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Ronald Au v. Republic State Mortgage Company; Chad Cotton; Sand Canyon

July 30, 2012


The opinion of the court was delivered by: J. Michael Seabright United States District Judge



This action is again before the court after several attempts by Plaintiff Ronald Au ("Plaintiff"), proceeding pro se,*fn1 to state or to clarify his claims relating to a February 2007 refinancing transaction and corresponding Note and Mortgage on real property located at 45-030 Springer Place, Kaneohe, Hawaii (the "subject property"). This Order concerns three Motions to Dismiss Plaintiffs' Fourth Amended Complaint ("Fourth AC").*fn2 The Fourth AC was filed on April 16, 2012, after the court had dismissed two counts of the Third Amended Complaint ("TAC") with leave to amend, and allowed Plaintiff to add Wells Fargo Bank, N.A., as Trustee for Option One Mortgage Loan Trust 2007-5 Asset-backed Certificates, Series 2007-5 ("Wells Fargo") as a Defendant. See Doc. No. 117. Specifically, this Order addresses the following Motions:

1. Defendant Republic State Mortgage Company's ("RSMC") Motion to Dismiss Plaintiff's Fourth AC. Doc. No. 132. This Motion is joined by Defendant Homeward Residential, Inc., f.k.a., American Home Mortgage Servicing Inc. ("AHMSI"). Doc. No. 153;

2. AHMSI and Wells Fargo's Motion to Dismiss Plaintiff's Fourth AC. Doc. No. 134; and

3. Defendant Sand Canyon Corporation's, f.k.a. Option One Mortgage Corporation ("Sand Canyon"), Motion to Dismiss Plaintiff's Fourth AC. Doc. No. 136. This Motion is joined in part by AHMSI. Doc. No. 153.

Based on the following, the Motions to Dismiss are GRANTED in part and DENIED in part.


The parties are familiar with this action's lengthy procedural history, and the confusing factual allegations set forth in the current and prior versions of the Complaint. See, e.g., Au v. Republic State Mortg. Co., 2011 WL 3422780 (D. Haw. Aug. 4, 2011); Doc. Nos. 81 & 117 (Orders dismissing prior versions of the Complaint with leave to amend). The court sets forth only the basic allegations of the Fourth AC as necessary to understand the rulings in this Order.

A. Factual Background

For purposes of these Motions, the court assumes that any well-pleaded allegations of the Fourth AC are true. See, e.g., Savage v. Glendale Union High Sch., 343 F.3d 1036, 1039 n.1 (9th Cir. 2003).

The action arises from a February 2, 2007 refinancing transaction on the subject property. During the transaction, Plaintiff dealt with Chad Cotton ("Cotton"), who was, or represented himself to be, associated with RSMC. Doc. No. 128, Fourth AC ¶ 3. Cotton informed Plaintiff that he could refinance the subject property for $680,000 at a rate of 7.5% per annum so long as the loan closed by the first week of February 2007. Id. ¶ 9. Although Plaintiff was not provided a Good Faith Estimate confirming these terms prior to closing, Plaintiff did not doubt Cotton because Plaintiff had previously financed other property though Cotton. Id.

At closing on February 2, 2007, the documents indicated that the mortgage was for $700,000 at an interest rate of 8.925%, with closing costs of approximately $20,000. Id. ¶ 10. Plaintiff questioned the figures, but Cotton represented to Plaintiff that (1) RSMC had "misunderstood" that there was a loan commitment for 7.5%; and (2) after closing, RSMC would adjust the mortgage and promissory note to reflect the correct interest rate, and rebate the closing costs. Relying on these representations, Plaintiff proceeded to close escrow. Id.

RSMC then assigned the Note and Mortgage on February 8, 2007 to Sand Canyon. Id. ¶ 12. Subsequently, Sand Canyon assigned the Note to Wells Fargo on April 1, 2007 as part of a loan securitization Pooling and Service Agreement. Id. ¶ 29A. It is unclear whether Sand Canyon assigned the Mortgage at that time, although documents in the record and attached to the Fourth AC indicate the Mortgage was assigned by Sand Canyon on January 4, 2012. Id. Ex.

G. That assignment was recorded in the Hawaii Bureau of Conveyances on January 12, 2012. Id.

AHMSI is the loan servicer. Id. ¶ 5. Although it is not clear from the Fourth AC, it appears undisputed that Sand Canyon was originally the loan servicer but sold its loan servicing business to AHMSI in 2008. See Doc. No. 136-3, Sand Canyon Mot. at 13 n.6; Doc. No. 155-1, D. Sugimoto Decl. ¶¶ 6, 7.

In March and April 2007, Plaintiff contacted representatives of RSMC, who claimed that Cotton did not represent RSMC, but instead was associated with "The Funding Group." Doc. No. 128, Fourth AC ¶ 11. Plaintiff also contacted AHMSI, and AHMSI told Plaintiff to direct his questions regarding the mortgage terms to RSMC. Id. ¶ 12.*fn3 Subsequently, RSMC, in communications in 2009 and 2010, told Plaintiff that it would investigate Plaintiff's file, and was told, among other things, that it "ha[s] ordered the file from storage," that "the company which has your loan documents bases part of its operations in [I]ndia," and "we are literally trying to get documents sent to us from India." Fourth AC Exs. C & D.

B. Procedural Background

Plaintiff originally filed this action in state court on March 24, 2011, and his First Amended Complaint was subsequently removed to this court. On August 4, 2011, the court issued an Order Granting in Part and Denying in Part a Motion to Dismiss by RSMC. See Doc. No. 46, 2011 WL 3422780. Subsequently, after an Order on a Motion by AHMSI to Dismiss a Second Amended Complaint, Plaintiff filed a TAC on November 28, 2011. The TAC asserted six claims against RSMC, Cotton, AHMSI, and Sand Canyon (although it was not always clear which claims were asserted as to each Defendant).*fn4

On March 8, 2012, the court dismissed the TAC after a second Motion to Dismiss by AHMSI, but granted further leave to amend to add Wells Fargo as a Defendant because -- as was apparently only disclosed in January 2012 -- it is the current holder of both the Note and Mortgage. Wells Fargo, at minimum, is a required party to an action seeking to void the Note and Mortgage (and the TAC had alleged that Sand Canyon was the current holder).

Specifically, in its March 8, 2012 Order, the court "granted Plaintiff six weeks leave to file a Fourth Amended Complaint to add Wells Fargo as a Defendant, and to consider what claims can or must be added against Wells Fargo." Doc. No. 117, Order at 3. The court also dismissed Counts Three (misrepresentation and/or Real Estate Settlement Procedures Act ("RESPA")) and Five (Unfair or Deceptive Trade Acts or Practices) of the TAC, with leave to amend for Plaintiff to: revise his allegations against AHMSI (and other Defendants named in Counts Three and Five). That is, Plaintiff is granted leave to amend to clarify his RESPA claims -- and add a separate Count for violations of RESPA, if that is his intention -- as well as to revise his allegations to attempt to state claims for misrepresentation and violations of HRS Chapter 480.

Id. at 8-9. Plaintiff was not granted leave to add (or to revise) any other claims or counts to the TAC.

Plaintiff responded on April 16, 2012 by filing the thirty-nine page Fourth AC, which alleges the following twelve Counts:

* Count One - Breach of Contract

* Count Two - "Breach of Promissory Estoppel"

* Count Three - Intentional or Negligent Misrepresentation

* Count Four - Violations of HRS Ch. 454

* Count Five - Violations of TILA

* Count Six - Violations of HRS § 454F-17

* Count Seven - Fraud, Nondisclosure, Concealment

* Count Eight - HRS 490:1-203 (UCC Good Faith and Fair Dealing)

* Count Nine - Violations of HRS §§ 454D, 454D-6, 454-3(1), 454M, 454M-6, and RESPA, 12 U.S.C. § 2605

* Count Ten - Violations of HRS Ch. 480

* Count Eleven - Violations of the Fair Debt Collection Practices Act ("FDCPA"), 15 U.S.C. § 1692(a)(6)

* Count Twelve - "Holder in Due Course, HRS 490-3-302" RMSC, AHMSI, Wells Fargo, and Sand Canyon filed Motions to Dismiss on April 30, 2012. Doc. Nos. 132, 134, 136. (Cotton has not appeared in the action, as Plaintiff represents that he has been unable to locate and perfect service on Cotton.) Plaintiff filed his Opposition to the Motions on June 14, 2012, Doc. No. 151, and Replies were filed on June 25, 2012. Doc. Nos. 158, 159, 160. The Motions were heard on July 9, 2012.


A. Rule 12(b)(6)

Federal Rule of Civil Procedure 12(b)(6) permits a motion to dismiss a claim for "failure to state a claim upon which relief can be granted[.]"

"To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to 'state a claim to relief that is plausible on its face.'" Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). This tenet -- that the court must accept as true all of the allegations contained in the complaint -- "is inapplicable to legal conclusions." Id. at 678. Accordingly, "[t]hreadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice." Id. (citing Twombly, 550 U.S. at 555); see also Starr v. Baca, 652 F.3d 1202, 1216 (9th Cir. 2011) ("[A]llegations in a complaint or counterclaim may not simply recite the elements of a cause of action, but must contain sufficient allegations of underlying facts to give fair notice and to enable the opposing party to defend itself effectively.").

Rather, "[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." Iqbal, 556 U.S. at 678 (citing Twombly, 550 U.S. at 556). In other words, "the factual allegations that are taken as true must plausibly suggest an entitlement to relief, such that it is not unfair to require the opposing party to be subjected to the expense of discovery and continued litigation." Starr, 652 F.3d at 1216. Factual allegations that only permit the court to infer "the mere possibility of misconduct" do not show that the pleader is entitled to relief as required by Rule 8. Iqbal, 556 U.S. at 679.

B. Rule 8

A complaint must also meet the requirements of Federal Rule of Civil Procedure 8, mandating that a complaint include a "short and plain statement of the claim," Fed. R. Civ. P. 8(a)(2), and that "each allegation must be simple, concise, and direct." Fed. R. Civ. P. 8(d)(1). A complaint that is so confusing that its "true substance, if any, is well disguised" may be dismissed sua sponte for failure to satisfy Rule 8. Hearns v. San Bernardino Police Dep't, 530 F.3d 1124, 1131 (9th Cir. 2008) (quoting Gillibeau v. City of Richmond, 417 F.2d 426, 431 (9th Cir. 1969)); see also McHenry v. Renne, 84 F.3d 1172, 1180 (9th Cir. 1996) ("Something labeled a complaint but written . . . , prolix in evidentiary detail, yet without simplicity, conciseness and clarity as to whom plaintiffs are suing for what wrongs, fails to perform the essential functions of a complaint.").

Put differently, a district court may dismiss a complaint for failure to comply with Rule 8 where the complaint fails to provide defendants with fair notice of the wrongs they have allegedly committed. See McHenry, 84 F.3d at 1178-80 (affirming dismissal of complaint where "one cannot determine from the complaint who is being sued, for what relief, and on what theory, with enough detail to guide discovery"); cf. Mendiondo v. Centinela Hosp. Med. Ctr., 521 F.3d 1097, 1105 n.4 (9th Cir. 2008) (finding dismissal under Rule 8 was in error where "the complaint provide[d] fair notice of the wrongs allegedly committed by defendants and [did] not qualify as overly verbose, confusing, or rambling"). Rule 8 requires more than "the-defendant-unlawfully-harmed-me ...

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