Case 1:09-cv-01030-LJO-DLB Document 10 Filed 07/20/09 Page 1 of 16

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8 IN THE UNITED STATES DISTRICT COURT
9 FOR THE EASTERN DISTRICT OF CALIFORNIA
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11 LARRY SHEETS and NETTIA SHEETS, CASE NO. CV F 09-1030 LJO DLB
12 Plaintiffs, ORDER ON DEFENDANT’S MOTION TO
DISMISS (Doc.5)
13 vs.
14 DHI MORTGAGE COMPANY, LTD.,
et al.,
15
Defendants.
16 /
17 INTRODUCTION
18 Defendant lender DHI Mortgage Company, Ltd. (“DHI Mortgage”) moves to dismiss as meritless
19 pro se plaintiffs Larry and Nettia Sheets (“Plaintiffs”) 12 claims arising from default and foreclosure on
20 her first mortgage which was secured by a deed of trust on real property located at 722 Orestimba Peak
21 Drive, Newman, California 95360; APN: 026-061-013 (“property”). Plaintiffs failed to respond this
22 motion to dismiss. This Court considered DHI Mortgage’s Fed. R. Civ. P. 12(b)(6) motion to dismiss
23 on the record and VACATES the July 30, 2009 hearing, pursuant to Local Rule 78-230(c), (h). For the
24 reasons discussed below, this Court DISMISSES this action against DHI Mortgage and ORDERS
25 plaintiffs to show cause why this Court should not dismiss all defendants in this action no later than July
26 30, 2009.
27 ///
28 ///

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1 BACKGROUND
2 Plaintiffs’ Loans And Default
3 On February 25, 2006, Plaintiffs purchased the property with funds obtained from DHI
4 Mortgage’s first mortgage, and secured by a deed of trust and promissory note. A December 17, 2008
5 notice of default and intention to sell was recorded for the property with the Stanislaus County Recorder.
6 Plaintiffs’ Claims
7 Plaintiffs’ complaint challenges the mortgage industry’s practice of sub-prime lending. Plaintiffs
8 allege that defendants participated in “unethical business practices” and “violated both State and Federal
9 Law” by selling and distributing loans “that would ultimately be sold to unqualified applicants.”
10 Plaintiffs contend that defendants had information that “reflected her inability to pay for the risky loan,”
11 and that “defendants knew or should have known [the sale of such loans] may result in foreclosure,
12 absent serial refinancing into even higher cost loans.” The complaint further alleges:
13 These loans were neither proper nor suitable for [plaintiffs’] condition and station in life.
These loans exceeded the reasonable expected value of the property at that time and in
14 the foreseeable future, based upon expected market changes. Those loans were an
attempt to acquire mortgage broker premiums, appraiser fees, lender service fees and
15 sub-prime loans, all to the advantage of the defendants and disadvantage of the plaintiff.
T his was done as a group of individuals in this industry through concerted action or
16 through civil conspiracy, all to the disadvantage of the Plaintiff.
17 On March 24, 2009, Plaintiffs filed their complaint (“complaint”) in the Stanislaus County
18 Superior Court to allege the following causes of action against defendants1:
19 1. Suitability
2. Negligence
20 3. Negligence Per se
4. Breach of Fiduciary Duty
21 5. Negligent Misrepresentation
6. Intentional Misrepresentation
22 7. Breach of the Covenant of Good Faith and Fair Dealing
8. Failure to Produce the Notes
23 9. Unfair Lending Practices
10. Restoral of Good Credit History
24 11. Violation of Cal. Civ. Code 2923.5
12. Fraud
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1
In addition to DHI Mortgage, the complaint names as defendants Chicago Title Company, Mortgage
27 Electronic Registration Systems, Indymac Bank FSB, and Quality Loan Service Corp. Each defendant is either a loan service
provider or deed of trust provider. These defendants are “somewhere in the chain of loan service providers and [have] no
28 other interest in this Note.”

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1 Plaintiffs seek to recover “personal, mental, physical and economic damages.”

2 DHI Mortgage removed this action to this Court on June 11, 2009 and moved to dismiss on June
3 232, 2009. Plaintiffs failed to oppose this motion.
4 DISCUSSION
5 Pleading And Rule 12(b)(6) Motion Standards
6 DHI Mortgage attacks Plaintiffs’ claims as incognizable and lacking necessary elements and
7 factual allegations. A motion to dismiss pursuant to Fed R. Civ. P. 12(b)(6) is a challenge to the
8 sufficiency of the pleadings set forth in the complaint. A Fed. R. Civ. P. 12(b)(6) dismissal is proper
9 where there is either a “lack of a cognizable legal theory” or “the absence of sufficient facts alleged
10 under a cognizable legal theory.” Balisteri v. Pacifica Police Dept., 901 F.2d 696, 699 (9th Cir. 1990).
11 In considering a motion to dismiss for failure to state a claim, the court generally accepts as true the
12 allegations of the complaint in question, construes the pleading in the light most favorable to the party
13 opposing the motion, and resolves all doubts in the pleader's favor. Lazy Y. Ranch LTD v. Behrens, 546
14 F.3d 580, 588 (9th Cir. 2008); Jenkins v. McKeithen, 395 U.S. 411, 421, reh'g denied, 396 U.S. 869
15 (1969).
16 To survive a motion to dismiss, plaintiffs must allege “enough facts to state a claim to relief that
17 is plausible on its face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 127 S. Ct. 1955, 1974 (2007).
18 Nonetheless, a court is “free to ignore legal conclusions, unsupported conclusions, unwarranted
19 inferences and sweeping legal conclusions cast in the form of factual allegations.” Farm Credit Services
20 v. American State Bank, 339 F.3d 765, 767 (8th Cir. 2003) (citation omitted). “While a complaint
21 attacked by a Rule 12(b)(6) motion to dismiss does not need detailed factual allegations, a plaintiff’s
22 obligation to provide the ‘grounds’ of his ‘entitlement to relief’ requires more than labels and
23 conclusions, and a formulaic recitation of the elements of a cause of action will not do.” Twombly, 550
24 U.S. 554,127 S. Ct. 1955, 1964-65 (internal citations omitted). Moreover, a court “will dismiss any
25 claim that, even when construed in the light most favorable to plaintiff, fails to plead sufficiently all
26 required elements of a cause of action.” Student Loan Marketing Ass'n v. Hanes, 181 F.R.D. 629, 634
27 (S.D. Cal. 1998). In practice, “a complaint . . . must contain either direct or inferential allegations
28 respecting all the material elements necessary to sustain recovery under some viable legal theory.”

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1 Twombly, 550 U.S. at 562, 127 S.Ct. at 1969 (quoting Car Carriers, Inc. v. Ford Motor Co., 745 F.2d
2 1101, 1106 (7th Cir. 1984)). If a plaintiff fails to state a claim, a court need not permit an attempt to
3 amend a complaint if “it determines that the pleading could not possibly be cured by allegation of other
4 facts.” Cook, Perkiss and Liehe, Inc. v. N. Cal. Collection Serv. Inc., 911 F.2d 242, 247 (9th Cir. 1990).
5 With these standards in mind, this Court turns to DHI Mortgage’s challenges to plaintiffs’ claims.
6 Suitability
7 The complaint’s (first) suitability claim alleges that “defendants breached their professional
8 duties and obligations by providing a sub-prime loan that was neither suitable nor appropriate for the
9 plaintiffs’ personal financial condition and well-being.”
10 DHI Mortgage notes that suitability is an incognizable claim by a borrower against a lender.
11 “The unsuitability doctrine is premised on New York Stock Exchange Rule 405-Know Your Customer
12 Rule FN3 and the National Association of Securities Dealers Rules of Fair Practice.” O'Connor v. R.F.
13 Lafferty & Co., Inc., 965 F.2d 893, 897 (10th Cir. 1992). DHI Mortgage further correctly notes that
14 California law does not extend the suitability doctrine to the mortgage lender-borrower relationship.
15 “Public policy does not impose upon the Bank absolute liability for the hardships which may befall the
16 [borrower] it finances.” Wagner v. Benson, 101 Cal.App.3d 27, 34, 161 Cal.Rptr. 516 (1980). The
17 success of a borrower’s investment “is not a benefit of the loan agreement which the Bank is under a
18 duty to protect.” Wagner, 101 Cal.App.3d at 34, 161 Cal.Rptr. 516 (lender lacked duty to disclose “any
19 information it may have had”). For these reasons, Plaintiffs’ suitability claim fails as incognizable
20 against DHI Mortgage.
21 Negligence
22 The complaint’s (second) negligence claim alleges that defendants breached their “professional
23 services” duty in that “plaintiffs were placed into loans that were inappropriate for their personal
24 financial circumstances.” DHI Mortgage contends that the negligence claim fails in absence of “a legally
25 recognized duty that a lender has to a borrower.” “The elements of a cause of action for negligence are
26 (1) a legal duty to use reasonable care, (2) breach of that duty, and (3) proximate [or legal] cause
27 between the breach and (4) the plaintiff's injury.” Mendoza v. City of Los Angeles, 66 Cal.App.4th 1333,
28 1339, 78 Cal.Rptr.2d 525 (1998) (citation omitted). “The existence of a legal duty to use reasonable care

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1 in a particular factual situation is a question of law for the court to decide.” Vasquez v. Residential
2 Investments, Inc., 118 Cal.App.4th 269, 278, 12 Cal.Rptr.3d 846 (2004) (citation omitted).
3 DHI Mortgage correctly notes the absence of an actionable duty between a lender and borrower
4 in that loan transactions are arms-length and do not invoke fiduciary duties. Absent “special
5 circumstances” a loan transaction “is at arms-length and there is no fiduciary relationship between the
6 borrower and lender.” Oaks Management Corp. v. Superior Court, 145 Cal.App.4th 453, 466, 51
7 Cal.Rptr.3d 561 (2006). Moreover, a lender “owes no duty of care to the [borrowers] in approving their
8 loan. Liability to a borrower for negligence arises only when the lender ‘actively participates’ in the
9 financed enterprise ‘beyond the domain of the usual money lender.’” Wagner, 101 Cal.App.3d at 35, 161
10 Cal.Rptr. 516 (citations several cases). “[A]s a general rule, a financial institution owes no duty of care
11 to a borrower when the institution's involvement in the loan transaction does not exceed the scope of its
12 conventional role as a mere lender of money.” Nymark v. Heart Fed. Savings & Loan Assn., 231
13 Cal.App.3d 1089, 1096, 283 Cal.Rptr. 53 (1991).
14 DHI Mortgage further notes the absence of a lender’s duty to ensure a loan is suitable for a
15 borrower. “No such duty exists” for a lender “to determine the borrower's ability to repay the loan. . .
16 . The lender's efforts to determine the creditworthiness and ability to repay by a borrower are for the
17 lender's protection, not the borrower's.” Renteria v. United States, 452 F.Supp.2d 910, 922-923 (D. Ariz.
18 2006) (borrowers “had to rely on their own judgment and risk assessment to determine whether or not
19 to accept the loan”).
20 The negligence claim lacks a recognized legal duty owed by DHI Mortgage. The complaint lacks
21 allegations that Plaintiffs relied on DHI Mortgage’s loan processing to ensure their ability to repay the
22 loan. The complaint further lacks facts of special circumstances to impose duties on DHI Mortgage in
23 that the complaint depicts an arms-length home loan transaction, nothing more.
24 DHI Mortgage contends that the economic loss doctrine further bars the negligence claim in that
25 Plaintiffs seek only unrecoverable “purely economic damages.”
26 “[P]laintiffs may recover in tort for physical injury to person or property, but not for purely
27 economic losses that may be recovered in a contract action.” W.R. Grace & Company, 37 Cal.App.4th
28 1318, 1327, 44 Cal.Rptr.2d 305 (1995). “In California, plaintiffs may seek remedies for strict liability

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1 and negligence only for physical injury to person or property, and not for pure economic losses.” Cal.
2 Dept. Of Toxic Substances v. Payless Cleaners, 368 F.Supp.2d 1069, 1084 (E.D. Cal. 2005) (citing Seely
3 v. White Motor Co., 63 Cal.2d 9, 18-19, 45 Cal.Rptr. 17, 403 P.2d 145 (1965)). “Therefore, unless
4 physical injury occurs, a plaintiff cannot state a cause of action for strict liability or negligence.” Payless
5 Cleaners, 368 F.Supp.2d at 1084.
6 Since Plaintiffs’ alleged damages are economic, the economic loss doctrine further warrants
7 dismissal of the negligence claim.
8 Negligence Per Se
9 The complaint’s (third) negligence per se claim alleges that defendants are “subject to California
10 Statutes and Provisions that govern and direct their conduct. Plaintiffs are members of the class of
11 citizens of the State of California for whose benefit the Statutes and Codes are enacted, and for whose
12 protection the Statutes dealing with the Fair Lending Act under California Law are meant to provide.”
13 DHI Mortgage contends that the negligence per se claim fails as a matter of law. California
14 Evidence Code section 669(a) addresses negligence per se and provides that a presumption of failure to
15 exercise due care if:
16 1. Defendant “violated a statute, ordinance, or regulation of a public entity”;
17 2. “The violation proximately caused death or injury to person or property”;
18 3. “The death or injury resulted from an occurrence of the nature which the statute,
19 ordinance or regulation was designed to prevent”; and
20 4. “The person suffering the death or injury to his person or property was one of the class
21 of persons for whose protection the statute, ordinance, or regulation was adopted.”
22 DHI Mortgage correctly notes that the negligence per se doctrine does not establish a cause of
23 action distinct from negligence. “[A]n underlying claim of ordinary negligence must be viable before
24 the presumption of negligence of Evidence Code section 669 can be employed.” Cal. Service Station
25 and Auto. Repair Ass’n v. American Home Assurance Co., 62 Cal.App.4th 1166, 1178 (1998). The
26 negligence per se doctrine assists as evidence to prove negligence. “[I]t is the tort of negligence, and
27 not the violation of the statute itself, which entitles a plaintiff to recover civil damages. In such
28 circumstances the plaintiff is not attempting to pursue a private cause of action for violation of the

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1 statute; rather, he is pursuing a negligence action and is relying upon the violation of a statute, ordinance,
2 or regulation to establish part of that cause of action.” Sierra-Bay Fed. Land Bank Assn. v. Superior
3 Court, 227 Cal.App.3d 318, 333, 277 Cal.Rptr. 753 (1991).
4 DHI Mortgage correctly notes that in the absence of its viable duty, Plaintiffs’ negligence per se
5 claim fails just as the negligence claim fails. DHI Mortgage further faults the negligence per se claim’s
6 failure to identify a specific statute that DHI Mortgage violated and the class of persons that the
7 unidentified statute was intended to protect. DHI Mortgage is correct, and for these reasons, the
8 negligence per se claim fails against DHI Mortgage.
9 Breach Of Fiduciary Duty
10 The complaint’s (fourth) breach of fiduciary duty claim alleges that defendants breached their
11 fiduciary duty to plaintiffs “to perform their duties, obligations and functions in a fair, upstanding, honest
12 and forthright manner, to conduct themselves so that the plaintiffs would experience the benefit or [sic]
13 their professional education and training, and to place plaintiffs’ interests above and before the interest
14 of the defendants.”
15 DHI Mortgage points to the absence of a fiduciary duty between lender and borrower.
16 “The relationship between a lending institution and its borrower-client is not fiduciary in nature.”
17 Nymark, 231 Cal.App.3d at 1093, n. 1, 283 Cal.Rptr. 53 (citing Price v. Wells Fargo Bank, 213
18 Cal.App.3d 465, 476-478, 261 Cal.Rptr. 735 (1989)). A commercial lender is entitled to pursue its own
19 economic interests in a loan transaction. Nymark, 231 Cal.App.3d at 1093, n. 1, 283 Cal.Rptr. 53(citing
20 Kruse v. Bank of America, 202 Cal.App.3d 38, 67, 248 Cal.Rptr. 217 (1988)). Absent “special
21 circumstances” a loan transaction is “at arms-length and there is no fiduciary relationship between the
22 borrower and lender.” Oaks Management, 145 Cal.App.4th at 466, 51 Cal.Rptr.3d 561 (“the bank is in
23 no sense a true fiduciary”).
24 “[T]o plead a cause of action for breach of fiduciary duty, there must be shown the existence of
25 a fiduciary relationship, its breach, and damage proximately caused by that breach. The absence of any
26 one of these elements is fatal to the cause of action.” Pierce v. Lyman, 1 Cal.App.4th 1093, 1101, 3
27 Cal.Rptr.2d 236 (1991).
28 In the absence of alleged special circumstances and a legal duty owed by DHI Mortgage, the

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1 breach of fiduciary duty claim fails. For the reasons set forth above, the complaint fails to demonstrate
2 existence of a fiduciary duty.
3 Negligent And Intentional Misrepresentation
4 The complaint’s (fifth) negligent misrepresentation claim alleges that defendant breached their
5 duty “to provide accurate, truthful and complete information by failing to provide the information to the
6 plaintiffs in a manner that they could understand” and “failed to provide all the information necessary
7 for the plaintiffs to make a complete, accurate and well-thought decision.” The complaint’s (sixth)
8 intentional misrepresentation claims alleges that defendants “intentionally misrepresented the nature of
9 loans.”
10 DHI Mortgage faults the negligent and intentional misrepresentation claims’ failure to meet Fed.
11 R. Civ. P. 9's particularity requirement.
12 Fed. R. Civ. P. 9(b) requires a party to “state with particularity the circumstances constituting
13 fraud.”2 In the Ninth Circuit, “claims for fraud and negligent misrepresentation must meet Rule 9(b)'s
14 particularity requirements.” Neilson v. Union Bank of California, N.A., 290 F.Supp.2d 1101, 1141 (C.D.
15 Cal. 2003). A court may dismiss a claim grounded in fraud when its allegations fail to satisfy Fed. R.
16 Civ. P. 9(b)’s heightened pleading requirements. Vess v. Ciba-Geigy Corp. USA, 317 F.3d 1097, 1107
17 (9th Cir. 2003). A motion to dismiss a claim “grounded in fraud” under Fed. R. Civ. P. 9(b) for failure
18 to plead with particularity is the “functional equivalent” of a Fed. R. Civ. P. 12(b)(6) motion to dismiss
19 for failure to state a claim. Vess, 317 F.3d at 1107. As a counter-balance, Fed. R. Civ. P. 8(a)(2) requires
20 from a pleading “a short and plain statement of the claim showing that the pleader is entitled to relief.”
21 Fed. R. Civ. P. 9(b)’s heightened pleading standard “is not an invitation to disregard Rule 8's
22 requirement of simplicity, directness, and clarity” and “has among its purposes the avoidance of
23 unnecessary discovery.” McHenry v. Renne, 84 F.3d 1172, 1178 (9th Cir. 1996). “A pleading is
24 sufficient under Rule 9(b) if it identifies the circumstances constituting fraud so that the defendant can
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26 2
F.R.Civ.P. 9(b)’s particularity requirement applies to state law causes of action: “[W ]hile a federal court
will examine state law to determine whether the elements of fraud have been pled sufficiently to state a cause of action, the
27 Rule 9(b) requirement that the circumstances of the fraud must be stated with particularity is a federally imposed rule.” Vess
v. Ciba-Geigy Corp. USA, 317 F.3d 1097, 1103 (9 th Cir. 2003) (quoting Hayduk v. Lanna, 775 F.2d 441, 443 (1 st Cir.
28 1995)(italics in original)).

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1 prepare an adequate answer from the allegations.” Neubronner v. Milken, 6 F.3d 666, 671-672 (9th Cir.
2 1993) (internal quotations omitted; citing Gottreich v. San Francisco Investment Corp., 552 F.2d 866,
3 866 (9th Cir. 1997)). The Ninth Circuit Court of Appeals has explained:
4 Rule 9(b) requires particularized allegations of the circumstances constituting fraud. The
time, place and content of an alleged misrepresentation may identify the statement or the
5 omission complained of, but these circumstances do not “constitute” fraud. The
statement in question must be false to be fraudulent. Accordingly, our cases have
6 consistently required that circumstances indicating falseness be set forth. . . . [W]e [have]
observed that plaintiff must include statements regarding the time, place, and nature of
7 the alleged fraudulent activities, and that “mere conclusory allegations of fraud are
insufficient.” . . . The plaintiff must set forth what is false or misleading about a
8 statement, and why it is false. In other words, the plaintiff must set forth an explanation
as to why the statement or omission complained of was false or misleading. . . .
9
In certain cases, to be sure, the requisite particularity might be supplied with great
10 simplicity.
11 In Re Glenfed, Inc. Securities Litigation, 42 F.3d 1541, 1547-1548 (9th Cir. 1994) (en banc) (italics in
12 original) superseded by statute on other grounds as stated in Marksman Partners, L.P. v. Chantal
13 Pharm. Corp., 927 F.Supp. 1297 (C.D. Cal. 1996); see Cooper v. Pickett, 137 F.3d 616, 627 (9th Cir.
14 1997) (“fraud allegations must be accompanied by “the who, what, when, where, and how” of the
15 misconduct charged).
16 As to multiple fraud defendants, a plaintiff “must provide each and every defendant with enough
17 information to enable them ‘to know what misrepresentations are attributable to them and what
18 fraudulent conduct they are charged with.’” Pegasus Holdings v. Veterinary Centers of America, Inc.,
19 38 F.Supp.2d 1158, 1163 (C.D. Ca. 1998) (quoting In re Worlds of Wonder Sec. Litig., 694 F.Supp.
20 1427, 1433 (N.D. Ca. 1988)).
21 The elements of a California fraud claim are: (1) misrepresentation (false representation,
22 concealment or nondisclosure); (2) knowledge of the falsity (or “scienter”); (3) intent to defraud, i.e.,
23 to induce reliance; (4) justifiable reliance; and (5) resulting damage. Lazar v. Superior Court, 12 Cal.4th
24 631, 638, 49 Cal.Rptr.2d 377 (1996). The same elements comprise a cause of action for negligent
25 misrepresentation, except there is no requirement of intent to induce reliance. Caldo v. Owens-Illinois,
26 Inc., 125 Cal.App.4th 513, 519, 23 Cal.Rtpr.3d 1 (2004).
27 “[T]o establish a cause of action for fraud a plaintiff must plead and prove in full, factually and
28 specifically, all of the elements of the cause of action. Conrad v. Bank of America, 45 Cal.App.4th 133,

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1 156, 53 Cal.Rptr.2d 336 (1996). There must be a showing “that the defendant thereby intended to induce
2 the plaintiff to act to his detriment in reliance upon the false representation” and “that the plaintiff
3 actually and justifiably relied upon the defendant’s misrepresentation in acting to his detriment.”
4 Conrad, 45 Cal.App.4th at 157, 53 Cal.Rptr.2d 336.
5 The complaint is severely lacking and fails to satisfy Fed. R. Civ. P. 9(b) “who, what, when,
6 where and how” requirements as to DHI Mortgage and the other defendants. See Tarmann v. State
7 Farm Mut. Auto. Ins. Co., 2 Cal.App.4th 153, 157, 2 Cal.Rptr.2d 861 (1991) (a plaintiff asserting fraud
8 against a corporate employer must “allege the names of the persons who made the allegedly fraudulent
9 representations, their authority to speak, to whom they spoke, what they said or wrote, and when it was
10 said or written.”) The complaint fails to establish fraud elements. The fraud allegations do not target
11 particular defendants, and the complaint’s global approach is unsatisfactory. The fraud claims’
12 deficiencies are so severe to suggest no potential improvement from an attempt to amend. Accordingly,
13 the fifth and sixth causes of action are dismissed against DHI Mortgage.
14 Breach Of The Implied Covenant Of Good Faith And Fair Dealing
15 The complaint’s seventh claim alleges that defendants breached the covenant of good faith and
16 fair dealing with Plaintiffs which required defendants to “deal fairly and in good faith with the plaintiff
17 and not seek to take an undue advantage of the plaintiff in their weakened bargaining position and with
18 their lesser knowledge, skill, education and ability regarding the loan transactions.”
19 DHI Mortgage notes the uncertainty whether the claim proceeds under contract or tort law.
20 Contract
21 “The prerequisite for any action for breach of the implied covenant of good faith and fair dealing
22 is the existence of a contractual relationship between the parties, since the covenant is an implied term
23 in the contract.” Smith v. City and County of San Francisco, 225 Cal.App.3d 38, 49, 275 Cal.Rptr. 17
24 (1990). The “implied covenant of good faith and fair dealing is limited to assuring compliance with the
25 express terms of the contract, and cannot be extended to create obligations not contemplated by the
26 contract.” Pasadena Live, LLC v. City of Pasadena, 114 Cal.App.4th 1089, 1093-1094, 8 Cal.Rptr.3d
27 233 (2004) (citation omitted.) “Without a contractual relationship, [plaintiffs] cannot state a cause of
28 action for breach of the implied covenant.” Smith, 225 Cal.App.3d at 49, 275 Cal.Rptr. 17.

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1 DHI Mortgage correctly notes the absence of allegations to identify a particular contract or
2 breach. The complaint references “oral and/or written agreements with all defendants” but fails to
3 specify or detail such agreements. The complaint’s conclusory allegations fail to support a contractual
4 relationship upon which to base an alleged breach of the implied covenant of good faith and fair dealing.
5 DHI Mortgage further faults the breach of implied covenant of good faith and fair dealing claim for
6 addressing alleged wrongs prior to contract formation. DHI is correct that it could not have breached
7 a contractual obligation prior to contract formation. As such, a purported claim under contract law fails.
8 Tort
9 DHI Mortgage further attacks the breach of covenant of good faith and fair dealing claim’s
10 failure to allege a special relationship to invoke tort liability. “Generally, no cause of action for the
11 tortious breach of the implied covenant of good faith and fair dealing can arise unless the parties are in
12 a ‘special relationship’ with ‘fiduciary characteristics.’” Pension Trust Fund v. Federal Ins. Co., 307
13 F.3d 944, 955 (9th Cir. 2002) (applying California law). “Moreover, even if there were a contractual
14 relationship between the parties, [plaintiffs] have pled no facts establishing a ‘special relationship’
15 between them which could justify extending tort liability for bad faith to the present context.” Smith,
16 225 Cal.App.3d at 49, 275 Cal.Rptr. 17.
17 The “implied covenant tort is not available to parties of an ordinary commercial transaction
18 where the parties deal at arms’ length.” Pension Trust Fund, 307 F.3d at 955. California courts do not
19 invoke a special relationship between a lender and borrower. See Kim v. Sumitomo Bank, 17
20 Cal.App.4th 974, 979, 21 Cal.Rptr.2d 834 (1993) (“the relationship of a bank-commercial borrower does
21 not constitute a special relationship for the purposes of the covenant of good faith and fair dealing”);
22 Mitsui Manufacturers Bank v. Superior Court, 212 Cal.App.3d 726, 729 (borrower precluded to assert
23 tortious breach of implied covenant of good faith and fair dealing claim against lender). As discussed
24 above, a lender generally owes no fiduciary duty to a borrower unless “it excessively controls or
25 dominates the borrower.” Pension Trust Fund, 307 F.3d at 955.
26 No special relationship arises between mortgage lender DHI Mortgage and the borrower plaintiff.
27 No special relationship arises between the title company and the borrower plaintiff, either. The
28 complaint makes no attempt to allege such a special relationship with meaningful facts. The breach of

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1 implied covenant of good faith and fair dealing claim fails in absence of allegations of a sufficient
2 contractual or special relationship between DHI Mortgage and plaintiffs.
3 Failure To Produce Note
4 The complaint’s (eighth) failure to produce note claim alleges that defendants “have not
5 produced the Note to prove who the real party in interest is” and “[n]one of the defendants are the real
6 party in interest as they have not provided nor can they provide the Note.”
7 DHI Mortgage challenges the claim as incognizable in that is lacks sufficient facts or allegation
8 to permit DHI Mortgage to respond meaningfully. DHI Mortgage further attacks the claim’s lack of
9 grounds for relief against DHI Mortgage.
10 Like many other borrowers subject to foreclosure, Plaintiffs appears to claim defendants need
11 to possess the original promissory note to permit foreclosure. Such is not the case in California.
12 “If the trustee's deed recites that all statutory notice requirements and procedures required by law
13 for the conduct of the foreclosure have been satisfied, a rebuttable presumption arises that the sale has
14 been conducted regularly and properly.” Nguyen v. Calhoun, 105 Cal.App.4th 428, 440, 129 Cal.Rptr.2d
15 436 (2003). The California Court of Appeal has explained non-judicial foreclosure under California
16 Civil Code sections 2924-2924l:
17 The comprehensive statutory framework established to govern nonjudicial
foreclosure sales is intended to be exhaustive. . . . It includes a myriad of rules relating
18 to notice and right to cure. It would be inconsistent with the comprehensive and
exhaustive statutory scheme regulating nonjudicial foreclosures to incorporate another
19 unrelated cure provision into statutory nonjudicial foreclosure proceedings.
20 Moeller v. Lien, 25 Cal.App.4th 822, 834, 30 Cal.Rptr.2d 777 (1994).
21 Under California Civil Code section 2924(a)(1), a “trustee, mortgagee or beneficiary or any of
22 their authorized agents” may conduct the foreclosure process. Under California Civil Code section
23 2924b(4), a “person authorized to record the notice of default or the notice of sale” includes “an agent
24 for the mortgagee or beneficiary, an agent of the named trustee, any person designated in an executed
25 substitution of trustee, or an agent of that substituted trustee.” “Upon default by the trustor, the
26 beneficiary may declare a default and proceed with a nonjudicial foreclosure sale.” Moeller, 25
27 Cal.App.4th at 830, 30 Cal.Rptr.2d (1994).
28 “Under Civil Code section 2924, no party needs to physically possess the promissory note.”

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1 Sicairos v. NDEX West, LLC, 2009 WL 385855, *3 (S.D. Cal. 2009) (citing Cal. Civ. Code, §
2 2924(a)(1)). Rather, “[t]he foreclosure process is commenced by the recording of a notice of default and
3 election to sell by the trustee.” Moeller, 25 Cal.App.4th at 830, 30 Cal.Rptr.2d 777. An “allegation that
4 the trustee did not have the original note or had not received it is insufficient to render the foreclosure
5 proceeding invalid.” Neal v. Juarez, 2007 WL 2140640, *8 (S.D. Cal. 2007).
6 Plaintiffs’ failure to produce note claim is incognizable and fails.
7 Unfair Lending Practices
8 The complaint’s (ninth) unfair lending practices claim alleges that defendants “violated various
9 California Statutes defining unfair lending practices” and “made a home loan to the plaintiffs without
10 determining or using commercially reasonable means or mechanisms that the borrowers had the ability
11 to repay the loan.”
12 DHI Mortgage faults the claim’s failure to identify specific violated statutes and DHI Mortgage’s
13 wrongs to violate statutes. DHI Mortgage notes that “[p]laintiffs’ recent inability to meet their mortgage
14 obligation does not, in and of itself, mean that DHI Mortgage violated California’s unfair lending
15 practices statutes.”
16 The (ninth) unfair lending practices claim fails far short of an identifiable claim and fails.
17 Restoral Of Good Credit History
18 The complaint’s (tenth) “restoral [sic] of good credit history” claim requests “restoral” of
19 plaintiffs’ “reputation and good credit history.” DHI Mortgage correctly notes that the claim merely
20 states a remedy, not a cause of action, and fails since it is premised on plaintiffs’ other flawed claims.
21 Wrongful Foreclosure
22 The complaint’s eleventh claim is untitled but appears to claim wrongful foreclosure in that
23 defendants “were aware of senate [sic] Bill 1137, which became law September 8, 2008 and as stated
24 in [California Civil Code] 2923.5, due diligence, which set forth the requirement that any or all notice
25 of default and or [sic] Notice of Trustee Sale must include a statement of affirmation reflecting that the
26 Beneficiary and or [sic] its authorize [sic] trustee has complied within the herein above statute. Plaintiff
27 state [sic] that the Notice of Default filed on DECEMBER 08, 2008 must be set aside for willful failure
28 to comply with the law.”

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1 California Civil Code section 2923.5 (“section 2923.5") requires a lender or its agent to attempt
2 to contact a defaulted borrower prior to foreclosure. Section 2923.5(a)(2) requires a “mortgagee,
3 beneficiary or authorized agent” to “contact the borrower in person or by telephone in order to assess
4 the borrower’s financial situation and explore options for the borrower to avoid foreclosure.” Section
5 2923.5(b) requires a default notice to include a declaration “from the mortgagee, beneficiary, or
6 authorized agent” of compliance with section 2923.5, including attempt “with due diligence to contact
7 the borrower as required by this section.”
8 DHI Mortgage notes the absence of allegations that it participated in the notice of default or
9 notice of trustee sale and that the complaint fails to identify who issued and recorded the notice of
10 default. DHI Mortgage is correct that the claim lacks sufficient allegations for a viable claim.
11 Accordingly, this cause of action is dismissed against DHI Mortgage.
12 Further Fraud And Breach Of Fiduciary Duty
13 The complaint’s (twelfth) claim is entitled “Unfair Lending Practices” but appears to attempt to
14 re-allege fraud and breach of fiduciary claims. The claim alleges that “defendants committed acts of
15 misrepresentations and fraud as so [sic] the terms of the loans, mortgage, and sale of the property with
16 the intent to exert undue influence.” The claim further alleges: “Due the defendants [sic] undue
17 influence, they received a deed of trust to the property for a loan that plaintiffs should not have given
18 or been allowed to take.”
19 To the extent the claim seeks to recover for fraud and breach of fiduciary duty, it fails for the
20 reasons discussed above. To the extent it attempts to allege undue influence, it also fails.
21 Undue influence “involves a type of mismatch.” Myerchin v. Family Benefits, Inc., 162
22 Cal.App.4th 1526, 1540, 76 Cal.Rptr.3d 816 (2008). Undue influence is “generally accompanied by
23 certain characteristics which tend to create a pattern. The pattern usually involves several of the
24 following elements: (1) discussion of the transaction at an unusual or inappropriate time, (2)
25 consummation of the transaction in an unusual place, (3) insistent demand that the business be finished
26 at once, (4) extreme emphasis on untoward consequences of delay, (5) the use of multiple persuaders
27 by the dominant side against a single servient party, (6) absence of third-party advisers to the servient
28 party, (7) statements that there is no time to consult financial advisers or attorneys.” Myerchin, 162

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1 Cal.App.4th at 1540.
2 DHI Mortgage correctly notes the absence of allegations of a pattern of activity to support undue
3 influence. The twelfth claim fails against both defendants.
4 Punitive Damages
5 The (sixth) intentional misrepresentation and (twelfth) unfair lending practices claims, and the
6 complaint’s prayer, reference punitive damages. DHI Mortgage seeks to strike the punitive damages
7 claims in the absence of viable fraud and undue influence claims.
8 Fed. R. Civ. P. 12(f) empowers a court to strike from a pleading “any redundant, immaterial,
9 impertinent, or scandalous matter.” Motions to strike may be granted if “it is clear that the matter to be
10 stricken could have no possible bearing on the subject matter of the litigation.” LeDuc v. Kentucky
11 Central Life Ins. Co., 814 F.Supp. 820, 830 (N.D. Cal. 1992); Colaprico v. Sun Microsystems, Inc., 758
12 F.Supp. 1335, 1339 (N.D. Cal. 1991). “[T]he function of a Rule 12(f) motion to strike is to avoid the
13 expenditure of time and money that must arise from litigating spurious issues by dispensing with those
14 issues prior to trial.” Sidney-Vinstein v. A.H. Robins Co., 697 F.2d 880, 885 (9th Cir. 1983); Fantasy,
15 Inc. v. Fogerty, 984 F.2d 1524, 1527 (9th Cir. 1993), rev’d on other grounds, Fogerty v. Fantasy, Inc.,
16 510 U.S. 517, 114 S.Ct. 1023 (1994). “[A] motion to strike may be used to strike any part of the prayer
17 for relief when the damages sought are not recoverable as a matter of law.” Bureerong v. Uvawas, 922
18 F.Supp. 1450, 1479, n. 34 (C.D. Cal. 1996). In the absence of viable claims, Plaintiffs’ lack a claim for
19 punitive damages to warrant striking references to and prayer for punitive damages.
20 Attempt At Amendment
21 Plaintiffs’ claims are incognizable or barred as a matter of law. Plaintiffs are unable to cure their
22 claims by allegation of other facts and thus are not granted an attempt to amend.
23 CONCLUSION AND ORDER
24 For the reasons discussed above, this Court:
25 1. DISMISSES this action with prejudice against DHI Mortgage;
26 2. DIRECTS the clerk to enter judgment in favor of defendants DHI Mortgage Company,
27 Ltd. and against plaintiffs Larry Sheets and Nettia Sheets; and
28 3. ORDERS Plaintiffs, no later than July 30, 2009, to file papers to show cause why this

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1 Court should not dismiss this action against defendants Chicago Title Company,
2 Mortgage Electronic Registration Systems, Indymac Bank FSB, and Quality Loan
3 Service Corp.
4 This Court ADMONISHES Plaintiffs that this Court will dismiss this action against
5 defendants Chicago Title Company, Mortgage Electronic Registration Systems, Indymac Bank
6 FSB, and Quality Loan Service Corp if they fail to comply with this order and fail to file timely
7 papers to show cause why this Court should not dismiss these defendants.
8 IT IS SO ORDERED.
9 Dated: July 20, 2009 /s/ Lawrence J. O'Neill
66h44d UNITED STATES DISTRICT JUDGE
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