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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1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 EASTERN DISTRICT OF CALIFORNIA 10 11 12 DIANA MCMENEMY, an individual; and MICHAEL MCMENEMY, an individual, 13 Plaintiffs, 14 15 16 17 18 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, 19 Defendants. 20 21 This matter is before the Court on Defendant Flagship 22 Financial Group, LLC’s (“Flagship”) Motion for Judgment on the 23 Pleadings (Doc. #75). 24 (“Plaintiffs”) oppose Flagship’s motion (Doc. #86) and Flagship 25 filed a reply (Doc. #89). 26 1 27 28 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. 1 1 is denied. 2 I. 3 2 FACTUAL ALLEGATIONS AND PROCEDURAL BACKGROUND Between June and August 2008, Defendants Colonial, Jones, 4 and Colonial FBD “provided mortgage brokerage services to 5 Plaintiffs . . . for the purpose of obtaining for Plaintiffs a 6 purchase money loan” for 409 French Avenue, Grass Valley, 7 California. 8 “expressly told Jones and Colonial that they could not afford a 9 total monthly mortgage payment that exceeded approximately First Amended Complaint (“FAC”) ¶¶ 1, 9. Plaintiffs 10 $1,800[.]” 11 them, “Colonial and Jones did not have the requisite license from 12 the California Department of Real Estate to provide the Mortgage 13 Services.” 14 to them, “Jones and Colonial divided the Mortgage Services into 15 loan origination services . . . which Jones and Colonial 16 proceeded to perform, and loan processing services . . . which 17 Jones and Colonial contracted with Flagship to perform.” 18 ¶ 12. 19 conceal from Plaintiffs the fact that they were unlicensed. 20 ¶ 13. 21 Colonial and Flagship arranged to have Flagship appear on the 22 escrow documents as the Plaintiffs’ mortgage broker, but for 23 Colonial and Jones to actually perform the Loan Origination 24 Services.” 25 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 26 27 28 2 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. 2 1 specifically allege that they “did not know, and did not have 2 reason to know, about the conduct of Flagship [detailed above] 3 until on or about January 5, 2012, when Plaintiffs took the 4 deposition of Heather Hodge.” 5 FAC ¶ 16. On February 4, 2014, Plaintiffs filed the Complaint against 6 Flagship in Nevada County Superior Court. On February 18, 2014, 7 Flagship removed the matter to this Court. 8 Plaintiffs filed the FAC, naming Jones, Colonial, and Colonial 9 FBD as defendants along with Flagship. On March 17, 2014, The FAC includes claims 10 against Flagship for Fraud, Negligent Misrepresentation, Breach 11 of Fiduciary Duty, Unfair Competition in violation of Cal. 12 Business and Professions Code § 17200, and Conspiracy to Defraud. 13 II. 14 OPINION Flagship argues that Plaintiffs’ claims against it must be 15 dismissed for failure to comply with the applicable statute of 16 limitations. 3 17 limitations did not begin to run until January 5, 2012, when they 18 took the deposition of Heather Hodge. 19 contend that it was only during Ms. Hodge’s deposition that they 20 learned the true extent and nature of Flagship’s relationship 21 with the remaining Defendants, and the role that Flagship played 22 in processing Plaintiffs’ mortgage file. 23 reply, Flagship maintains that the statute of limitations began 24 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 25 3 26 27 28 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. 3 1 circumstances would lead a reasonable person to inquire as to 2 Flagship’s involvement. 3 “Plaintiffs had knowledge or constructive knowledge of Flagship’s 4 involvement in their home purchase in 2008,” based on documents 5 which are not properly before the Court – an issue which is 6 addressed below. 7 Reply at 3. Flagship also argues that Reply at 3. Generally, an action may not be dismissed at the pleading 8 stage based on the statute of limitations “unless it is clear 9 from the face of the complaint that the statute has run and that 10 no tolling is possible.” 11 Networks, Inc., 2011 WL 1044899, at *3 (N.D. Cal. Mar. 23, 2011) 12 (citing Conerly v. Westinghouse Electric Corp., 623 F.2d 117, 119 13 (9th Cir. 1980)); see also Jablon v. Dean Witter & Co., 614 F.2d 14 677, 682 (9th Cir. 1980) (“When a motion to dismiss is based on 15 the running of a statute of limitations, it can be granted only 16 if the assertions of the complaint, read with the required 17 liberality, would not permit the plaintiff to prove that the 18 statute was tolled.”). 19 tolling based on delayed discovery is usually a question of fact 20 for the jury, unless the “uncontradicted facts are susceptible of 21 only one legitimate inference.” 22 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. 23 To avail itself of delayed discovery tolling, a plaintiff 24 must “plead facts to show (1) the time and manner of discovery 25 and (2) the inability to have made an earlier discovery despite 26 reasonable diligence.” 27 Servs., 153 Cal.App.4th 1308, 1320 (2007) (emphasis omitted); Rey 28 v. OneWest Bank, FSB, 2013 WL 127839, at *5 (E.D. Cal. Jan. 9, See E-Fab, Inc. v. Accountants, Inc. 4 1 2013). 2 triggered when the plaintiff “has reason to suspect an injury and 3 some wrongful cause[.]” 4 plaintiff fails to suspect such an injury because she relied on a 5 misrepresentation, she may invoke the delayed discovery doctrine 6 unless her reliance, “in light of [its] own information and 7 intelligence, is preposterous and irrational.” 8 Guardian Life Ins. Co. of Am., 171 Cal.App.4th 912, 922-23 (2009) 9 (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. 10 plaintiff relied on misrepresentations by defendant despite 11 having access to a document that – had plaintiff read it – would 12 have revealed the misrepresentations). 13 Here, Flagship’s alleged fraudulent conduct occurred in 14 2008. 15 until January 2014. 16 Flagship is grounded in fraud, the applicable statute of 17 limitations is three years. 18 Accordingly, Plaintiffs’ claims against Flagship must be 19 dismissed unless the Court determines that Plaintiffs are 20 entitled to tolling based on delayed discovery “of the facts 21 constituting the fraud.” 22 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 23 Flagship: (1) Flagship performed loan processing services for 24 Jones and Colonial (FAC ¶ 12); (2) Flagship helped Jones and 25 Colonial hide the fact that they were unlicensed from Plaintiffs 26 (FAC ¶ 13); (3) Flagship knew that the monthly loan payments 27 would eventually exceed Plaintiffs’ ability to pay (FAC ¶ 14); 28 and (4) Flagship, Jones, and Colonial divided between themselves 5 1 the mortgage brokerage, loan origination, and loan processing 2 fees paid by Plaintiffs. 3 they “did not know, and did not have reason to know, about the 4 conduct of Flagship [summarized above] until on or about January 5 5, 2012, when Plaintiffs took the deposition of Heather Hodge.” 6 FAC ¶ 16. 7 Plaintiffs specifically allege that As required under E-Fab v. Accountants, Plaintiffs have 8 alleged “(1) the time and manner of discovery and (2) the 9 inability to have made an earlier discovery despite reasonable 10 diligence.” 11 of Flagship’s alleged misconduct on January 5, 2012, through the 12 deposition testimony of Heather Hodge. 13 the information earlier because Defendants concealed that 14 information. 15 misconduct due to its reliance on a defendant’s 16 misrepresentations will only preclude the plaintiff’s invocation 17 of the delayed discovery doctrine if such reliance was, “in light 18 of [its] own information and intelligence, . . . 19 and irrational.” 20 Cal.App.4th 912, 922-23 (2009). 21 that Plaintiffs’ reliance was “preposterous and irrational,” as 22 they had no reason to suspect any extensive involvement or 23 misconduct by Flagship. 24 claims against Flagship, the statute of limitations was tolled 25 until January 5, 2012, under the delayed discovery rule. 26 Plaintiffs filed the Complaint against Flagship in January 2014, 27 the action was timely and the statute of limitations had not 28 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’ 6 As 1 Flagship makes several arguments in opposition to 2 Plaintiffs’ invocation of the delayed discovery rule. 3 Flagship argues that “Plaintiffs had knowledge or constructive 4 knowledge of Flagship’s involvement in their home purchase in 5 2008 [because the] Uniform Residential Loan Application shows 6 that Flagship interviewed the Plaintiffs” and because the 7 “closing statement shows Flagship’s Loan Origination fee, Credit 8 report fee, Processing fee, Application fee, and Mortgage Broker 9 fee.” Reply at 3. First, This argument is based on documents which are 10 not properly before the Court: in support of its motion, Flagship 11 attached two documents which it claims are a loan application and 12 a closing statement on Plaintiff’s mortgage. 13 Ex. B. 14 judicial notice of these documents (nor are they the proper 15 subjects of judicial notice, as they are not public records). 16 The Court is limited to “the face of the complaint” and may not 17 consider the extrinsic evidence submitted by Flagship. 18 2011 WL 1044899, at *3. 19 first time in its reply brief – that the Court should convert its 20 motion into a motion for summary judgment, is not well-taken.) 21 Moreover, even if the Court were to consider these documents, it 22 is far from clear that they demonstrate that Plaintiffs were on 23 constructive notice of Flagship’s alleged wrongdoing: Plaintiffs 24 allege fraudulent concealment by Flagship, not mere involvement 25 in the processing of their loan. 26 not properly before the Court and this argument carries no 27 weight. 28 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 7 1 to run, at the latest, “in 2010, the year in which Plaintiffs 2 allege their monthly payments first went up.” 3 argument shares the same flaw as the argument discussed above: it 4 relies on a document not properly before the Court. 5 demonstrate that Plaintiffs’ loan payments first increased in 6 2010, Flagship cites an attachment to its reply brief, which 7 purports to be a loan modification request submitted by 8 Plaintiffs. 9 motion for judgment on the pleadings, the Court is limited to the 10 face of the complaint, and Flagship does not argue that the Court 11 can or should take judicial notice of this document. 12 even assuming that Plaintiffs became generally aware of fraud in 13 2010, it does not follow that they became aware of Flagship’s 14 fraud in 2010. 15 the nature and extent of Flagship’s involvement in the alleged 16 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 17 18 19 20 21 22 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 23 24 25 26 27 28 8

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