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Russo v. Recontrust Company

February 25, 2010


The opinion of the court was delivered by: Thomas I. Vanaskie United States District Judge



This action stems from the foreclosure of real estate (the "Property") located at 12 San Simeon, Laguna Niguel, Orange County, California.. Plaintiffs Peter Russo and Joel Eads had a subordinate security interest in the Property as a consequence of a loan they had extended to the Property's owner, Castleline, Inc. ("Castleline"). (Pltfs.' Compl., Dkt. Entry 1, ¶ 10.)*fn1 Plaintiffs claim that the parties holding a superior lien position in the Property, Defendants Recontrust Company, N.A. ("Recontrust") and Countrywide Home Loans, Inc ("Countrywide"), wrongfully destroyed Plaintiffs' secured interest by conducting an illegal foreclosure sale and engaging in fraudulent and other tortious conduct. (Id. at ¶¶ 34 - 58.) Defendants have moved for dismissal of the claims asserted by Plaintiffs, or alternatively, for a transfer of this action to the United States District Court for the Central District of California. (Dkt. Entry 10.) For the reasons stated below, Defendants' Motion to Change Venue will be granted.


Recontrust, a business organized under California law, with its principal place of business in Los Angeles County, California, is a wholly owned subsidiary of Countrywide. (Pltfs.' Compl. ¶ 3.) Countrywide is a New York corporation, with its principal place of business also located in Los Angeles County, California. (Id. at ¶ 4.)

On or about October 31, 2006, Plaintiffs made a loan to Castleline, a California corporation. In exchange for the loan, Plaintiffs received a mortgage on the Property to secure Castleline's indebtedness of $306,967.68. Plaintiffs allege that the Property had an appraised value of $2,825,000. (Id. at ¶¶ 11-2.) The Property is located within the Central District of California. (Dkt. Entry 12, Ex. "A", Daniel Podolsky Decl.)

Plaintiffs allege that when they extended their loan to Castleline, the Property appeared to have $2,100,000 in senior liens. (Pltfs.' Compl. ¶ 13.) Plaintiffs assert that the value of the liens superior to their security was in fact less than $2.1 million. (Id.) Plaintiffs aver that they learned later that "approximately $550,000 of the purportedly senior liens had been satisfied and/or were apparently invalid," meaning that as of the time Plaintiffs obtained a secured interest in the Property Castleline's equity in the property had a value of $1,275,00. (Id. at ¶ 14.)

Plaintiffs allege that Countrywide claims that Chris Jackson, a relative of the owners of Castleline, took out additional mortgages with Countrywide on the Property in 2004. (Id. at ¶ 15.) Plaintiffs dispute the validity of these encumbrances, averring that Defendants knew or should have known that Jackson did not have the authority to encumber the property with a mortgage in the amount of $380,000, but nonetheless extended a loan in that amount with a corresponding security interest in the Property.

Countrywide sold its security interests in the Property through the secondary market, but remained the servicer of the mortgages. (Id. at ¶ 18.) In January of 2008, Plaintiffs learned that Defendants, without notice to any party, scheduled a foreclosure sale of the Property for January 30, 2008. As a result of litigation initiated in California by Castleline asserting that the owner and junior lien holders were not given requisite notice , the foreclosure was stayed. (Id. at ¶ 23.)

Plaintiffs thereafter sought to protect their interest in the Property by offering to pay Defendants $1.4 million to satisfy the senior liens. Defendants, however, demanded payment of $2,000,000, an amount Plaintiffs claim far exceeded the value of the senior liens. In this regard, Plaintiffs reassert their contention that Defendants knew or should have known that at least one of the mortgages created by Mr. Jackson was invalid.

On or about February 19, 2008, Castleline agreed to the dismissal, without prejudice, of its California action, relying upon Defendants' representations that they would properly re-notice a foreclosure sale. On April 7, 2008, however, Defendants conducted a foreclosure sale without providing any notice to Castleline or Plaintiffs. (Id. at ¶ 31.) Plaintiffs allege that Defendants took title to the property by purchasing it at the foreclosure sale for an amount far below Plaintiffs' tender of $1.4 million. (Id. at ¶ 33.)

On or about April 21, 2008, Plaintiffs offered to purchase the Property for $1.5 million. Defendants did not respond to this offer. (Id. at ¶33.)

Plaintiffs filed suit in this Court on November 4, 2008, invoking diversity of citizenship jurisdiction under 28 U.S.C. § 1332, and asserting a California statutory claim for wrongful foreclosure, as well as common law claims of fraud, negligent misrepresentation, tortious interference with contract, and breach of the implied covenant of good faith and fair dealing.*fn2 On March 17, 2009, Defendants filed a Motion to Dismiss or ...

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