United States District Court, D. Arizona
Donald L. Warring, et al., Plaintiffs,
Green Tree Servicing LLC, et al., Defendants.
DAVID G. CAMPBELL, District Judge.
Defendant E*Trade Financial Corporate Services, Inc. has filed a motion to dismiss pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure. Doc. 4. The motion is fully briefed. The Court will grant in part and deny in part the motion for the reasons set forth below.
Plaintiffs Donald L. Warring and Suzanne Warring obtained a loan for $471, 200 from Countrywide Bank in June 2006 (the "first mortgage"). Doc. 4-1 at 2. The first mortgage was secured by a deed of trust encumbering the real property located at 2113 Quartz St., Mesa, Arizona 85213. Id. The first mortgage was eventually assigned to Defendant. Id. Also in June 2006, Plaintiffs obtained a second loan in the amount of $58, 900 from Countrywide Home Loans (the "second mortgage"). Id. at 3. The second mortgage was refinanced in December 2006 with a balance of $105, 000. The second mortgage was also secured by a deed of trust encumbering the Quarz St. property and was ultimately assigned to former defendant, Green Tree Servicing LLC ("Green Tree"). Id.
In May 2012, Plaintiffs received approval from both Defendant and Green Tree to sell the Quartz St. property for $339, 900, which was substantially less than the amounts owed under the first and second mortgages. Id. As part of the agreement, Defendant received $311, 499 from Plaintiffs in satisfaction of the first mortgage. Plaintiffs take issue with the manner in which Defendant has subsequently reported the first mortgage to credit reporting agencies. Specifically, Plaintiffs have asked Defendant to stop reporting the account as "90 Days Past Due" and to remove the phrases "Account paid for less than the full balance" and "Account paid after foreclosure started." Doc. 15 at 5. Plaintiffs commenced this action on December 16, 2013, alleging claims for violation of the Fair Credit Reporting Act, 15 U.S.C. § 1681 et seq. ("FCRA"), and breach of contract, and seeking a declaratory judgment that Defendant is currently reporting inaccurate information on their credit report. See Doc. 1-1.
II. Legal Standard.
When analyzing a complaint for failure to state a claim to relief under Rule 12(b)(6), the well-pled factual allegations are taken as true and construed in the light most favorable to the nonmoving party. Cousins v. Lockyer, 568 F.3d 1063, 1067 (9th Cir. 2009). Legal conclusions couched as factual allegations are not entitled to the assumption of truth, Ashcroft v. Iqbal, 556 U.S. 662, 680 (2009), and therefore are insufficient to defeat a motion to dismiss for failure to state a claim, In re Cutera Sec. Litig., 610 F.3d 1103, 1108 (9th Cir. 2010). To avoid a Rule 12(b)(6) dismissal, the complaint must plead enough facts to state a claim to relief that is plausible on its face. Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). This plausibility standard "is not akin to a probability requirement, ' but it asks for more than a sheer possibility that a defendant has acted unlawfully." Iqbal, 556 U.S. at 678 (quoting Twombly, 550 U.S. at 556). "[W]here the well-pleaded facts do not permit the court to infer more than the mere possibility of misconduct, the complaint has alleged - but it has not show[n]' - that the pleader is entitled to relief.'" Id. at 679 (quoting Fed.R.Civ.P. 8(a)(2)).
A. FCRA Claim.
As an initial matter, Defendant argues that Plaintiffs' complaint relies on two irrelevant Arizona statutes. Doc. 4-1 at 6-7. Plaintiffs' complaint alleges that "[i]t is not accurate for a lender... to report any derogatory information to Credit Reporting Agencies, in the event of default by the borrower... of a non-recourse loan." Doc. 1-1, ¶ 34 (emphasis in original). Plaintiffs allege that the first mortgage "is a non-recourse loan, pursuant to A.R.S. §§ 33-814(g) and 33-729." Id., ¶ 21. Defendant argues that its responsibilities are the same whether a loan is recourse or non-recourse, and that Plaintiffs' cited statutes are not applicable. Doc. 4-1 at 6. A.R.S. § 33-814(G) states that if a trust property is sold pursuant to the trustee's power of sale, "no action may be maintained to recover any difference between the amount obtained by sale and the amount of the indebtedness[.]" Section 33-729 states that in the case of a purchase money mortgage:
[T]he lien of judgment in an action to foreclose such mortgage shall not extend to any other property of the judgment debtor, nor may general execution be issued against the judgment debtor to enforce such judgment, and if the proceeds of the mortgaged real property sold under special execution are insufficient to satisfy the judgment, the judgment may not otherwise be satisfied out of the other property of the judgment debtor[.]
These statutes are not applicable here. Plaintiffs do not allege that their property was sold pursuant to a trustee's power of sale or that Defendant initiated any action to foreclose on the first mortgage. The Court will grant the motion to dismiss to the extent Plaintiffs' claims rely on these statutes.
Plaintiffs' reliance on these Arizona statutes, however, does not necessarily provide a basis to dismiss Plaintiffs' claim under § 1681s-2(b). That claim depends on whether Plaintiffs have successfully alleged that Defendant reported inaccurate or incomplete information to credit reporting agencies. Defendant argues that Plaintiffs have not stated a claim under § 1681s-2(b) because they have not alleged that any information reported by Defendant was inaccurate per se. Doc. 4-1 at 5. Defendant contends that the short sale agreement between it and Plaintiffs "did not address how [Defendant] would report the E*Trade Loan to consumer reporting agencies, " and that it was "otherwise accurate and proper for [Defendant] to report the loan as it did." Id. at 6. Plaintiffs allege that Defendant "knowingly and intentionally failed to note that the [Plaintiffs] dispute [Defendant's] inaccurate report[.]" Doc. 1-1, ¶ 50. Plaintiffs argue that because Defendant has failed to report their account as disputed, Defendant has reported inaccurate and incomplete information to credit reporting agencies. Doc. 15 at 7. Plaintiffs find support in Gorman v. Wolpoff & Abramson, LLP, 584 F.3d 1147 (9th Cir. 2009), where the Ninth Circuit held that "[a] disputed credit file that lacks a notation of a dispute may well be incomplete or inaccurate' within the meaning of the FCRA, and the furnisher has a privately enforceable obligation to correct the information after notice." Id. at 1164.
Gorman also noted that "a furnisher does not report incomplete or inaccurate' information within the meaning of § 1681s-2(b) simply by failing to report a meritless dispute[.]" Id. at 1163. Defendant contends that Plaintiffs' dispute is meritless because the information reported by Defendant is accurate, and Gorman accordingly does not salvage Plaintiffs' claim. Doc. 4-1 at 5-7. Plaintiffs respond that Defendant is reporting the first mortgage as "currently 90 days past due, " which they contend is ...