MORRISON C. ENGLAND, Jr., District Judge.
Plaintiffs Ferdinand Lugo and Cymbeline Gomez-Lugo (collectively, "Plaintiffs") brought this action in state court against Defendant Bank of America ("BAC" or "Defendant") seeking redress for a litany of statutory and common law violations arising from the origination and subsequent refinancing of their home mortgage. Defendant thereafter removed the action to this court. Currently before the Court is Defendant's Motion to Dismiss Plaintiffs' Complaint.
For the reasons set forth below, Defendant's Motion is GRANTED with leave to amend.
Plaintiffs allege that, in 2005, they acquired a mortgage in the amount of $329,500 from Country Wide, a BAC subsidiary. In 2006, Plaintiffs refinanced their mortgage as an adjustable rate loan for the amount of $520,000 ("the Subject Loan"). The Subject Loan is currently served by BAC. The current balance on the Subject Loan is approximately $555,000. The current market value of Plaintiffs' house is approximately $285,000.
Under the terms of the Subject Loan, the interest rate was fixed for only the first month at 1.500% margin added to the Current Index, and increased monthly thereafter to a recast rate of 3.575% added to the Current Index. Plaintiffs' initial monthly payments constituted $1,800 per month. In 2007, their payments constituted $4,000 per month. According to Plaintiffs, they could not afford to make such monthly payments, and thus made multiple loan modification requests with BAC. BAC denied all of Plaintiffs' requests.
In 2009, Plaintiff Ferdinand Lugo, who was employed as a mailman, lost his overtime pay. In 2010, Plaintiff Cymbeline Gomez-Lugo lost her part-time job as a nurse. As a result of financial hardship, in January 2010, Plaintiffs began missing their monthly payments on the Subject Loan.
According to Plaintiffs, Defendant should not have qualified them for the Subject Loan based on normal underwriting guidelines. Defendant allegedly marketed the Subject Loan as "safe and affordable" and failed to disclose the material terms and risks of the Subject Loan to Plaintiffs. According to Plaintiffs, they would not have accepted the Subject Loan terms had they been fully and properly informed of the inherent risks.
Plaintiffs also allege that their primary language is Tagalog, and that Defendant failed to provide them with a translator during negotiations of the Subject Loan.
Defendant has filed a request seeking judicial notice under Federal Rule of Civil Procedure 201
The Court "may take judicial notice of `matters of public record' without converting a motion to dismiss into a motion for summary judgment."
Having reviewed the exhibits to Defendant's RJN, the Court finds that it may take judicial notice of all three attached documents. The Court may properly take judicial notice of the Deed of Trust (RJN Ex. B), because it is a public record and is also referenced in the Complaint. (
On a motion to dismiss for failure to state a claim under Rule 12(b)(6), all allegations of material fact must be accepted as true and construed in the light most favorable to the nonmoving party.
Furthermore, "Rule 8(a)(2) . . . requires a `showing,' rather than a blanket assertion, of entitlement to relief."
A court granting a motion to dismiss a complaint must then decide whether to grant a leave to amend. Leave to amend should be "freely given" where there is no "undue delay, bad faith or dilatory motive on the part of the movant, . . . undue prejudice to the opposing party by virtue of allowance of the amendment, [or] futility of the amendmente. . . ."
Defendant now seeks dismissal of Plaintiffs' Complaint in its entirety. For the purposes of providing a more logical presentation. Plaintiffs' claims are not discussed in the same order in which they were pled.
As a threshold matter, Defendant argues that all of Plaintiffs' claims should be dismissed for failure to comply with the "tender rule." (Def.'s Motion to Dismiss ("MTD"), filed Aug. 1, 2011 [ECF 4], at 4:13-5:19.) Under California law, a plaintiff challenging a foreclosure sale or any cause of action "implicitly integrated" with the sale is required to make a valid and viable tender of payment of the debt.
Here, Plaintiffs do not allege any tender. Because all of Plaintiff's claims are "implicitly integrated" with the pending foreclosure sale, Plaintiffs do not have standing to bring those claims absent evidence of a tender offer. Accordingly, the Court dismisses Plaintiff's Complaint with leave to amend.
Plaintiffs allege that Defendant misrepresented the terms of the Subject Loan and induced Plaintiffs to accept the loan by undue influence. (Compl. ¶¶ 59-66.) Defendant moves to dismiss Plaintiffs' constructive fraud claim arguing that: (1) the claim is time-barred; (2) the Complaint fails to state facts sufficient to maintain the constructive fraud cause of action; and (3) Plaintiffs' failed to plead the claim with particularity. (MTD at 10:10-11:25.)
In actions based on fraud, the statute of limitations is three years from the accrual of the cause of action. Cal. Civ. Proc. Code § 338(d);
Plaintiffs' constructive fraud claim rests on Defendant's alleged misrepresentations made during negotiations of the Subject Loan. (Compl. ¶ 65.) In particular, Defendant stated that Plaintiffs, based on their income, were qualified to make payments for the life of the loan, and that Plaintiffs "could easily refinance whenever it became necessary." (
Plaintiffs executed the deed of trust securing the Subject Loan in May 2006. (RJN Ex. B.) They did not file this action until June 22, 2011, over five years later. Plaintiffs claim that they did not discover the alleged wrongdoing until "well after the loan was originated." (Compl. ¶ 46.) The only indication in the Complaint as to the exact date of such discovery is that Plaintiffs sought legal advice "on or about January 2011." (
The Complaint is devoid of any facts plausibly demonstrating why Plaintiffs were unable to make discovery within the statutory period. In fact, the Adjustable Rate Note and the Adjustable Rate Rider attached to the Deed of Trust, both of which Plaintiffs signed in 2006, clearly explain the terms of the loan repayment. (RJN Exs. A & B.) These documents describe the adjustable nature of the interest rate and indicate when the monthly mortgage payments would change. (
Thus, the Complaint suggests that Plaintiffs should have been aware of facts indicative of the alleged constructive fraud within the statutory period. What the Complaint lacks is any facts plausibly demonstrating that Plaintiffs could not have discovered the alleged fraud within the statutory period through the exercise of reasonable diligence. Accordingly, Plaintiffs' constructive fraud claim, as alleged, is time-barred.
"Constructive fraud is a unique species of fraud applicable
Claims of fraud must be pled with particularity. Fed. R. Civ. P. 9(b);
Plaintiffs' constructive fraud claim fails to meet the requisite pleading standard under Rule 9(b). The Complaint is silent as to who specifically made the purported misrepresentations, their authority to speak on behalf of Defendant, when the statements were made, and what the content of those statements was. Moreover, Plaintiffs' conclusory allegations are insufficient to identify what was false or misleading about Defendant's fraudulent statements including why the statements were false. Defendant allegedly misrepresented that Plaintiffs,
The Court finds Plaintiffs' conclusory allegations of constructive fraud to be inadequate even under the general pleading standard of Rule 8,
Plaintiffs base their claim for breach of the implied covenant on: (1) Defendant's failure "to disclose key information" regarding the loan (Compl. ¶ 70); (2) Defendant's failure to apply Plaintiffs' extra payments to the principal of the loan, (
An action on "any contract, obligation or liability founded upon an instrument in writing" must be commenced within four years of accrual of the action. Cal. Civ. Proc. Code § 337(1). To the extent that Plaintiffs' claim is based on Defendant's alleged refusal to refinance the Subject Loan, the claim is not time-barred. According to Plaintiffs, BAC refused to refinance the Subject Loan after Plaintiffs started missing their monthly payments in January 2010. (Compl. ¶¶ 30, 31.) Thus, the claim was brought within the applicable statute of limitations.
As to Plaintiffs' claim that Defendant failed to apply Plaintiffs' extra payments to the principal of the loan, the Court is unable to determine when the alleged wrongdoing happened. This particular allegation does not have any factual support in the Complaint. In fact, the Complaint does not even mention that Plaintiffs ever made any extra payments.
To the extent that Plaintiffs' claim is based on Defendant's failure to disclose material information during negotiations of the Subject Loan, the claim is time-barred because it was filed more than five years after Plaintiffs entered into the loan agreement. However, Plaintiffs argue that the "discovery rule" applies to all of their claims, and thus the statute of limitations should be tolled because "the discovery of the harm came well after the loan was originated." (
The discovery rule "postpones accrual of a cause of action until the plaintiff discovers, or has reason to discover, the cause of action."
As this Court explained earlier, Plaintiffs have failed to meet the requisite burden. Accordingly, Plaintiffs' third cause of action is time-barred to the extent it is based on Defendant's non-disclosure of material terms of the Subject Loan.
Under California law, "[e]very contract imposes upon each party a duty of good faith and fair dealing in its performance and its enforcement."
Here, Plaintiffs base their claim on the Subject Loan origination and Plaintiffs' subsequent attempts at loan modification. With respect to the Subject Loan origination, Plaintiffs' claim fails because "the implied covenant . . . does not require parties to negotiate in good faith prior to any agreement."
To the extent that Plaintiffs rest their claim on Defendant's alleged failure to apply extra payments to the principal of the loan, Plaintiffs' claim fails for lack of any factual support.
Accordingly, the Court dismisses Plaintiffs' third cause of action with leave to amend.
Plaintiffs allege that "Defendants violated California's anti-predatory lending statutes . . . by steering, counseling and directing Plaintiffs to accept" the Subject Loan when Plaintiffs could have qualified for a more favorable loan. (Compl. ¶¶ 84-85.) Defendant moves to dismiss Plaintiffs' fourth cause of action arguing that Plaintiffs' loan is not a "covered" loan within the meaning of California Financial Code § 4970. (MTD at 14:14-15:2.)
California's predatory lending laws prohibit specific wrongful acts in connection with "covered loans." Cal. Fin. Code §§ 4970, 4973. A "covered loan" is "a consumer loan in which the original principal balance of the loan does not exceed the most current conforming loan limit for a single-family first mortgage loan established by the Federal National Mortgage Association in the case of a mortgage or deed of trust," and which meets certain statutory conditions. Cal. Fin. Code § 4970(b). In 2006, when Plaintiffs obtained their loan, the conforming loan limit was $417,000. (RJN Ex. C.) Thus, Plaintiffs' loan for $528,000 exceeds the amount of the historical conventional loan limit and is not "covered" by California Financial Code §§ 4970 et seq. Plaintiffs have failed to make any coherent arguments to demonstrate to the contrary.
Accordingly, Defendant's Motion to Dismiss the fourth cause of action is granted with leave to amend.
Plaintiffs allege that "[t]he contract executed is not in a language that the Plaintiff [sic] can readily understand, and Defendants failed to provide the Plaintiffs with any documentation in their native language." (Compl. ¶ 94).
California Civil Code § 1632 provides that "[a]ny person engaged in a trade or business who negotiates primarily in Spanish, Chinese, Tagalog, Vietnamese, or Korean, orally or in writing," must "deliver to the other party to the contract or agreement . . . a translation of the contract or agreement in the language in which the contract or agreement was negotiated" prior to execution of the contract. Plaintiffs have alleged no facts demonstrating that they negotiated the loan agreement at issue in a language other than English either orally or in writing. While Plaintiffs allege that their primary language is Tagalog (Compl. ¶ 32), the Complaint is silent as to what the language of the loan negotiations was. Thus, Plaintiffs have failed to state a claim for a violation of California Civil Code § 1632.
Furthermore, claims under California Civil Code § 1632 are subject to one-year statute of limitations pursuant to California Code of Civil Procedure § 340(a).
Finally, § 1632 generally does not apply to loans secured by real property. Cal. Civil Code § 1632(b)(2). However, there is an exception for real estate loans secured by real property which are exclusively negotiated by a real estate broker.
Accordingly, the Court dismisses Plaintiffs' fifth cause of action with leave to amend.
Plaintiffs' first cause of action arises under California Business and Professions Code § 17200, known as the Unfair Competition Law ("UCL"). UCL establishes three varieties of unfair competition: "unlawful, unfair, or fraudulent" business acts and practices. Cal. Bus. & Prof. Code § 17200;
It is not settled whether the "discovery rule" applies to claims under UCL.
In light of this Court's dismissal of all of Plaintiffs' claims, the Court denies Defendant's motion to dismiss Plaintiffs' request for punitive damages as moot. The Court also denies as moot Defendant's motion to strike Plaintiffs' request for attorney's fees.
Defendant's Motion to Dismiss each of Plaintiffs' causes of action is granted with leave to amend. Defendant's Motion to Dismiss Plaintiffs' Request for Punitive Damages and Motion to Strike Plaintiffs' Request for Attorney's Fees are denied as moot. Plaintiffs are directed to file an amended complaint, should they choose to do so, within twenty (20) days of this Order. If no amended complaint is filed within said twenty (20)-day period, this action will be dismissed without any further notice from the court based on lack of prosecution.