McMenemy v. Flagship Financial Group, LLC et al
Filing
94
ORDER signed by Judge John A. Mendez on 04/14/15 ORDERING THAT the 75 Motion for Judgment on the Pleadings is DENIED. (Benson, A)
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UNITED STATES DISTRICT COURT
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EASTERN DISTRICT OF CALIFORNIA
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DIANA MCMENEMY, an
individual; and MICHAEL
MCMENEMY, an individual,
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Plaintiffs,
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No.
2:14-cv-1482 JAM AC
ORDER DENYING DEFENDANT
FLAGSHIP’S MOTION FOR JUDGMENT
ON THE PLEADINGS
v.
COLONIAL FIRST LENDING GROUP,
INC., a Utah Corporation;
COLONIAL FIRST BUSINESS
DEVELOPMENT, LLC, a Utah
Limited Liability Company;
DEVIN JONES, an individual;
FLAGSHIP FINANCIAL GROUP,
LLC, and DOES 1 through 10,
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Defendants.
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This matter is before the Court on Defendant Flagship
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Financial Group, LLC’s (“Flagship”) Motion for Judgment on the
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Pleadings (Doc. #75).
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(“Plaintiffs”) oppose Flagship’s motion (Doc. #86) and Flagship
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filed a reply (Doc. #89).
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Plaintiffs Michael and Diana McMenemy 1
For the following reasons, the motion
There is a discrepancy between the spelling of Plaintiffs’
surname as it appears in the caption of this case, and as it
appears in the FAC. For consistency’s sake, it will be spelled
as it appears in the caption.
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is denied.
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I.
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FACTUAL ALLEGATIONS AND PROCEDURAL BACKGROUND
Between June and August 2008, Defendants Colonial, Jones,
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and Colonial FBD “provided mortgage brokerage services to
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Plaintiffs . . . for the purpose of obtaining for Plaintiffs a
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purchase money loan” for 409 French Avenue, Grass Valley,
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California.
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“expressly told Jones and Colonial that they could not afford a
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total monthly mortgage payment that exceeded approximately
First Amended Complaint (“FAC”) ¶¶ 1, 9.
Plaintiffs
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$1,800[.]”
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them, “Colonial and Jones did not have the requisite license from
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the California Department of Real Estate to provide the Mortgage
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Services.”
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to them, “Jones and Colonial divided the Mortgage Services into
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loan origination services . . . which Jones and Colonial
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proceeded to perform, and loan processing services . . . which
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Jones and Colonial contracted with Flagship to perform.”
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¶ 12.
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conceal from Plaintiffs the fact that they were unlicensed.
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¶ 13.
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Colonial and Flagship arranged to have Flagship appear on the
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escrow documents as the Plaintiffs’ mortgage broker, but for
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Colonial and Jones to actually perform the Loan Origination
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Services.”
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shared the fees paid by Plaintiffs.
FAC ¶ 10.
FAC ¶ 11.
Plaintiffs allege that, unbeknownst to
Plaintiffs also allege that, unbeknownst
FAC
Plaintiffs allege that Flagship helped Jones and Colonial
FAC
Moreover, “without disclosure to Plaintiffs, Jones,
FAC ¶ 15.
Defendants Jones, Colonial, and Flagship
FAC ¶ 15.
Plaintiffs
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This motion was determined to be suitable for decision without
oral argument. E.D. Cal. L.R. 230(g). The hearing was
scheduled for March 25, 2015.
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specifically allege that they “did not know, and did not have
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reason to know, about the conduct of Flagship [detailed above]
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until on or about January 5, 2012, when Plaintiffs took the
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deposition of Heather Hodge.”
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FAC ¶ 16.
On February 4, 2014, Plaintiffs filed the Complaint against
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Flagship in Nevada County Superior Court.
On February 18, 2014,
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Flagship removed the matter to this Court.
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Plaintiffs filed the FAC, naming Jones, Colonial, and Colonial
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FBD as defendants along with Flagship.
On March 17, 2014,
The FAC includes claims
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against Flagship for Fraud, Negligent Misrepresentation, Breach
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of Fiduciary Duty, Unfair Competition in violation of Cal.
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Business and Professions Code § 17200, and Conspiracy to Defraud.
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II.
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OPINION
Flagship argues that Plaintiffs’ claims against it must be
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dismissed for failure to comply with the applicable statute of
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limitations. 3
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limitations did not begin to run until January 5, 2012, when they
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took the deposition of Heather Hodge.
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contend that it was only during Ms. Hodge’s deposition that they
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learned the true extent and nature of Flagship’s relationship
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with the remaining Defendants, and the role that Flagship played
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in processing Plaintiffs’ mortgage file.
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reply, Flagship maintains that the statute of limitations began
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to run when Plaintiffs’ loan payments went up, because the
Mot. at 4.
Plaintiffs respond that the statute of
Opp. at 5.
Plaintiffs
Opp. at 6.
In its
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Although Flagship originally cites the four-year statute of
limitations for contract-based actions, Plaintiffs correctly
assert that three-year statute of limitations for fraud-based
actions applies to their claims. Flagship adopts this position in
its reply brief.
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circumstances would lead a reasonable person to inquire as to
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Flagship’s involvement.
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“Plaintiffs had knowledge or constructive knowledge of Flagship’s
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involvement in their home purchase in 2008,” based on documents
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which are not properly before the Court – an issue which is
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addressed below.
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Reply at 3. Flagship also argues that
Reply at 3.
Generally, an action may not be dismissed at the pleading
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stage based on the statute of limitations “unless it is clear
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from the face of the complaint that the statute has run and that
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no tolling is possible.”
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Networks, Inc., 2011 WL 1044899, at *3 (N.D. Cal. Mar. 23, 2011)
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(citing Conerly v. Westinghouse Electric Corp., 623 F.2d 117, 119
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(9th Cir. 1980)); see also Jablon v. Dean Witter & Co., 614 F.2d
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677, 682 (9th Cir. 1980) (“When a motion to dismiss is based on
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the running of a statute of limitations, it can be granted only
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if the assertions of the complaint, read with the required
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liberality, would not permit the plaintiff to prove that the
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statute was tolled.”).
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tolling based on delayed discovery is usually a question of fact
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for the jury, unless the “uncontradicted facts are susceptible of
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only one legitimate inference.”
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4th 1369, 1374, 105 Cal. Rptr. 2d 699 (2001)
Brocade Commc’ns Sys., Inc. v. A10
Whether a plaintiff is entitled to
Kline v. Turner, 87 Cal. App.
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To avail itself of delayed discovery tolling, a plaintiff
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must “plead facts to show (1) the time and manner of discovery
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and (2) the inability to have made an earlier discovery despite
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reasonable diligence.”
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Servs., 153 Cal.App.4th 1308, 1320 (2007) (emphasis omitted); Rey
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v. OneWest Bank, FSB, 2013 WL 127839, at *5 (E.D. Cal. Jan. 9,
See E-Fab, Inc. v. Accountants, Inc.
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2013).
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triggered when the plaintiff “has reason to suspect an injury and
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some wrongful cause[.]”
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plaintiff fails to suspect such an injury because she relied on a
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misrepresentation, she may invoke the delayed discovery doctrine
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unless her reliance, “in light of [its] own information and
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intelligence, is preposterous and irrational.”
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Guardian Life Ins. Co. of Am., 171 Cal.App.4th 912, 922-23 (2009)
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(citation and quotation marks omitted) (reversing dismissal where
But a plaintiff’s duty to diligently investigate is only
E-Fab, 153 Cal.App.4th at 1319.
If a
Broberg v.
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plaintiff relied on misrepresentations by defendant despite
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having access to a document that – had plaintiff read it – would
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have revealed the misrepresentations).
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Here, Flagship’s alleged fraudulent conduct occurred in
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2008.
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until January 2014.
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Flagship is grounded in fraud, the applicable statute of
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limitations is three years.
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Accordingly, Plaintiffs’ claims against Flagship must be
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dismissed unless the Court determines that Plaintiffs are
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entitled to tolling based on delayed discovery “of the facts
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constituting the fraud.”
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Plaintiffs did not file the Complaint, naming Flagship,
As each of Plaintiff’s claims against
Cal. Civ. Proc. Code § 338(d).
Cal. Civ. Proc. Code § 338(d).
In the FAC, Plaintiffs allege the following conduct by
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Flagship: (1) Flagship performed loan processing services for
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Jones and Colonial (FAC ¶ 12); (2) Flagship helped Jones and
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Colonial hide the fact that they were unlicensed from Plaintiffs
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(FAC ¶ 13); (3) Flagship knew that the monthly loan payments
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would eventually exceed Plaintiffs’ ability to pay (FAC ¶ 14);
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and (4) Flagship, Jones, and Colonial divided between themselves
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the mortgage brokerage, loan origination, and loan processing
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fees paid by Plaintiffs.
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they “did not know, and did not have reason to know, about the
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conduct of Flagship [summarized above] until on or about January
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5, 2012, when Plaintiffs took the deposition of Heather Hodge.”
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FAC ¶ 16.
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Plaintiffs specifically allege that
As required under E-Fab v. Accountants, Plaintiffs have
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alleged “(1) the time and manner of discovery and (2) the
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inability to have made an earlier discovery despite reasonable
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diligence.”
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of Flagship’s alleged misconduct on January 5, 2012, through the
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deposition testimony of Heather Hodge.
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the information earlier because Defendants concealed that
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information.
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misconduct due to its reliance on a defendant’s
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misrepresentations will only preclude the plaintiff’s invocation
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of the delayed discovery doctrine if such reliance was, “in light
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of [its] own information and intelligence, . . .
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and irrational.”
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Cal.App.4th 912, 922-23 (2009).
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that Plaintiffs’ reliance was “preposterous and irrational,” as
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they had no reason to suspect any extensive involvement or
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misconduct by Flagship.
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claims against Flagship, the statute of limitations was tolled
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until January 5, 2012, under the delayed discovery rule.
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Plaintiffs filed the Complaint against Flagship in January 2014,
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the action was timely and the statute of limitations had not
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expired.
E-Fab, 153 Cal.App.4th at 1320.
Plaintiffs learned
They were unable to learn
As noted above, a plaintiff’s failure to learn of
preposterous
Broberg v. Guardian Life Ins. Co. of Am., 171
In this case, it cannot be said
Accordingly, for each of Plaintiffs’
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As
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Flagship makes several arguments in opposition to
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Plaintiffs’ invocation of the delayed discovery rule.
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Flagship argues that “Plaintiffs had knowledge or constructive
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knowledge of Flagship’s involvement in their home purchase in
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2008 [because the] Uniform Residential Loan Application shows
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that Flagship interviewed the Plaintiffs” and because the
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“closing statement shows Flagship’s Loan Origination fee, Credit
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report fee, Processing fee, Application fee, and Mortgage Broker
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fee.”
Reply at 3.
First,
This argument is based on documents which are
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not properly before the Court: in support of its motion, Flagship
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attached two documents which it claims are a loan application and
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a closing statement on Plaintiff’s mortgage.
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Ex. B.
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judicial notice of these documents (nor are they the proper
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subjects of judicial notice, as they are not public records).
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The Court is limited to “the face of the complaint” and may not
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consider the extrinsic evidence submitted by Flagship.
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2011 WL 1044899, at *3.
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first time in its reply brief – that the Court should convert its
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motion into a motion for summary judgment, is not well-taken.)
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Moreover, even if the Court were to consider these documents, it
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is far from clear that they demonstrate that Plaintiffs were on
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constructive notice of Flagship’s alleged wrongdoing: Plaintiffs
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allege fraudulent concealment by Flagship, not mere involvement
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in the processing of their loan.
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not properly before the Court and this argument carries no
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weight.
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Mot., Ex. A; Mot.,
However, Flagship makes no request that the Court take
Brocade,
(Flagship’s suggestion – made for the
Regardless, the documents are
Flagship also argues that the statute of limitations began
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to run, at the latest, “in 2010, the year in which Plaintiffs
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allege their monthly payments first went up.”
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argument shares the same flaw as the argument discussed above: it
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relies on a document not properly before the Court.
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demonstrate that Plaintiffs’ loan payments first increased in
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2010, Flagship cites an attachment to its reply brief, which
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purports to be a loan modification request submitted by
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Plaintiffs.
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motion for judgment on the pleadings, the Court is limited to the
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face of the complaint, and Flagship does not argue that the Court
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can or should take judicial notice of this document.
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even assuming that Plaintiffs became generally aware of fraud in
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2010, it does not follow that they became aware of Flagship’s
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fraud in 2010.
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the nature and extent of Flagship’s involvement in the alleged
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fraud until taking the deposition of Heather Hodge in 2012.
Reply, Ex. A.
Reply at 3.
This
To
As noted above, in evaluating this
Moreover,
As alleged by Plaintiffs, they did not learn of
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III.
ORDER
For the reasons set forth above, the Court DENIES Flagship’s
Motion for Judgment on the Pleadings:
IT IS SO ORDERED.
Dated: April 14, 2015
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