Sanders v. Fidelity Mortgage Company et al

Filing 130

REPORT AND RECOMMENDATIONS re 122 MOTION for Default Judgment as to DEFENDANT JOEL ATWATER filed by Scott R. Sanders Objections to R&R due by 1/21/2010. Signed by Judge Maria-Elena James on 1/7/2010. (mejlc1, COURT STAFF) (Filed on 1/7/2010)

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1 2 3 4 5 6 7 8 9 10 11 UNITED UNITED STATES DISTRICT COURT 12 For the Northern District of California UNITED STATES DISTRICT COURT Northern District of California SCOTT R. SANDERS v. Plaintiff, No. C 05-4990 MHP (MEJ) REPORT & RECOMMENDATION RE DAMAGES FIDELITY MORTGAGE COMPANY et al., Defendants. _____________________________________/ I. BACKGROUND On May 5, 2009, the Honorable Marilyn Hall Patel, the presiding judge in this action, issued a Memorandum & Order regarding Plaintiff's Motion for Default Judgment. (Dkt. #120.) In her Order, Judge Patel granted default judgment in favor of Plaintiff and against Defendant Joel Atwater. However, Judge Patel found that Plaintiff had not submitted sufficient documentation and testimony regarding his claimed damages to enable the Court to determine the dollar amount it should award to Plaintiff. (Id. at 6.) Accordingly, Judge Patel referred the matter to the undersigned to hold an evidentiary hearing on the issue of damages and to make findings of fact and recommendations regarding the specific amounts that should be awarded. Judge Patel also instructed Plaintiff that at the hearing, he will need to provide evidentiary support, such as documents, affidavits, or witness or expert testimony to corroborate his claimed damages. (Id.) Further, with respect to each area of damages Plaintiff requested, Judge Patel outlined what evidence he would need to submit and what questions he would need to address to enable the undersigned to make a recommendation regarding the proper amount of damages recoverable. Following Judge Patel's Order, on July 31, 2009, Plaintiff filed a second Motion for Default Judgment (Dkt. #124), and submitted a revised Declaration (Dkt. #123) with supporting documents. However, Plaintiff's materials did not present any discussion addressing the questions Judge Patel 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 1 2 3 4 5 6 7 8 9 10 11 UNITED STATES DISTRICT COURT 12 For the Northern District of California posed in her Order or any explanation regarding how the documents attached to the revised Declaration support Plaintiff's request for damages. As a result, the undersigned issued an Order continuing the evidentiary hearing to allow Plaintiff an opportunity to marshal and present whatever evidence he has substantiating his damages and to address Judge Patel's questions. (Dkt. #125.) In response, Plaintiff filed a Supplemental Brief (Dkt. #126) and a Supplemental Declaration (Dkt. #127). On September 24, 2009, the undersigned held an evidentiary hearing regarding Plaintiff's damages. Having considered Plaintiff's written submissions, supporting materials, and the evidence presented at the hearing, the undersigned now RECOMMENDS as follows. II. DISCUSSION A. Compensatory Damages In his Motion for Default Judgment, Plaintiff sought to recover compensatory damages for his out-of-pocket losses, damage to his credit rating, and for emotional distress. (Dkt. #112 at 2; Dkt. #120 at 7.) The undersigned will evaluate each category in turn. 1. Out-of-Pocket Damages 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 With respect to Plaintiff's out-of-pocket damages, Judge Patel found that Plaintiff was entitled to recover the following out-of-pocket damages: the down payment on the house; mortgage payments; moving costs (both into and out of the house); improvements to the house; maintenance costs; property taxes; and property insurance premium payments. (Dkt. #120 at 7.) She therefore instructed Plaintiff to provide to the undersigned evidence documenting these losses. (Id. at 8.) Plaintiff indicates that he is seeking $52,070.69 in out-of-pocket damages from Defendant Atwater, calculated as follows. (Suppl. Decl. at 1; Dkt. #113 23; Dkt. #123 25.) First, Plaintiff seeks to recover the $1,000 down payment he made on the house. (Dkt. #123 25; Suppl. Decl. 5.) To substantiate this expenditure, Plaintiff has submitted a copy of check drawn on his wife's checking account and made out to First California Title for $1,000. (Suppl. Decl. Ex. A.) Because the check does not indicate that Plaintiff is a joint account holder and Plaintiff has not provided any information indicating that $1,000 was community funds, the undersigned finds that Plaintiff has not provided sufficient evidence to substantiate his claim that he 2 1 2 3 4 5 6 7 8 9 10 11 UNITED STATES DISTRICT COURT 12 For the Northern District of California lost $1,000 on the down payment. Second, Plaintiff seeks to recover moving expenses incurred in connection with both the move into the house and the move out of the house. Plaintiff asserts that he incurred $750 in expenses when moving into the house (Suppl. Decl. 5(c)), and $250 when moving out of the house (Suppl. Decl. 5(I)). Plaintiff, however, indicates that he does not have any receipts substantiating these amounts. Plaintiff has described the types of expenses he claims he incurred during the move, including packaging materials, time off of work, and gas and meals for those who assisted him. Based on Plaintiff's statements, the undersigned finds that Plaintiff's requested amount of $1,000 for move-in and move-out expenses is reasonable and should be awarded. Third, Plaintiff seeks to recover for payments he made on the first and second mortgages. As to the first mortgage, Plaintiff states that he made payments to Washington Mutual from January 2005 through May 2007 totaling $56,572.61. (Dkt. #123 20 & Ex.2.) Plaintiff has submitted statements from Washington Mutual, which sufficiently substantiate that he paid $56,572.61 on the first mortgage. With respect to his second mortgage, Plaintiff claims that he made payments totaling $20,185.05. (Suppl. Decl. 5(B)(d), 5(B)(e).) More specifically, Plaintiff claims that from January through August 2005, he paid $5,581.12 to Washington Mutual. The undersigned has reviewed the Washington Mutual Account Activity Statement from 2005 that Plaintiff submitted (Dkt. #123 20 & Ex. 3.), and finds that Plaintiff has adequately established that he paid $5,581.12 to Washington Mutual. Additionally, Plaintiff claims that from September 2005 through July 2006, he paid $9,792.62 on the second mortgage to EMC. (Dkt. #123 20.) However, the statement from EMC that Plaintiff has submitted indicates that he only paid $7,560.63. (See Dkt. #123, Ex. 3 at 2-3.) Plaintiff also claims that from August 2006 through May 2007, he paid $7,043.30 to GMAC. (Dkt. #123 20.) However, the statement from GMAC Plaintiff submitted indicates that he made payments totaling $6,958.30.1 Based on the these figures, the undersigned finds that Plaintiff has 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 The statement from GMAC indicates that Plaintiff was assessed an $85.00 fee, which he paid. However, it appears that Plaintiff has added that fee twice when calculating the total amount 3 1 1 2 3 4 5 6 7 8 9 10 11 UNITED STATES DISTRICT COURT 12 For the Northern District of California adequately demonstrated that he paid $20,100.05 on his second mortgage. Taken together, Plaintiff made $76,672.66 in mortgage payments on his first and second mortgages for which he is entitled to recover. Fourth, Plaintiff seeks to recover for the homeowners' association dues he paid. In his Declarations, Plaintiff proffers conflicting amounts as to the total fees he paid. In his July 28, 2009 Declaration, he indicates that he paid $1,065 from January 2005 through June 2008, (Dkt. #123 13.) In his Supplemental Declaration, Plaintiff indicates that he paid $1,225 in HOA dues from December 2004 through December 2008. (Dkt. #127, Suppl. Decl. 5(e).) In support of his claim, Plaintiff has submitted some checks reflecting payments made, a billing statement from the HOA from December 2008, and an email from the HOA indicating that he had no outstanding fees as of March 2009. The undersigned has reviewed these documents, and based on the figures Plaintiff provided, finds that Plaintiff paid $1225 in HOA fees, which he is entitled to recover. Fifth, Plaintiff requests that he be awarded the money he spent on improvements and maintenance on the house. Although Plaintiff's Declarations indicate that he is seeking $8,000 for such expenditures, at the evidentiary hearing, Plaintiff's counsel clarified that Plaintiff is only seeking to recover $1,000 for these expenses. Plaintiff also indicated that he does not have any receipts documenting the expenses. (Suppl. Decl 5(d).) According to Plaintiff, he expended this money on ceiling fans, paint, wallpaper, a garbage disposal, a stove top, wall fixtures, automatic sprinklers, and landscaping. (Suppl. Decl. 5(D).) The undersigned has considered Plaintiff's statements regarding the money he expended on improvements and maintenance and based on such representations, finds that Plaintiff spent at least $1,000, for which he is entitled to recover. Sixth, Plaintiff requests that the Court award him $2,453.55 for property taxes he paid on the house. (Suppl. Decl 5(F).) Plaintiff has submitted property tax bills, which the undersigned has reviewed and finds that they substantiate the requested amount of $2,453.55. (Dkt. #123 20 & Ex. 5.) 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 of payments he made to GMAC. The undersigned's determination that Plaintiff paid $6,958.30 reflects one-time payment of the $85.00 fee. 4 1 2 3 4 5 6 7 8 9 10 11 UNITED STATES DISTRICT COURT 12 For the Northern District of California Finally, Plaintiff seeks to recover $2,274.48 that he claims he expended on property insurance premiums on the house. (Suppl. Decl. 5(G).) Plaintiff has submitted statements reflecting the amounts paid. (Dkt. #123 20 & Ex. 4.) The undersigned has reviewed the statements and considered the premium amounts for the months for which Plaintiff does not have statements, and finds that Plaintiff has sufficiently established that he paid $2,274.28 in property insurance, for which he is entitled to recover. Taken the foregoing figures together, Plaintiff shown that he is entitled to $84,625.49 in outof-pocket damages. However, Plaintiff also acknowledges that this amount must be reduced by the amount of corresponding expenses he would have incurred had he not purchased the house through Defendant Atwater. In his Declaration, Plaintiff indicates that had Defendant Atwater not defrauded him, he would have continued to rent an apartment at a rate of $800 a month. (Dkt. #123 25.) Because Plaintiff would have incurred at least $33,600 in rent during the time he lived in the house he purchased, this amount should be offset against the total amount of his out-of-pocket damages, reducing the total to $51,025.49. Accordingly, the undersigned RECOMMENDS that the Court award Plaintiff $51,025.49 in out-of-pocket damages. 2. Damage to Credit Rating 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 In his Supplemental Declaration, Plaintiff indicates that he is no longer seeking to recover for damage to his credit rating. (Suppl. Decl. 4, 6.) Accordingly, this issue is moot. 3. Emotional Distress In his Supplemental Declaration, Plaintiff indicates that he is seeking $55,000 in damages for his emotional distress. (Suppl. Decl. 4.) In support of this amount Plaintiff indicates that, as a result of his dealings with Defendant Atwater relating to the purchase of the house, his relationship with his wife became severely strained. (Dkt. #123 24.) Plaintiff also states that, as a result the stress he experienced in connection with the house, he had to see a therapist, who prescribed an antidepressant. (Id.) When his condition worsened, he again saw the therapist and was prescribed a second anti-depressant, as well as a prescription for sleeping pills. (Id.) He indicates that he incurred co-payments of over $120 for the office visits and prescriptions. 5 1 2 3 4 5 6 7 8 9 10 11 UNITED STATES DISTRICT COURT 12 For the Northern District of California Aside from the foregoing statements, Plaintiff has not submitted any other documentary evidence regarding the amounts he paid out in pursuing medical care or any medical evidence of his symptoms. As a result, the undersigned must base the appropriate amount of emotional distress damages strictly on Plaintiff's statements in his Declarations and his counsel's description at the evidentiary hearing. Like Judge Patel, the undersigned finds that Plaintiff's representations regarding the emotional distress he suffered to be credible, particularly in light of the circumstances of this case. However, Plaintiff has not presented any explanation as to how he arrived at the $55,000 figure he requests. Considering Plaintiff's description of the distress he suffered as a result of his dealings with Defendant Atwater, the undersigned finds that an award of $25,000 is reasonable. The undersigned therefore RECOMMENDS that the Court award $25,000 to compensate Plaintiff for his emotional distress. 4. Compensatory Damages Already Awarded Against Other Defendants 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Finally, Judge Patel noted in her Order that Plaintiff's compensatory damages award against Defendant Atwater must be offset against any compensatory damages that have already been awarded to Plaintiff against any other defendants in this case. (Dkt. #120 at 8-9.) In his Declaration, Plaintiff indicates that he obtained a judgement of non-dischargeability in bankruptcy court for $52,325.69 against Defendant Coker dba Fidelity Mortgage Company and Pacific Home Brokers. (Dkt. #123 28 & Ex.6.) However, Plaintiff states that he has not received any money from that judgment. (Id.) Because Plaintiff has not recovered any of his compensatory damages from Defendant Coker, there is no basis to reduce the amount of his compensatory damages. However, should Plaintiff receive any payment from Defendant Coker in satisfaction of his judgment against him, Plaintiff's compensatory damage award against Defendant Atwater should be reduced accordingly. 5. Compensatory Damages Recommendation In sum, with respect to compensatory damages, the undersigned RECOMMENDS that the Court award Plaintiff $51,025.49 in out of pocket damages and $25,000 for emotional distress, for a total of $76,025.49 in compensatory damages. 6 1 2 3 4 5 6 7 8 9 10 11 UNITED STATES DISTRICT COURT 12 For the Northern District of California B. Punitive Damages In her Order, Judge Patel found that Plaintiff had established by clear and convincing evidence that he is entitled to punitive damages. (Dkt. #120 at 9.) She therefore instructed the undersigned to consider and make recommendations on the appropriate amount of punitive damages to award. Plaintiff requests an award of $25,000 in punitive damages. (Suppl. Decl. 4.) The question, then, is whether this amount is reasonable. Under California law, when assessing punitive damages, courts are to consider: (1) the degree of reprehensibility of the defendant's conduct; (2) the amount of compensatory damages awarded to the plaintiff; and (3) the wealth of the defendant. Neal v. Farmers Ins. Exchange, 21 Cal. 3d 910, 928 (1978); see also Harrell v. Kepreos, No. CIV S-06-0849, 2008 WL 619117, at *4 (E.D. Cal. Mar. 4, 2008). With respect to the first factor, as Judge Patel highlighted in her Order, Defendant Atwater made a series of misrepresentations to Plaintiff, including that he could secure a loan for Plaintiff that he could afford and which did not have a pre-payment penalty. After the loan payments exceeded what he had represented to Plaintiff, Defendant Atwater assured Plaintiff that he could refinance his loans into one consolidated loan that would reduce the monthly payments by half, at no cost to Plaintiff. Defendant Atwater, however, never delivered on this representation. Defendant Atwater also falsified information on Plaintiff's loans applications without Plaintiff's knowledge and misrepresented other material terms of the loans to Plaintiff. As a result of Defendant Atwater's conduct, Plaintiff was unable to afford the monthly payments on the two loans and ultimately defaulted on the loans. Throughout this period, Plaintiff experienced emotional distress and his relationship with his wife became strained. These facts demonstrate the reprehensibility of Defendant Atwater's conduct and support the need for punitive damages to deter him from similar conduct in the future. As to the second factor, as indicated above, the undersigned recommends that the Court award $76,025.49 in compensatory damages. Plaintiff's requested amount of punitive damages is thus less than the amount of his compensatory damages and is not excessive in relation to his actual 7 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 1 2 3 4 5 6 7 8 9 10 11 UNITED STATES DISTRICT COURT 12 For the Northern District of California damages. Looking at the final factor, which focuses on the defendant's financial condition, Plaintiff has not submitted any evidence regarding Defendant Atwater's financial status. The California Supreme Court has indicated that evidence of a defendant's financial condition is a prerequisite to an award of punitive damages in order to ensure that the award will actually serve to deter the defendant's conduct. Adams v. Murakami, 54 Cal. 3d 105, 119 (1991). Without such information, the undersigned cannot determine whether the amount of punitive damages Plaintiff seeks exceeds the amount necessary to properly punish and deter Defendant Atwater from future misconduct. See id. at 110. Consequently, because Plaintiff has not met his burden of producing evidence on this factor, the undersigned RECOMMENDS that the Court DENY WITHOUT PREJUDICE Plaintiff's request for an award of $25,000 in punitive damages and GRANT Plaintiff leave to marshal evidence relating to Defendant Atwater's financial condition and move for reconsideration of the proper amount of punitive damages that should be awarded. C. Disgorgement Pursuant to California Unfair Business Practices Law In her Order, Judge Patel found that Plaintiff had established Defendant Atwater's actions violated California business law, and therefore California's unfair competition law, such that Plaintiff could disgorge Defendant Atwater of any money Plaintiff paid him in connection with his unlawful business practices. (Dkt. #120 at 10.) Toward this end, Judge Patel directed Plaintiff to prepare and provide evidence as to what money he paid Defendant Atwater in connection with his provision of real estate services. (Id.) To guide Plaintiff, the Court explained that the settlement statement that Plaintiff submitted was insufficient to establish the amount he paid to Defendant Atwater. (Id.) Specifically, the Court noted that although Plaintiff alleged that the statement demonstrates that he paid $9,875 to Pacific, line 702 of the settlement statement indicates that the commission was paid from the seller's funds, not Plaintiff's funds. (Id.) Additionally, the Court noted that although Plaintiff alleges that he paid $6,800 to Fidelity, the documents Plaintiff submitted only reflect that Plaintiff paid Fidelity a loan origination fee, a processing fee, and a broker underwriting fee, totaling $4,100. (Id. at 10-11) Finally, Judge Patel noted that even if 8 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 1 2 3 4 5 6 7 8 9 10 11 UNITED STATES DISTRICT COURT 12 For the Northern District of California Plaintiff could establish the total amount he paid to Pacific and Fidelity, Plaintiff must provide evidence corroborating his allegations that Defendant Atwater was paid all but $500 of this amount. (Id. at 11) Reviewing the documents Plaintiff filed after Judge Patel issued her Order, Plaintiff has resubmitted the same evidence Judge Patel previously reviewed. Specifically, in his July 28 Declaration, Plaintiff alleges that according to the settlement statement attached to his Declaration, Pacific received a broker's commission in the amount of $9,875 and Fidelity received $6,800 in connection with the making of his loans, for a total of $16,675. (Dkt. #123 12,27; Suppl. Decl. #7) Plaintiff has not offered any explanation addressing the questions Judge Patel previously posed regarding these amounts. Thus, as an initial matter, Plaintiff has not substantiated his allegations that he paid $16,675 to Pacific and Fidelity. Moreover, as indicated above, in order to seek disgorgement of fees paid to Defendant Atwater, Plaintiff has the burden of establishing that Defendant Atwater actually was paid those fees. As he did in his Motion for Default Judgment, Plaintiff alleges Defendant Coker stated that Defendant Atwater received all but $500 of the $16,675 in fees and commissions that he paid. Plaintiff, however, has not provided any other information about the statement from Defendant Coker, such as when he made the statement, to whom he made it, or the context or setting in which he made the statement. Without such information, the undersigned cannot assess the reliability of the proffered statement. Aside from this statement, Plaintiff has not provided any other evidence to corroborate his allegation that Defendant Atwater was paid all $500 of the fees he paid to Defendant Coker and/or Fidelity or Pacific. As a result, the undersigned finds that Plaintiff has failed to sufficiently establish the amount of money he paid Defendant Atwater in connection with his unlawful business practices. The undersigned therefore RECOMMENDS that the Court DENY Plaintiff's request for disgorgement of $16,175 from Defendant Atwater. D. Costs In her Order, Judge Patel found that Plaintiff, as the prevailing party in this action, is entitled to recover costs. (Dkt. #120.) In March 2009, Plaintiff's counsel filed a declaration stating that, at 9 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 1 2 3 4 5 6 7 8 9 10 11 UNITED UNITED STATES DISTRICT COURT 12 For the Northern District of California that time, Plaintiff had incurred $1,313.98 in costs. (Dkt. #114.) Having reviewed counsel's declaration, the Court finds that Plaintiff has sufficiently established that he is entitled to $1,313.98 in costs. However, Plaintiff has not filed any amended declaration updating this figure since March 2009, and the Court is unable to determine whether any expenses were incurred after that date. The undersigned therefore RECOMMENDS that the Court grant Plaintiff $1,313.98 in costs. III. CONCLUSION Based on the undersigned's consideration of Plaintiff's Declarations and supporting documents and evidence presented at the hearing, the undersigned RECOMMENDS as follows: Plaintiff should be awarded $76,025.49 in compensatory damages and $1,313.98 in costs. Plaintiff's request for an award of $25,000 in punitive damages should be DENIED WITHOUT PREJUDICE. Plaintiff's requests for disgorgement of fees paid to Defendant Atwater should be DENIED. Pursuant to Fed. R. Civ. P. 72(b)(2) a party may serve and file objections to this Report and Recommendation fourteen (14) days after being served. IT IS SO ORDERED. 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Dated: January 7, 2010 _______________________________ Maria-Elena James Chief United States Magistrate Judge 10

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