Khan v. Specialized Loan Servicing LLC ( 2020 )

1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 NORTHERN DISTRICT OF CALIFORNIA 10 SAN JOSE DIVISION 11 12 RICHARD A. KHAN, Case No. 20-CV-03608-LHK 13 Plaintiff, ORDER DENYING MOTION TO REMAND AND GRANTING MOTION 14 v. TO DISMISS WITH PREJUDICE 15 SPECIALIZED LOAN SERVICING LLC, Re: Dkt. Nos. 6, 12, 22 et al., 16 Defendants. 17 18 This is a pro se action brought by Plaintiff Richard A. Khan (“Plaintiff” or “Khan”) against 19 Defendants Prestige Default Service (“Prestige”) and Specialized Loan Servicing LLC (“SLS”) 20 (collectively, “Defendants”). On July 24, 2020, United States Magistrate Judge Nathanael M. 21 Cousins filed a Report and Recommendation that recommended denying Plaintiff’s motion to 22 remand and granting Defendants’ motion to dismiss. ECF No. 22. Plaintiff timely filed an 23 objection to Judge Cousins’s recommendation to grant the motion to dismiss but did not object to 24 Judge Cousins’s recommendation to deny the motion to remand. ECF No. 24. Defendants filed a 25 response to Plaintiff’s objections. ECF No. 25. Having considered the parties’ briefing, the 26 relevant law, the record in this case, and Judge Cousins’s Report and Recommendation, the Court 27 DENIES Plaintiff’s motion to remand and GRANTS Defendants’ motion to dismiss. I. BACKGROUND 1 A. Factual Background 2 Khan is a resident of Santa Clara County, California and owns a house in Morgan Hill, 3 California. ECF No. 1, Ex. 1 (“Compl.”) ¶¶ 1, 8. According to Khan, around November 1, 2005, 4 an unknown individual fraudulently forged and executed a second deed of trust on Khan’s house 5 for over $200,000 under Khan’s name. Id. ¶ 10(a). Khan acknowledges that he discovered this 6 fraudulent deed between 2007 and 2008. Id. ¶ 11(a). Khan contacted the lender listed on that 7 deed, Countrywide Home Loan, and claimed that he did not execute the loan. Id. ¶ 11(b). 8 Countrywide allegedly refused to discuss the loan with Khan because Khan supposedly did not 9 execute the loan documents. Id. ¶ 11(c). Khan acknowledges that besides these actions, Khan 10 “made little efforts to resolve the issue of the forged” loan because Khan “was consumed in 11 Probate litigation and family affairs.” Id. ¶ 11(f). 12 In 2014, SLS began sending Khan loan statements related to the allegedly fraudulent deed 13 of trust. Id. ¶ 11(g). In May 2018, Prestige was substituted as the trustee on the deed. ECF No. 14 19, Ex. 3. Shortly after, on June 1, 2018, Prestige recorded a notice of default on Khan’s house. 15 Compl. ¶¶ 10(b), 11(g)–(h). A trustee’s sale was scheduled to take place on September 23, 2018. 16 Id. ¶ 12. 17 B. Procedural History 18 Khan filed this lawsuit in Santa Clara County Superior Court on March 25, 2020, alleging 19 claims for (1) fraud, (2) fraudulent concealment, (3) declaratory relief, (4) quiet title, (5) slander of 20 title, (6) cancellation of instruments, and (7) unfair business practices. See id. ¶¶ 16–62. On May 21 8, 2020, Prestige filed its declaration of non-monetary status, asserting that it is a nominal party 22 lacking financial interest or any claim to the outcome of this action. ECF No. 19, Ex. 1 at 2.1 23 24 25 1 Defendants request judicial notice of two exhibits: (1) a docket summary of Santa Clara County Superior Court Case No. 20CV365924, and (2) a “substitution of trustee” document filed with the 26 Santa Clara County Recorder. ECF No. 19. Khan does not object to Defendants’ request for judicial notice. Because both exhibits are matters of public record, the Court GRANTS 27 Defendants’ request for judicial notice. Harris v. Cty. of Orange, 682 F.3d 1126, 1131-32 (9th Cir. 2012) (noting that courts may take judicial notice of “undisputed matters of public record”). 1 Khan did not object to Prestige’s declaration. Id. On May 29, 2020, SLS removed the case to this 2 Court. Id. 3 On June 5, 2020, Defendants filed a motion to dismiss Khan’s complaint. ECF No. 6 4 (“MTD”). Khan opposed the motion to dismiss on June 19, 2020, ECF No. 15 (“MTD Opp.”), 5 and Defendants filed a reply on June 26, 2020, ECF No. 17 (“MTD Reply”). 6 Additionally, Khan filed a motion to remand on June 12, 2020. ECF No. 12 (“MTR”). On 7 June 26, 2020, Defendants opposed Khan’s motion to remand, ECF No. 18 (“MTR Opp.”), and on 8 July 6, 2020, Khan filed a reply, ECF No. 20 (“MTR Reply”). 9 On July 24, 2020, Judge Cousins filed a thorough and well-reasoned Report and 10 Recommendation that recommended denying Plaintiff’s motion to remand and granting 11 Defendants’ motion to dismiss. ECF No. 22 (“R&R”). As to the motion to remand, Khan sought 12 remand on the ground that both he and Prestige were citizens of California such that complete 13 diversity was absent. Id. at 4. However, because Prestige was a nominal party, complete diversity 14 was present. 15 Specifically, Judge Cousins found that under California law, “a trustee can declare ‘non- 16 monetary status’ if the trustee ‘maintains a reasonable belief that it has been named in the action or 17 proceeding solely in its capacity as trustee, and not arising out of any wrongful acts or omissions 18 on its part in the performance of its duties as trustee.’” Id. (quoting Cal. Code Civ. P. § 2924l(a)). 19 “If there is no objection to the trustee’s declaration within fifteen days of the . . . filing, the trustee 20 gains non-monetary status.” Id. (citing Cal. Code Civ. P. § 2924l(d)). In the instant case, Prestige 21 filed a declaration of non-monetary status on May 8, 2020, ECF No. 19, Ex. 3 at 2, and Khan 22 conceded that he failed to object to Prestige’s declaration. MTR at 8. Accordingly, Judge Cousins 23 held that Prestige was a nominal party and its citizenship could be disregarded for the purposes of 24 diversity jurisdiction. Finally, Judge Cousins rejected Khan’s argument that the Court should 25 overlook Khan’s failure to object because Khan was pro se at the time. 26 Judge Cousins then assessed Defendants’ motion to dismiss. Judge Cousins determined 27 that Khan’s claims for fraud and fraudulent inducement were subject to a three-year statute of 1 limitations. R&R at 5 (citing Cal. Code Civ. P. § 338(d)). Khan’s remaining claims were subject 2 to California’s catch-all limitations period of four years. Id. (citing Salazar v. Thomas, 236 Cal. 3 App. 4th 467, 477 n.8 (2015), and Cal. Code Civ. P. § 343). Importantly, Judge Cousins noted 4 that under California law, the “statute of limitations applies even when the underlying deed was 5 void.” Id. (citing Walters v. Boosinger, 2 Cal. App. 5th 421, 322 (2016)). 6 Based on Khan’s own complaint and allegations, Judge Cousins concluded that all of 7 Khan’s causes of action were time-barred because Khan alleged that he first discovered the fraud 8 between 2007 and 2008. Id. (citing Compl. ¶ 11(a)). “Therefore, all relevant statutes of 9 limitations ran by 2012” such that “Khan’s lawsuit is time-barred.” Id. 10 Judge Cousins also explicitly considered and rejected Khan’s argument that “the discovery 11 rule tolled the relevant statutes of limitations until June 2018, when Prestige recorded a notice of 12 default against his house.” Id. at 5–6. Khan argued that “he had no way of knowing that the deed 13 of trust was nothing more than a clerical error, particularly considering his previous 14 communication with Countrywide.” Id. at 6 (citing MTD Opp. at 8). Judge Cousins rejected this 15 argument because “even assuming that is was reasonable for Khan to believe that the deed in 16 question was nothing more than a clerical error, Defendants notified Khan that an outstanding loan 17 existed on his house in 2014.” Id. (citing Compl. ¶ 11(g)). Therefore, by 2014, Khan knew or had 18 reason to discover the fact that Defendants did not consider the deed a mere clerical error and “all 19 relevant limitations periods began running in 2014 and would have ended by 2018 at the latest.” 20 Id. Khan did not file this lawsuit until March 25, 2020. 21 Judge Cousins thus recommended granting Defendants’ motion to dismiss with prejudice. 22 Because Prestige had not consented to magistrate judge jurisdiction, Judge Cousins requested that 23 the instant case be transferred to a district court judge. Id. at 6. The case was then transferred to 24 the undersigned judge. 25 On August 7, 2020, Khan timely filed objections to Judge Cousins’s Report and 26 Recommendation. ECF No. 24. Specifically, Khan did not object to Judge Cousins’s 27 recommendation to deny the motion to remand. Id. Khan, however, objected to Judge Cousins’s 1 recommendation to grant the motion to dismiss on two grounds. First, Khan asserts that he did not 2 have notice of the forged loan until 2018 such that his claims were not time-barred. Id. at 3–4. 3 Second, Khan contends that his complaint is not subject to any statutes of limitations because the 4 deed of trust is void. Id. at 4–7. Finally, Khan also requests leave to amend to add additional 5 defendants and introduce additional allegations that “Plaintiff did not sign the Loan Documents.” 6 Id. at 7. 7 On August 14, 2020, Defendants filed a response to Khan’s objections to Judge Cousins’s 8 Report and Recommendation. ECF No. 25. 9 II. LEGAL STANDARD 10 A. Reviewing a Report and Recommendation 11 A magistrate judge may prepare findings and recommendations on dispositive matters 12 without the consent of the parties pursuant to 28 U.S.C. § 636(b)(1). See Reynaga v. Cammisa, 13 971 F.2d 414, 416 (9th Cir. 1992). Once findings and recommendations are served, the parties 14 have fourteen days to file specific written objections. 28 U.S.C. § 636(b)(1)(C); Fed. R. Civ. P. 15 72(b)(2). A judge must review de novo “those portions of the report or specified proposed 16 findings or recommendations to which objection is made.” 28 U.S.C. § 636(b)(1)(C); see 17 also United States v. Reyna-Tapia, 328 F.3d 1114, 1121 (9th Cir. 2003) (“The statute makes it 18 clear that the district judge must review the magistrate judge’s findings and recommendations de 19 novo if objection is made, but not otherwise.” (emphasis in original)). A judge may “accept, 20 reject, or modify, in whole or in part, the findings or recommendations made by the magistrate 21 judge.” 28 U.S.C. § 636(b)(1)(C). 22 B. Motion to Remand 23 A suit may be removed from state court to federal court only if the federal court would 24 have had subject matter jurisdiction over the case. 28 U.S.C. § 1441(a); see Caterpillar Inc. v. 25 Williams, 482 U.S. 386, 392 (1987) (“Only state-court actions that originally could have been filed 26 in federal court may be removed to federal court by the defendant.”). If it appears at any time 27 before final judgment that the federal court lacks subject matter jurisdiction, the federal court must 1 remand the action to state court. 28 U.S.C. § 1447(c). 2 The party seeking removal bears the burden of establishing federal jurisdiction. Provincial 3 Gov’t of Marinduque v. Placer Dome, Inc., 582 F.3d 1083, 1087 (9th Cir. 2009). Moreover, the 4 party seeking to establish federal jurisdiction must meet this burden “by a preponderance of the 5 evidence.” Gaus v. Miles, Inc., 980 F.2d 564, 567 (9th Cir. 1992) (quoting McNutt v. General 6 Motors Acceptance Corp., 298 U.S. 178, 189 (1936) (emphasis omitted)). “The removal statute is 7 strictly construed, and any doubt about the right of removal requires resolution in favor of 8 remand.” Moore-Thomas v. Alaska Airlines, Inc., 553 F.3d 1241, 1244 (9th Cir. 2009) (citing 9 Gaus v. Miles, Inc., 980 F.2d 564, 566 (9th Cir. 1992)). 10 C. Motion to Dismiss 11 “A motion to dismiss a counterclaim brought pursuant to Federal Rule of Civil Procedure 12 12(b)(6) is evaluated under the same standard as a motion to dismiss a plaintiff’s complaint.” 13 AirWair Int’l Ltd. v. Schultz, 84 F. Supp. 3d 943, 949 (N.D. Cal. 2015); see also Boon Rawd 14 Trading Inter’l v. Paleewong Trading Co., 688 F. Supp. 2d 940, 947 (N.D. Cal. 2010). Pursuant 15 to Federal Rule of Civil Procedure 12(b)(6), a defendant may move to dismiss an action for failure 16 to allege “enough facts to state a claim to relief that is plausible on its face.” Bell Atl. Corp. v. 17 Twombly, 550 U.S. 544, 570 (2007). “A claim has facial plausibility when the plaintiff pleads 18 factual content that allows the court to draw the reasonable inference that the defendant is liable 19 for the misconduct alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). “The plausibility 20 standard is not akin to a probability requirement, but it asks for more than a sheer possibility that a 21 defendant has acted unlawfully.” Id. (internal quotation marks omitted). For purposes of ruling 22 on a Rule 12(b)(6) motion, a court “accept[s] factual allegations in the complaint as true and 23 construe[s] the pleadings in the light most favorable to the nonmoving party.” Manzarek v. St. 24 Paul Fire & Marine Ins. Co., 519 F.3d 1025, 1031 (9th Cir. 2008). 25 The Court, however, need not accept as true allegations contradicted by judicially 26 noticeable facts, see Shwarz v. United States, 234 F.3d 428, 435 (9th Cir. 2000), and it “may look 27 beyond the plaintiff’s complaint to matters of public record” without converting the Rule 12(b)(6) 1 motion into a motion for summary judgment, Shaw v. Hahn, 56 F.3d 1128, 1129 n.1 (9th Cir. 2 1995). Nor must the Court “assume the truth of legal conclusions merely because they are cast in 3 the form of factual allegations.” Fayer v. Vaughn, 649 F.3d 1061, 1064 (9th Cir. 2011) (per 4 curiam) (internal quotation marks omitted). Mere “conclusory allegations of law and unwarranted 5 inferences are insufficient to defeat a motion to dismiss.” Adams v. Johnson, 355 F.3d 1179, 1183 6 (9th Cir. 2004). 7 D. Leave to Amend 8 Under Rule 15(a) of the Federal Rules of Civil Procedure, leave to amend “should be 9 freely granted when justice so requires,” bearing in mind that “the underlying purpose of Rule 15 . 10 . . [is] to facilitate decision on the merits, rather than on the pleadings or technicalities.” Lopez v. 11 Smith, 203 F.3d 1122, 1127 (9th Cir. 2000) (en banc). Accordingly, leave to amend generally 12 shall be denied only if allowing amendment would unduly prejudice the opposing party, cause 13 undue delay, or be futile, or if the moving party has acted in bad faith. Leadsinger, Inc. v. BMG 14 Music Publ’g, 512 F.3d 522, 532 (9th Cir. 2008). At the same time, a court is justified in denying 15 leave to amend when a plaintiff “repeated[ly] fail[s] to cure deficiencies by amendments 16 previously allowed.” See Carvalho v. Equifax Info. Servs., LLC, 629 F.3d 876, 892 (9th Cir. 17 2010). 18 III. DISCUSSION 19 Khan solely objects to Judge Cousins’s Report and Recommendation as it relates to 20 granting Defendants’ motion to dismiss. ECF No. 24. Put differently, Khan did not timely object 21 to Judge Cousins’s Report and Recommendation as to the recommendation that the Court deny 22 Khan’s motion to remand. Having reviewed the Report and Recommendation as well as the 23 parties’ briefing, the relevant law, and the record in this case, the Court concludes that the Report 24 and Recommendation is well-founded in fact and law as to Khan’s motion to remand. Therefore, 25 the Court ADOPTS Judge Cousins’s Report and Recommendation as to Khan’s motion to remand 26 and DENIES Khan’s motion to remand. 27 The Court now addresses Khan’s objections to Judge Cousins’s Report and 1 Recommendation as it relates to Defendants’ motion to dismiss. ECF No. 24 3–7. Khan raises 2 two objections to Judge Cousins’s recommendation to grant Defendants’ motion to dismiss based 3 on the statute of limitations. First, Khan argues that he did not have notice of the forged loan until 4 2018 such that his claims were not time-barred. Id. at 3–4. Second, Khan contends that his 5 complaint is not subject to any statutes of limitations because the deed of trust is void. Id. at 4–7. 6 Finally, if these arguments fail, Khan also requests leave to amend to add additional defendants 7 and introduce additional allegations that “Plaintiff did not sign the Loan Documents.” Id. at 7. 8 None of Khan’s arguments are persuasive. 9 First, as Judge Cousins explained, Khan’s complaint itself alleges that Khan first 10 discovered the fraud sometime between 2007 and 2008. Compl. ¶ 11(a). The statute of 11 limitations would therefore have run by 2012 at the latest. Even if Khan reasonably believed that 12 the deed was based on a mere clerical error, Defendants notified Khan that an outstanding loan 13 existed on his house in 2014. Id. § 11(g). Therefore, by 2014, Khan knew or had reason to know 14 that Defendants did not consider the deed a mere clerical error such that the relevant limitations 15 periods began running in 2014. Thus, by 2018 at the latest, Khan was required to bring suit. 16 Because Khan did not file the instant action until March 25, 2020, his causes of action are time- 17 barred. 18 Second, the Court also rejects Khan’s argument that his complaint and causes of action are 19 not subject to any statutes of limitations because the deed of trust is void. ECF No. 24 at 4–7. 20 Khan marshals state law cases from, among other jurisdictions, New York, Maryland, Montana, 21 Oregon, Florida, West Virginia, and Idaho. Regardless of whether Khan’s citations are accurate, 22 out-of-state case law has limited bearing on whether California law prohibits applying a statute of 23 limitations when a plaintiff argues that an instrument is void. As Judge Cousins explained in his 24 thorough Report and Recommendation, California law is clear. California courts have concluded 25 that “a claim premised on a contention that an instrument is void ab initio is subject to a statute of 26 limitation.” Walters v. Boosinger, 2 Cal. App. 5th 421, 433 (2015) (emphasis in original) 27 (collecting cases); see also Robertson v. Superior Court, 90 Cal. App. 4th 1319, 1326 n.6 (2001) 1 (“[Case law] make[s] clear that . . . statutes of limitations apply whether the document under 2 challenge is asserted to be ‘void’ or ‘voidable.’”). 3 Accordingly, the Court rejects Plaintiff’s objections to Judge Cousins’s recommendation to 4 grant Defendants’ motion to dismiss. After conducting de novo review of Judge Cousins’s Report 5 and Recommendation and after considering the parties’ briefing, the relevant law, and the record 6 in this case, the Court GRANTS Defendant’s motion to dismiss. 7 Finally, the Court turns to Khan’s request for leave to amend the complaint. ECF No. 24 8 at 7. Khan’s requests leave to amend the complaint to add additional defendants and additional 9 allegations “demonstrating Plaintiff did not sign the Loan Documents.” Id. These amendments, 10 however, would be futile because they do not address the central issue identified by Judge Cousins 11 and this Court. Namely, even if Khan added new defendants and new allegations establishing that 12 Khan did not sign the relevant loan documents, these allegations have no bearing on whether the 13 statutes of limitations apply to bar Khan’s causes of action. Put differently, “[t]he Court concludes 14 that the proposed amendments to [Plaintiff’s] . . . claim[s] are futile, as the claim[s] [are] time- 15 barred even if based on the new allegations.” Casaretto v. Coldwell Banker Realty, No. 10-CV- 16 00509-LHK, 2011 WL 1576780, at *3 (N.D. Cal. Apr. 26, 2011). 17 As previously noted and as Khan acknowledges, the statute of limitations begins to run 18 when “the plaintiff discovers, or has reason to discover, the cause of action.” Aryeh v. Canon 19 Business Solutions, Inc., 55 Cal. 4th 1185, 1192 (2013) (quoting Norgart v. Upjohn Co., 21 Cal. 20 4th 383, 397 (1999)). Because Khan offers no allegations that could establish tolling or excuse the 21 application of the relevant statutes of limitations, the Court concludes that amendment would be 22 futile. See Leadsinger, 512 F.3d at 532; Casaretto, 2011 WL 1576780, at *3 (“The Court 23 concludes that the proposed amendments to Plaintiffs’ . . . claim[s] are futile, as the claim[s] [are] 24 time-barred even if based on the new allegations.”). Accordingly, the Court GRANTS 25 Defendants’ motion to dismiss with prejudice. 26 IV. CONCLUSION 27 For the foregoing reasons, the Court DENIES Khan’s motion to remand and GRANTS 1 Plaintiff’s motion to dismiss with prejudice. 2 IT IS SO ORDERED. 3 Dated: September 3, 2020 4 ______________________________________ LUCY H. KOH 5 United States District Judge 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27