ROBERT HUESO, an individual v. SELECT PORTFOLIO SERVICING, INC., et al.
UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF CALIFORNIA
March 23, 2021
ECF No.
ORDER GRANTING IN PART AND DENYING IN PART DEFENDANTS’ MOTION TO DISMISS PLAINTIFF‘S FIRST AMENDED COMPLAINT (ECF No. 39)
Before the Court is a Motion to Dismiss Plaintiff Robert Hueso‘s First Amended Complaint filed by Defendants Select Portfolio Servicing, Inc., Quality Loan Service Corporation, and Credit Suisse Financial Corporation (“Defendants“). (ECF No. 39.) Plaintiff opposes, and Defendants reply. (ECF Nos. 40, 41.) The Court finds this Motion suitable for determination on the papers submitted and without oral argument. See
BACKGROUND
In 2006, Plaintiff obtained a home loan from Defendant Credit Suisse Financial Corporation (“Credit Suisse“) to refinance his property. (First. Am. Compl. (“FAC“) ¶ 2, ECF No. 16.) The loan was documented in a promissory note (“Note“) secured by a Deed of Trust (“Deed“). (Id. ¶ 28.) The Deed identifies Mortgage Electronic Registration System, Inc. (“MERS“) as the beneficiary. (Id. ¶ 29; Deed, Ex. A to FAC.)1 Plaintiff was informed that the servicer of the Note was Defendant Select Portfolio Servicing (“SPS“), a subsidiary of Credit Suisse. (Id. ¶¶ 10, 31.) Plaintiff made regular monthly payments to SPS totaling more than $420,000. (Id. ¶ 31.)
I. Alleged Misapplication of Mortgage Payments by SPS
In 2017, Plaintiff “became concerned that [SPS] was misapplying his payments” because his statement showed that only $20,000 had been applied to the principal on the Note. (FAC ¶¶ 2, 32.) Plaintiff contacted SPS, which informed him that it had been applying some of his payments to “force-placed insurance” and a “tax escrow” account. (Id. ¶ 33.) However, Plaintiff claims that he personally maintained insurance on his home and was never notified that SPS did not have proof of coverage and would therefore obtain insurance and charge Plaintiff for it. (Id. ¶ 33(b).) Plaintiff also had neither been informed that his insurance policy had been terminated nor reimbursed by SPS for any duplicative insurance payments. (Id. ¶ 33(c).) Further, Plaintiff states that he “had never required the use of a tax escrow account” and had not “received notice from any taxing authority that [SPS] had paid taxes on his behalf” or that he had overpaid his taxes. (Id. ¶ 33(a).)
Plaintiff states that he then contacted Credit Suisse to ask how much money SPS had forwarded to them on his account. (FAC ¶ 34.) Credit Suisse informed Plaintiff that his loan did not exist in their system. (Id. ¶ 35.)
On November 7, 2017, Plaintiff made several “qualified written requests” (“QWRs“) to SPS seeking information about his payments and advising SPS that
Plaintiff then retained counsel to contact SPS, which followed up on his QWRs and advised SPS that its failure to respond was subject to legal action. (FAC ¶ 44.) From November 2017 to February 2018, Plaintiff or his counsel sent eight letters to SPS requesting 16 items of information including, among other things: copies of the original Note and security instrument, all assignments of the instrument, information about the custodian of the original Note and entity that funded the transaction, a complete audit history from the date of loan origination, information about the “force-placed insurance” obtained by SPS, and an itemized statement of the current payoff amount. (Id. ¶¶ 44-46.) In response, Plaintiff received only an unverified copy of the Note, an unrecorded copy of the Deed, and a limited itemization of his payments to SPS. (Id. ¶ 47.)
Plaintiff then demanded that SPS “provide documentary proof” that an owner of the Note existed and that SPS had been providing Plaintiff‘s payments to the owner and properly applying them to the balance of the loan. (FAC ¶ 48.) Plaintiff alleges that because SPS has refused to comply with this request, he is holding his payments in abeyance until this proof is provided. (Id.)
II. Allegations Regarding Unlawful Assignment, Substitution, and Foreclosure
On November 28, 2017, MERS, the beneficiary of the Deed, executed a “Corporate Assignment of Deed of Trust” assigning its rights under the Deed to SPS. (FAC ¶ 50; Ex. B to FAC.) Plaintiff states MERS’ assignment to SPS was unlawful because MERS had been suspended from operating in California at the time it was designated a beneficiary in 2006. (Id. ¶¶ 17, 54.) Specifically, Plaintiff claims MERS was suspended by the California Franchise Tax Board in 2004, only to be “briefly revived” in 2009 before being suspended again. (FAC ¶ 17.) Further, Plaintiff alleges that although a successor entity to MERS qualified to do business in California in 2010, this entity is the alter ego of the initial MERS and thus “any and all transactions perpetrated by the Successor MERS are voidable at the option of” Plaintiff. (Id. ¶¶ 18-21.)
On July 7, 2018, SPS recorded a “Substitution of Trustee” substituting Defendant Quality Loan Service Corporation (“Quality“) for itself as trustee under the Deed. (FAC ¶ 51; Ex. C. to FAC.) Shortly thereafter, Quality sent Plaintiff a “Debt Validation Notice” to collect on the Note. (FAC ¶ 57.) About a month later, Quality recorded a Notice of Default and commenced foreclosure on Plaintiff‘s home. (Id. ¶ 52; Ex. D. to FAC.) Plaintiff claims that SPS and Quality were not legally authorized to file the Notice of Default because neither Defendant appears on the Deed as the trustee or beneficiary. (FAC ¶ 54.) Further, according to Plaintiff, the Notice of Default is deficient under California law because it does not include a summary document and falsely represents that someone contacted Plaintiff to explore available options to avoid foreclosure. (Id. ¶ 56.)
Based on these facts, Plaintiff alleges the following:
Count 1: Violation of RESPA: SPS and Quality violated the Real Estate Settlement Procedures Act (“RESPA“),
Count 2: Cancellation of Instrument: Credit Suisse destroyed the Note, thus extinguishing it and rendering the Deed and all subsequent “Subject Instruments“—including the MERS assignment to SPS, SPS’ substitution of Quality as Trustee, and Notice of Default—void. (FAC ¶¶ 49, 55, 67-76.)
Count 3: Receiving Stolen Property: SPS and Quality are liable for receiving stolen property, on the basis that SPS was not entitled to keep his payments because the Note has been destroyed, or, alternatively, because SPS misapplied his payments. (FAC ¶¶ 81-82.) Plaintiff also states that Quality knew Plaintiff‘s funds were stolen but nonetheless retained them for its own benefit and has continued to wrongfully foreclose on Plaintiff‘s property. (Id. ¶ 83.)
Count 4: Common Count: SPS and Quality unlawfully obtained Plaintiff‘s payments on the Note and have been unjustly enriched by retaining these funds. (FAC ¶¶ 87-90.)
Count 5: Declaratory Judgment: Because an actual controversy regarding the parties’ legal interests in the property exist, Plaintiff is entitled to declaratory judgment establishing that because the Subject Instruments are void, Plaintiff does not owe any payments under the Note and is therefore not in default, and consequently no Defendants have legal claim to his property. (FAC ¶¶ 92-95.)
Count 6: Accounting: Alternatively, Defendants should be required to provide an accounting regarding what amount, if any, Plaintiff owes to the true holder of the Note. (FAC ¶¶ 97-98.)
Count 7: Unfair Competition: Defendants’ conduct constitutes deceptive and unfair business practices that violate California public policy and California Business and Professions Code § 17200. (FAC ¶¶ 100-02.)
Plaintiff also asks the Court to enjoin Defendants “from conducting business to the detriment of Mr. Hueso and others similarly situated” and from foreclosing on his home or evicting him from the property (FAC ¶ 103); to order Defendants to disgorge any of Plaintiff‘s money that they have wrongfully retained (id. ¶ 104), and for other damages, including punitive damages. (See id. ¶¶ 77, 106-113.)
LEGAL STANDARD
A motion to dismiss pursuant to
“[A] plaintiff‘s obligation to provide the ‘grounds’ of his ‘entitle[ment] to relief’ requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do.” Twombly, 550 U.S. at 555 (quoting Papasan v. Allain, 478 U.S. 265, 286 (1986) (alteration in original)). A court need not accept “legal conclusions” as true. Iqbal, 556 U.S. at 678. Despite the deference the court must pay to the plaintiff‘s allegations, it is not proper for the court to assume that “the [plaintiff] can prove facts that [he or she] has not alleged or that defendant[] ha[s] violated the ... laws in ways that have not been alleged.” Associated Gen. Contractors of Cal., Inc. v. Cal. State Council of Carpenters, 459 U.S. 519, 526 (1983).
DISCUSSION
I. Count 1: Violations of RESPA
Congress enacted RESPA to provide consumers “with greater and more timely information on the nature and costs” of the real estate settlement process and to protect them “from unnecessarily high settlement charges caused by certain abusive practices[.]”
Defendants move to dismiss Plaintiff‘s RESPA claim against Defendants Quality and SPS for failing to state that either Defendant violated the statute. The Court addresses below the arguments as to each Defendant.
A. Defendant Quality
Defendants contend that Quality, as trustee, is not subject to the statute. (Mem. of P. & A. in supp. of Mot. (“Mem. of P. & A.“) at 7, ECF No. 39-1.) Plaintiff counters that because the FAC alleges that SPS retained Quality to collect on the Note, the Court can reasonably infer that “at least some servicing obligations” were transferred from SPS to Quality. (Opp‘n at 10 (citing FAC ¶ 52).)
RESPA defines “servicer” as “the person responsible for servicing of a loan.”
receiving any scheduled periodic payments from a borrower pursuant to the terms of any loan, including amounts for escrow accounts described in section 2609 of this title, and making the payments of principal and interest and such other payments with respect to the amounts received from the borrower as may be required pursuant to the terms of the loan.
It is unclear whether trustees are per se excluded from RESPA‘s definition of “servicer.” Compare Jacobson v. Balboa Arms Drive Trust No. 5402 HSBC Fin. Trustee, No. 10-CV-2195-JM (RBB), 2011 WL 2784126, at *7 (S.D. Cal. Apr. 4, 2011) (holding that plain language of RESPA does not bind trustees) with Goulatte v. CitiMortgage, Inc., No. EDCV 12-391 PSG (SPx), 2013 WL 12142947, at *3 (C.D. Cal. Sept. 24, 2013) (“The Court is not persuaded that CR Title‘s status as the foreclosure trustee necessarily means that it could not also have been a servicer: one company could conceivably act in both roles.“) (citing Carter v. Deutsche Bank Nat‘l Tr. Co., No. C09-3033 BZ, 2010 WL 1875718, at *1 (N.D. Cal. May 7, 2010)). Even where trustees have not been categorically excluded, however, courts have still required plaintiffs to allege facts showing that the trustee assumed some servicing duties to bring the trustee within RESPA‘s definition of a loan servicer. See id. at *3 (finding plaintiff inadequately pled a RESPA claim because he did not include factual allegations showing that defendant trustee was a “servicer“); accord Izenberg v. ETS Servs., LLC, 589 F. Supp. 2d 1193, 1199 (C.D. Cal. 2008); Lopez v. GMAC Mortg. Corp., No. C 07-3911 CW, 2007 WL 3232448, at *3 (N.D. Cal. Nov. 1, 2007).
In the FAC, Plaintiff alleges that Defendant Quality substituted in as trustee, commenced foreclosure, and sent him a “Debt Validation Notice” on August 2, 2018 that stated Quality had been retained by SPS to collect on the Note. (FAC ¶¶ 52, 57.) The Court cannot reasonably infer that, as part of Quality‘s purported duty to collect past due payments, it was receiving scheduled periodic payments and applying them to the principal and interest on the loan such that it was “servicing” the loan. See Lopez, 2007 WL 3232448, *3 (dismissing claim where plaintiff alleged only that defendant was the trustee of the disputed loan but not that it “ever received or was responsible for receiving periodic payments on the loan“); see also Bryant v. Wells Fargo Bank, Nat. Ass‘n, 861 F. Supp. 2d 646, 660 (E.D.N.C. 2012) (declining to extend Carter to foreclosure trustee who “merely collected allegedly past due payments and attorney‘s fees from [p]laintiffs and forwarded the past due payments to Wells Fargo for application to [p]laintiffs’ loan“); Castrillo v. Am. Home Mortg. Servicing, Inc., No. CIV.A. 09-4369 R, 2010 WL 1424398, at *7 (E.D. La. Apr. 5, 2010) (finding trustee that did not receive periodic payments and make payments pursuant to loan terms before default was not a servicer). Because Plaintiff has not sufficiently stated that Quality assumed duties that constitute “servicing” his loan under RESPA, Plaintiff cannot allege that any RESPA obligations attached to Quality as a “loan servicer” such that it can be held liable for violations of § 2605. See Castaneda v. Saxon Mortg. Servs., Inc., 687 F. Supp. 2d 1191, 1199 (E.D. Cal. 2009).
Even if the Court assumes arguendo that Quality is a loan servicer under RESPA, Plaintiff‘s allegations against Quality are still deficient because the FAC is devoid of any facts specifying what actions Quality took to violate RESPA. Rather, it alleges only that SPS failed to respond to his QWRs and misapplied his payments to insurance and a tax escrow account in violation of § 2605(e). (FAC ¶¶ 36-41, 44-48.) Plaintiff states no such claims against Quality. Thus, even assuming Quality was a loan servicer under the statute, the FAC contains no facts to raise a colorable RESPA claim against it. See Associated General Contractors of Cal., Inc. v. Cal. State Council of Carpenters, 459 U.S. 519, 526 (1983) (in deciding a motion to dismiss, the court must not “assume that the [plaintiff] can prove facts that it has not alleged or that the defendants have violated ... laws in ways that have not been alleged“); see also Izenberg, 589 F. Supp. 2d at 1199 (“Neither [defendant] nor
The Court therefore GRANTS Defendants’ Motion and dismisses Plaintiff‘s RESPA claim as to Quality, with leave to amend.
B. Defendant SPS
Plaintiff‘s RESPA claim against SPS concerns QWRs he sent to SPS seeking information about his loan account. Plaintiff claims that in response, SPS “failed to undertake” actions required by § 2605 of RESPA, including investigating Plaintiff‘s account, making corrections as needed, and providing Plaintiff with a written explanation of its actions. (FAC ¶¶ 61, 62.) Plaintiff further claims that SPS “demonstrated a pattern or practice of noncompliance” with this RESPA provision and wrongfully applied his payments to force-placed insurance and a tax escrow account without authorization. (Id. ¶¶ 63-65.)
Defendant SPS’ response is limited to Plaintiff‘s QWR claim. SPS argues that: (1) Plaintiff‘s letters to SPS are not QWRs covered by RESPA; (2) Plaintiff has not sufficiently alleged how SPS’ responses were inadequate under the statute; and (3) Plaintiff has failed to allege that he suffered any damages as a result of the deficient responses. (Id. at 8.)
1. Qualified written requests
RESPA requires the servicer of a federally related mortgage loan to provide a timely written response to inquiries, or “qualified written requests,” from borrowers regarding the servicing of their loans.
a written correspondence, other than notice on a payment coupon or other payment medium supplied by the servicer, that—(i) includes, or otherwise enables the servicer to identify, the name and account of the borrower; and (ii) includes a statement of the reasons for the belief of the borrower, to the extent applicable, that the account is in error or provides sufficient detail to the servicer regarding other information sought by the borrower.
a. Plaintiff‘s letters were, in part, QWRs under RESPA
Plaintiff alleges he sent eight letters to SPS informing it that it made errors in calculating and applying his payments and asking for 16 categories of information related to his account. (FAC ¶¶ 41, 45-46.) Defendants challenge whether these letters, as alleged, constitute QWRs because several categories of requested information related to the origination of the loan and not its servicing. (Mem. of P. & A. at 8-9.)
The Ninth Circuit has held that “any request for information made with sufficient detail,” including “[a]ny reasonably stated written request for account information[,]” constitutes a QWR. Medrano, 704 F.3d at 666 (quoting Catalan v. GMAC Mortg. Corp., 629 F.3d 676, 687 (7th Cir. 2011)). More specifically, a communication from a borrower fits the parameters of a QWR
as long as it (1) reasonably identifies the borrower‘s name and account, (2) either states the borrower‘s “reasons for the belief . . . that the account is in error” or “provides sufficient detail to the servicer regarding other information sought by the borrower,” and (3) seeks “information relating to the servicing of [the] loan.”
The Court agrees that some of the categories of requests allegedly made by Plaintiff in his communications with SPS relate to loan origination, not servicing. Categories requesting the original security instruments and Note,2 MERS information, and inspection and appraisal reports for the property that is subject to the Note appear to be part of Plaintiff‘s effort to ascertain whether the Deed still exists or, as alleged by this lawsuit, has been destroyed. This forms the basis for Plaintiff‘s claim that his obligations under these instruments should be cancelled, which challenges the loan‘s validity. SPS had no duty under RESPA to respond to these requests. See Junod v. Dream House Mortg. Co., No. CV 11-7035-ODW, 2012 WL 94355, at *3-4 (C.D. Cal. Jan. 5, 2012) (holding that copies of the promissory note and deed of trust and “a complete life of loan transactional history” are “not the type of information RESPA contemplates“). Thus, to the extent Plaintiff seeks to hold SPS liable under RESPA for failing to respond to these categories of information, Plaintiff‘s claim fails.
However, the remaining categories that request specific information about how payments were applied (audit history, payoff statement), charges to the account (itemized statement of advances and charges, authorization for fee charges), and the identity of the owner and servicer of Plaintiff‘s loan3 fall squarely within the category of “information relating to loan servicing” and provided sufficient detail as to what information Plaintiff was seeking. See
b. SPS’ responses were inadequate
SPS next challenges whether Plaintiff has sufficiently alleged that its responses to the QWRs were inadequate. (Mem. of P. & A. at 9.)
RESPA requires servicers to take specific actions in response to QWRs within 30 days of receiving them.
Plaintiff has adequately stated that SPS’ response did not comport with RESPA‘s requirements. SPS was either required to provide all responsive information in its possession or explain to Plaintiff, in writing, why certain information was unavailable or could not be obtained by SPS. Plaintiff‘s allegation that SPS provided only some documents with no explanation as to why other requested records were omitted is sufficient to state that SPS did not comply with RESPA. See Stephenson v. Chase Home Fin. LLC, No. 10-CV-2639-L WMC, 2011 WL 2006117, at *2-3 (S.D. Cal. May 23, 2011) (finding plaintiff‘s interpretation of servicer‘s response as incomplete was “reasonable” and sufficient to state that servicer did not comply with
The Court finds that Plaintiff sufficiently alleges that SPS did not take the actions required of it under § 2605(e) in response to Plaintiff‘s QWRs.
c. Plaintiff has not alleged damages
Defendants also move to dismiss on the ground that Plaintiff has not alleged that he suffered any actual damages as a result of SPS’ alleged failure to respond to his requests for information. (Mem. of P. & A. at 9-10.) In his Opposition, Plaintiff relies on his request for attorneys’ fees to satisfy the damages allegation for his RESPA claim. (Opp‘n at 9-10.)
“RESPA... authorizes ‘actual damages to the borrower as a result of the failure [to comply with RESPA requirements].‘” Lal v. American Home Servicing, Inc., 680 F. Supp. 2d 1218, 1223 (E.D. Cal. 2010) (citing
Plaintiff states that SPS “wrongfully declared [him] to be in default, damaging his credit score and charging unearned interest and penalties on the balance it claims he owes.” (FAC ¶ 65.) However, these alleged harms do not flow from SPS’ purported failure to respond to the QWRs. Plaintiff‘s default was caused by his decision to hold his payments “in abeyance.” (FAC ¶ 48.) Further, to the extent Plaintiff alleges that SPS’ mishandling of his payments led to unlawful charges to his
Plaintiff instead contends that his request for attorneys’ fees adequately alleges damages. (Opp‘n at 9-10.) This argument fails as a matter of law. Courts have not typically considered attorneys’ fees to be “actual damages” in this context. See, e.g., Saulsbury v. Bank of Am., No. CV 11-00138 JMS/KSC, 2011 WL 13228201, at *4 (D. Haw. Sept. 28, 2011); Luciw v. Bank of Am., N.A., No. 5:10-CV-02779-JF/HRL, 2010 WL 3958715, at *3 (N.D. Cal. Oct. 7, 2010) (citing cases); see also Lal v. Am. Home Servicing, Inc., 680 F. Supp. 2d 1218, 1223 (E.D. Cal. 2010) (finding the costs of filing suit were not actual damages for purposes of RESPA because “the loss alleged must be related to the RESPA violation itself“). Consistent with this understanding, RESPA separately includes attorneys’ fees as a recoverable cost. See
Plaintiffs can also recover statutory damages under RESPA if they plead some pattern or practice of noncompliance with the statute.
Finding no facts in the FAC supporting that Plaintiff incurred damages flowing from SPS’ alleged failure to respond to Plaintiff‘s QWRs, the Court GRANTS Defendants’ Motion to Dismiss Plaintiff‘s RESPA claim under
2. Plaintiff‘s Other RESPA claims
As Plaintiff points out, Defendants’ arguments in favor of dismissing Plaintiff‘s RESPA claim address only his claim based on the QWRs, and not Defendants’ alleged misapplication of his payments to a tax escrow account and to force-placed insurance. (Opp‘n at 6-7.) The Court finds it necessary to evaluate the sufficiency of these claims to determine whether a federal question claim under RESPA survives dismissal such that the Court should exercise supplemental jurisdiction over Plaintiff‘s remaining state law claims. See Bloom v. Martin, 865 F. Supp. 1377, 1387 (N.D. Cal. 1994) (citing
i. Tax Escrow Account
Plaintiff alleges that SPS misapplied funds that it claimed were being paid toward Plaintiff‘s taxes on the property. (FAC ¶ 33(a).) Plaintiff states that because he “had personally paid his taxes” and did not receive notice from a taxing authority that SPS paid his taxes or that Plaintiff had overpaid them, the Court can infer
RESPA states that if the terms of a mortgage require borrowers to make payments to the servicer for deposit into an escrow account for the payment of taxes, insurance premiums, and other charges, servicers shall make such payments for this purpose.
Plaintiff claims SPS violated this provision by falsely claiming that his payments were applied to property taxes. (FAC ¶ 65.) Plaintiff does not base this claim on the fact that he did not receive escrow account statements or that such statements revealed that his funds were not being properly applied to his property taxes. See
ii. Force-placed insurance
Plaintiff also alleges that SPS unlawfully imposed force-placed insurance on the property and wrongfully charged him for it in violation of RESPA. (FAC ¶ 63.) Plaintiff specifically states that SPS informed him that his loan payments were being applied to “force-placed insurance” even though he maintained insurance on the property himself and had never received notice that SPS did not have proof of this coverage and would therefore retain its own policy. (Id. ¶¶ 33, 33(b).) Plaintiff also alleges that SPS did not notify him that his insurance had terminated and did not reimburse him for the duplicate payments. (Id. ¶ 33(c).)
Force-placed insurance is the hazard insurance coverage obtained by the servicer when the borrower fails to maintain or renew such insurance on a property as required by the terms of the loan.
(A) the servicer has sent, by first-class mail, a written notice to the borrower containing--
(i) a reminder of the borrower‘s obligation to maintain hazard insurance on the property securing the federally related mortgage;
(ii) a statement that the servicer does not have evidence of insurance coverage of such property; (iii) a clear and conspicuous statement of the procedures by which the borrower may demonstrate that the borrower already has insurance coverage; and
(iv) a statement that the servicer may obtain such coverage at the borrower‘s expense if the borrower does not provide such demonstration of the borrower‘s existing coverage in a timely manner;
(B) the servicer has sent, by first-class mail, a second written notice, at least 30 days after the mailing of the notice under subparagraph (A) that contains all the information described in each clause of such subparagraph; and
(C) the servicer has not received from the borrower any demonstration of hazard insurance coverage for the property securing the mortgage by the end of the 15-day period beginning on the date the notice under subparagraph (B) was sent by the servicer.
Defendants have not moved to dismiss this RESPA claim and thus provide no explanation as to how Plaintiff‘s allegations under this RESPA provision are deficient. In any event, the Court finds Plaintiff has adequately stated violations of § 2605(k) and (l). Plaintiff claims he did not receive either notice required by subsections (A) and (B). The Court can reasonably infer from this alleged omission that SPS acquired force-placed insurance without first complying with RESPA‘s notification requirements, and thus had no reasonable basis for believing that Plaintiff had not maintained this insurance himself. See
Therefore, this RESPA claim regarding force-placed insurance remains actionable. The Court has original jurisdiction over this claim and will thus evaluate whether Plaintiff‘s remaining pendent state law claims have been sufficiently pled. See
II. Count 2: Cancellation of Instrument
Plaintiff seeks cancellation of the Note and Deed of Trust, as well as the Assignment, Substitution of Trustee, and Notice of Default (the “Subject Instruments“). (FAC ¶ 67.) He bases this claim on several grounds: (1) the Note was destroyed by Defendant Credit Suisse and therefore extinguished (id. ¶¶ 49, 69-72); (2) MERS’ execution of the assignment to SPS was invalid because it was not qualified to do business in California at the time (id. ¶¶ 17-21, 55, 73); (3) the substitution of Quality as trustee is voidable because SPS
Defendants raise several counterarguments, but neither they nor Plaintiff address the Court‘s previous conclusions on this very issue in its Order Denying Plaintiff‘s Motion for Preliminary Injunction and Motion for Temporary Restraining Order. See Hueso v. Select Portfolio Servicing, Inc., No. 18-CV-1892-BAS-WVG, 2019 WL 3459013 (S.D. Cal. July 31, 2019).5 The Court, however, finds that its legal conclusions in that order applicable to the determination of Plaintiff‘s claim at the 12(b)(6) stage and will abide by them here. See Ranchers Cattlemen Action Legal Fund United Stockgrowers of Am. v. U.S. Dep‘t of Agr., 499 F.3d 1108, 1114 (9th Cir. 2007) (holding that while “the general rule” is that “decisions at the preliminary injunction phase do not constitute the law of the case,” “conclusions on pure issues of law . . . are binding.“); see also Torres v. Milusnic, No. CV 20-4450-CBM-PVC(x), 2020 WL 8611035, at *2 (C.D. Cal. Sept. 18, 2020).
Preliminarily, as stated in the Court‘s previous order, Plaintiff is time-barred from proceeding with this claim. See id. at *4 (noting that actions for cancellation of an instrument are subject to a four-year limitations period under
In any case, regarding Plaintiff‘s first contention, even a timely allegation that the Note was “destroyed” because Defendants have not been able to produce it fails as a matter of law, since they do not require physical possession of the Note to foreclose on Plaintiff‘s property. See Debrunner v. Deutsche Bank Nat‘l Tr. Co., 204 Cal. App. 4th 433, 440 (2012);
Christopher v. First Franklin Fin. Corp., No. 10CV17 DMS (CAB), 2010 WL 1780077, at *2 (S.D. Cal. Apr. 30, 2010) (dismissing claims to set aside non-judicial foreclosure sale and cancel trustee‘s deed upon sale where claims were predicated on alleged failure to possess promissory note).
Second, Plaintiff‘s challenge to MERS’ assignment to SPS also lacks merit. First, as pointed out in the Court‘s previous order, Plaintiff concedes that MERS’ ability to engage in business in California was restored when it qualified as a successor entity in 2010. (FAC ¶ 18.) MERS’ assignment of rights to SPS occurred seven years later. (Id. ¶ 50.) Thus, this claim is deficient on its face, as MERS did not lack authority to assign rights to SPS when it was no longer suspended. See Perlas v. Mortgage Elec. Registration Systems, Inc., No. CV 09-4500 CRB, 2010 WL 3079262, at *7 (N.D. Cal. Aug. 6, 2010) (citing United Medical Mgmt. Ltd. v. Gatto, 49 Cal. App. 4th 1732, 1741 (1996)) (“California courts have held that an unregistered corporation, upon registering, is ‘restored to full legal competency and has its prior transactions given full effect.‘“); see also Adam v. Mortg. Elec. Registration Sys., Inc., CV 10-7886 PSG (PLAx), 2011 WL 63651, *3 (C.D. Cal. Jan. 4, 2011) (rejecting challenge to 2006 loan
Third, and as previously noted by the Court, the language in the Deed defeats the claim that MERS lacked the authority to act as a nominal beneficiary. The Deed states that the
[b]orrower understands and agrees that MERS holds only legal title to the interests granted by Borrower in this Security Instrument but, if necessary to comply with law or custom, MERS (as nominee for Lender and Lender‘s successors and assigns) has the right: to exercise any or all of those interests, including, but not limited to, the right to foreclose and sell the Property; and to take any action required of Lender including, but not limited to, releasing and canceling this Security Instrument.
(Deed at 3.) California courts have held that this same language confers MERS with the right to exercise all interests of the beneficiary, such as the right to foreclose and assign both the Deed and Note. See Enos v. U.S. Bank, N.A., No. 18-cv-06101-MMC, 2019 WL 1411221, at *3 (N.D. Cal. Mar. 28, 2019) (quoting Herrera v. Fed. Nat‘l Mortg. Ass‘n, 205 Cal. App. 4th 1495, 1505 (2012)).6
Plaintiff‘s claims about the invalidity of SPS’ substitution of Quality and the subsequent Notice of Default follow from the alleged unlawfulness of the MERS assignment. Therefore, because the Court finds the MERS’ claim is not tenable, Plaintiff also cannot maintain these derivative claims. See Koenig v. Bank of Am., N.A., No. 1:13-CV-0693 AWI BAM, 2016 WL 8731110, at *3 (E.D. Cal. Mar. 18, 2016) (“[A] trustor who agreed under the terms of the deed of trust that MERS, as the lender‘s nominee, has the authority to exercise all of the rights and interests of the lender, including the right to foreclose, is precluded from maintaining a cause of action based on the allegation that MERS has no authority to exercise those rights.” (quoting Siliga v. Mortg. Elec. Registration Sys., Inc., 219 Cal. App. 4th 75, 89 (2013), overruled on other grounds by Yvanova v. New Century Mortg. Corp., 62 Cal. 4th 919, 939 n.13 (2016))).
No arguments have been raised in the renewed dismissal briefings that alters the Court‘s previous conclusions of law regarding Plaintiff‘s cancellation of instrument claim. Thus, the Court GRANTS Defendants’ Motion as to this claim and, finding further amendment would be futile, dismisses it with prejudice and without leave to amend. See Allwaste, Inc. v. Hecht, 65 F.3d 1523, 1530 (9th Cir. 1995) (“Denial of leave to amend is not an abuse of discretion where the district court could reasonably conclude that further amendment would be futile.“).
III. Count 3: Receiving Stolen Property
Defendants argue that the claim for receipt of stolen property must fail because Plaintiff alleged that he voluntarily tendered payments due under the Note, and as such they cannot constitute “stolen” property. (Mem. of P. & A. at 13.) Plaintiff counters that his allegation that SPS fraudulently misappropriated his payments is sufficient to satisfy the element of theft for purposes of the statute. (Opp‘n at 15.)
Neither state nor federal courts agree on what conduct is captured by this element. Some courts have understood
Because an element of theft by false pretense involves the owner of the property voluntarily parting with it due to the influence of a defendant‘s misrepresentations, it follows that “theft by false pretenses may be accomplished with the owners’ consent.” Worldwide Travel, 2016 WL 1241026, at *8 (quoting Carrillo-Jaime v. Holder, 572 F.3d 747, 752 (9th Cir. 2009), abrogated on other grounds by Descamps v. United States, 570 U.S. 254 (2013)).
However, other federal and state decisions have held that for property to be “stolen” under
To avoid dual liability, some courts have required “small additional conduct” such as concealment or withholding—rather than just receipt of stolen goods—to establish a violation of the statute. See Grouse, 2016 WL 5930273, at *14 (citing Bell, 212 Cal. App. 4th at 1049) (dismissing
Last year, the California Second District Court of Appeal further limited the scope of
Since Siry, federal district courts have taken different approaches to
The Court has not found any decisions addressing the application of
First, the Court finds the plain meaning argument has force. Plaintiff here claims that through an act of fraud alone, Defendants are now in receipt of stolen property. However, the statute clearly requires that property received by a person or entity subject to the statute either “has been stolen” or “has been obtained in any manner constituting theft....”
And even if the Court found that the language allowed for “more than one reasonable construction,” the Court finds that broadly interpreting
Lastly, in the context of this case, Plaintiff couches this fraudulent misappropriation claim as a violation of RESPA, which itself limits relief to actual damages—similar to traditional tort remedies—plus statutory damages of $1,000 in certain contexts.
Based on the foregoing, the Court finds that Plaintiff cannot allege a claim under
IV. Count 4: Common Count
As to Plaintiff‘s “common count” claim, Defendants argue that it is not actionable because Plaintiff has not pled the necessary legal foundation to create an obligation from Defendants to Plaintiff. Defendants again rely on the argument that Plaintiff‘s voluntary payments do not constitute stolen property, and as such, there is no legal basis for this claim as to SPS. (Mot. at 13–14.) Further, regarding Quality, Defendants claim Plaintiff has alleged no facts to show that Quality, as trustee, was in possession of money to be returned to Plaintiff. (Id. at 14.) Plaintiff opposes, claiming that the allegations that
A common count “lies wherever one person has received money which belongs to another, and which in equity and good conscience should be paid over to the latter.” Gutierrez v. Girardi, 194 Cal. App. 4th 925, 937 (2011); McBride v. Boughton, 123 Cal. App. 4th 379, 394 (2004) (common count “is a simplified form of pleading normally used to aver the existence of various forms of monetary indebtedness, including that arising from an alleged duty to make restitution“). To state a claim for common count for money had and received, a plaintiff must allege only that a defendant received money intended for the benefit of the plaintiff, that the money was not used for the plaintiff‘s benefit, and that the defendant has not given the money to the plaintiff. Avidor v. Sutter‘s Place, Inc., 212 Cal. App. 4th 1439, 1454 (2013).
Even without a viable claim for receipt of stolen goods, Plaintiff has sufficiently pled a claim for common count because he stated a colorable claim under RESPA that SPS misapplied his money to a force-placed insurance policy. See McBride, 123 Cal. App. 4th at 394-95 (holding that common count will “stand or fall” with cause of action seeking the same recovery). This claim states that Plaintiff made payments to SPS, as the servicer of his loan for the purpose of paying the balance of the loan for his benefit. (See FAC ¶ 31.) He has also stated that SPS misapplied this money to force-placed insurance instead of to the loan‘s balance. (See id. ¶ 33; see also supra, Section I.B.3.) And lastly, he alleges that SPS has not returned this money to Plaintiff. (See id. ¶¶ 89–90.) This is sufficient to state a claim against SPS for common count.
However, as to Quality, Plaintiff alleges it was retained to collect past due payments on the loan in 2018 but also alleges he has been holding his loan payments in abeyance from an unspecified date. (FAC ¶¶ 48, 57.) There are no facts plausibly stating that Quality actually collected Plaintiff‘s past due payments—which would have included Plaintiff‘s duplicative premium payments—such that it now possesses Plaintiff‘s money.
Thus, the Court finds Plaintiff‘s common count against SPS withstands a
V. Count 5: Declaratory Judgment
“Declaratory relief is an equitable remedy distinctive in that it allows adjudication of rights and obligations on disputes regardless of whether claims for damages or injunction have arisen.” In re Singh, 457 B.R. 790, 798 (Bankr. E.D. Cal. 2011). The
Plaintiff requests a declaratory judgment asserting his rights to his property. He claims an “actual controversy” exists for purposes of this relief because the parties dispute whether: (1) Defendants “possess a right, title, interest, or estate” in his home “by virtue of the Subject Instruments“; (2) Plaintiff defaulted on the property, entitling Defendants to foreclose; and (3) “they are owed payments under the terms of the Credit Suisse Note[.]” (FAC ¶ 92(a)-(c).) Defendants argue Plaintiff has alleged no facts demonstrating an “actual controversy” exists to justify declaratory relief because he has admitted that he executed the Note, made payments to the servicer (SPS), and then stopped making payments. (Mem. of P. & A. at 14–15.)
Plaintiff has failed to state a claim for declaratory relief. Plaintiff‘s first proffered rationale for declaratory relief appears to rely wholly on the merits of his claim for cancellation of the “Subject Instruments.”12 For the reasons explained in Section II, supra, the Court finds the cancellation of instrument claim fatally deficient. Thus, Plaintiff‘s first basis for declaratory relief is insufficient to state a claim because it is premised on his inadequately pled claim for cancellation of instrument. See Shaterian v. Wells Fargo Bank, N.A., 829 F. Supp. 2d 873, 888 (N.D. Cal. 2011) (finding a request for declaratory relief unavailable “absent a viable underlying claim“).
Further, as far as the other two assertions rely on the invalidity of the Subject Instruments, they also cannot maintain a claim for declaratory relief. Without plausible facts supporting the allegation that the Subject Instruments were legally infirm, the remaining facts alleged in the FAC do not raise any viable theory as to the unlawfulness of the subsequent default, foreclosure, or payments owed. In fact, Plaintiff‘s allegations substantiate that he is in default on a financial obligation by alleging that after he obtained the loan for refinancing and initially made payments to SPS, he has been holding these payments “in abeyance” for SPS’ failure to turn over certain documents in response to his RESPA request. (See FAC ¶¶ 28, 31, 48.)
Thus, the Court finds no actual controversy exists underlying Plaintiff‘s declaratory relief claim and GRANTS Defendants’ Motion to Dismiss this claim and dismisses it with prejudice and without leave to amend. See Allwaste, 65 F.3d at 1530.
VI. Count 6: Accounting
Due to the alleged failure of SPS to respond to Plaintiff‘s request for documents, Plaintiff seeks to ascertain, in the alternative, how much remains due and payable by him under the Note through an accounting. (FAC ¶¶ 96-98.) Defendants
“The necessary prerequisite to the right to maintain a suit for an equitable accounting, like all other equitable remedies, is . . . the absence of an adequate remedy at law.” Dairy Queen v. Wood, 369 U.S. 469, 478 (1962) (citing Beacon Theatres, Inc. v. Westover, 359 U.S. 500 (1959)). A plaintiff must meet the considerable burden of showing “that the accounts between the parties are of such a complicated nature that only a court of equity can satisfactorily unravel them.” Id.; see also Teselle v. McLoughlin, 173 Cal. App. 4th 156, 179 (2009) (“An action for accounting is not available where the plaintiff alleges the right to recover a sum certain or a sum that can be made certain by calculation.“).
Plaintiff requests this calculation of the remaining balance not to ascertain damages due to him by Defendants, but because he and Defendants “alleged different figures for the payoff” that Plaintiff owes Defendants. (FAC ¶¶ 97–98.) Plaintiff does not underpin this claim with allegations of fraud or breach of fiduciary duty or, indeed, any claim that Defendants owe him money. As such, Plaintiff‘s accounting claim does not appear to be anchored to another claim against Defendants in this case. See Kimball v. Flagstar Bank F.S.B., 881 F. Supp. 2d 1209, 1225 (S.D. Cal. 2012) (citing Union Bank v. Super. Ct., 31 Cal. App. 4th 573, 594 (1995)) (dismissing accounting claim where plaintiffs failed to sufficiently state a claim for breach of fiduciary duty or fraud); see also Janis v. Cal. State Lottery Com., 68 Cal. App. 4th 824, 833 (1998) (“A right to an accounting is derivative; it must be based on other claims.“). Rather, Plaintiff appears to seek an accounting to determine how much money he owes Defendants. See Alfino v. Litton Loan Servicing, LP, No. EDCV 11-01034-VAP-DTBx, 2011 WL 13225023, at *11 (C.D. Cal. Aug. 24, 2011) (dismissing accounting claim because plaintiffs sought relief to determine amount of money owed by plaintiffs to defendants and not “to ascertain an amount owed to them.“) (emphasis in original); see also Prakashpalan v. Engstrom, Lipscomb & Lack, 223 Cal. App. 4th 1105, 1137 (2014) (“Some underlying misconduct on the part of the defendant must be shown to invoke the right to this equitable remedy.“).
Even if an accounting were properly alleged, Plaintiff has not claimed that the accounts here are so complicated as to require an accounting. He seeks a sum that could be deduced from Defendants’ records, which could be produced in discovery if Plaintiff sufficiently states claims for relief and would not require an equitable action for an accounting. See Dairy Queen, 369 U.S. at 478 (“The legal remedy cannot be characterized as inadequate merely because the measure of damages may necessitate a look into petitioner‘s business records.“).
Finding that Plaintiff cannot maintain an accounting on the facts alleged, the Court GRANTS Defendants’ Motion on this issue and dismisses the claim with prejudice and without leave to amend. See Allwaste, 65 F.3d at 1530.
VII. Count 7: Unfair Competition
Under California law, unfair competition is defined as “unlawful, unfair or fraudulent business practice and unfair,
Defendants argue that because Plaintiff‘s other claims fail, his UCL claim must as well. (Mem. of P. & A. at 15–16.) “[O]nly claims under the ‘unlawful’ prong require a predicate statutory violation and rise and fall with that underlying claim.” Hahn v. Select Portfolio Servicing, Inc., 424 F. Supp. 3d 614, 634–35 (N.D. Cal. 2020). The Court determined above that Plaintiff has sufficiently stated a RESPA claim against SPS. Thus, Plaintiff can maintain a UCL claim for unlawful practices against SPS. See Gardner v. Am. Home Mortg. Servicing, Inc., 691 F. Supp. 2d 1192, 1201 (E.D. Cal. 2010). However, Plaintiff does not state a UCL claim premised on statutory violations for any other Defendant.
Similarly, Plaintiff has established the requisite standing to bring a UCL claim against SPS under the “unfair” or “fraudulent” prongs. See Hahn, 424 F. Supp. 3d at 635. To establish standing under the UCL, a plaintiff must have suffered an injury-in-fact. Rojas-Lozano v. Google, Inc., 159 F. Supp. 3d 1101, 1119 (N.D. Cal. 2016). A plaintiff suffers an injury-in-fact sufficient to confer standing under the UCL when the plaintiff: (1) expended money due to a defendant‘s unfair acts; (2) lost money or property; or (3) has been denied money to which they have a cognizable claim. Id. Where a plaintiff alleges a UCL claim against multiple defendants, the plaintiff must allege that it “suffered injury in fact or lost money or property as a result of alleged unfair competition” of each defendant. Schulz v. Neovi Data Corp., 152 Cal. App. 4th 86, 92 (2007) (brackets omitted).
Plaintiff has pled facts stating that SPS’ practices caused him such an injury. The surviving RESPA claim alleges that SPS took out a redundant forced-placed insurance policy without following the necessary procedures and thus charged Plaintiff “unearned interest and penalties on the balance” of his loan and failed to reimburse him. (FAC ¶¶ 33(c), 65.) Taking the allegation that Plaintiff suffered these economic losses as true, the Court finds this is sufficient to state standing, and therefore a claim, under the UCL against SPS. See Gomez v. Nationstar Mortg., LLC, No. 1:14-CV-1499-BAM, 2015 WL 966224, at *12 (E.D. Cal. Mar. 4, 2015) (finding sufficient plaintiff‘s allegation that defendants engaged in “unfair” practices under Section 17200 by force-placing unnecessary insurance in violation of
Accordingly, the Court DENIES Defendants’ Motion to Dismiss the UCL claim against SPS. However, it GRANTS the Motion as to Quality and Credit Suisse as to this count. Because Plaintiff is granted leave to amend his RESPA violation against Quality, he is similarly granted leave to amend his pleading as to the UCL claim against Quality. However, Plaintiff‘s claims against Credit Suisse are all dismissed with prejudice (Count 2, 5, and 6) and therefore cannot be amended to form
CONCLUSION AND ORDER
Based on the foregoing analysis, the Court ORDERS as follows:
(1) Defendants’ Motion is GRANTED as to Plaintiff‘s claim for cancellation of instrument (Count 2), receipt of stolen goods (Count 3), declaratory judgment (Count 5), and an accounting (Count 6). These claims are DISMISSED WITH PREJUDICE.
(2) Defendants’ Motion is GRANTED IN PART and DENIED IN PART as to Plaintiff‘s RESPA claim (Count 1). All RESPA claims against Defendant Quality and the RESPA claim premised on the QWRs and tax escrow account against Defendant SPS are DISMISSED WITHOUT PREJUDICE. However, Plaintiff‘s RESPA claim regarding force-placed insurance against Defendant SPS survives dismissal.
(3) Defendants’ Motion is GRANTED IN PART and DENIED IN PART as to Plaintiff‘s claim for Common Count (Count 4). The Common Count against Defendant Quality is DISMISSED WITHOUT PREJUDICE. However, Plaintiff‘s Common Count against Defendant SPS survives dismissal.
(4) Defendants’ Motion is GRANTED IN PART and DENIED IN PART as to Plaintiff‘s claim under California‘s Unfair Competition Law (Count 7). The UCL claim against Defendant Quality is DISMISSED WITHOUT PREJUDICE. The UCL claim against Defendant Credit Suisse is DISMISSED WITH PREJUDICE. However, Plaintiff‘s UCL claim against Defendant SPS survives dismissal.
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Plaintiff has not been granted leave to amend any of the claims against Defendant Credit Suisse. Therefore, Defendant Credit Suisse is DISMISSED. Plaintiff shall have until April 6, 2021 to file an amended complaint fixing the deficiencies in his RESPA, Common Count, and UCL claims against Defendant Quality. If Plaintiff elects not to file an amended complaint, Defendant Quality shall be deemed dismissed from the action and Defendant SPS shall file its Answer to the FAC by April 13, 2021.
IT IS SO ORDERED.
DATED: March 23, 2021
Hon. Cynthia Bashant
United States District Judge
Notes
Every person who shall feloniously steal, take, carry, lead, or drive away the personal property of another, or who shall fraudulently appropriate property which has been entrusted to him or her, or who shall knowingly and designedly, by any false or fraudulent representation or pretense, defraud any other person of money, labor or real or personal property, or who causes or procures others to report falsely of his or her wealth or mercantile character and by thus imposing upon any person, obtains credit and thereby fraudulently gets or obtains possession of money, or property or obtains the labor or service of another, is guilty of theft.