Consumer Solutions Reo, LLC v. Hillery

658 F.Supp.2d 1002

CONSUMER SOLUTIONS REO, LLC, Plaintiff, v. Ruthie B. HILLERY, et al., Defendants.

No. C-08-4357 EMC.

United States District Court, N.D. California.

August 26, 2009.

COPYRIGHT MATERIAL OMITTED

T. Robert Finlay, Jonathan Douglas Fink, Wright Finlay & Zak, LLP, Newport Beach, CA, Charles Frederick Webber, Jana M. Gaffaney, Minneapolis, MN, for Plaintiff.

Thomas John Spielbauer, The Spielbauer Law Firm, San Jose, CA, for Defendants.

ORDER GRANTING IN PART AND DENYING IN PART PLAINTIFF'S MOTION TO DISMISS DEFENDANTS' COUNTER-COMPLAINT; AND FINDING PLAINTIFFS' MOTION TO STRIKE MOOT

Docket No. 52

EDWARD M. CHEN, United States Magistrate Judge.

Plaintiff Consumer Solutions REO, LLC ("Consumer Solutions") initiated this lawsuit against Defendants Ruthie B. Hillery and the Spielbauer Law Firm, seeking, inter alia, a judicial foreclosure and an equitable lien on certain real property owned by Ms. Hillery. On May 27, 2009, Ms. Hillery filed a counter-complaint against Consumer Solutions, Saxon Mortgage Services, Inc., and Mortgage Electronic Registration Systems, Inc. ("MERS"). Currently pending before the Court is Consumer Solutions' motion to dismiss all nine claims asserted in the counter-complaint.¹ Consumer Solutions has also moved to strike certain allegations in the counter-complaint pursuant to Federal Rule of Civil Procedure 12(f).

Having considered the parties' briefs and accompanying submissions, as well as the oral argument of counsel, the Court hereby GRANTS in part and DENIES in part the motion to dismiss. The Court finds the motion to strike moot in view of its conversion to and grant of the motion to dismiss.

I. FACTUAL & PROCEDURAL BACKGROUND

In her counter-complaint, Ms. Hillery alleges as follows. Ms. Hillery, a senior citizen, is the owner of certain real property located in Pittsburg, California. See Counter-Compl. at 5. Originally, she had a loan with respect to this property with an entity by the name of World Savings. In July or August 2006, she was contacted by a company named United Vision Financial about refinancing her home loan. On or about August 18, 2006, Ms. Hillery entered into a new loan—in the amount of $336,000—with a company by the name of New Century Mortgage. See id. at 5-6. Ms. Hillery was not given any loan documents prior to the signing date. See id. at 5. The new loan provided for an adjustable rate mortgage, starting with an interest rate of 7.45% and having a maximum rate of 14.450%. See id. at 6.

On August 21, 2006, Ms. Hillery gave notice to New Century that she was rescinding the loan agreement. Thereafter, she returned a cash-back check in the amount of $48,311. See id. New Century did not respond. Four months later, in December 2006, New Century sent Ms. Hillery a letter stating that she had defaulted on the loan. See id. Ms. Hillery advised New Century that she had rescinded the loan. Several months later, on or about March 19, 2007, New Century sent a letter to Ms. Hillery's then-attorney, stating that it had received the request to rescind and was prepared to resolve the claim provided that Ms. Hillery pay over $315,000 and sign a settlement agreement and release. See id.; Docket No. 7 (Ex. 2) (letter, dated 3/19/2007). Subsequently, on or about September 28, 2007, Saxon, acting as the servicer of the Hillery loan, sent a similar letter in which it stated that it had received the request to rescind and was prepared to resolve the claim provided that Ms. Hillery pay a certain sum (i.e., 266,379.31) and sign a settlement agreement and release. See Counter-Compl. at 7; Docket No. 20 (Ex. E) (letter, dated 9/28/2007).

The instant lawsuit was initiated approximately a year later. Consumer Solutions filed the suit, claiming that it obtained ownership of the New Century promissory note and deed of trust through a bankruptcy court-sanctioned auction after New Century declared bankruptcy. Prior to filing suit, Consumer Solutions initiated foreclosure proceedings against Ms. Hillery by having a notice of default recorded in May and June 2008. See Counter-Compl. at 8-9. Between May and September 2008, Ms. Hillery sent letters to Saxon, Everhome (a subsequent loan servicer), and MERS disputing the debt, but to no avail. See id. at 9.

II. MOTION TO DISMISS

A. Legal Standard

Under Federal Rule of Civil Procedure 12(b)(6), a party may move to dismiss based on the failure to state a claim upon which relief may be granted. See Fed. R.Civ.P. 12(b)(6). A motion to dismiss based on Rule 12(b)(6) challenges the legal sufficiency of the claims alleged in the complaint. See Parks Sch. of Business v. Symington, 51 F.3d 1480, 1484 (9th Cir. 1995). In considering such a motion, a court must take all allegations of material fact as true and construe them in the light most favorable to the nonmoving party, although "conclusory allegations of law and unwarranted inferences are insufficient to avoid a Rule 12(b)(6) dismissal." Cousins v. Lockyer, 568 F.3d 1063, 1067 (9th Cir. 2009). While "a complaint need not contain detailed factual allegations; rather, it must plead `enough facts to state a claim to relief that is plausible on its face.'" Id. "A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Ashcroft v. Iqbal, ___ U.S. ___, 129 S.Ct. 1937, 1949, 173 L.Ed.2d 868 (2009).

In the instant case, Consumer Solutions has challenged all of the claims asserted against it in the counter-complaint. Those claims are as follows: (1) violation of the Truth in Lending Act ("TILA"), (2) violation of the Home Ownership and Equity Protection Act ("HOEPA"), (3) violation of California Financial Code § 4973 (predatory lending), (4) quiet title, (5) violation of the Real Estate Settlement Procedures Act ("RESPA"), (5) violation of the Fair Debt Collections Practices Act ("FDCPA"), (6) violation of the California Consumer Legal Remedies Act ("CLRA"), (7) violation of California Welfare and Institutions Code § 15610.30 (elder financial abuse), (8) fraud, (9) accounting, and (10) declaratory judgment. Each of the claims is addressed below.

B. TILA Damages Claim

In her counter-complaint, Ms. Hillery actually asserts two TILA claims, one for rescission and one for damages. The damages claim seems to be predicated on the allegation that, when New Century and thereafter Consumer Solutions failed to honor her rescission of the loan agreement, Ms. Hillery was harmed because she lost the terms of the prior World Savings loan on her home. See Counter-Compl. ¶ 39. Consumer Solutions has not challenged the rescission claim but does argue that the damages claim should be dismissed because it is time barred. Consumer Solutions argues that, for any damages claim under TILA, the applicable statute of limitations is one year pursuant to 15 U.S.C. § 1640(e). Section 1640(e) provides that "[a]ny action under this section may be brought ... within one year from the date of the occurrence of the violation." 15 U.S.C. § 1640(e).

It is well established that § 1640(e)'s one-year limitations period is applicable to TILA damages claim. See, e.g., King v. State of California, 784 F.2d 910, 915 (9th Cir.1986) ("[T]he one-year limitation applies only to damage actions."); Velazquez v. GMAC Mortg. Corp., 605 F.Supp.2d 1049, 1060 (C.D.Cal.2008) ("[T]he statute of limitations for a TILA damages claim is one year."). Nevertheless, Ms. Hillery argues that the applicable statute of limitations is actually three years, not one, because she has made a rescission claim in conjunction with her damages claim. According to Ms. Hillery, "reading [15 U.S.C. §§ ] 1635(f) and 1635(g) together, the period of time in which [she] has to seek monetary damages becomes three years rather than one." Opp'n at 15. The Court does not find this argument persuasive.

Section 1635(f) permits the borrower to rescind the loan within "three years after the date of consummation of the transaction" if the lender fails to comply with the TILA's disclosure requirements. 15 U.S.C. § 1635(f). Section § 1635(g)—added as an amendment to TILA in 1980— provides: "In any action in which it is determined that a creditor has violated this section, in addition to rescission the court may award relief under section 1640 of this title for violations of this subchapter not relating to the right to rescind." Id. § 1635(g). "Although the Ninth Circuit does not appear to have addressed the issue, numerous district courts have held the relief provided by § 1635(g) is subject to the one-year statute of limitations of § 1640(e)." Cabalo v. EMC Mortg. Corp., No. C-08-5667 MMC, 2009 U.S. Dist. LEXIS 8283, at *7-8 (N.D.Cal. Feb. 5, 2009) (citing cases). See, e.g., Brewer v. Indymac Bank, 609 F.Supp.2d 1104, 1114 (E.D.Cal.2009); Brown v. Nationscredit Fin. Servs. Corp., 349 F.Supp.2d 1134, 1137 (N.D.Ill.2005). This is because " § 1635(g) does not appear to create a right to damages separate from that provided by § 1640; rather, as one district court put it, § 1635(g) merely `clarif[ies] that a plaintiff bringing a claim for rescission could also sue for statutory damages' under § 1640, subject to the statute of limitations provided in § 1640(e)." Cabalo, 2009 U.S. Dist. LEXIS 8283, at *8-9; see also Brown, 349 F.Supp.2d at 1137 (explaining the same). The Court agrees with the above cases. A strict reading of the applicable statutes demonstrates that an action for damages, as distinct from an action for rescission, must be brought within one year.

The Court therefore agrees with Consumer Solutions that Ms. Hillery's TILA damages claim is subject to a one-year statute of limitations. Ms. Hillery has made no argument that she would not be time barred if a one-year limitations period were applicable. Even if she had, the Court would reject the argument because, once Ms. Hillery gave notice of the rescission on August 21, 2006, then...