Adrian et al v. Federal National Mortgage Association et al

Filing 74

ORDER denying 63 Motion for Summary Judgment: See order for details. Signed by Senior Judge Frederick J Martone on 2/6/2015.(LMR)

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IN THE UNITED STATES DISTRICT COURT

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FOR THE DISTRICT OF ARIZONA

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Anthony Adrian; Maria M. Adrian,
Plaintiffs,

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vs.

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OneWest Bank,
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Defendant.
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No. CV-12-0189-PHX-FJM
ORDER

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I.

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On October 8, 2007, plaintiffs executed a promissory note in the amount of $384,000

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secured by a deed of trust on their property located in Surprise, Arizona. On January 24,

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2011, the beneficial interest in the deed of trust was assigned to defendant OneWest Bank

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(the “Bank”). Plaintiffs defaulted on their loan payments in December 2010 and a notice of

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trustee’s sale was recorded on February 16, 2011, setting a sale date of May 18, 2011.

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Plaintiffs began loan modification discussions with the Bank in late 2010, and submitted their

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application for a loan modification under the Home Affordable Mortgage Program

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(“HAMP”) on March 8, 2011. The Bank requested additional financial documents in April

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and May 2011, each time notifying plaintiffs:

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Your loan has an upcoming scheduled foreclosure sale date. If you would like
to be considered for HAMP, a complete application must be received by [the
Bank] no later than midnight on the seventh day prior to the scheduled

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foreclosure sale date. This condition will vary by state and investor type, and
[the Bank] may not be able to stop foreclosure sale [sic] if the foreclosure
process has already been initiated in all cases. The application must include
the following to be considered for a loan modification and temporarily suspend
the foreclosure sale date if necessary:

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[list of required documents]

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If the above documents are not received by midnight on the seventh day prior
to your scheduled foreclosure sale date, your modification may be denied and
your loan will proceed to foreclosure.

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(Doc. 66-1, ex. 5). At the same time, however, a letter from the Bank dated April 8, 2011,

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gave plaintiffs what appear to be conflicting assurances, that “[d]uring the HAMP evaluation,

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the subject property for which the application has been received will not be referred to

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foreclosure or be sold at foreclosure sale if the foreclosure process has already been

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initiated.” Id. at 21.

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Then, on May 10, 2011, the Bank sent plaintiffs a letter stating that they would not

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receive a loan modification, not because they were found to be ineligible, or because they

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failed to provide the required financial documents, but “due to an imminent foreclosure sale

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of the property.” (Doc. 66-1, ex. 6).

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Plaintiffs filed a Chapter 7 bankruptcy petition on May 18, 2011, the same day set for

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the trustee’s sale. The Bank subsequently obtained relief from the bankruptcy stay allowing

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it to foreclose on the property. The sale occurred on July 28, 2011. Plaintiffs then filed this

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action, asserting claims for wrongful foreclosure, intentional infliction of emotional distress,

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and fraud.

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We granted the Bank’s motion to dismiss for failure to state a claim, and plaintiffs

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appealed. The United States Court of Appeals for the Ninth Circuit affirmed the dismissal

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of the wrongful foreclosure and intentional infliction of emotional distress claims, and

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reversed and remanded the fraud claim, concluding that plaintiffs should be granted leave to

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amend.

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On remand, plaintiffs filed an amended complaint, this time asserting claims for

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negligent performance of an undertaking and fraud. The gravamen of both claims is

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plaintiffs’ allegation that the Bank informed them they must default on their mortgage before
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the Bank would consider a loan modification. Once plaintiffs defaulted, and notwithstanding

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the Bank’s assurances that plaintiffs were not at risk of foreclosure, plaintiffs’ property was

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sold at a trustee’s sale. Plaintiffs claim they relied on the Bank’s statements and lost their

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primary residence as a result. They contend they were financially sound throughout late

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2010 and early 2011 and would not have defaulted on their mortgage but for the Bank’s

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wrongful representations.

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We now have before us the Bank’s motion for summary judgment (doc. 63),
plaintiffs’ response (doc. 69), and the Bank’s reply (doc. 73).
II.

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On a motion for summary judgment, the moving party has the burden of showing the

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absence of any genuine issue of material fact. Once this prima facie showing is made, the

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burden shifts to the party opposing the motion to present evidence that establishes a genuine

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issue of material fact to justify a trial. Celotex Corp. v. Catrett, 477 U.S. 317, 323-24, 106

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S. Ct. 2548, 2553 (1986). The nonmoving party must “designate specific facts showing that

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there is a genuine issue for trial.” Id. at 324, 106 S. Ct. at 2553. A genuine issue exists only

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if “the evidence is such that a reasonable jury could return a verdict for the nonmoving

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party.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S. Ct. 2505, 2510 (1986).

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“If the evidence is merely colorable, or is not sufficiently probative, summary judgment may

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be granted.” Id. at 249-50, 106 S. Ct. at 2511 (citations omitted). On the other hand, “[a]ny

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doubt as to the existence of a genuine issue for trial should be resolved against the moving

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party.” Adickes v. S.H. Dress & Co., 398 U.S. 144, 158-59, 90 S. Ct. 1598, 1608-09 (1970).

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III.

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Plaintiffs assert claims of fraudulent misrepresentation and negligent performance of

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an undertaking. To prevail on a claim for fraudulent misrepresentation, plaintiffs must show

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by clear and convincing evidence (1) a false, material representation; (2) made with the

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speaker’s knowledge of its falsity or ignorance of its truth; (3) the speaker’s intent that it be

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acted upon by the listener; (4) the hearer’s ignorance of its falsity; (5) the hearer’s reliance

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on its truth; (6) the hearer’s right to rely on its truth; and (7) a resulting and proximate injury.
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Echols v. Beauty Built Homes, Inc., 132 Ariz. 498, 500, 647 P.2d 629, 631 (1982); Comerica

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Bank v. Mahmoodi, 224 Ariz. 289, 291, 229 P.2d 1031, 1033 (Ct. App. 2010). “Each

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element must be supported by sufficient evidence. Fraud may never be established by

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doubtful, vague, speculative, or inconclusive evidence.” Echols, 132 Ariz. at 500, 647 P.2d

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at 631 (quotation omitted). “In order that a representation constitute actionable fraud, it must

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relate to either a past or existing fact. It cannot be predicated on unfulfilled promises,

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expressions of intention or statements concerning future events unless such were made with

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the present intention not to perform.” Staheli v. Kauffman, 122 Ariz. 380, 383, 595 P.2d

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172, 175 (1979).

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The Arizona Court of Appeals recently applied the negligent performance of an

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undertaking claim, also called the Good Samaritan Doctrine, in the context of a mortgage

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case. In Steinberger v. McVey ex rel. Cnty. of Maricopa, 234 Ariz. 125, 138, 318 P.3d 419,

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432 (Ct. App. 2014), the court held that a claim for negligent performance of an undertaking

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is established by showing (1) a lender induces a borrower to default on his loan by promising

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a loan modification if he defaults; (2) the borrower, in reliance on the promise to modify the

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loan, subsequently defaults; (3) after the borrower defaults, the lender negligently processes

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or fails to process the loan modification, or due to the lender’s negligence, the borrower is

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not granted a modification; and (4) based on the default, the lender forecloses on the

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borrower’s property.

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Plaintiffs contend that on many occasions from September 2010 through December

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2010, the Bank falsely and negligently instructed them that a loan modification was not

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available unless plaintiffs first defaulted on their mortgage for a period of at least 3 months.

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The Bank denies this claim. The Bank also rejects plaintiffs’ assertion that they were

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financially sound and capable of making their mortgage payments, and would not have

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defaulted but for the Bank’s misrepresentation.

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Plaintiffs’ evidence is thin. They do not identify the individuals who made the

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misrepresentations, identifying them only as “John Does.” Plaintiffs’ only evidence of the

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Bank’s misrepresentation is Anthony Adrian’s statement that unnamed individuals instructed
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him to default on his mortgage. Nevertheless, Mr. Adrian may testify at trial regarding his

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conversations with these John Does pursuant to Rule 801(d)(2)(D), Fed. R. Evid., as

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statements by made by a party’s agent or employee on a matter within the scope of that

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relationship. According to plaintiffs, these unnamed individuals identified themselves as

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Bank employees and spoke to plaintiffs concerning their loan with the Bank.1 This

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sufficiently identifies these individuals as the Bank’s agents for purposes of Rule

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801(d)(2)(D). It will be up to a jury to decide whether Bank employees told plaintiffs they

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must default in order to be considered for a loan modification, and if made, whether that

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statement was false.

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A factual issue also exists as to whether plaintiffs justifiably relied on the Bank’s

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instruction to default. Plaintiffs claim that at all times they were ready, willing and able to

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make their mortgage payments, but defaulted only because the Bank instructed them to do

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so. Plaintiffs intend to prove their justifiable reliance based on evidence of their financial

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ability and willingness to satisfy their loan obligations during the relevant time frame.

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Whether plaintiffs had the resources to meet their loan obligations is also an issue for a jury

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to decide.

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Additionally, plaintiffs assert that the Bank repeatedly assured them that,

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notwithstanding that a trustee’s sale was scheduled, they were not at risk of foreclosure while

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the modification process was continuing. The Bank’s own letter provides evidence of this

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material fact. (Doc. 66-1, ex. 5 at 21).

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These are but a few examples of material issues of fact remaining for trial. “If there

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is any evidence in the record from any source from which a reasonable inference in the

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[nonmoving party’s] favor may be drawn, the moving party simply cannot obtain a summary

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judgment.” Celotex Corp., 477 U.S. at 330 n.2, 106 S. Ct. at 2556 n.2 (citation omitted).

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Because genuine issues of material facts exist,

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Many institutional employees do not give their full names on the phone. Excluding
their statements would encourage such practices and unfairly reward institutions.
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IT IS ORDERED DENYING the Bank’s motion for summary judgment (doc. 63).

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DATED this 6th day of February, 2015.

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