Federal Deposit Insurance Corporation v. Cashman et al

Filing 26

ORDER DENYING DEFENDANTS' MOTION TO DISMISS; DENYING DEFENDANTS' MOTION FOR A MORE DEFINITE STATEMENT (Illston, Susan) (Filed on 11/30/2011)

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IN THE UNITED STATES DISTRICT COURT

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FOR THE NORTHERN DISTRICT OF CALIFORNIA

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FEDERAL DEPOSIT INSURANCE
CORPORATION,

United States District Court
For the Northern District of California

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ORDER DENYING DEFENDANTS’
MOTION TO DISMISS; DENYING
DEFENDANTS’ MOTION FOR A MORE
DEFINITE STATEMENT

Plaintiff,

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No. C 11-03334 SI

v.
JOHN H.J. CASHMAN; KAY DUB U
BERKELEY d/b/a KELLER WILLIAMS
REALTY BAY AREA,
Defendants.

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Before the Court is defendants’ motion to dismiss, or, in the alternative, for a more definite
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statement. The motion is currently scheduled for a hearing on December 2, 2011. Pursuant to Civil
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Local Rule 7-1(b), the Court determines the matter is appropriate for submission without oral argument,
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and hereby VACATES the hearing. For the reasons set forth below, the Court DENIES defendants’
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motion to dismiss and its motion for a more definite statement.
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BACKGROUND
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Plaintiff, Federal Deposit Insurance Corporation (“FDIC”) as Receiver for IndyMac Bank,
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brought this suit against defendants John Cashman and Kay Dub U Berkeley, doing business as Keller
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Williams Realty Bay Area (“Keller”), alleging (1) negligence; (2) negligent misrepresentation; and (3)
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negligent hiring and supervision in an alleged scheme to erase mortgage debt.
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Defendant Keller is a real estate brokerage and employed Arvin Tacorda as a real estate
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salesman. First Amended Complaint (“FAC”) at ¶ 4. As required by law, a real estate brokerage must
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have a licensed real estate broker as the broker of record for the corporation. Keller’s broker of record

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was John Cashman, a licensed real estate broker. Id. at ¶ 3. Plaintiff alleges that in July 2007, it funded

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a loan in the amount of $615,000 to Arvin Tacorda for the purchase of a property located at 70 Keswick

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Court, Vallejo, CA as his primary residence. Id. at ¶ 7. The sellers of this property were the Alvarezes

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who were, unknown to plaintiff, Tacorda’s in-laws. Id. at ¶ 10. Tacorda acted as the real estate agent

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for both himself and the Alvarezes in this transaction. Id. at ¶ 8. Defendants received $24,600 in

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commission from this transaction. Id. at ¶ 9. Although after the transaction Tacorda owned the

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property, he never resided in it; instead, the Alvarezes continued to reside in the property. Tacorda

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made 12 payments before the loan went into default. Id. at ¶¶ 13-14. Tacorda then submitted and

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United States District Court
For the Northern District of California

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requested a short sale from plaintiff, which plaintiff approved. Id. at ¶ 15. In the short sale, the property

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was sold back to the Alvarezes for $315,000, with Tacorda again acting as the real estate agent for

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himself and the Alvarezes. Id. ¶ at 16. Defendants received $12,600 in commission from this

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transaction. Id. at ¶ 18. As a result of both of these transactions, $500,000 of debt was eliminated. Id.

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Plaintiffs allege that had Tacorda stated that the transaction was not at arm’s length and that the

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Alvarezes would continue to reside in the property, plaintiff would not have funded the loan. Id. at ¶

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20.

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LEGAL STANDARD
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Motion to Dismiss

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Under Federal Rule of Civil Procedure 12(b)(6), a district court must dismiss a complaint if it

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fails to state a claim upon which relief can be granted. To survive a Rule 12(b)(6) motion to dismiss,

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the plaintiff must allege “enough facts to state a claim to relief that is plausible on its face.” Bell Atl.

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Corp. v. Twombly, 550 U.S. 544, 570 (2007). This “facial plausibility” standard requires the plaintiff

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to allege facts that add up to “more than a sheer possibility that a defendant has acted unlawfully.”

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Ashcroft v. Iqbal, 129 S.Ct. 1937, 1949 (2009). While courts do not require “heightened fact pleading

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of specifics,” a plaintiff must allege facts sufficient to “raise a right to relief above the speculative

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level.” Twombly, 550 U.S. at 544, 555.

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In deciding whether the plaintiff has stated a claim upon which relief can be granted, the court
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must assume that the plaintiff's allegations are true and must draw all reasonable inferences in the

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plaintiff's favor. See Usher v. City of Los Angeles, 828 F.2d 556, 561 (9th Cir. 1987). However, the

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court is not required to accept as true “allegations that are merely conclusory, unwarranted deductions

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of fact, or unreasonable inferences.” In re Gilead Scis. Sec. Litig., 536 F.3d 1049, 1055 (9th Cir. 2008).

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If the Court dismisses the complaint, it must then decide whether to grant leave to amend. The

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Ninth Circuit has repeatedly held that “a district court should grant leave to amend even if no request

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to amend the pleading was made, unless it determines that the pleading could not possibly be cured by

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the allegation of other facts.” Lopez v. Smith, 203 F. 3d 1122, 1130 (9th Cir. 2000) (citations and internal

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quotation marks omitted).

United States District Court
For the Northern District of California

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2.

Motion for a More Definite Statement

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Federal Rule of Civil Procedure 12(e) provides that a party may move for a more definite

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statement of a pleading this is “so vague or ambiguous that the party cannot reasonably prepare a

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response.” A Rule 12(e) motion should be considered in light of the liberal pleading standards of Rule

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8(a). See Bureerong v. Uvawas, 922 F. Supp. 1450, 1461 (C.D. Cal. 1996) (citing Sagan v. Apple

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Computer, Inc., 874 F. Supp. 1072, 1077 (C.D. Cal. 1994) (“Motions for a more definite statement are

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viewed with disfavor and are rarely granted because of the minimal pleading requirements of the Federal

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Rules.”)).

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A Rule 12(e) motion should be granted when the complaint is so vague that the defendant cannot

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discern the nature of the plaintiff's claims and thus cannot frame a response. See Famolare, Inc. v.

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Edison Bros. Stores, Inc., 525 F. Supp. 940, 949 (E.D. Cal. 1981); Boxall v. Sequoia Union High Sch.

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Dist., 464 F. Supp. 1104, 1114 (N.D. Cal. 1979). If the complaint notifies the defendant of the substance

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of the plaintiff's claim, a 12(e) motion should not be granted. San Bernardino Pub. Employees Ass'n

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v. Stout, 946 F. Supp. 790, 804 (C.D. Cal. 1996) (“A motion for a more definite statement is used to

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attack unintelligibility, not mere lack of detail, and a complaint is sufficient if it is specific enough to

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apprise the defendant of the substance of the claim asserted against him or her.”). A 12(e) motion

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should also be denied if the detail sought is obtainable through discovery. Davison v. Santa Barbara

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High Sch. Dist., 48 F. Supp. 2d 1225, 1228 (C.D. Cal. 1998).
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DISCUSSION
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Negligence and Negligent Misrepresentation
A.

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In order to state a claim for negligence, California law requires that there be a legal duty between

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the plaintiff and the defendants. Merrill v. Navegar, Inc., 26 Cal. 4th 465, 477 (2001). The existence

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and scope of duty are questions of law. Id. Defendants contend that a real estate broker’s duties are

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limited to the parties to the transaction for real property, the buyers and sellers, and do not run to the

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mortgage lender. Plaintiff contends that the duty of a real estate broker extends to third parties who are

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the “intended beneficiaries” of the broker’s knowledge, including, at least in this case, the mortgage

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United States District Court
For the Northern District of California

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lender. Plaintiffs rely on FSR Brokerage, Inc. v. Superior Court for the proposition that defendants owe

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a duty to any individuals to which representations were made “with the intent to induce [a] plaintiff .

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. . to act in reliance upon the representation in a specific transaction, or a specific type of transaction,

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that defendant intended to influence.” 35 Cal. App. 4th 69, 73 (Ct. App. 1995) (finding that plaintiff-

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partygoers injured by collapse of a balcony were not “intended beneficiaries” of broker’s advice in sale

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of home to owner).

Duty

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This Court need not decide the abstract question of whether a real estate broker always owes a

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duty to a mortgage lender. The facts alleged in this case are not so straightforward. Taking all of the

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alleged facts as true, as the Court must at this stage, Tacorda was not only the real estate agent, but also

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the buyer in the first transaction and seller in the second; the real estate agent to both parties (including

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himself), twice; the son-in-law to the sellers; and, in some sense, the landlord to his parents-in-law

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during his ownership. Tacorda allegedly used his knowledge as a real estate agent to take advantage

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of plaintiff by structuring the sale of the property to remove his relatives’ debt. The Court therefore

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finds that the plaintiff has alleged sufficient facts to state that a duty existed between Tacorda and

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plaintiff.

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B.

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Defendants also argue that these claims must fail because even if a duty existed, Tacorda was

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not acting within the scope of his employment and thus defendants cannot be held vicariously liable.

Vicarious Liability

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Defendants note that Tacorda is not a party to this action.
Defendants are correct that under the doctrine of respondeat superior, Keller, as Tacorda’s

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employer, is vicariously liable only if Tacorda was acting within the scope of his employment. See Cal.

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Bus. & Prof. Code § 10132. As to defendant Cashman’s individual liability, as the alleged broker of

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record for the corporation, Cashman is personally responsible for the supervision of the corporation’s

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salesperson. Cal. Bus & Prof. Code § 10159.2; 10 Cal. Code of Regs. § 2725. Defendants contend that

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under § 10159.2 a broker may be disciplined for negligent supervision, but cannot be held personally

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liable in a civil lawsuit, citing to Walters v. Marler, 83 Cal. App. 3d 1 (Ct. App. 1978). However, since

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Walters was decided, the statute was amended, and in Holley v. Crank, the Ninth Circuit held that given

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United States District Court
For the Northern District of California

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the legislative history of the amendment, “direct, personal responsibility” must be placed on the

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designated broker of the corporation to supervise the salespersons to assure compliance with the state

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and federal laws. 400 F.3d 667, 673 (9th Cir. 2004). At the same time, an individual broker is

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personally liable only if it can be shown that the salesperson acted within the scope of his employment.

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See id.

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Plaintiff has alleged sufficient facts to support its allegation that Tacorda acted within his scope

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of employment. Whether an individual is acting within the scope of his employment is a question of

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fact. Lisa M. v. Henry Mayo Newhall Memorial Hosp., 12 Cal. 4th 291, 299 (1995). Under California

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law, the inquiry is whether the risk was one “that may fairly be regarded as typical of or broadly

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incidental” to the enterprise undertaken by the employer. Accordingly, the employer's liability extends

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beyond his actual or possible control of the employee to include risks inherent in or created by the

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enterprise. Farmers Ins. Group v. County of Santa Clara, 11 Cal. 4th 992, 1003 (1995) (internal

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citations omitted). Thus, an employer may be held liable if the employees’ actions are foreseeable or

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an “outgrowth” of the enterprise. Lisa M., 12 Cal. 4th at 298-99.

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Here, plaintiff has pled that Tacorda was employed by Keller at the time of these transactions,

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that Tacorda entered into these transactions with IndyMac, and that defendants were paid commission

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from these transactions, twice. FAC at ¶¶ 8, 9, 10, 18. At this stage of the litigation, the Court cannot

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determine that Tacorda’s actions were not foreseeable or typical of defendants’ business as a matter of

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law. See Unrah-Haxton v. Regents of California, 162 Cal. App. 4th 343, 370 (Ct. App. 2008) (holding
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that it was inappropriate at the demurrer stage to determine whether a doctor stealing and selling

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patients’ eggs at a fertility treatment clinic was “foreseeable” or an “outgrowth” of the clinic’s

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enterprise). Defendants’ motion to dismiss this cause of action, on the basis of vicarious liability, is

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thus DENIED.

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2.

Negligent Hiring and Supervision

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As to the negligent hiring and supervision claim, defendants contend that John Cashman, as the

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broker of record for the corporation, cannot be held personally liable for the acts of a real estate agent

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working for the corporation.

United States District Court
For the Northern District of California

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California recognizes torts for an employer's negligence in hiring, retaining, and supervising an

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employee who is incompetent or unfit. See Delfino v. Agilent Techs., Inc., 52 Cal. Rptr. 3d 376, 397 (Ct.

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App. 2006). Negligence liability will be imposed upon the employer if it knew or should have known

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that hiring the employee created a particular risk or hazard and that particular harm materializes. As

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such, California follows the rule set forth in the Restatement (Second) of Agency Section 213, which

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provides in pertinent part: “A person conducting an activity through servants or other agents is subject

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to liability for harm resulting from his conduct if he is negligent or reckless: . . . in the employment of

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improper persons or instrumentalities in work involving risk of harm to others.” Liability for negligent

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supervision and/or retention of an employee is one of direct liability for negligence, not vicarious

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liability. Id. (internal quotation marks and citations omitted); see also Phillips v. TLC Plumbing, Inc.,

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172 Cal. App. 4th 1133, 1139 (2009). Liability may be imposed “either on the basis of . . . action -- for

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example, the negligent hiring of an agent -- or . . . inaction -- for example, the failure to provide

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adequate supervision of the agent's work.” Far West Financial Corp. v. D & S Co., 760 P.2d 399, 410

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(Cal.1988).

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As to the individual officer’s direct liability under this theory, as noted above, “direct, personal

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responsibility” must be placed on the designated broker of the corporation to supervise the salespersons

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to assure compliance with the state and federal laws. Holley v. Crank, 400 F.3d at 673. An individual

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broker is personally liable only if it can be shown that the salesperson was an agent of the broker, i.e.,

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the salesperson acted within the scope of his employment. See id. As stated above, taking the
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allegations as true, plaintiff has stated enough facts to plead that Tacorda was acting within his scope

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of employment. Therefore, defendants’ motion to dismiss this cause of action against defendant

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Cashman is DENIED.

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3.

More Definite Statement
Defendants argue that if their motion to dismiss is denied, the Court should order that plaintiff

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make a more definite statement of its claim including “specific acts by Defendants which suggest a

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failure to supervise on their part,” “when the ‘short-sale’ took place,” “why IndyMac failed to realize

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that it was short-selling the property back to the original owners,” and “whether or not Mr. Tacorda used

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United States District Court
For the Northern District of California

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a mortgage broker in these transactions.” Only when a pleading is “so vague or ambiguous that the

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party cannot reasonably prepare a response” should plaintiff be ordered to provide a more definite

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statement. Fed. R. Civ. Proc. 12(e). Here, plaintiff’s allegations are not so vague or ambiguous that

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defendants are not put on notice as to the claim against them. Plaintiff does not have to provide the

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every detail in its allegations. Further, the information that defendants seek to have plaintiff provide

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is discoverable and thus defendants can ask for it in the discovery phase. Davison v. Santa Barbara

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High Sch. Dist., 48 F. Supp. 2d 1225, 1228 (C.D. Cal. 1998). Plaintiff’s allegations are adequate and

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thus a more definite statement is not required.

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CONCLUSION
For the foregoing reasons and for good cause shown, the Court hereby DENIES defendants’
motion to dismiss and motion for a more definite statement.
IT IS SO ORDERED.

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Dated: November 30, 2011
SUSAN ILLSTON
United States District Judge

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