Richard Gale v. First Franklin Loan Services

FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
RICHARD S. GALE, 
Plaintiff-Appellant,
v.
No. 09-16498
FIRST FRANKLIN LOAN SERVICES,
subsidiary of First Franklin D.C. No.
2:08-cv-01615-
Financial Corporation; FIRST
FRANKLIN FINANCIAL CORPORATION;  RCJ-PAL
MORTGAGE ELECTRONIC ORDER AND
REGISTRATION SYSTEMS, INC.; CAL- AMENDED
WESTERN RECONVEYANCE OPINION
CORPORATION; LASALLE BANK
NATIONAL ASSOCIATION,
Defendants-Appellees.

Appeal from the United States District Court
for the District of Nevada
Robert Clive Jones, Chief District Judge, Presiding
Argued and Submitted
May 14, 2012—San Francisco, California
Filed July 12, 2012
Amended August 31, 2012
Before: Sidney R. Thomas, M. Margaret McKeown, and
William A. Fletcher, Circuit Judges.
Opinion by Judge McKeown
10351
GALE v. FIRST FRANKLIN LOAN SERVICES 10353
COUNSEL
Michael Rubin, Jennifer Sung, ALTSHULER BERZON LLP,
San Francisco, California, for the plaintiff-appellant.
Peter Dunkley, WOLFE & WYMAN LLP, Las Vegas,
Nevada, for defendants-appellees.
ORDER
The opinion filed on July 12, 2012, slip op. 8053, 2012 WL
2855811, is amended as follows:
At slip op. 8061, at the end of the first full paragraph; 2012
WL 2855811 at *4, at the end of the first full paragraph, insert
the following text:
Unable to rely squarely on § 1641, Gale leans upon another
section of the statute for support, § 1640(a). At the time
Gale’s action accrued, this subsection, in relevant part, read,
“any creditor who fails to comply with any requirement
imposed under [TILA Part B, including § 1641], . . . is liable”
for actual and statutory damages. Gale points out that the term
“creditor” refers only to an original creditor, not an assignee.
See 15 U.S.C. § 1602(f)(2) (“creditor” defined as “the person
to whom the debt arising from the consumer credit transaction
10354 GALE v. FIRST FRANKLIN LOAN SERVICES
is initially payable”). Therefore, in providing a cause of action
against “creditor[s],” § 1640(a) extends § 1641(f) assignee
liability to original creditors such as Franklin, as well as
assignees.
This argument proves too much. Each subsection of § 1641
limits liability on its face to assignees. Gale’s argument essen-
tially boils down to the claim that in one fell swoop,
§ 1640(a)’s reference to a “creditor” erases all of these limita-
tions, and broadens liability to original creditors—in § 1641
and throughout Part B of TILA. Subsection 1640(a) is far too
small a “mousehole[ ]” to hide an “elephant[ ]” of such pro-
portions. Whitman v. Am. Trucking Ass’n, 531 U.S. 457, 468
(2001).
Seeking to bolster his argument, Gale relies on the 2009
TILA amendments, in which Congress specified that the
§ 1640(a) cause of action extends to a creditor’s failure to sat-
isfy “any requirement imposed under . . . subsection (f) or (g)
of section 1641 of this title . . . .” Helping Families Save Their
Homes Act of 2009, Pub. L. No. 111-22, 123 Stat. 1632,
1658. Gale argues that this amendment would be superfluous
if an original creditor could be held liable under § 1641(f). At
the outset, Gale’s action accrued in 2008; he cannot rely on
amendments Congress made after his action accrued to bolster
his claim. In any case, the 2009 amendments betray Gale’s
position. In the 2009 amendments, along with the clause upon
which Gale relies, Congress added § 1641(g), which suggests
that the narrow definition of “creditor” in § 1602 is no longer
valid. Subsection (g) applies to a “creditor that is the new
owner or assignee of the debt.” (Emphases added). Given this
broader definition which includes assignees, it makes perfect
sense for Congress to refer in § 1640(a) to § 1641 provisions
whose effect is limited to assignees.
***
With the opinion as amended, the panel has voted to deny
the petition for rehearing and rehearing en banc. The full
GALE v. FIRST FRANKLIN LOAN SERVICES 10355
court has been advised of the petition for rehearing en banc
and no judge has requested a vote on whether to rehear the
matter en banc. Fed. R. App. P. 35.
The petition for panel rehearing and the petition for rehear-
ing en banc are DENIED. No further petitions for rehearing
may be filed.
OPINION
McKEOWN, Circuit Judge:
Failing to read and respond to letters may be impolite; how-
ever, “a breach of good manners” is not always “an invasion
of any legal right.” Spaulding v. Evenson, 149 F. 913, 920
(C.C.E.D. Wa. 1906). Richard Gale faults his lender, First
Franklin Loan Services (“Franklin”), for failing to respond to
his correspondence regarding ownership of his loan, and
alleges that this failure amounted to a violation of the Truth
in Lending Act (“TILA”), and Nevada’s covenant of good
faith and fair dealing. Because Franklin was not legally
required to respond in its capacity as loan servicer, we affirm
the district court’s dismissal of these claims. However, Gale
also alleges that after failing to respond to his letter, Franklin
and the other defendants engaged in illegal conduct by wrong-
fully foreclosing on his property. We remand these remaining
state law claims to the district court.
BACKGROUND
In November 2006, Gale refinanced his home mortgage
loan with Franklin, and signed a promissory note. Franklin
was both the creditor and servicer for the loan. A deed of trust
on Gale’s residence in Las Vegas secured the loan. The deed
designated Mortgage Electronic Registration Systems, Inc.
(“MERS”) as the trust beneficiary, “acting solely as a nomi-
nee for [Franklin] . . . . ,” and Service Link as the trustee.
10356 GALE v. FIRST FRANKLIN LOAN SERVICES
By June 2008, Gale had lost his job, defaulted on the loan,
and was facing financial difficulties. In a bid to renegotiate
his loan, he sent a letter to Franklin in June, explaining his
predicament, his resolve to pay the amount due, and suggest-
ing possible solutions. However, to ensure that he was court-
ing the right audience, he also asked that Franklin, “in
accordance with [TILA,] 15 U.S.C. § 1641(f)(2) . . . provide
the name and address of the true owner of the obligation or
holder [of his promissory note]; the original note and indicate
[First Franklin’s] relationship to this entity,” to protect him-
self from collection efforts by a third party. Gale received no
response to his initial letter, and wrote again in August 2008.
Franklin remained resolutely silent, no renegotiations took
place, and Gale continued to fall behind on his loan payments.
As it turned out, Gale’s loan was the subject of much activ-
ity. In August 2008, beneficiary MERS substituted defendant
Cal-Western in place of Service Link as trustee of Gale’s deed
of trust, and together with Cal-Western initiated non-judicial
foreclosure proceedings on Gale’s residence. Later that
month, MERS assigned “all beneficial interest” to “LaSalle
Bank as trustee for the First Franklin Mortgage Loan Trust.”
Finally, in November 2008, Cal-Western recorded a Notice of
Trustee’s Sale of Gale’s home.
Gale filed suit against all the actors involved—Franklin,
MERS, Cal-Western and LaSalle Bank—alleging violations
of TILA, seeking injunctive relief against foreclosure, and
claiming breach of contract, failure to act in good faith, and
wrongful foreclosure under Nevada law. The district court
dismissed Gale’s Nevada law claims with prejudice, but per-
mitted Gale to amend his Complaint as to TILA. Gale’s First
Amended Complaint set out his TILA claims more specifi-
cally, and claimed a breach of the covenant of good faith and
fair dealing. Gale also alleged that Cal-Western violated its
duty under the Real Estate Settlement Procedures Act
(“RESPA”), 12 U.S.C. § 2605, to respond to his qualified
GALE v. FIRST FRANKLIN LOAN SERVICES 10357
written request for information. The court dismissed the
amended complaint without leave to amend.1
ANALYSIS
Gale’s suit focuses on two alleged wrongs: Franklin’s fail-
ure to reply to his letter, and the foreclosure proceedings on
his home. His federal claims target only Franklin’s failure to
respond; his state claims target both the failure to respond and
the foreclosure.
I. Federal Claims
[1] In his initial letter to Franklin and again in his amended
complaint, Gale claims that Franklin violated TILA, 15
U.S.C. § 1641(f)(2), which provides in relevant part: “Upon
written request by the obligor, the servicer shall provide the
obligor, to the best knowledge of the servicer, with the name,
address, and telephone number of the owner of the obligation
or the master servicer of the obligation.” Gale’s argument is
simple: Franklin was his loan servicer, and under the plain
language of the statute, was obliged to respond to his inquiry.
Gale’s argument has surface appeal if we take a blindered
view of the statute and read the language he highlights in iso-
lation. However, “we start with the premise that ‘the words of
a statute must be read in their context and with a view to their
place in the overall statutory scheme.’ ” Am. Bankers Ass’n v.
Gould, 412 F.3d 1081, 1086 (9th Cir. 2005) (quoting Food &
Drug Admin. v. Brown & Williamson Tobacco Corp., 529
U.S. 120, 133 (2000)). Our goal is to “understand the statute
‘as a symmetrical and coherent regulatory scheme’ and to ‘fit,
if possible, all parts into a . . . harmonious whole.’ ” Id. (quot-
ing Brown & Williamson, 529 U.S. at 133). Gale places
1
Although the order did not specify whether the court was granting dis-
missal, summary judgment, or both, the final judgment reflects that the
district court granted “Defendants’ Motion to Dismiss.”
10358 GALE v. FIRST FRANKLIN LOAN SERVICES
emphasis on the final sentence of § 1641(f)(2), but the context
of the sentence within subsection (f), and within § 1641 as a
whole, indicates that liability for failing to respond attaches
only to those servicers who are also assignees of the loan.
Because Franklin was not an assignee of the loan, but rather
the original creditor, Gale’s claim fails.
[2] Consistent with basic principles of statutory interpreta-
tion, we step back to examine § 1641 as a whole before focus-
ing on paragraph (f)(2). Section 1641 does not address the
liability of creditors in general; rather each of § 1641’s sub-
sections address entities who are purchasers or assignees of
mortgages. See, e.g., § 1641(a) (A “civil action for a violation
. . . may be maintained against any assignee . . . only if the
violation . . . is apparent on the face of the disclosure state-
ment, except where the assignment was involuntary.”);
§ 1641(b) (concerning statutory compliance by a “subsequent
assignee of the original creditor”); § 1641(c) (“Any consumer
who has the right to rescind a transaction . . . may rescind the
transaction as against any assignee of the obligation.”);
§ 1641(d)(1) (“Any person who purchases or is otherwise
assigned a mortgage . . . shall be subject to all claims and
defenses with respect to that mortgage.”). Subsection (f), the
final subsection of § 1641 at the time Gale’s action accrued,
is no exception.2 Although it concerns servicers in particular,
these servicers, like the other entities regulated by § 1641, are
also assignees:
(f) Treatment of servicer
2
In 2009, Congress added subsection (g), which continues the pattern,
and requires that “not later than 30 days after the date on which a mort-
gage loan is sold or otherwise transferred or assigned to a third party, the
creditor that is the new owner or assignee of the debt shall notify the bor-
rower in writing of such transfer . . . .” The Helping Families Save Their
Homes Act of 2009, Pub. L. No. 111-22, § 404(g), 123 Stat. 1632, 1658
(2009).
GALE v. FIRST FRANKLIN LOAN SERVICES 10359
(1) In general
A servicer of a consumer obligation arising from a
consumer credit transaction shall not be treated as an
assignee of such obligation for purposes of this sec-
tion unless the servicer is or was the owner of the
obligation.
(2) Servicer not treated as owner on basis of assign-
ment for administrative convenience
A servicer of a consumer obligation arising from a
consumer credit transaction shall not be treated as
the owner of the obligation for purposes of this sec-
tion on the basis of an assignment of the obligation
from the creditor or another assignee to the servicer
solely for the administrative convenience of the ser-
vicer in servicing the obligation. Upon written
request by the obligor, the servicer shall provide the
obligor, to the best knowledge of the servicer, with
the name, address, and telephone number of the
owner of the obligation or the master servicer of the
obligation.
Subsection (f), in keeping with the theme of § 1641 as a
whole, and the other subsections of § 1641, addresses only the
assignee liability of a servicer, and sets out a general rule that
a servicer must be the assignee-owner of the obligation to
incur assignee liability. As the House Report for the TILA
amendments that added subsection (f) explained, “A number
of recent consumer lawsuits against mortgage loan servicers
have claimed the servicer is an assignee of the creditor who
made the loan and is therefore liable . . . . This provision clari-
fies that the loan servicer (the entity collecting payments from
the consumer and otherwise administering the loan) is not an
‘assignee’ under the TILA unless the servicer is the owner of
the loan obligation.” H. R. Rep. No. 104-193, at 99 (1995).
10360 GALE v. FIRST FRANKLIN LOAN SERVICES
However, Congress did not intend that all servicers who
owned loans would be liable as assignees. Paragraph (f)(2)
carves out an exception to the general rule of paragraph (f)(1),
so that servicers who are merely nominal assignees (that is,
when a servicer is assigned ownership of the loan solely for
“administrative convenience”) would not be liable on the
same basis as actual owners of the loan. The paragraph ends
with the sentence that is the basis of Gale’s claim, which
places on “the servicer” the duty to respond to correspon-
dence from the consumer.
Read in this context, our analysis of this last sentence is
straightforward. As a logical matter, it would be anomalous
for Congress to randomly impose a duty on servicers in gen-
eral in a section otherwise completely devoted to describing
the duties of assignees, and more critically, in a subsection
that pertains only to servicer-assignees.
Close scrutiny of paragraph f(2) supports the same reading.
The paragraph begins by addressing the duties of “[a] servicer
of a consumer obligation.” The next sentence, on which Gale
states his claim, imposes a duty to respond not upon “a” ser-
vicer, or “any” servicer, but rather, states that “the servicer
shall provide the obligor, to the best knowledge of the ser-
vicer, with the name, address, and telephone number of the
owner.” (Emphasis added.) “In construing [a] statute, [the]
definite article ‘the’ particularizes the subject which it pre-
cedes and is [a] word of limitation as opposed to [the] indefi-
nite or generalizing force [of] ‘a’ or ‘an.’ ” Onink v.
Cardelucci (In re Cardelucci), 285 F.3d 1231, 1234 (9th Cir.
2002) (quoting Black’s Law Dictionary 1477 (6th ed. 1990)).
The use of the definite article in referring to the servicer only
makes sense by reference to the preceding sentence of para-
graph (f)(2), which relates to “[a] servicer of a consumer obli-
gation” who is a nominal owner “on the basis of an
assignment of the obligation” for “administrative conve-
nience.” (Emphases added.) Such a servicer escapes liability
because it is only a nominal owner of the note, but must still
GALE v. FIRST FRANKLIN LOAN SERVICES 10361
respond to an obligor seeking information as to the true owner
of the note.
[3] In short, reading the statute as a whole and with respect
to the subsection at issue brings us to the same conclusion: the
duty to provide notice under § 1641(f)(2) applies only to a
servicer-assignee, which in this case does not include Frank-
lin.
Unable to rely squarely on § 1641, Gale leans upon another
section of the statute for support, § 1640(a). At the time
Gale’s action accrued, this subsection, in relevant part, read,
“any creditor who fails to comply with any requirement
imposed under [TILA Part B, including § 1641], . . . is liable”
for actual and statutory damages. Gale points out that the term
“creditor” refers only to an original creditor, not an assignee.
See 15 U.S.C. § 1602(f)(2) (“creditor” defined as “the person
to whom the debt arising from the consumer credit transaction
is initially payable”). Therefore, in providing a cause of action
against “creditor[s],” § 1640(a) extends § 1641(f) assignee
liability to original creditors such as Franklin, as well as
assignees.
This argument proves too much. Each subsection of § 1641
limits liability on its face to assignees. Gale’s argument essen-
tially boils down to the claim that in one fell swoop,
§ 1640(a)’s reference to a “creditor” erases all of these limita-
tions, and broadens liability to original creditors—in § 1641
and throughout Part B of TILA. Subsection 1640(a) is far too
small a “mousehole[ ]” to hide an “elephant[ ]” of such pro-
portions. Whitman v. Am. Trucking Ass’n, 531 U.S. 457, 468
(2001).
Seeking to bolster his argument, Gale relies on the 2009
TILA amendments, in which Congress specified that the
§ 1640(a) cause of action extends to a creditor’s failure to sat-
isfy “any requirement imposed under . . . subsection (f) or (g)
of section 1641 of this title . . . .” Helping Families Save Their
10362 GALE v. FIRST FRANKLIN LOAN SERVICES
Homes Act of 2009, Pub. L. No. 111-22, 123 Stat. 1632,
1658. Gale argues that this amendment would be superfluous
if an original creditor could be held liable under § 1641(f). At
the outset, Gale’s action accrued in 2008; he cannot rely on
amendments Congress made after his action accrued to bolster
his claim. In any case, the 2009 amendments betray Gale’s
position. In the 2009 amendments, along with the clause upon
which Gale relies, Congress added § 1641(g), which suggests
that the narrow definition of “creditor” in § 1602 is no longer
valid. Subsection (g) applies to a “creditor that is the new
owner or assignee of the debt.” (Emphases added). Given this
broader definition which includes assignees, it makes perfect
sense for Congress to refer in § 1640(a) to § 1641 provisions
whose effect is limited to assignees.
Gale argues for the first time on appeal that Franklin vio-
lated RESPA. Although pro se plaintiffs “need not plead spe-
cific legal theories in the complaint,” we require that “the
other side receive[ ] notice as to what is at issue in the case”
against it. Sagana v. Tenorio, 384 F.3d 731, 736-37 (9th Cir.
2004) (internal quotation marks and citation omitted). Gale
did not merely fail to plead a RESPA claim against Franklin,
but advanced a RESPA claim against a different defendant,
Cal-Western. We therefore decline to consider the RESPA
claim. See In re Am. W. Airlines, Inc., 217 F.3d 1161, 1165
(9th Cir. 2000).
[4] We are not unsympathetic to the frustration that
resulted from Franklin’s failure to respond to Gale’s inquiry
regarding his home. The servicer is often the only entity that
the consumer is in contact with after the loan issues—unless
the servicer is forthcoming, the homeowner may not know
with whom to negotiate to stave off foreclosure and loss of his
abode. Although Congress recognized the importance of such
information after Gale’s claim accrued, see Dodd-Frank Wall
Street Reform and Consumer Protection Act, Pub. L. No. 111-
203, § 1463, 124 Stat. 1376, 2182 (2010) (amending RESPA
to require all servicers to respond to requests for information),
GALE v. FIRST FRANKLIN LOAN SERVICES 10363
Gale cannot claim liability under this provision and we affirm
dismissal of his claims arising from Franklin’s failure to
respond.
II. Nevada State Law Claims
Gale also advances numerous state law claims. The first
claim again arises out of Franklin’s failure to respond, which,
Gale alleges, violated the covenant of good faith and fair deal-
ing. The remaining claims arise out of the actual foreclosure
action against Gale. Gale argues that MERS and LaSalle
wrongfully began foreclosure proceedings, and Cal-Western
breached its duty to act in good faith and its fiduciary duties
in proceeding with the foreclosure. The district court dis-
missed these claims.
[5] To state a claim for breach of the covenant of good
faith and fair dealing under Nevada law, Gale must show that
Franklin acted in an “arbitrary or unfair” way “to the disad-
vantage of the” plaintiff. Nelson v. Heer, 163 P.3d 420, 426-
27 (Nev. 2007). Failing to respond to correspondence in this
context hardly qualifies as “arbitrary or unfair.” The rule Gale
proposes would require contracting parties to respond to cor-
respondence on the pain of legal penalty. In the absence of an
express contractual provision to the contrary, we cannot hold
Franklin to such a standard.
Gale points us to Mitchell v. Bailey & Selover, Inc., which
involved a contract for transportation and storage of property
that gave the bailee “the right to sell [a customer’s] property
if, in the company’s opinion, such action was necessary to
protect its accrued charges.” 605 P.2d 1138, 1139 (Nev.
1980). Although Mitchell contacted the bailee and provided
evidence that she was owed social security payments that
would allow her to pay the debt, the bailee sold her property
nonetheless. Because the bailee “knew that [Mitchell’s]
inability to pay her debt might soon be remedied, and in fact
was remedied,” an issue of fact remained as to whether it
10364 GALE v. FIRST FRANKLIN LOAN SERVICES
could have, as provided by the contract, formed an “opinion”
“that a sale . . . was necessary to protect its accrued charges.”
Id. Without a good faith belief that a sale was necessary, the
bailee could not sell the property.
[6] By contrast, under Gale’s contract, default automati-
cally provides the right of foreclosure, whether or not the
holder of the note and mortgage believes that the default
might be remedied. The holder need form no opinion, in good
faith or otherwise, as to whether its investment is safe, before
it may proceed. Mitchell is therefore inapplicable, and we
affirm the district court’s dismissal of this claim.
[7] Before the district court, Gale invoked Nev. Rev. Stat.
§ 104. That section does not pertain to non-judicial foreclo-
sures, although Gale also claimed inadequacy in the actual
foreclosure process, including lack of ownership of the note.
With the benefit of appointed counsel, Gale’s wrongful fore-
closure and related breach of fiduciary duty claims have been
refined on appeal. The district court did not have the opportu-
nity to consider Nevada case law and statutory provisions that
Gale now uses to bolster the claims advanced below. None-
theless, at this stage, Gale has no remaining federal claims.
We therefore vacate the district court’s dismissal of these
claims, so that the district court may consider Gale’s argu-
ment in the first instance, or exercise its discretion to remand
these claims to state court.
AFFIRMED IN PART, VACATED IN PART, and
REMANDED. Each party shall bear its own costs on appeal.