Case 1:10-cv-00010-GBL-TCB Document 41 Filed 08/03/10 Page 1 of 24 IN THE UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF VIRGINIA ALEXANDRIA DIVISION Joseph Schafer and Maureen ) Schafer, ) ) Plaintiffs, ) ) V. ) Case No. 1:10-CV-lO (GBL) ) Citibank, N.A. as Trustee for ) the Certificateholders of ) Structured Asset Mortgage ) Investments II, Inc., ) Bear Steams Alt-A Trust ) Mortgage Pass-Through ) Certificate Series ) 2006-5, et al., ) ) Defendants. ) MEMORANDUM ORDER THIS MATTER is before the Court on: 1. Defendants Citibank, as Trustee for the Certificateholders of Structured Asset Mortgage Investments II, Inc., Bear Steams Alt-A Trust, Mortgage Pass-Through Certificate Series 2006-5 ("Citibank"); Bear Steams Alt-A Trust 2006-5 ("Bear Steams Trust"); EMC Mortgage Corporation ("EMC"); MERSCORP, Inc. ("MERSCORP"); and Mortgage Electronic Registration Systems, Inc.'s ("MERS") (collectively, "Citibank Defendants") Motion to Dismiss the First Amended Complaint (Dkt. No. 19);x 1 Plaintiffs incorrectly name several Defendants in the Amended Complaint. Plaintiffs name Citibank, N.A., as Trustee for Bear Stearns Alt-A Trust 2006-5 which is actually Citibank, N.A., as Trustee for the Certificateholders of Structured Asset Mortgage Investments II, Inc., Bear Stearns Alt-A Trust, Mortgage Pass-Through Certificate Series 2006-5. Plaintiffs also refer to MERS1 and MERS2, which are actually MERSCORP, Inc., and Mortgage Electronic Registrations Systems, Inc., respectively.
Case 1:10-cv-00010-GBL-TCB Document 41 Filed 08/03/10 Page 2 of 24 2. Defendant Commonwealth Trustees, LLC's ("Commonwealth") Motion to Dismiss the First Amended Complaint (Dkt. No. 26); 3. Defendant First Guaranty Mortgage Corporation and David A. Neal's Motion to Dismiss the First Amended Complaint (Dkt. No. 29); and 4. Plaintiffs' Motion to Dismiss Defendant First Guaranty Mortgage Corporation ("FGMC") (Dkt. No, 40).2 This case concerns Plaintiffs' allegations that Defendants improperly instituted a non-judicial foreclosure proceeding on their home. There are eight issues before the Court. The first issue is whether Plaintiffs sufficiently allege a claim for declaratory relief where the foreclosure sale has already occurred but they now ask the Court to declare that (1) the foreclosure on the property is void and (2) that none of the Defendants have any right, title, or interest in the First Promissory Note. The second issue is whether Plaintiffs sufficiently allege a similar claim for declaratory relief as to the Second Promissory Note. The third issue is whether Plaintiffs sufficiently assert a breach of fiduciary duty claim against Commonwealth where Plaintiffs allege that Commonwealth 2 The Court grants Plaintiffs' Motion to Dismiss Defendant FGMC. Consequently, FGMC's Motion to Dismiss is denied as moot. Furthermore, the Court grants Mr. David Neal's Motion to Dismiss because the Amended Complaint fails to allege any wrongdoing on the part of Mr. Neal and none of the counts are asserted against him. Thus, further references made to the Motions to Dismiss are as to the two remaining motions brought by the Citibank Defendants and Defendant Commonwealth.
Case 1:10-cv-00010-GBL-TCB Document 41 Filed 08/03/10 Page 3 of 24 failed to remain impartial during the foreclosure proceedings. The fourth issue is whether Plaintiffs state a plausible claim for quiet title. The fifth issue is whether Plaintiffs sufficiently allege a claim for declaratory relief where the Plaintiffs assert that the Promissory Notes and Deeds of Trust are void as against Virginia's public policy prohibiting illegal gambling. The sixth issue is whether Plaintiffs sufficiently allege a similar claim for declaratory relief where Plaintiffs assert that Defendants acted as accessories to an illegal gambling operation. The seventh issue is whether Plaintiffs sufficiently allege a claim for declaratory relief where Plaintiffs assert that they were unknowingly enticed to participate in a pyramid promotional scheme. The eighth issue is whether Plaintiffs sufficiently state a claim against EMC and Commonwealth under the Fair Debt Collection Practices Act ("FDCPA"), 15 U.S.C. 1692-1692O (2010). The Court grants Defendants' Motions to Dismiss as to all counts. The Court grants the Citibank Defendants' Motion to Dismiss as to Counts I and II (Declaratory Action on the First & Second Trust Note) because declaratory relief is not available where the alleged wrongs have already been suffered. The Court grants Commonwealth's Motion to Dismiss as to Count III (Breach of Fiduciary Duty) because Plaintiffs fail to show that Commonwealth lacked authority to enforce the Deed of Trust. The
Case 1:10-cv-00010-GBL-TCB Document 41 Filed 08/03/10 Page 4 of 24 Court grants the Citibank Defendants and Commonwealth's Motions to Dismiss as to Count IV (Quiet Title) because Plaintiffs fail to allege sufficient facts to suggest that they possess superior title. The Court grants the Citibank Defendants' Motion to Dismiss as to Counts V and VI (Declaratory Action on Illegal Gambling and Illegal Gambling Accessories) because Virginia does not recognize a private right of action for violations of the criminal gambling statute. The Court grants the Citibank Defendants' Motion to Dismiss as to Count VII (Declaratory Action on Pyramid Scheme) because Plaintiffs do not plead the elements necessary to prove a violation of Virginia's antipyramid scheme statute. The Court grants the Citibank Defendants and Commonwealth's Motions to Dismiss as to Count VIII (Violation of the FDCPA) because Plaintiffs fail to show that Commonwealth provided misleading information regarding their loan. 1^ BACKGROUND This action arises from a residential mortgage foreclosure. On May 31, 2006, Plaintiffs Joseph and Maureen Schafer purchased real property located at 93 05 Elkhorne Run Court, Lorton, Virginia 22030 (the "Property"). (Am. Compl. %% 1, 12.) They signed two deeds of trust and two promissory notes in the amounts of $1,217,750.00 ("First Note") and $324,700.00 ("Second Note") (collectively, "Notes"), respectively, each naming FGMC
Case 1:10-cv-00010-GBL-TCB Document 41 Filed 08/03/10 Page 5 of 24 as lender, Mr. David Neal as trustee, and MERS as the beneficiary.3 (Am. Compl. 111 4, 12-14.) According to Plaintiffs, the Notes were placed in a loan trust by FGMC, Citibank, and MERS and were added to a securitized mortgage pool operated by Bear Steams Trust. (Am. Compl. K 20.) Citibank was trustee for Bear Steams Trust and serviced the Notes on the Property. (Am. Compl. UU 4, 47.) Further, Plaintiffs allege that Defendants purchased and issued several insurance and credit enhancement policies against the Notes in the pool and allowed others to do so as well even if they had no interest in the Notes, loans, or Property. (Am. Compl. 1111 21, 28.) In 2009, Plaintiffs began receiving demands for payment on the First Note and threats of foreclosure from EMC and Commonwealth. (Am. Compl. U 46.) On May 13, 2009, Citibank notified Plaintiffs that their home would be foreclosed on November 3, 2009. Following this notice, on April 19, 2009, Plaintiffs sent out a "Qualified Written Request" ("QWR") pursuant to section six of the Real Estate Settlement Procedures Act to determine the owner of the First Note. (Am. Compl. H 68.) On July 3, 2009, EMC responded to the QWR by providing copies of 3 The Deeds of Trust indicate that MERS is also the "nominee for Lender and Lender's successors and assigns." (First Deed of Trust 2, 4; Second Deed of Trust 1.)
Case 1:10-cv-00010-GBL-TCB Document 41 Filed 08/03/10 Page 6 of 24 the Deeds of Trust, Notes, and the payment history of Plaintiffs' accounts. (Am. Compl. f 68.) On September 11, 2009, Citibank and Bear Steams Trust filed a Deed of Appointment of Substitute Trustee through Citibank's counsel, EMC, naming Commonwealth as the substitute trustee under the first Deed of Trust. (Am. Compl. 1H 57-58.) The Substitute Trustee Deed states that EMC is the attorney in fact for Citibank, that Citibank is authorized to serve as trustee to Bear Stearns Trust, that Citibank's authority as trustee grants it the power to appoint substitute trustees and that Bear Stearns Trust has the authority enforce the provisions of the Deed of Trust. (Am. Compl. 11 62.) On November 3, 2 009, the scheduled foreclosure sale took place and the Property was sold. (Am. Compl. H 76.) On November 2, 2009, one day before the scheduled foreclosure, Plaintiffs filed their original complaint with the Circuit Court for Fairfax County alleging: (1) an entitlement to a judgment declaring the foreclosure unlawful; (2) Commonwealth breached its fiduciary duty during the foreclosure process; (3) that title to the Property is vested in Plaintiffs alone; (4) an entitlement to an injunction staying the foreclosure of Plaintiffs' home; (5) an entitlement to a judgment declaring the mortgage contract void as against Virginia's law prohibiting illegal gambling; (6) an entitlement
Case 1:10-cv-00010-GBL-TCB Document 41 Filed 08/03/10 Page 7 of 24 to a judgment declaring the mortgage contract void as against Virginia's law prohibiting pyramid promotional schemes; (7) Commonwealth and EMC fraudulently misrepresented their authority to conduct the foreclosure; and (8) Commonwealth and EMC violated the FDCPA during the foreclosure process. On January 5, 2010, Defendants filed a Notice of Removal pursuant to 2 8 U.S.C. 1441 and removed the case to this Court. (Dkt. No. 1.) Subsequently, on February 19, 2010, Plaintiffs filed an Amended Complaint which includes the following counts: Count I (Declaratory Action on the First Trust Note) against Defendants Bear Steams Trust, Citibank, First Guaranty Mortgage Corporation, MERS, and EMC; Count II (Declaratory Action on the Second Trust Note) against Defendants Bear Steams Trust, Citibank, First Guaranty Mortgage Corporation, and MERS; Count III (Breach of Fiduciary Duty) against Defendant Commonwe a11 h; Count IV (Quiet Title) against any competing interest; Count V (Declaratory Action on Illegal Gambling) against Defendants Bear Steams Trust and Citibank; Count VI (Declaratory Action on Illegal Gambling Accessories) against Defendants Bear Steams Trust, Citibank, and MERS; Count VII (Declaratory Action on Pyramid Scheme) against Defendants Bear Steams Trust, Citibank, and MERS; and Count VIII (Violation of the FDCPA) against Defendants EMC and Commonwealth.
Case 1:10-cv-00010-GBL-TCB Document 41 Filed 08/03/10 Page 8 of 24 Defendants now move the Court to dismiss the Amended Complaint in its entirety. II. STANDARD OF REVIEW A Federal Rule of Civil Procedure 12(b)(6) motion should be granted unless an adequately stated claim is "supported by showing any set of facts consistent with the allegations in the complaint." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 561 (2007) (internal citations omitted); see Fed. R. Civ. P. 12(b)(6). "A pleading that offers labels and conclusions or a formulaic recitation of the elements of a cause of action will not do." Aahcroft v. Iqbal, 129 S. Ct. 1937, 1949 (2009); Twombly, 550 U.S. at 555. A complaint is also insufficient if it relies upon "naked assertions devoid of further factual enhancement." Iqbal, 129 S. Ct. at 1949 (internal citations omitted). To survive a Rule 12(b)(6) motion to dismiss, a complaint must set forth "a claim for relief that is plausible on its face." Id.; Twombly, 550 U.S. at 570. A claim is facially plausible "when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Iqbal, 129 S. Ct. at 1949; Twombly, 550 U.S. at 556. In considering a Rule 12(b)(6) motion, the Court must construe the complaint in the light most favorable to the plaintiff, read the complaint as a whole, and take the facts 8
Case 1:10-cv-00010-GBL-TCB Document 41 Filed 08/03/10 Page 9 of 24 asserted therein as true. Mylan Lab., Inc. v. Matkari, 7 F.3d 1130, 1134 (4th Cir. 1993). "Conclusory allegations regarding the legal effect of the facts alleged" need not be accepted. Labram v. Havel, 43 F.3d 918, 921 (4th Cir. 1995). Because the central purpose of the complaint is to provide the defendant "fair notice of [what] the plaintiff's claim [is] and the grounds upon which it rests," the plaintiff's legal allegations must be supported by some factual basis sufficient to allow the defendant to prepare a fair response. Twombly, 550 U.S. at 556 n.3. III. ANALYSIS The Court grants the Citibank Defendants' Motion to Dismiss as to Counts I and II because a declaratory action cannot be used to redress alleged past wrongs. The Court grants Defendant Commonwealth's Motion to Dismiss as to Count III because Commonwealth had no obligation to remain impartial under the Deed of Trust. The Court grants both Motions to Dismiss as to Count IV because Plaintiffs fail to sufficiently plead that they possess superior title. The Court grants the Citibank Defendants' Motion to Dismiss as to Counts V and VI because Virginia does not recognize a private right of action for illegal gambling. The Court grants the Citibank Defendants' Motion to Dismiss Count VII because Plaintiffs fail to sufficiently plead that an illegal pyramid scheme existed. The
Case 1:10-cv-00010-GBL-TCB Document 41 Filed 08/03/10 Page 10 of 24 Court grants both Motions to Dismiss Count VIII because Plaintiffs fail to sufficiently allege facts which plausibly suggest a violation of the FDCPA. The Court addresses each count in turn below. A^ Count I: Declaratory Action - First Trust Note The Court grants the Citibank Defendants' Motion to Dismiss as to Count I because declaratory relief is inappropriate as the foreclosure has already occurred and because Plaintiffs fail to set forth facts that establish plausible grounds for declaratory relief. The Federal Rules of Civil Procedure "govern the procedure for obtaining a declaratory judgment under 28 U.S.C. 2201." Fed. R. Civ. P. 57. Section 2201 states that "any court of the United States... may declare the rights and other legal relations of any interested party seeking such declaration...." 28 U.S.C. 2201 (2010). "[D]eclaratory judgments are designed to declare rights so that parties can conform their conduct to avoid future litigation," and are untimely if the questionable conduct has already occurred or damages have already accrued. The Hipage Co. v. Access2Go, Inc., 589 F. Supp. 2d 602, 615 (E.D. Va. 2008). Plaintiffs ask the Court to render the foreclosure Deed of Sale void and declare that none of the Defendants have "legal or equitable right[s] or interest[s] in the Promissory Note." (Am. Compl. 1 81.) Plaintiffs also argue that their financial 10
Case 1:10-cv-00010-GBL-TCB Document 41 Filed 08/03/10 Page 11 of 24 obligations are satisfied because Defendants have already collected on Plaintiffs' debt through pay-outs from the credit enhancements made against the Notes and thus the foreclosure amounts to double recovery. The Court rejects each of these arguments. First, declaratory judgment is inappropriate because the foreclosure already occurred. Declaratory judgments are designed to guide parties' future behavior by resolving conflicts Jbefore harm occurs. See Merino v. EMC Mortgage Corp., No. l:09cvll21, 2010 WL 1039842, at *4 (E.D. Va. Mar. 19, 2010). Here, the Property was foreclosed on November 3, 2009, thus, any wrong Plaintiffs suffered as a result of the allegedly deficient foreclosure has already occurred, making a declaratory judgment at this stage inappropriate. The Court has recently dismissed declaratory actions brought on facts almost identical to Plaintiffs. See Pazmino v. LaSalle Bank, No. l:09cvll73, 2010 WL 2039163, at *1 (E.D. Va. May 20, 2010); Tapia v. U.S. Bank, No. l:09cvl025, 2010 WL 2521374, at *2 (E.D. Va. June 22, 2010).4 The homeowners in Tapia and Pazmino also filed suits against financial institutions after foreclosure sales on their homes and sought declaratory relief that "none of the Defendants ha[d] any right, title, or interest in the First Promissory Note." Pazmino, 2010 4 The Court notes that Plaintiffs' Counsel also represented the plaintiffs in Pazmino and Tapia. 11
Case 1:10-cv-00010-GBL-TCB Document 41 Filed 08/03/10 Page 12 of 24 WL 2039163, at *4; Tapia, 2010 WL 2521374, at *5. In each case, the Court rejected the plaintiffs' requests for declaratoryjudgments as untimely and inappropriate because the foreclosure, and thus the wrong, had already occurred. Pazmino, 2010 WL 2039163, at *4; Tapia, 2010 WL 2521374, at *5. Second, even if Plaintiffs' declaratory action was timely, the Court rejects Plaintiffs' double recovery argument for the reasons stated in Pazmino and Tapia. See Pazmino, 2 010 WL 2039163, at *4; Tapia, 2010 WL 2521374, at *5. In Pazmino, this Court found that the complaint lacked facts to support plaintiff's double recovery theory and that "[plaintiff's] conclusory statements do not adequately set forth a claim for relief that is plausible on its face." 2010 WL 2039163, at *6. Similarly, in Tapia, this Court rejected plaintiffs' double recovery argument because "the [a]mended [c]omplaint contain[ed] no specific facts plausibly suggesting that any pay-out occurred; that any [d]efendant received a pay-out as the result of [p]laintiffs' default on the first loan; or that the pay-outs satisfied [p]laintiffs' obligation under the loan." 2010 WL 2039163, at *7. There, the plaintiffs asserted that the foreclosure of their home amounted to double recovery because the defendants received pay-outs from mortgage insurance policies and other credit derivatives. 2010 WL 2039163, at *6. Additionally, the Tapia plaintiffs "cite[d] no cases extending 12
Case 1:10-cv-00010-GBL-TCB Document 41 Filed 08/03/10 Page 13 of 24 [the double recovery defense] to actions challenging the legitimacy of a foreclosure." 2010 WL 2039163, at *8. The Court likewise rejects Plaintiffs' arguments here. The Amended Complaint does not allege any specific facts showing that Defendants profited from these alleged credit enhancements or that this revenue somehow freed Plaintiffs from their loan obligations. Therefore, the Court grants Defendants' Motion to Dismiss as to Count I because: (1) declaratory relief is untimely; and (2) the Amended Complaint contains no facts that allow the Court to conclude that Plaintiffs are discharged from the promissory notes because of any alleged pay-outs to Defendants. B^ Count II: Declaratory Action - Second Trust Note The Court grants the Citibank Defendants' Motion to Dismiss as to Count II on the same grounds it dismissed Count I, above. Count II seeks a declaratory judgment that "Defendants have no legal or equitable right or interest in the [Second] Promissory Note." (Am. Compl. H 83.) However, as previously stated, a declaratory judgment is inappropriate because the foreclosure has already occurred. The only allegations supporting Count II are: (1) Plaintiffs began paying on the loan after they executed the loan documents; and (2) that the Second Note was included in a securitized mortgage pool operated by Bear Steams Trust. (Am. Compl. flu 19, 45.) These conclusory allegations 13
Case 1:10-cv-00010-GBL-TCB Document 41 Filed 08/03/10 Page 14 of 24 are insufficient because they do not plausibly suggest why Defendants have no legal interest in the Second Note. Accordingly, the Court grants Defendants' Motion to Dismiss as to Count II. C_. Count III: Breach of Fiduciary Duty The Court grants Commonwealth's Motion to Dismiss as to Count III because Commonwealth was properly authorized to foreclose on the Property and had no obligation to remain impartial. In Tapia, the Court held that when the deed of trust authorizes a foreclosure there can be no breach of fiduciary duty. 2010 WL 2521374, at *8. A court similarly held wa trustee under a deed of trust has no such duty of diligence" where the plaintiff alleged a similar claim. Horvath v. Bank of New York, No. 09cv01129, 2010 WL 538039, at *1 (E.D. Va. Jan. 29, 2010). Here, Plaintiffs allege that Commonwealth breached its fiduciary duty by failing to perform due diligence and not remaining impartial when requested to foreclose on the Property. (Am. Compl. % 86.) However, Commonwealth was duly appointed as substitute trustee by EMC and Citibank and, as trustee, Commonwealth was authorized to follow all provisions of the Deed of Trust, including foreclosing on the Property. (Am. Compl. %^ 57-58.) Therefore, the Court grants Commonwealth's Motion to Dismiss as to Count III. 14
Case 1:10-cv-00010-GBL-TCB Document 41 Filed 08/03/10 Page 15 of 24 D. Count IV: Quiet Title The Court grants both Motions to Dismiss as to Count IV because the Amended Complaint contains no facts to support Plaintiffs' claim of superior title. "An action to quiet title is based on the premise that a person with good title to certain real or personal property should not be subjected to various future claims against that title." Maine v. Adams, 672 S.E.2d 862, 866 (Va. 2009). A party asserting a quiet title action must plead that he or she has superior title to the property. See id. Here, Plaintiffs allege no facts plausibly suggesting that they have superior title. In fact, the allegations contained in the Amended Complaint suggest quite the opposite. Plaintiffs summarily allege that they are the only parties that "can prove legal and equitable ownership interest in the Property." (Am. Compl. H 90.) However, they make no factual showing that the debt was forgiven, cancelled, or fully paid. In fact, Plaintiffs acknowledge that " [they] owe money on [their] Notes" and that is why they initiated this action. (Pis.' Opp'n 10.) Therefore, Plaintiffs do not plausibly suggest that Defendants have no rightful claim to the Property because they fail to plead facts showing that they have superior title to the Property. Accordingly, the Court grants Defendants' Motions to Dismiss as to Count IV. 15
Case 1:10-cv-00010-GBL-TCB Document 41 Filed 08/03/10 Page 16 of 24 E. Count V: Declaratory Judgment - Illegal Gambling The Court grants the Citibank Defendants' Motion to Dismiss as to Count V because Virginia does not recognize a private right of action for violations of the criminal illegal gambling statute. In Virginia, "when a statute creates a right and provides a remedy for the vindication of that right, then that remedy is exclusive unless the statute says otherwise." See Vansant & Gusler, Inc. v. Washington, 429 S.E.2d 31, 33 (Va. 1993) (internal citations omitted); see also Black & White Cars, Inc. v. Groome Transp., Inc., 442 S.E.2d 391, 394 (Va. 1991) (the "general rule [is] that a penal statute or ordinance does not automatically create a private right of action"). Criminal statutes that prohibit certain conduct as opposed to those that seek to protect personal rights are not a viable platform for private civil litigation. See generally Doe v. Broderick, 225 F.3d 440, 448 (4th Cir. 2000) ("Criminal statutes, which express prohibition rather than personal entitlements and specify a particular remedy other than civil litigation, are... poor candidates... [for] private rights of action."); Jones v. Capital One Fin. Corp., No. 3:04cv512, 2004 WL 3398212, at *2 (E.D. Va. Oct. 27, 2004) ("Because these are criminal statutes containing prohibitions and particularized remedies, there is no basis to infer a private cause of action."). 16
Case 1:10-cv-00010-GBL-TCB Document 41 Filed 08/03/10 Page 17 of 24 Virginia's penal statutes governing illegal gambling do not provide for a private right of action. Section 18.2-325 of the Virginia Code defines illegal gambling by laying out the specific regulations for lottery contests. See Va. Code Ann. 18.2-325.1 (2010). These regulations include: free entry for all participants wishing to enter the contest without purchase, 18.2-325.1(1); ensuring that there is equal opportunity to play and equal odds of winning regardless of how participants enter the contest, 18.2-325.1(2); and specific written disclosures about the contest, 18.2-325.1(3). Section 18.2-326 states: "any person who illegally gambles or engages in interstate gambling as defined in 18.2-325 shall be guilty of a Class 3 misdemeanor." Va. Code Ann. 18.2-326 (2010). Here, the Court grants the Citibank Defendants' Motion because Virginia's illegal gambling statutes seek to prohibit illegal gambling, a specific act, and provide a particular punishment, misdemeanor conviction, for those who violate the statutes. Additionally, the statutes protect Virginia's general population and not any one particular group and, as stated in Doe, the specific remedy and lack of personal entitlement make the statutes unfit for private litigation. Therefore, the Court dismisses Count V because sections 18.2-325 and 18.2-326 of the Virginia Code do not provide for a private right of action. 17
Case 1:10-cv-00010-GBL-TCB Document 41 Filed 08/03/10 Page 18 of 24 F. Count VI: Declaratory Judgment - Illegal Gambling Accessories The Court grants the Citibank Defendants' Motion to Dismiss as to Count VI because, as mentioned above, Virginia does not recognize a private right of action for illegal gambling. See Va. Code Ann. 18.2-325 to -326 (2010). In Count VI, Plaintiffs seek a declaratory judgment that the Notes are invalid because Defendants were accessories to an illegal gambling operation. (Am. Compl. H 24.) The only additional facts Plaintiffs allege to support this claim are that the Defendants "allowed counterparties to obtain 'credit-default' swaps against the Note(s) despite... the counter-party not having interest in the loans/notes whatsoever." (Am. Compl. ^ 24.) As stated in Count V, above, Virginia does not recognize a private right of action for violations of the illegal gambling statute. Being charged as an accessory to an illegal gambling operation is still within the realm of the criminal statute and not a basis for civil litigation. Furthermore, even if Virginia did recognize a private right of action for this offense, the Court would dismiss Count VI because principle and accessory offenders are viewed equally for misdemeanor crimes and no separate accessory count would be necessary since Plaintiffs allege violation of the statute in Count V. See Va. Code Ann. 18.2-326 (2010); See also Foster v. Commonwealth, 18 S.E.2d 314, 18
Case 1:10-cv-00010-GBL-TCB Document 41 Filed 08/03/10 Page 19 of 24 315 (Va. 1942). For these reasons, the Court grants the Citibank Defendants' Motion to Dismiss as to Count VI. G_;_ Count VII: Declaratory Judgment - Pyramid Scheme The Court grants the Citibank Defendants' Motion to Dismiss as to Count VII because Plaintiffs fail to plead the elements necessary to prove a violation of Virginia's anti-pyramid scheme statute. Section 18.2-239(4) of the Virginia Code defines a pyramid scheme as "any plan or operation by which a person gives consideration for the opportunity to receive compensation a majority of which is derived from the introduction of other persons into the plan or operation...." Va. Code Ann. 18.2-239(2) (2010). The elements of any illegal pyramid scheme in Virginia are: (1) the giving of consideration to participate; (2) earning a profit; and (3) introducing new people. Va. Code Ann. 18.2-239(2) (2010). Of these, the essential element is the continuous introduction of additional people by participants which keeps the scheme running. See Love v. Durastill of Richmond, 408 S.E.2d 892, 894 (Va. 1991). Here, Plaintiffs allege that they were "induced and enticed to unknowingly participate" in a pyramid promotional scheme. (Am. Compl. U 121.) According to Plaintiffs, Defendants led "unwitting" borrowers into mortgage notes that they could not afford and then purchased and issued credit enhancement polices against the notes solely to gain an "illegal profit." (Am. 19
Case 1:10-cv-00010-GBL-TCB Document 41 Filed 08/03/10 Page 20 of 24 Compl. U1 119-20.) Plaintiffs demand equitable and monetary relief for Defendants' alleged pyramid schemes. (Am. Compl. Wherefore Cl. at 26-27.) The Court dismisses Count VII because the three key elements are missing from these facts: (1) Plaintiffs do not allege that they gave consideration to participate in this scheme; (2) Plaintiffs do not allege that they entered into their mortgage contracts with the hopes of earning a profit; and (3) Plaintiffs did not bring any new people into the scheme. Va. Code Ann. 18.2-239(2) (2010); Love, 408 S.E.2d at 894. Plaintiffs implicitly assert that their Notes served as consideration but this argument fails because the Notes were given in exchange for the extension of credit toward the purchase of their home, not to make a profit. (Am. Compl. HH 16, 18.) Additionally, conclusory statements and labels such as "induced and enticed" and "illegal profit" are not sufficient to plausibly suggest an entitlement to relief. Twombly, 550 U.S. at 555. Therefore, the Court grants the Citibank Defendants' Motion to Dismiss Count as to VII. 20
Case 1:10-cv-00010-GBL-TCB Document 41 Filed 08/03/10 Page 21 of 24 H_;_ Count VIII; Violation of the FDCPA The Court grants both Motions to Dismiss as to Count VIII for two reasons. First, the allegations in the Amended Complaint contradict the express language in the Deeds of Trust. Count VIII asserts that Defendants did not have the authority to enforce the Deed of Trust or foreclose on the Property. (Am. Compl. U 125.) However, the Deeds of Trust provide that the Lender and successor trustees "may invoke the power of sale and any other remedies permitted by Applicable Law." (First Deed of Trust 1 22, 24; Second Deed of Trust % 17, 21.) Thus, Plaintiffs' claim fails. Second, the Amended Complaint does not allege sufficient facts to plausibly suggest that Defendants provided information that was false, deceptive, or misleading regarding the Notes. The FDCPA provides a cause of action where a debt collector "use[s] any false, deceptive, or misleading representation or means in connection with the collection of any debt." 15 U.S.C. 1692e. Plaintiffs only assert that they received demands to pay on the First Note and that EMC responded to their request for verification of the ownership of the debt "woefully insufficiently." (Am. Compl. Hf 46, 79.) However, Plaintiffs do not allege what was false, deceptive, or misleading about the information provided. Thus, Plaintiffs' allegations have insufficient factual support and fail to state a plausible claim 21
Case 1:10-cv-00010-GBL-TCB Document 41 Filed 08/03/10 Page 22 of 24 for relief. Iqbal, 129 S.Ct. at 1949. Therefore, the Court grants both Motions to Dismiss Count VIII. IV. CONCLUSION The Court grants Defendants' Motions to Dismiss Counts I, II, III, IV, V, VI, VII, and VIII of the Amended Complaint. The Court grants the Citibank Defendants' Motion to Dismiss as to Counts I and II (Declaratory Action on the First & Second Trust Note) because declaratory relief is improper where the alleged wrongs have already been suffered. The Court grants Defendant Commonwealth's Motion to Dismiss as to Count III (Breach of Fiduciary Duty) because Commonwealth was properly authorized to foreclose on the Property and had no obligation to remain impartial. The Court grants both Motions to Dismiss as to Count IV (Quiet Title) because Plaintiffs fail to allege sufficient facts to establish superior title. The Court grants the Citibank Defendants' Motion to Dismiss as to Counts V and VI (Declaratory Action on Illegal Gambling and Illegal Gambling Accessories) because Virginia law does not recognize a private right of action for violations of the illegal gambling statute. The Court grants the Citibank Defendants' Motion to Dismiss as to Count VII (Declaratory Action on Pyramid Scheme) because Plaintiffs fail to plead the elements necessary to plausibly suggest a violation of Virginia's anti-pyramid scheme statute. The Court grants both Motions to Dismiss as to Count VIII 22
Case 1:10-cv-00010-GBL-TCB Document 41 Filed 08/03/10 Page 23 of 24 (Violation of the FDCPA) because Plaintiffs fail to show that Commonwealth provided misleading information regarding their loan. Accordingly, it is hereby ORDERED that Defendants Citibank, Bear Steams Trust, EMC, MERSCORP, and MERS' Motion to Dismiss is GRANTED. It is further ORDERED that Defendant Commonwealth's Motion to Dismiss is GRANTED. It is further ORDERED that Plaintiffs' Motion to Dismiss Defendant First Guaranty Mortgage Company is GRANTED. It is further 23
Case 1:10-cv-00010-GBL-TCB Document 41 Filed 08/03/10 Page 24 of 24 ORDERED that Defendant First Guaranty Mortgage Corporation and David A. Neal's Motion to Dismiss is GRANTED IN PART and DENIED IN PART. The Court GRANTS the Motion as to Defendant David A. Neal. The Court DENIES as MOOT the Motion as to Defendant First Guaranty Mortgage Corporation. It is further The Clerk is directed to forward a copy of this order to counsel of record. Entered this day of August, 2010 Alexandria, Virginia /s/ Gerald Bruce Lee United States District Judge 24