Judge Seabright's Order in Araki v. One West Bank FSB, 2010 WL 5625969 at *8 (D.Haw. September 8, 2010), which held that regardless of any claim that may exist against Countrywide, the Complaint fails to state a claim under HRS 480-2 against BofA. Plaintiffs respond in their Opposition that the note and mortgage against the Subject Property was a nullity from the beginning, based on AHL's actions, and was thus never assigned to USB and BofA. (Opp'n at 10-11.)
The first six out of seven UDAP allegations against AHL and BofA arise from the consummation of the loan, thus Defendants correctly argue, and Plaintiffs do not disagree, that BofA was not the originating lender. Additionally, Plaintiffs never properly pled that BofA was an assignee of the mortgage and note, thus they cannot assert assignee liability as against
Plaintiffs' seventh UDAP claim, that AHL and BofA attempted to deprive Plaintiffs of their legal right to cancel the loan, contains insufficient facts to satisfy Rule 8 pleading requirements. Plaintiffs' vague allegation contains insufficient factual detail to meet the Rule 8 pleading standard, and to survive a motion to dismiss, a complaint must "contain sufficient factual matter, accepted as true, to state a claim that is plausible on its face." Iqbal, 129 S.Ct. at 1949. Plaintiffs do not allege any acts committed by AHL and BofA to prevent Plaintiffs from exercising their right to cancel the loan, when such acts were committed, or by whom. As such, Plaintiffs' seventh UDAP allegation fails as to AHL and BofA.
Accordingly, the Court GRANTS the Motion to Dismiss as to Count IV and DISMISSES WITHOUT PREJUDICE Count IV as to BofA.
In Count V, Plaintiffs claim that Defendant AHL falsely represented the costs and risk of Plaintiffs' loan, its inappropriateness for Plaintiffs, the amount of Plaintiffs' income on the loan application, the nature of the documents Plaintiffs were told to sign, and its knowledge as to the aforementioned falsities, thereby committing fraud. (Compl. ¶¶ 60-63.) While USB and BofA do not move to dismiss this Count, as it only applies to Defendant AHL, the Court sua sponte finds that Plaintiffs' allegations are insufficient to meet their burden under the more rigorous pleading requirements of Rule 9 that apply to allegations of fraud or mistake.
Here, Plaintiffs fail to plead the time and place of any alleged fraud and they also do not specify what role individuals within AHL played in the alleged misconduct. Instead, Plaintiffs broadly attribute
In Count XI of the Complaint, Plaintiffs contend that Defendants fraudulently misrepresented and concealed the terms of Plaintiffs' loan. (Id. ¶¶ 101-103.) To the extent Plaintiffs make these allegations to invoke equitable tolling, the Court addressed this supra in Section A(ii) regarding TILA damages. To the extent Plaintiffs make these allegations to try and prove fraud, the Court discussed this in the instant section above, and concluded that Plaintiffs have failed to plead sufficient facts to show fraud under the heightened Rule 9 pleading standard for fraud.
Accordingly, the Court GRANTS the Motion to Dismiss as to Count XI, DISMISSES WITHOUT PREJUDICE Count XI as to all Defendants, and DISMISSES WITHOUT PREJUDICE Count V as to AHL.
Count VI of Plaintiffs' Complaint claims that Defendants entered into an agreement to accomplish something unlawful, and Count VII alleges that Defendants aided each other in the engagement of those wrongful acts. (Compl. ¶¶ 69, 75.) Defendants claim that Plaintiffs have not sufficiently pled claims for civil conspiracy or aiding and abetting because both claims are not independent causes of action, but derivative of another claim. (Mot. at 18-20.)
Plaintiffs' allegations are insufficiently pled under the Rule 8 pleading requirements. Civil conspiracy and aiding and abetting are not independent causes of action in Hawaii, but theories of potential liability that are derivative of other wrongs. See e.g. Weinberg v. Mauch, 78 Haw. 40, 890 P.2d 277, 286 (Haw.1995). First, Plaintiffs have not clearly alleged an underlying claim on which their civil conspiracy and aiding and abetting claims are based. Moreover, to the extent that Plaintiffs' claims appear to be based on alleged fraudulent activity, as discussed above, Plaintiffs' Complaint fails to state a claim for fraud. Additionally, Plaintiffs have not rebutted Defendants' contention that the instant claims appear to be based on fraud, and has not made any other argument in defense of these claims. For all these reasons, Plaintiffs' civil conspiracy and aiding and abetting claims do not survive the instant Motion.
Accordingly, the Court GRANTS the Motion to Dismiss as to Counts VI and VII and DISMISSES WITHOUT PREJUDICE Counts VI and VIII as to all Defendants.
In Count VIII of the Complaint, Plaintiffs assert that this "is an action for emergency and permanent injunctive relief seeking to restrain Defendants [] from seeking a non-judicial sale upon the subject property during the pendency of this action." (Compl. ¶ 79.) This allegation is based on the fact that Defendants lack standing to foreclose upon the Subject Property. (Id. ¶¶ 80-81, 84, 86.)
Defendants argue that Count VIII fails to state a claim because injunctive relief is a remedy that does not create an independent cause of action. (Mot. at 21.) Plaintiffs do not counter this argument in their Opposition.
First, Plaintiffs' claim for injunctive relief appears to be dependent on and derivative
Moreover, Plaintiffs' Complaint states only that Defendants "are not the real party in interest and are not authorized to bring a foreclosure against Plaintiffs herein." (Compl. ¶ 80.) Such conclusory allegations are insufficient to state a claim upon which relief may be granted. See Iqbal, 129 S.Ct. at 1949.
Accordingly, the Court GRANTS the Motion to Dismiss as to Count VIII, and DISMISSES WITHOUT PREJUDICE Count VIII as to all Defendants.
VII. Count IX: Improper Restrictions Resulting from Securitization Leaves Note and Mortgage Unenforceable; Count X: Wrongful Conversion of Note—Mortgagor Never Consented to Securitization
In Count IX of the Complaint, Plaintiffs contend that improper restrictions resulting from securitization of the mortgage results in the unenforceability of the note and mortgage, and that Plaintiffs were neither informed of nor asked to consent to the securitization of the mortgage. (Compl. ¶¶ 92-93.) In Count X of the Complaint, Plaintiffs contend that securitization converted the mortgage, rendering it null, void and unenforceable, and that Defendants have no authority to fore-close upon the property. (Compl. ¶¶ 95, 100.)
Despite Plaintiffs' laundry list of allegations, the Court is entirely unclear as to what cause of action Plaintiffs are bringing this claim under. Plaintiffs fail to cite any relevant statute or law under which Defendants' alleged behavior is prohibited. Although FRCP Rule 8 requires only that a complaint include a "short and plain statement of the claim showing that the pleader is entitled to relief," the complaint must sufficiently put Defendants on fair notice of the claim asserted and the ground upon which it rests. Fed.R.Civ.P. 8. Defendants, nor the Court, are required to speculate as to which provisions Plaintiffs are suing under or how Defendants violated such provisions. Vague allegations containing mere labels and conclusions are insufficient to survive a motion to dismiss. See Twombly, 550 U.S. at 555, 127 S.Ct. 1955. As such, Plaintiffs' claims in Counts IX and X fail.
Moreover, Plaintiffs argue that "improper restrictions resulting from securitization," occurred because "[c]ontrol of the mortgage was conveyed to a group of managers who adopted a new set of rules to the terms and conditions of the Mortgage. . . ." (Compl. ¶¶ 96-97.) However, Plaintiffs explicitly consented to potential changes in the loan servicer, without prior notice to the borrower. (See Mot., Ex. B at 12.)
For the foregoing reasons, Defendants USB and BofA's Motion to Dismiss (Doc. #8) is GRANTED with leave to amend the Complaint as follows:
Plaintiffs are granted no more than 30 days from the filing of this Order to file an amended Complaint. Failure to do so and to cure the pleading deficiencies will result in dismissal of this action with prejudice as against Defendants USB and BofA.
Additionally, Plaintiffs are advised that the amended complaint must clearly state how each of the named defendants have injured them, and it must also clearly identify the statutory provisions under which Plaintiffs' claims are brought. If Plaintiffs choose to file an amended complaint, they must (1) follow the directions in this Order; and (2) be ready, willing, and able to pursue their claims, which includes attending hearings and conferences in person unless there is a legitimate excuse.
IT IS SO ORDERED.
