Session v. PLM Lender Services, Inc. et al

Filing 99

ORDER DENYING DEFENDANT'S MOTION TO DISMISS by Judge William Alsup [denying 90 Motion to Dismiss]. (whasec, COURT STAFF) (Filed on 6/20/2012)

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IN THE UNITED STATES DISTRICT COURT

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FOR THE NORTHERN DISTRICT OF CALIFORNIA
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For the Northern District of California

United States District Court

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BESS KENNEDY, as Guardian Ad Litem for
LaTanya Marie Session,
No. C 10-04942 WHA
Plaintiff,

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v.
MONTEREY BAY RESOURCES, INC., TY
EBRIGHT, ANN EBRIGHT, CONSTANZ
FRIE, MATTHEW LOPEZ, PLM LENDER
SERVICES, INC., and DOES 1-50,

ORDER DENYING
DEFENDANT’S
MOTION TO DISMISS

Defendants.
/

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INTRODUCTION

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In this foreclosure dispute, one defendant moves to dismiss plaintiff’s complaint pursuant

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to Federal Rule of Civil Procedure 12(b)(6). For the reasons stated below, the motion to dismiss

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plaintiff’s complaint is DENIED.

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STATEMENT
Plaintiff’s complaint alleges the following. Plaintiff is the victim of defendants’

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“predatory lending scheme” through which defendants “regularly entice unqualified, low-income

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borrowers to take out high-interest, private loans when they lack the income to otherwise qualify

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for a loan.” Plaintiff is an “elderly, disabled, African-American woman” and asserts herself to

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be the owner of a property in San Francisco that is the subject of this dispute due to two loan

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agreements between plaintiff and her brother, Mr. Session, and defendants (First Amd. Compl.

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¶¶ 1, 13, 23).

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Sometime prior to April 2004, plaintiff saw a commercial featuring Dan Jordan, a “loan

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representative or business associate” of Ty Ebright. Plaintiff called Mr. Jordan to inquire about

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a loan for home improvements, and she was referred to Ty Ebright. At the time plaintiff spoke

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to Ty Ebright, her and Mr. Session’s only source of income was social security: plaintiff

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received $1,100 per month while Mr. Session, who was mentally disabled, received $800–$900

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per month. Despite their combined income of $2,000 per month, Ty Ebright recommended a

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$200,000 home loan (First Amd. Compl. ¶¶ 28, 30–31).
In April 2004, plaintiff entered into the first loan agreement for $200,000 at an initial

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For the Northern District of California

United States District Court

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interest rate of eleven percent in exchange for her execution of a promissory note and a first deed

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of trust on the property. Defendant PLM Lender Services, Inc. served as a trustee to the loan.

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Defendant PLM is the sole moving defendant in the instant action. The terms of the agreement

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required plaintiff to pay $1,833.33 per month and granted the deed of trust holders the right to

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adjust the initial rate up to 21 percent. The loan also carried a pre-payment penalty. The loan

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documents were mailed to plaintiff, and she signed them and returned them. Plaintiff, however,

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does not recall Mr. Session signing the documents, but an agent of Ty Ebright did meet with

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him. The signature purporting to be Mr. Session’s on the loan document does not resemble his

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signature, and plaintiff alleges that he was without capacity to sign the documents (First Amd.

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Compl. ¶¶ 31–32).

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Prior to entering the loan agreement, the “material terms of the transaction” were not

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disclosed to plaintiff. Plaintiff asserts that defendants must have known that plaintiff could not

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afford the loan, but they concealed that fact and did not take “into consideration her ability to

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make the scheduled payments.” Plaintiff did not make a payment on this loan nor did she

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receive a single bill through the end of 2005 (First Amd. Compl. ¶¶ 33–34).

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In July 2005, plaintiff “suffered an anoxic brain injury resulting in loss of motor and
cognitive functions.” She remained in the hospital for over three years, and returned home in

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November 2008. Plaintiff, however, has never fully recovered from the injury (First Amd.

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Compl. ¶¶ 35–36).

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Shortly after plaintiff’s brain injury occurred, Ty Ebright knew she was in the hospital

on the first loan. Because she was still recovering from her injury, plaintiff “does not remember

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anything related to loan [sic] executed in her name in 2006.” Ty Ebright allegedly gave her an

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ultimatum: “pay down the existing loan by entering into a new loan or face foreclosure.” Due to

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her and Mr. Session’s mental incapacity, plaintiff and Mr. Session appointed Matthew Lopez

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as their attorney in fact at the behest of Ty Ebright. Lopez was appointed “for the special and

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limited purpose of drawing another mortgage,” but no one evaluated the mental capacities of

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For the Northern District of California

and encouraged her to take out a second loan, despite the fact that she had not made a payment

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United States District Court

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plaintiff or Mr. Session to determine if they were capable of such an appointment. Like some

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of the loan documents, Mr. Session’s signature on the document appointing the attorney in fact

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does not match his ID card (First Amd. Compl. ¶¶ 38–40).

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In May 2006, Lopez obtained another loan on behalf of plaintiff and Mr. Session.

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The loan was for $46,000 at a fixed interest rate of twelve percent, and it required a monthly

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payment of $2,293.33. Defendant PLM served as the trustee on the loan.

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Plaintiff alleges that Ty Ebright knew plaintiff’s mental capabilities were compromised

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and purposefully failed to fully and completely disclose the material terms of the second loan to

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plaintiff before or at the time of the loan transaction. Plaintiff further alleges that defendants

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Ty Ebright, Monterey Bay Resources, Inc., PLM, and Lopez conspired to fraudulently execute

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the second loan documents. Ty Ebright, MBR and Lopez allegedly knew that plaintiff had not

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made any payments towards the first loan when the second loan was executed. PLM, acting as a

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trustee on both the first and second loan, knew or should have known that plaintiff could not

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afford a second loan, yet still agreed to serve as trustee to the second loan (First Amd. Compl.

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¶¶ 41–43).

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Plaintiff further alleges that approximately $35,500 of the second loan amount was put

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into a reserve account. Of the $35,500, approximately $8,000 of the loan amount (22 percent of

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the reserve) was used to pay the initial commissions, fees, costs and expenses. Defendant PLM
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received $22,300 of the loan amount through the reserve. Plaintiff alleges that defendants

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Ty Ebright, MBR, and PLM used the rest of the money in the reserve to pay down the first loan.

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Due to the high interest rate, the principal balance on the first loan remained at $200,000 and

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plaintiff’s monthly payments on the first loan remained at $1,833.33. Defendant Ty Ebright

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further claimed that the proceeds from the second loan were used for renovations that were

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overseen by his wife, Constanz Frie (First Amd. Compl. ¶¶ 44–45).

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Plaintiff has no memory of the terms of the second loan or giving her consent to execute

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the attorney in fact or second loan agreement documents. She alleges on information and belief

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that Lopez conspired with Ty Ebright, MBR, and PLM to purposefully act without her consent
and against her best interests by executing the second loan when defendants knew she could

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For the Northern District of California

United States District Court

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not afford it. Plaintiff further alleges that the loan proceeds were directed to Lopez without

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plaintiff’s consent and that the remaining funds, a large portion of which was directed to a

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reserve account in PLM’s name, were not used for renovations. Building permits filed in 2004

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and 2008 indicate that the renovations to the property totaled only $15,700 (First Amd. Compl.

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¶¶ 46–47).

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In June 2006, plaintiff defaulted on the second loan without ever having made a payment.

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Ty Ebright then recorded a notice of default against the property in July 2007. Before filing for

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foreclosure, however, defendants “continued to charge excessive fees and interest rates,

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exhausting the equity left” in the property, and sending the final amount owed on the first and

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second loans to over $400,000 (First Amd. Compl. ¶ 51).

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In December 2008, defendant PLM allegedly sold the subject property to defendant

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Ann Ebright through a non-judicial foreclosure sale of the subject property under the second

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deed of trust. At the foreclosure sale, Ann Ebright, the only bidder present, purchased the

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property for $101,000. Plaintiff allegedly did not receive proper notice of the foreclosure

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proceedings because notice was not sent to the property or the hospital where plaintiff was

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staying. Plaintiff alleges that defendant PLM knew or should have known that she was in the

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hospital until November 2008 and purposefully failed to serve her with any foreclosure-related

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documents (First Amd. Compl. ¶¶ 53–54).
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Defendant Ann Ebright initiated an unlawful detainer action against plaintiff and her

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daughter, Johnetta George, in San Francisco County Superior Court. In March 2010, plaintiff’s

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counsel reviewed discovery responses and documents provided by defendant Ann Ebright.

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Through their review, plaintiff’s counsel learned of the existence of the second loan. Prior to

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this time, plaintiff allegedly was unaware that the loan existed (First Amd. Compl. ¶¶ 55–57).

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Plaintiff alleges on information and belief that defendants PLM, Lopez, Constanz Frie

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and Ann Ebright conspired with defendants Ty Ebright and MBR to facilitate execution of the

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second loan, fraudulently misuse the proceeds from the loan, and subsequently foreclose on the

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loan and purchase the subject property in a non-judicial foreclosure sale without providing
proper notice to plaintiff (First Amd. Compl. ¶¶ 115).

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For the Northern District of California

United States District Court

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Plaintiff’s original complaint alleged nine claims for relief. Defendants Ty Ebright,

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Ann Ebright, and MBR moved to dismiss plaintiff’s complaint pursuant to FRCP 12(b)(6).

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An order issued granting defendants’ motion to dismiss on the ground that all of plaintiff’s

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claims were barred by the applicable statutes of limitations, the longest of which was four years.

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Plaintiff was granted leave to amend (Dkt. No. 60).

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Plaintiff’s motion to file a first amended complaint was granted. It alleges seven claims

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for relief against defendant PLM: (1) intentional misrepresentation; (2) civil conspiracy to

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defraud; (3) violation of Truth in Lending Act; (4) unconscionability; (5) breach of fiduciary

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duty; (6) violation of California Business and Professions Code Section 17200; and (7) financial

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elder abuse.

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Defendant PLM now moves to dismiss all seven of plaintiff’s claims against it for failure
to state a claim. None of the other defendants joined this motion.
ANALYSIS
Defendant PLM made money by receiving a fee for all transactions. PLM was in bed

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with a scheme by other defendants to defraud persons in distress like Ms. Session or so it is

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alleged. While PLM did not perpetrate the fraud itself, it knew or suspected that such a fraud

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was underway and continued to facilitate transactions by the other defendants in order to

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continue receiving transaction fees. At this stage before discovery, the Court is unwilling to
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conclude that there is no scenario by which PLM could be found liable for the alleged

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wrongdoing done to Ms. Session. This ruling is without prejudice to a motion for summary

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judgment after a reasonable opportunity for discovery. Plaintiff’s counsel would be well advised

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to promptly proceed to investigate the case against PLM and, if FRCP 11 so requires, to dismiss

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the case.

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CONCLUSION
For the foregoing reasons, defendant’s motion to dismiss plaintiff’s complaint is DENIED.

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IT IS SO ORDERED.

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For the Northern District of California

United States District Court

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Dated: June 20, 2012.

WILLIAM ALSUP
UNITED STATES DISTRICT JUDGE

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