Federal Deposit Insurance Corporation v. Varrasso et al

Filing 116

MEMORANDUM AND ORDER signed by Senior Judge William B. Shubb on 9/30/13 ORDERING that Premier and Bhatti's MOTION for Summary Judgment 103 is, DENIED as to Plaintiff's negligence claim and GRANTED as to Plaintiff's negligent misrepresentation claim. (Mena-Sanchez, L)

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UNITED STATES DISTRICT COURT

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EASTERN DISTRICT OF CALIFORNIA

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----oo0oo----

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FEDERAL DEPOSIT INSURANCE
CORPORATION as receiver for
INDYMAC BANK, F.S.B.,
Plaintiff,

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No. CIV. 2:11-2628 WBS CKD

MEMORANDUM AND ORDER RE:
MOTION FOR SUMMARY JUDGMENT

v.
RICHARD K. VARRASSO doing
business as Richard Varrasso and
Associates and
AppraisalTrust.com, an
individual; PREMIER VALLEY, INC.
doing business as CENTURY 21 M&M
ASSOCIATES, a California
corporation; and KAREN BHATTI,
an individual,
Defendants.

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----oo0oo---Plaintiff Federal Deposit Insurance Corporation

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(“FDIC”) as receiver for IndyMac Bank, F.S.B. (“IndyMac”) brought

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this action against defendants Richard K. Varrasso, doing

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business as Richard Varrasso and Associates and

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AppraisalTrust.com, Premier Valley, Inc. (“Premier”), doing
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business as Century 21 M&M Associates, and Karen Bhatti, arising

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out of the sale of two residential properties.

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that defendants obscured the true value of one of the properties

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and sold it in a sham transaction to a straw buyer, who defaulted

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on the purchase loans that plaintiff had later acquired.

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and Bhatti (collectively, the “moving defendants”) now move for

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summary judgment.

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I.

Plaintiff alleges

Premier

Factual and Procedural Background

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In March 2006, Bhatti, working as an agent for Premier,

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listed for sale on the Multiple Listing Service (“MLS”) a

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property located at 2009 Saint Theresa Way in Modesto, California

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(the “Weisbly property” or “the Property”).

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(Docket. No. 103-5); Chartrand Decl. Ex. C (“Bhatti Dep.”) at

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19:24-25:12 (Docket No. 103-3).)

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behalf of the seller, Alam Singh, for whom she had sold property

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before.

(Bhatti Decl. ¶¶ 1-6

Bhatti listed the Property on

(Bhatti Dep. at 14:4-16:5, 31:23-32:23.)

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On multiple occasions over the next few months, Bhatti

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relisted the Property at various prices between $449,000.00 and

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$480,000.00.

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she received offers for the Property during this period.

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25:13-21.)

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(Id. at 23:9-28:3.)

Bhatti does not recall whether
(Id. at

Bhatti eventually enlisted another agent, Sophie

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Reisiyannejad (also known as “Sophie Nejad”), to help locate a

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buyer for the Property.

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Nejad because Nejad had sold several homes in the same

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neighborhood as the Property for more than $495,000.00 each.

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(Id.)

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with Nejad receiving the majority of the commission.

(Bhatti Decl. ¶ 4.)

Bhatti sought out

Bhatti and Nejad agreed to an uneven commission split,

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(Id.)

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In October 2006, a purchase agreement was signed to

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sell the Property to Marissa Weisbly for $499,000.00.

(Bhatti

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Dep. Ex. 5.)

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lists $499,000.00 as the sale price but lists a $449,000.00 price

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on the line used to calculate the commission.

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Statement”).)

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$13,470.00 in commission and Nejad received $17,960.00.

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Decl. ¶ 6.)

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out of the sale proceeds.

The HUD-1 Settlement Statement for the purchase

(Id. Ex. 7 (“HUD-1

Based on their arrangement, Bhatti received
(Bhatti

Singh, however, paid Bhatti an additional $25,000.00
(Id. ¶ 7; Bhatti Dep. 37:2-19.)

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Bhatti explains this was to repay of number of personal loans for

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thousands of dollars she had made to Singh and his family over

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the years, but there was no formal note documenting this debt.

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(Bhatti Decl. ¶ 7; Bhatti Dep. at 37:9-19.)

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On October 28, 2006, Richard Varrasso conducted an

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appraisal of the Property, valuing the Property at $520,000.00

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(Chartrand Decl. Ex. A (“Varrasso Dep.”) Ex. D.)

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maintains that Bhatti did not have any influence over the

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appraisal process, although Bhatti did provide Varrasso with the

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purchase agreement.

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did not include the required listing history of the property in

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his appraisal, as he did not receive the listing history from

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Bhatti and believed the home was new and built or developed by

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Bhatti’s husband or family.

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contends that the Property was worth only $400,000.00 as of

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December 21, 2006.

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Varrasso

(Varrasso Dep. at 45:2-5, 46:6-8.)

(Id. at 56:2-24.)

Varrasso

Plaintiff

(Paddock Decl. ¶ 3 (Docket No. 108-5).)

Weisbly financed the purchase with two mortgage loans

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(the “Weisbly loans”) totaling $499,000.00 from Kay-Co

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Investments, doing business as Pro30 Funding (“Kay-Co”).
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(Compl.

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¶ 11 (Docket No. 1).)

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payment on the house and does not know who did.

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Ex. D (“Weisbly Dep.”) at 29:24-30:7.)

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the Property, Weisbly had no intention of moving into the house

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or making mortgage payments.

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financial information and employment history on Weisbly’s loan

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application were false.

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Weisbly did not pay the $1,000.00 down
(Chartrand Decl.

At the time she purchased

(Id. at 28:5-7, 29:2-5.)

The

(Id. at 39:8-45:17.)

IndyMac subsequently purchased the Weisbly loans from
Kay-Co on the secondary market as part of a “bulk acquisition” of

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multiple loans.

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23; Gomez Decl. ¶¶ 6-10 (Docket No. 108-1).)

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failed to make any mortgage payments, IndyMac foreclosed on the

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Property and ultimately sold it on July 29, 2008, for

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$140,000.00.

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52:18.)

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plaintiff was appointed receiver for IndyMac by the Office of

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Thrift Supervision.

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(Chartrand Decl. Ex. B (“Gomez Dep.”) at 14:8After Weisbly

(Weisbly Dep. at 46:16-18; Gomez Dep. at 44:8-

Plaintiff retained IndyMac’s legal claims after

(Compl. ¶ 1.)

Plaintiff filed its Complaint in the Northern District

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of California on July 6, 2011, alleging six claims for relief.

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That court subsequently transferred the case to the Eastern

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District of California.

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moving defendants in its third and fourth causes of action, for

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negligence and negligent misrepresentation, respectively.

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(Compl. ¶¶ 33-44.)

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(Docket No. 24.)

The Complaint names

On January 21, 2012, the court denied Premier and

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Bhatti’s motion to dismiss plaintiff’s claims for negligence and

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negligent misrepresentation and granted in part and denied in

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part Premier and Bhatti’s motion to strike.
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(Docket No. 37.)

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Premier and Bhatti now move for summary judgment or, in the

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alternative, summary adjudication.

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II.

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(Docket No. 103.)

Evidentiary Objections
On a motion for summary judgment, “[a] party may object

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that the material cited to support or dispute a fact cannot be

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presented in a form that would be admissible in evidence.”

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R. Civ. P. 56(c)(2).

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does not necessarily have to produce evidence in a form that

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would be admissible at trial, as long as the party satisfies the

Fed.

“[T]o survive summary judgment, a party

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requirements of Federal Rules of Civil Procedure 56.”

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Goodale, 342 F.3d 1032, 1036–37 (9th Cir. 2003) (quoting Block v.

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City of Los Angeles, 253 F.3d 410, 418–19 (9th Cir. 2001))

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(internal quotation marks omitted).

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party’s evidence is presented in a form that is currently

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inadmissible, such evidence may be evaluated on a motion for

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summary judgment so long as the moving party’s objections could

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be cured at trial.

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433 F. Supp. 2d 1110, 1119–20 (E.D. Cal. 2006) (Shubb, J.).

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Fraser v.

Even if the non-moving

See Burch v. Regents of the Univ. of Cal.,

Moving defendants raise eight evidentiary objections

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(Docket No. 110-2), objecting to portions of two declarations

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submitted by plaintiff on grounds of relevance, materiality, lack

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of foundation, improper legal opinion or conclusion, and

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improperly uncertain expert testimony.

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Objections to evidence on the ground that the evidence

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is irrelevant, vague and ambiguous, or constitutes an improper

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legal conclusion are all duplicative of the summary judgment

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standard itself.

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can grant summary judgment only when there is no genuine dispute

See Burch, 433 F. Supp. 2d at 1119–20.

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A court

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of material fact.

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or without personal knowledge are not facts and can only be

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considered as arguments, not as facts, on a motion for summary

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judgment.

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evidence, lawyers should challenge its sufficiency.

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on any of these grounds are superfluous, and the court will

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overrule them.

Instead of challenging the admissibility of this

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Statements based on improper legal conclusions

Objections

Because the court does not rely on any remaining
evidence objected to in these declarations, the moving

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defendants’ remaining objections are overruled as moot.

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III. Legal Standard

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Summary judgment is proper “if the movant shows that

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there is no genuine dispute as to any material fact and the

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movant is entitled to judgment as a matter of law.”

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P. 56(a).

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of the suit, and a genuine issue is one that could permit a

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reasonable jury to enter a verdict in the non-moving party’s

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favor.

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(1986).

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burden of establishing the absence of a genuine issue of material

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fact and can satisfy this burden by presenting evidence that

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negates an essential element of the non-moving party’s case.

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Celotex Corp. v. Catrett, 477 U.S. 317, 322–23 (1986).

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Alternatively, the moving party can demonstrate that the non-

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moving party cannot produce evidence to support an essential

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element upon which it will bear the burden of proof at trial.

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Id.

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Fed. R. Civ.

A material fact is one that could affect the outcome

Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248
The party moving for summary judgment bears the initial

Once the moving party meets its initial burden, the
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burden shifts to the non-moving party to “designate ‘specific

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facts showing that there is a genuine issue for trial.’”

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324 (quoting then-Fed. R. Civ. P. 56(e)).

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the non-moving party must “do more than simply show that there is

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some metaphysical doubt as to the material facts.”

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Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586 (1986).

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“The mere existence of a scintilla of evidence . . . will be

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insufficient; there must be evidence on which the jury could

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reasonably find for the [non-moving party].”

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Id. at

To carry this burden,

Matsushita

Anderson, 477 U.S.

at 252.

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In deciding a summary judgment motion, the court must

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view the evidence in the light most favorable to the non-moving

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party and draw all justifiable inferences in its favor.

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255.

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and the drawing of legitimate inferences from the facts are jury

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functions, not those of a judge . . . ruling on a motion for

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summary judgment . . . .”

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IV.

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Id. at

“Credibility determinations, the weighing of the evidence,

Id.

Analysis
A.

Negligence
To prove a cause of action for negligence, a plaintiff

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must show “(1) a legal duty to use reasonable care, (2) breach of

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that duty, and (3) proximate cause between the breach and (4) the

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plaintiff’s injury.”

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App. 4th 1333, 1339 (2d Dist. 1998).

Mendoza v. City of Los Angeles, 66 Cal.

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1. Duty

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“The existence of a legal duty to use reasonable care

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in a particular factual situation is a question of law for the

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court to decide.”

Vasquez v. Residential Invs., Inc., 118 Cal.
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App. 4th 269, 278 (4th Dist. 2004).

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defendants’ motion to dismiss, the court previously rejected the

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moving defendants’ contention that they owed no duty to

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plaintiff.

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The moving defendants again raise the issue of duty, but neither

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cite new precedent nor identify facts sufficient to disturb the

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court’s previous determination.

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In denying the moving

(Jan. 23, 2012 Order at 10:27—11:1 (Docket No. 37).)

As the court previously noted, a real estate agent owes
a duty to deal fairly and honestly with all parties in a

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transaction, Nguyen v. Scott, 206 Cal. App. 3d 725, 736 (1st

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Dist. 1988), as well as a general duty to third parties in

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certain factual situations.

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Invs., Inc. v. Praszker, 220 Cal. App. 3d 35, 42-43 (1st Dist.

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1990) (applying a five-factor test to determine broker liability

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to third parties).

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party to the transaction, a duty to act fairly and honestly in

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the transaction.

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Kay-Co, it may sue to enforce that duty.

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of Fresno, 111 Cal. App. 4th 1087, 1096 (5th Dist. 2003) (“The

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assignment merely transfers the interest of the assignor.

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assignee ‘stands in the shoes’ of the assignor, taking [its]

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rights and remedies . . . .” (citations omitted)).1

See Norman I. Krug Real Estate

Here, the moving defendants owed Kay-Co, a

Because plaintiff now “stands in the shoes” of
See Johnson v. County

The

Moving

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The moving defendants contend that recognizing a duty
to plaintiff would subject real estate brokers to “ongoing
duties” to third party strangers after transactions have closed.
(See Defs.’ Mem. at 13:9-24 (Docket No. 103-1).) The duty at
issue here is not “ongoing” but rather stems directly from the
transaction. Plaintiff alleges wrongdoing “in creating the
Purchase Contract and failing to disclose information to Kay-Co.
before the transaction closed.” (Pl.’s Mem. of P. & A. at 12:1516 (Docket No. 108-1).) Plaintiff does not argue that moving
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defendants, therefore, are not entitled to summary judgment on

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the ground that they did not owe a duty to plaintiff.

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2. Breach

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“Ordinarily, the issues of breach and causation are

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questions of fact for the jury.”

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of Porterville, 801 F. Supp. 2d 965, 990 (E.D. Cal. 2011) (Ishii,

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J.) (citing Lindstrom v. Hertz Corp., 81 Cal. App. 4th 644, 652

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(2d Dist. 2000)).

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there is insufficient evidence, a defendant’s lack of negligence

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J.P. ex rel. Balderas v. City

“However, in an appropriate case in which

may be determined on summary judgment.”

Id.

Although they primarily contest the elements of duty,

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causation, and damages, the moving defendants essentially argue

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that there are no facts establishing a dispute about whether

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Bhatti failed to act fairly and honestly in the transaction.

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moving defendants assert they “had absolutely nothing to do with”

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the fraud of Weisbly, who was represented by her own real estate

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agent, Nejad.

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Bhatti testified she did not know Weisbly and had not interacted

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with Nejad prior to selling the Weisbly property.

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at 14:2-3, 29:19-24.)

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she received in additional commission from the sale was to pay

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off a previous debt owed her by Singh, the seller, who was the

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priest at Bhatti’s church.

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(Defs.’ Mem. at 10:3-5.)

During her deposition,

(Bhatti Dep.

Bhatti also testified that the $25,000.00

(Bhatti Dep. at 37:9-19.)

Considering the evidence in the light most favorable to

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plaintiff, however, there are questions of fact as to whether

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Bhatti, who owed the lender a duty to act fairly and honestly,

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The

defendants breached a duty long after escrow closed or after
defendants’ duties to their own client ended.
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knew or should have known that the sale was not legitimate.

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best, a jury could reasonably infer that, given Bhatti’s previous

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inability to sell the Property for several months at a lower

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listing price, (Bhatti Dep. at 23:9-28:3), Bhatti should have

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known the Property was overvalued and there was a possibility

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that Weisbly was not a legitimate purchaser.

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At

At worst, a jury could infer from Bhatti’s commission

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based on the undocumented loan to the seller that Bhatti had a

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substantial stake in making the sale, (Bhatti Dep. at 37:14-19),

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and may have influenced or intentionally withheld information

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from the Varrasso appraisal to ensure a high price.

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Dep. at 56:2-24.)

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transaction from the price discrepancy on the HUD-1 Statement, as

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although moving defendants contend this was a scrivener’s error,

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plaintiff argues such a mistake is “highly irregular.”

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(Deutscher Decl. ¶ 5 (Docket No. 108-4).)

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(Varrasso

A jury could also infer dishonesty in the

These inferences and credibility determinations are

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best left for the jury to decide.

See Anderson, 477 U.S. at 255.

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Plaintiff, therefore, has established genuine issues of material

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fact on the element of breach.

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3. Causation

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To show causation, a plaintiff must prove: “(1) that

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the defendant’s breach of duty (his negligent act or omission)

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was a substantial factor in bringing about the plaintiff’s harm

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and (2) that there is no rule of law relieving the defendant of

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liability.”

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481 (2d Dist. 1996).

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related issues involve questions of fact, unless reasonable

Leslie G. v. Perry & Assocs., 43 Cal. App. 4th 472,
Under California law, the basic causation-

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persons will not dispute the absence of causality.

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United States, 228 F.3d 944, 953 (9th Cir. 2000) (citing

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Constance B. v. State of California, 178 Cal. App. 3d 200, 207-08

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(3d Dist. 1986)).

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of whether the actor’s conduct “was a substantial factor in

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bringing about the plaintiff’s harm is open to reasonable

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difference of opinion.”

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quotations omitted).

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Vickers v.

Summary judgment is improper if the question

Id. at 954 (internal citations and

Plaintiff ultimately seeks damages from the Property

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being overvalued and the loan being under-secured.

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offers two arguments causally connecting the moving defendants’

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wrongdoing to plaintiff’s harm.

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Plaintiff

First, plaintiff contends that Bhatti sold the Property

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above its actual value.

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disclosed the true value of the property, plaintiff argues, Kay-

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Co. would have never funded the loans.

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more fundamental level, had Bhatti not sought out Nejad or

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approved the sale to Weisbly, the transaction would not have

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taken place to begin with.

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(Pl.’s Opp’n at 8:18-22.)

Had Bhatti

(Id. at 9:2-6.)

At a

(Id. at 8:23-9:3.)

Second, plaintiff contends Bhatti’s nondisclosure

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regarding the Property’s true value enabled IndyMac to purchase

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the loans.

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loans on the secondary market as part of a bulk package of

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residential mortgage loans with a maximum loan-to-value ratio.

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(Gomez Decl. ¶¶ 7-10.)

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“data points” including the purchase price, along with Varrasso’s

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appraisal, allegedly influenced by Bhatti.

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16, 25:11-19.)

According to plaintiff, IndyMac purchased the Weisbly

The loan purchase considered a number of

(Gomez Dep. at 22:9-

Plaintiff argues that if the purchase price had
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more accurately reflected the value of the Property, IndyMac

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would not and could not have purchased the loans, given that the

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loans would have been under-secured according to IndyMac’s

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formula.

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(Gomez Decl. ¶ 11.)
Based on these facts and inferences, whether the moving

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defendants’ negligence in making the sale was a “substantial

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factor” in causing the lender to suffer losses on the purchase

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loan is not beyond “reasonable difference of opinion.”

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228 F.3d at 954.

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Vickers,

Moving defendants, therefore, are not entitled

to summary judgment on the issue of causation.

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4. Damages

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The moving defendants’ final argument, that plaintiff

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did not suffer damages, fails because the argument relies on the

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Varrasso appraisal valuing the Property at $520,000.00.

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Mem. at 7:25-8:7.)

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Varrasso appraisal valued the Property at $520,000.00, the

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Property was worth more than the loans purchased by IndyMac at

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$499,000.00, and thus IndyMac suffered no loss from the

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transaction.

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the Varrasso appraisal is a factual question at issue in this

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case.

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at $400,000.00).)

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establish that plaintiff did not suffer damages as a matter of

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law.2

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Moving defendants also argue that plaintiff’s damages
were partly the result of market conditions, which resulted in a
decline in residential property values across the region.
(Defs.’ Mem. at 8:8-25.) Other courts invited to follow this
line of reasoning have declined to do so. See F.D.I.C. v. Van
Dellen, No. CV 10-4915 DSF (SHx), 2012 WL 4815159, at *10 (C.D.
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(Defs.’

Moving defendants contend that because the

(Id.)

This ignores, however, that the accuracy of

(See Paddock Decl. ¶ 3 (valuing the Property in late 2006

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The Varrasso appraisal is insufficient to

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Accordingly, because a disputed issue of material fact

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remains with respect to whether Bhatti breached her duty to act

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fairly and honestly in the transaction, and whether that breach

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caused damages to plaintiff, the court will deny the moving

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defendants’ motion for summary judgment on plaintiff’s negligence

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claim.

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B.

Negligent Misrepresentation

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The elements of negligent misrepresentation are: (1)

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the misrepresentation of a past or existing material fact, (2)

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without reasonable ground for believing it to be true, (3) with

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intent to induce another’s reliance on the fact misrepresented,

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(4) justifiable reliance on the misrepresentation, and (5)

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resulting damage.

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Partners, LLC, 158 Cal. App. 4th 226, 243 (2d Dist. 2007).

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“Liability for negligent misrepresentation must flow from an

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assertion of material fact, not from an implied representation or

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nondisclosure.”

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1413 KJM AC, 2013 WL 1310589, at *4 (E.D. Cal. Mar. 28, 2013)

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(citing Yanase v. Auto. Club of So. Cal., 212 Cal. App. 3d 468,

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473 (4th Dist. 1989)).

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Apollo Capital Fund, LLC v. Roth Capital

Wilson v. Household Fin. Corp., No. CIV S-12-

Plaintiff originally contended that Bhatti
misrepresented the purchase price of the Property as $499,000.00,

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Cal. Oct. 5, 2012) (“While evidence on the subject of the
economic downturn is admissible, the downturn is not a
‘superseding cause.’ The focus of this action is Defendants’
conduct at the time the loans were made.”). This argument fails
to establish that plaintiff did not suffer damages attributable
to the moving defendants. The court accordingly declines to take
judicial notice of various economic figures offered by the moving
defendants. (See Req. for Judicial Notice (Docket No. 103-6).)
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and that the true purchase price was some lower amount.

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Compl. at ¶¶ 40-43.)

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the purchase price of the Property was $499,000.00.

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to Defs.’s Separate Stmt. of Undisputed Facts ¶ 20 (Docket No.

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108-1).)

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representations in creating the Purchase Contract and failing to

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disclose information to Kay-Co before the transaction closed.”

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(Pl.’s Mem. at 12:15-16.)

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(See

Plaintiff no longer disputes, however, that
(Pl.’s Resp.

Plaintiff instead argues that “Bhatti made the

Other than the purchase contract, which plaintiff

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contends generally represented the sale as a legitimate

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transaction, plaintiff does not identify a particular affirmative

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misrepresentation by Bhatti or Premier.

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plaintiff’s case is that “Weisbly’s fraudulent purchase of the

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Property was only possible because of Bhatti’s failure to

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disclose” that the Property was overvalued and under-secured and

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that “Indymac was damaged as a direct and proximate result of

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Bhatti’s omissions.”

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see also id. at 9:2-3 (“Bhatti never disclosed to Kay-Co that the

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ultimate purchase price well exceeded the known value of the

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Property.”); id. at 11:19-21 (“[H]ad Defendants accurately

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disclosed that the Property’s known value was less than the

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amount in the Purchase Contract, the Loans could not have been

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sold to IndyMac in the first instance . . . .”).)

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Rather, the heart of

(Pl.’s Opp’n at 4:21-24 (emphasis added);

Although plaintiff suggested at oral argument that

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defendants affirmatively misrepresented the value of the

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Property, no documents support this contention.

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plaintiff comes to an affirmative representation of value is the

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purchase price, which, as discussed above, plaintiff admits was
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The closest

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accurate.

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that the transaction was legitimate.

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negligent misrepresentation] does not apply to implied

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representations.”

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Wilson, 2013 WL 1310589, at *4.

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fails because implication or omission cannot form the basis of an

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action for negligent misrepresentation.

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plaintiff has failed to establish a triable issue with respect to

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its negligent misrepresentation claim, the court will grant

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moving defendants’ motion for summary judgment that claim.

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At most, the purchase contract impliedly represented
However, “the doctrine [of

Yanase, 212 Cal. App. 3d at 473; see also
Plaintiff’s claim therefore

Accordingly, because

IT IS THEREFORE ORDERED that Premier and Bhatti’s

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motion for summary judgment be, and the same hereby is, DENIED as

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to plaintiff’s negligence claim and GRANTED as to plaintiff’s

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negligent misrepresentation claim.

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Dated:

September 30, 2013

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