Khan v. Specialized Loan Servicing LLC

Background

Richard A. Khan, representing himself, sued Specialized Loan Servicing LLC (SLS) and Prestige Default Service. Khan alleged that an unknown person fraudulently forged a second deed of trust on his Morgan Hill, California house in approximately 2005. He alleged that he discovered the fraud between 2007 and 2008. SLS began sending him loan statements in 2014. Prestige became the trustee on the deed in 2018, recorded a notice of default, and a trustee’s sale was scheduled.

Khan filed the lawsuit in Santa Clara County Superior Court on March 25, 2020. His complaint asserted claims for fraud, fraudulent concealment, declaratory relief, quiet title, slander of title, cancellation of instruments, and unfair business practices. SLS removed the case to federal court. Khan moved to remand, meaning he asked the federal court to return the case to state court. The defendants moved to dismiss the complaint.

Motion to Remand

Khan argued that federal diversity jurisdiction was absent because both he and Prestige were California citizens. The court adopted the magistrate judge’s recommendation and denied the motion to remand. It concluded that Prestige was a nominal party whose citizenship could be disregarded for diversity purposes. Prestige had filed a declaration of non-monetary status under California law, and Khan had not objected to that declaration within the required period. The court also rejected Khan’s argument that his self-represented status excused his failure to object.

Motion to Dismiss

The defendants’ motion was brought under Federal Rule of Civil Procedure 12(b)(6), which allows dismissal when a complaint does not state a legally sufficient claim. The court held that Khan’s claims were barred by California statutes of limitations. It determined that fraud and fraudulent inducement claims generally had a three-year limitations period and that the other claims were subject to a four-year period.

The court relied on Khan’s own allegation that he discovered the fraud between 2007 and 2008. Even accepting his argument that he initially believed the deed was a clerical error, the court found that SLS’s loan statements in 2014 gave him notice, or reason to know, that an outstanding loan was being asserted against his house. The court therefore concluded that the limitations periods had expired by 2018 at the latest, while Khan did not file suit until March 25, 2020.

The court also rejected Khan’s argument that statutes of limitations do not apply when a deed or other instrument is allegedly void. Applying California law, the court held that claims based on an allegedly void instrument are still subject to a statute of limitations.

Leave to Amend and Disposition

Khan requested permission to amend his complaint to add defendants and allegations that he did not sign the loan documents. The court concluded that those amendments would be futile because they would not change the statute-of-limitations problem. The court therefore granted the defendants’ motion to dismiss with prejudice. It also denied Khan’s motion to remand.

The opinion’s final paragraph appears to contain a clerical error: it says the court “GRANTS Plaintiff’s motion to dismiss with prejudice,” even though the order’s heading, discussion, and preceding sentence consistently state that the court granted the defendants’ motion to dismiss with prejudice. Judge Lucy H. Koh signed the order.