Daniels v. SCME Mortgage Bankers, Inc.

Citations: 680 F. Supp. 2d 1126; 2010 U.S. Dist. LEXIS 6941; 2010 WL 219684Docket: CV 09-4982 SVW (CWx)

Court: District Court, C.D. California; January 20, 2010; Federal District Court

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The United States District Court for the Central District of California dismissed with prejudice the Second Amended Complaint filed by Plaintiff Michael J. Daniels against Defendants SCME Mortgage Bankers, Inc. and Saxon Mortgage Services, Inc. The Court found that the Plaintiff failed to adequately allege causes of action under the Truth in Lending Act (TILA) and the Real Estate Settlement Procedures Act (RESPA), despite having been previously warned about the requirements for these claims. After filing three complaints, the Plaintiff's latest attempt did not meet the legal standards outlined in Federal Rules of Civil Procedure, specifically Rules 8 and 11. The Court chose not to exercise supplemental jurisdiction over remaining state law claims, resulting in the complete dismissal of the action. The Plaintiff's allegations included claims regarding loan servicing and origination, with specific references to violations of various TILA and RESPA regulations, as well as state law claims for fraudulent concealment and violations of the Uniform Commercial Code and California Business and Professions Code. The procedural history indicates that the case began in July 2009, with multiple amendments and motions to dismiss leading to the final ruling on January 20, 2010.

On October 29, 2009, the Court identified deficiencies in the Plaintiff's First Amended Complaint, alerting the Plaintiff that a second amended complaint must comply with Federal Rules of Civil Procedure Rules 8 and 11. The Court advised Plaintiff's counsel to refer to the pleading standards in Ashcroft v. Iqbal and Bell Atlantic Corp. v. Twombly, emphasizing the need for claims to be warranted by existing law or a nonfrivolous argument for legal changes, and for factual contentions to have evidentiary support. The Court granted the Plaintiff 20 days to file a Second Amended Complaint, allowing time to review relevant law and determine proper defendants.

In legal standards for a Motion to Dismiss, a complaint must contain sufficient factual matter to state a plausible claim for relief, where plausibility requires factual content that allows reasonable inference of the defendant's liability. Mere labels or formulaic recitations are insufficient. The Court's review primarily focuses on the complaint's contents, but attached exhibits may be considered. 

The analysis section notes that the Truth in Lending Act (TILA) and the Real Estate Settlement Procedures Act (RESPA) apply solely to consumer loans, not business loans, as defined by the statutes, which specify that these laws do not govern credit transactions primarily for business, commercial, or agricultural purposes.

Courts assessing whether a loan qualifies as primarily for business purposes under the Real Estate Settlement Procedures Act (RESPA) must use the same standards as the Truth in Lending Act (TILA), focusing on a fact-based, case-by-case analysis. This involves five key factors: 1) the relationship of the borrower's primary occupation to the acquisition; 2) the degree of personal management by the borrower; 3) the income ratio from the acquisition to the borrower’s total income; 4) the size of the transaction; and 5) the borrower's stated purpose for the loan. The Second Amended Complaint must provide sufficient factual material to determine if the loans qualify as consumer loans under TILA and RESPA, but the Plaintiff has failed to allege any relevant facts regarding these five factors, thus barring access to TILA and RESPA protections.

In previous cases, such as Galindo v. Financo Financial, Inc., and Schulken v. Wash. Mut. Bank, complaints were dismissed due to a lack of factual allegations about the loan's purpose. The Plaintiff's application indicates an intention for the loan to be for "investment" purposes, which contradicts attempts to argue otherwise based on his occupation as an electrician apprentice. The application also lists multiple properties generating rental income, further supporting the characterization of the loan as an investment. Consequently, the Complaint's deficiencies in alleging the loan's principal purpose lead to a failure to state a claim under TILA and RESPA.

Plaintiff, primarily described as an "electrician apprentice," is found to have earned substantial income from real estate investments, suggesting his loan was for business rather than personal use. The only personal claim made by Plaintiff is that the home was used by his extended family, but such statements in his Opposition cannot be considered as part of the Complaint. Under Rule 12(b)(6), courts do not consider new allegations presented in opposition to a motion to dismiss. Even if the Court were to consider these statements, they would not suffice to categorize the loan as a "consumer" loan. According to the Federal Reserve Board's interpretation of TILA, loans for non-owner-occupied rental properties are deemed for business purposes unless the owner occupies the property for more than 14 days in a year. The property in question was not owner-occupied, confirming that the loan was not personal under TILA and RESPA. The Complaint lacks sufficient facts to determine the loan's purpose, and since it states the loan was for "investment" purposes, Plaintiff fails to establish a valid cause of action under TILA and RESPA. Although Plaintiff requests leave to amend the complaint, this is denied due to prior opportunities to correct deficiencies and the Court's prior warnings regarding compliance with Rule 11 requirements. The Court had previously advised Plaintiff to reference earlier motions that articulated the same legal arguments.

Plaintiff's Second Amended Complaint is deemed legally insufficient, reflecting a failure to heed the Court's guidance and the Defendant's legal arguments. The likelihood of Plaintiff successfully stating a valid federal claim is low, even with potential amendments, negating the need for a Third Amended Complaint. Citing Allen v. City of Beverly Hills, the Court emphasizes the "futility of amendment" given Plaintiff's previous opportunities to revise the complaint. Additionally, the Court lacks subject matter jurisdiction over the state law claims due to the absence of a valid federal cause of action and insufficient diversity jurisdiction under 28 U.S.C. 1332. Consequently, Saxon Mortgage Services, Inc.'s Motion to Dismiss is granted for the federal claims, resulting in the case being dismissed with prejudice.