Munoz, et al. vs. PHH Mortgage Corp., et al.
Filing
247
ORDER DENYING defendants' Request for Reconsideration, document 243 . Order signed by District Judge Anthony W. Ishii on 10/29/2013. (Rooney, M)
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UNITED STATES DISTRICT COURT
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EASTERN DISTRICT OF CALIFORNIA
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EFRAIN MUNOZ, et al,
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Plaintiffs,
CASE NO. 1:08-CV-0759
ORDER RE: MOTION FOR
RECONSIDERATION
v.
PHH CORP., et al,
Defendants.
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I. History
Defendant PHH (which comprises a number of related companies with similar names,
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including PHH Corporation, PHH Mortgage Corporation, and PHH Home Loans, LLC) provides
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real estate mortgages nationwide. Defendant Atrium Insurance Corporation is a wholly owned
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subsidiary of PHH. Plaintiffs are individuals who obtained mortgages from PHH who provided
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down payments of less than 20% of the total purchase price of the homes. Those who purchase a
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home with less than a 20% down payment must generally purchase private mortgage insurance
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(“PMI”) to protect the lender against the risk of default. Borrowers in this situation pay not only
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their monthly mortgage payment but a monthly PMI premium as well. Plaintiffs allege PHH
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selected the specific PMI providers Plaintiffs used as part of the mortgage process. These PMI
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providers pooled the PMI contracts and reinsured with Atrium to spread the risk of default, giving
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Atrium a portion of the monthly PMI premiums. Plaintiffs allege that the reinsurance is a sham
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whereby Atrium took on little to no risk and functioned instead as a means of giving PHH a
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referral fee. Plaintiffs filed this suit alleging that Defendants‟ scheme violates Section 8 of the
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Real Estate Settlement Procedures Act, 12 U.S.C. §§2601 et seq. (“RESPA”). This case is a
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proposed class action of all PHH customers who have been directed to obtain PMI from one of the
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providers who then reinsured with Atrium.
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Plaintiffs have made a motion for class certification. Doc. 114. Magistrate Judge Barbara
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McAuliffe has issued a findings and recommendation that limits the class to those borrowers who
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obtained mortgage loans that were either originated by or acquired by Defendants on or after June
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2, 2007, based on the applicable statute of limitations. Doc. 230. Marcella Villalon made a motion
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to intervene. Doc. 231. Villalon obtained her mortgage from defendants on March 1, 2007.
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Villalon seeks to be a class representative of borrowers for whom equitable tolling might apply to
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extend to limitations period. Defendants opposed the motion for intervention. Doc. 236. Judge
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McAuliffe granted Villalon‟s motion. Doc. 242. Defendants then made this present motion for
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reconsideration. Doc. 243. Villalon opposes reconsideration. Doc. 246.
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II. Legal Standard
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Federal Rules of Civil Procedure 72(a) gives Magistrate Judges the authority to hear and
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decide nondispositive pre-trial matters. Fed. R. Civ. Proc. 72(a). Title 28 U.S.C. §636(b)(1)(A)
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states “A judge of the court may reconsider any pretrial matter under this subparagraph(A) where
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it has been shown that the magistrate judge‟s order is clearly erroneous or contrary to law.” The
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court must give deference to a nondispositive order entered by a magistrate judge unless the order
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is “clearly erroneous or contrary to law.” Grimes v. City and County of San Francisco, 951 F. 2d
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236, 241 (9th Cir. 1991). Additionally, the reviewing court may not substitute its judgment for
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that of the deciding court. U.S. v. BNS, Inc., 858 F. 2d 456, 464 (9th Cir. 1988).
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An order is “clearly erroneous” if, after consideration of all of the evidence, the district
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court is left with the “definite and firm conviction that a mistake has been committed.” Burdick v.
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Commissioner, 979 F. 2d 1369, 1370 (9th Cir. 1992). An order is “contrary to law” if it fails to
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apply or misapplies the existing law including case law, statues, or rules of procedure. Yen v.
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Baca, 2002 WL 32810316 at *2 (C.D. Cal. 2002).
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III. Discussion
Defendants argue that allowing Villalon to intervene is contrary to law on two grounds: 1)
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it violates Fed. Rule Civ. Proc. 24(c) and (2) it deprives Defendants of the opportunity to
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challenge Villalon‟s ability to state a cause of action.
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A. Rule 24(c)
“A motion to intervene must be served on the parties as provided in Rule 5. The motion
must state the grounds for intervention and be accompanied by a pleading that sets out the claim or
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defense for which intervention is sought.” Fed. Rule Civ. Proc. 24(c). Villalon‟s motion was
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properly served and stated the grounds for intervention. See Docs. 231 and 231, Part 2. However,
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Villalon did not provide a new pleading; instead, Villalon stated she was “content to stand on the
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pleading an existing party has filed.” Doc. 239, 4:11-12, quoting Westchester Fire Ins. Co. v.
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Mendez, 585 F.3d 1183, 1188 (9th Cir. 2009). Defendants object to the violation of Rule 24(c).
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Judge McAuliffe found that the requirement for a pleading can be waived as “Ms. Villalon
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is adopting the allegations of the FAC in its entirety, and the FAC contains extensive tolling
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allegations. As a practical matter, the only difference between the current FAC and a second
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amended complaint Defendants contend should be filed is Ms. Villalon‟s name in the caption....An
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amended pleading is unnecessary.” Doc. 242, Order, 8:1-6. As part of Villalon‟s motion to
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intervene, her attorney stated that “3. Ms. Villalon obtained a mortgage loan from PHH Mortgage
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Services on or about March 1, 2007 for the purchase of her home located in Pueblo, Colorado. In
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connection with her loan, Ms. Villalon was required to pay $39.98 per month for PMI. Her PMI
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provider is CMG Mortgage Insurance. 4. Upon information and belief, the PMI for Ms. Villalon‟s
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loan was reinsured through PHH‟s captive reinsurance arrangement.” Doc. 231, Part 3, 1:25-2:2.
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These allegations are roughly comparable to the factual allegations contained in the FAC for the
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other named plaintiffs. See Doc. 96, FAC, 3:2-4:6.
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Defendants, creditably, acknowledge “the existence of cases such as [Westchester Fire Ins.
Co. v. Mendez, 585 F.3d 1183 (9th Cir. 2009)] and [Dixon v. Cost Plus, 2012 U.S. Dist. LEXIS
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90854 (N.D. Cal. June 27, 2012)], which allowed an intervenor to simply „adopt‟ a pleading, but
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such cases are in direct contravention of Rule 24(c).” Doc. 243, Brief, 11:3-4. Notwithstanding
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the plain language of Rule 24(c), the Ninth Circuit has chosen to waive the requirement of a new
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pleading in certain circumstances: “the failure to comply with the Rule 24(c) requirement for a
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pleading is a purely technical defect which does not result in the disregard of any substantial
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right.” Westchester Fire Ins. Co. v. Mendez, 585 F.3d 1183, 1188 (9th Cir. 2009), citations
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omitted. “Courts, including this one, have approved intervention motions without a pleading
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where the court was otherwise apprised of the grounds for the motion.” Beckman Indus. v.
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International Ins. Co., 966 F.2d 470, 474 (9th Cir. 1992). Defendants have not provided
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sufficiently compelling countervailing case authority. Though it would have been clearly
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preferable for Villalon to append an amended complaint with her motion to intervene, Ninth
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Circuit case law does not appear to require her to do so.
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B. Failure to State a Cause of Action
Defendants‟ other argument is that the lack of new complaint deprives them of the chance
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to challenge Villalon‟s allegations on a motion to dismiss for failure to state a cause of action
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standard. Judge McAuliffe stated that “Defendants may seek dismissal of the FAC‟s tolling
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allegations under a legal standard that is functionally identical to Rule 12(b)(6); Fed. R. Civ. Proc.
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12(c).” Doc. 242, Order, 8:22-23. Defendants respond that, “A motion for judgment on the
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pleadings is limited to the „pleadings;‟ see Rule 7(a), Fed. R. Civ. P. (defining what constitutes a
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„pleading‟); however, Ms. Villalon is not identified anywhere in the operative Complaint in this
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case. The only factual assertions specific to Ms. Villalon are contained in an affidavit attached to
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her Motion to Intervene.” Doc. 243, Brief, 7:9-12. Given the contorted procedural posture the
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case is in, the court is sympathetic to Defendants‟ objection. To clarify the situation, if faced with
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a motion on the pleadings, the court would have to functionally read Villalon‟s affidavit as part of
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the operative pleading. Defendants would still have the ability to challenge Villalon‟s claims on a
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failure to state a cause of action standard.
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IV. Order
Defendants‟ motion for reconsideration is DENIED.
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IT IS SO ORDERED.
Dated: October 29, 2013
SENIOR DISTRICT JUDGE
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