Gustin v. PHH Mortgage Corporation

Background

Brandon Lee Gustin sued PHH Mortgage Corporation, which the opinion identifies as the servicer of his loan. Gustin and his wife signed a $338,000 promissory note with IndyMac Bank in 2006 for residential property located at 11 Benita Way in Martinez, California. An assignment of the deed of trust to Deutsche Bank National Trust Company was recorded in Contra Costa County in 2011. Gustin alleged that he fell behind on mortgage payments during the coronavirus pandemic and that the property was wrongfully foreclosed and sold.

Gustin’s complaint challenged the loan assignment under Uniform Commercial Code sections 7-501(a), 9-514(c), 3-305(3), and 3-420. It also asserted claims for wrongful foreclosure and a declaration quieting title to the property. After Gustin did not timely oppose PHH’s motion to dismiss, the court ordered him to explain why the case should not be dismissed for failure to prosecute. Gustin responded and later sought an order temporarily blocking enforcement of a state-court unlawful-detainer order. The court denied that request because it lacked jurisdiction to review or invalidate the state-court order.

Legal standard

Under Federal Rule of Civil Procedure 12(b)(6), a court may dismiss a complaint that does not state a legally recognized claim supported by enough facts to make relief plausible. At this stage, the court accepts well-pleaded factual allegations as true and views them in the plaintiff’s favor, but it does not accept conclusory allegations or unreasonable inferences.

Court’s analysis

The court dismissed Gustin’s Uniform Commercial Code claims with prejudice. It held that the Uniform Commercial Code does not apply to nonjudicial foreclosure proceedings and does not provide a private right of action for these claims. The court also noted that Gustin lacked standing under New York law to challenge an allegedly defective assignment because such an assignment would be voidable by the trust beneficiary rather than void as a matter of law and challengeable by a borrower.

The court dismissed the wrongful-foreclosure claim without prejudice. Under California law, such a claim requires an illegal, fraudulent, or willfully oppressive foreclosure sale, harm to the person challenging the sale, and payment of the secured debt or a valid excuse for not paying it. The court found that Gustin’s theory—that PHH had to produce evidence of a proper assignment or the original signed note before foreclosing—was not legally sufficient. It also found that Gustin had not plausibly alleged that he paid the debt or was exempt from doing so.

The court dismissed the quiet-title claim with prejudice. Because the property had already been foreclosed upon and sold, the court held that quiet title was unavailable under the circumstances. The court further held that Gustin had not plausibly alleged payment of the debt, which California law requires for this type of claim.

Disposition

The court granted PHH’s motion to dismiss. It dismissed Counts I, II, and III, the Uniform Commercial Code claims, and the quiet-title claim with prejudice, stating that those claims could not be amended. It dismissed Count IV, the wrongful-foreclosure claim, without prejudice and allowed Gustin to file an amended complaint within 35 days of the order, by December 24, 2024. The court also directed that any amended complaint identify how each new defendant allegedly violated Gustin’s legal rights. Judge Haywood S. Gilliam, Jr. signed the order.