Home Savings of America et al v. Felipe et al

Filing 63

ORDER GRANTING 50 Plaintiff's Motion for Leave to File a Second Amended Complaint. FDIC shall file a Second Amended Complaint within 14 days from the date of this order as a new, separate document on the courts ECF system. Signed by Magistrate Judge Laurel Beeler on 5/2/2013. (lblc2, COURT STAFF) (Filed on 5/2/2013)

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1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 Northern District of California 10 San Francisco Division HOME SAVINGS OF AMERICA, 12 For the Northern District of California UNITED STATES DISTRICT COURT 11 No. C 12-01419 LB Plaintiff, ORDER GRANTING PLAINTIFF’S MOTION FOR LEAVE TO FILE A SECOND AMENDED COMPLAINT v. 13 EMELITA FELIPE, et al., 14 15 [Re: ECF No. 50] Defendants. _____________________________________/ 16 17 INTRODUCTION Plaintiff Federal Deposit Insurance Corporation (“FDIC”), as Receiver for plaintiff Home 18 Savings of America (“Home Savings”), seeks leave to file a Second Amended Complaint (“SAC”). 19 FDIC’s Motion, ECF No. 50 at 1.1 Specifically, FDIC seeks to reassert against Defendant Angelito 20 Reyes (“Mr. Reyes”) professional negligence and breach of contract claims, which were previously 21 dismissed by the state court prior to removal. FDIC also seeks to assert, for the first time, a breach 22 of contract/indemnification claim against Defendant Cal Coast Financial Corporation (“Cal Coast”). 23 Pursuant to Civil Local Rule 7-1(b), the court previously found that this matter is suitable for 24 determination without oral argument and vacated the April 18, 2013 hearing. Upon consideration of 25 the applicable authority and the arguments of counsel, the court GRANTS FDIC’s motion for leave 26 to file a Second Amended Complaint. 27 28 1 Citations are to the Electronic Case File (“ECF”) with pin cites to the electronic page number at the top of the document, not the pages at the bottom. C 12-01419 LB ORDER STATEMENT 1 2 I. FACTUAL ALLEGATIONS2 3 On or about April 11, 2007, Home Savings, a federally-chartered financial institution, entered 4 into a mortgage refinance transaction (the “Loan”) with Defendant Emelita Felipe (“Ms. Felipe”). 5 FAC, ECF No. 1-3 at 26 ¶ 2.3 The Loan, which was for the amount of $382,500, was secured by 6 real property located at 7215 Holly Street, Oakland, California 94621 (the “Property”). Id. ¶¶ 2, 7. 7 The Loan was brokered by Cal Coast. Id. ¶ 3. Cal Coast used Mr. Reyes (doing business as 8 Streamline Appraisals) to perform an appraisal of the Property. Id. 9 Mr. Reyes performed an appraisal of the Property on March 3, 2007 (the “Appraisal”) that Appraisal inflated the value of the Property, used inaccurate comparables, omitted the most accurate 12 For the Northern District of California appraised the value of the Property as $510,000.00. Id. ¶ 4. Home Savings alleges that the 11 UNITED STATES DISTRICT COURT 10 comparables, failed to note the declining market values in the area, and misrepresented critical 13 factual information about the Property. Id. It also alleges that it was an intended third party 14 beneficiary of the Mr. Reyes, and it relied on the Appraisal when deciding whether to enter into the 15 Loan. Id. at 28 ¶¶ 22-23. Had the Appraisal been reliable and truthful, Home Savings would not 16 have entered into the Loan. Id. ¶ 4. 17 Ultimately, Ms. Felipe defaulted on the Loan, and Home Savings foreclosed on the Property in 18 July 2009. Id. at 30 ¶ 33. In that same month, Home Savings purchased the Property for $182,000 19 in a Trustee sale. Id. at 27 ¶ 10. As a result of Defendants’ misrepresentation, Home Savings 20 alleged that it sustained actual and consequential damages of not less than $251,089.24. Id. at 33, ¶ 21 49. 22 II. PROCEDURAL HISTORY 23 A. Pre-Removal Proceedings in State Court 24 25 2 26 The relevant factual allegations are taken from the First Amended Complaint, which currently is the operative complaint. See First Amended Complaint (“FAC”), ECF No. 1-3 at 25-37. 27 28 3 Ms. Felipe has been dismissed without prejudice as a defendant to this case. Therefore, the court’s recitation of the relevant factual allegations omit some allegations related to her. C 12-01419 LB ORDER 2 1 On or about March 25, 2011, Home Savings filed suit against Ms. Felipe, Mr. Reyes, and Cal complaint, Home Savings brought the following claims: (1) fraudulent misrepresentation (against 4 Ms. Felipe); (2) fraudulent misrepresentation (against Mr. Reyes); (3) negligent misrepresentation 5 (against Mr. Reyes); (4) professional negligence (against Mr. Reyes and Cal Coast); and (5) breach 6 of fiduciary duty (against Cal Coast). See Original Complaint, ECF No. 1-2 at 19-30. See First 7 Motion to Strike, ECF No. 1-2 at 58-68. Mr. Reyes moved to strike the fraudulent misrepresentation 8 and professional negligence claims brought against him. See id. On July 8, 2011, the Superior 9 Court denied the motion with respect to the negligent misrepresentation claim, but, with respect to 10 the professional negligence claim, construed the motion as one for judgment on the pleadings and 11 granted it with leave to amend. 7/8/2011 Order, ECF No. 1-3 at 91. Citing Bily v. Arthur Young & 12 For the Northern District of California Coast in Alameda County Superior Court. Notice of Removal, ECF No. 1-1 at 2. In its original 3 UNITED STATES DISTRICT COURT 2 Co., 3 Cal.4th 370, 406 & n.16 (1992) and Soderberg v. McKinney, 44 Cal. App. 4th 1760, 1768 13 (1996), the Superior Court stated that “[a] cause of action cannot be stated against an appraiser 14 unless the Plaintiff was the client or a third party beneficiary” and noted that Home Savings “does 15 not allege that it was [Mr. Reyes’s] client or a third party beneficiary of the contract” between any 16 Defendants. Id. 17 Home Savings filed a First Amended Complaint. First Amended Complaint (“FAC”), ECF No. 18 1-3 at 25-37. In it, Home Savings brought the same claims that it brought in its original complaint, 19 and it added two more: a breach of contract claim against Mr. Reyes and a professional negligence 20 claim against Cal Coast. See FAC, ECF No. 1-3 at 25-37. Among the new factual allegations, 21 Home Savings alleged, with respect to its professional negligence claim against Mr. Reyes, that Mr. 22 Reyes owed it a direct duty under the “California Administrative Code” to perform real estate 23 appraisal services accurately, competently, and in accordance with appropriate standards of 24 diligence and care and that it was an intended third party beneficiary of those services. See id. Mr. 25 Reyes filed a demurrer to the fraudulent misrepresentation, negligent misrepresentation, professional 26 negligence, and breach of contract claims brought against him, and he also moved to strike those 27 claims as well. Demurrer, ECF No. 1-3 at 46-47; Second Motion to Strike, ECF No. 1-3 at 49-50. 28 On October 20, 2011, the Superior Court overruled the demurrer to the fraudulent C 12-01419 LB ORDER 3 misrepresentation and negligence misrepresentation claims, but granted it with respect to the 2 professional negligence claim. See 10/20/2011 Demurrer Order, ECF No. 50-2 at 1. The Superior 3 Court, citing Bily, 3 Cal. 4th at 406 & n.16, stated that “[a] cause of action for negligence cannot be 4 stated against Defendant Reyes unless [Home Savings] was the client or an express third [party] 5 beneficiary of the contract between Defendant Cal Coast Financial Corporation and Defendant 6 Reyes.” Id. The Superior Court denied as moot the demurrer to the breach of contract claim and 7 instead struck it without prejudice because Home Savings “did not have leave to add a claim for 8 breach of contract” (the court explained that “[a] noticed motion is required”). 10/20/2011 Strike 9 Order, ECF No. 50-3 at 1. In light of the these rulings, the Superior Court gave Home Savings 15 10 days to file a second amended complaint. 10/20/2011 Demurrer Order, ECF No. 50-2 at 2. Home 11 Savings never did so. 12 For the Northern District of California UNITED STATES DISTRICT COURT 1 On February 24, 2012, roughly 11 months after Home Savings filed suit, the Office of the 13 Comptroller of the Currency closed Home Savings and appointed FDIC as Receiver pursuant to 12 14 U.S.C. § 1821(c)(2)(A). Notice of Removal, ECF No. 1-1 at 2-3. FDIC then substituted in as 15 plaintiff to this action. Id. at 3. 16 B. Post-Removal Proceedings in Federal Court 17 On March 20, 2012, FDIC removed this action pursuant to 12 U.S.C. §§ 1819(b)(2)(A)-(B). 18 Notice of Removal, ECF No. 1 at 1. At the initial case management conference on October 11, 19 2012, the court established November 12, 2012 as the last day to seek leave to add new parties or 20 amend the pleadings. 10/12/2012 Order, ECF No. 30 at 2. 21 On February 28, 2013 – over 3 months past the court’s deadline for seeking leave to add new 22 parties or amend the pleadings – the parties filed a case management statement in which FDIC 23 alerted the court of its intention to file a motion for leave to file a Second Amended Complaint that 24 adds additional claims against Cal Coast and Mr. Reyes. Statement, ECF No. 45 at 2. Later, at a 25 further case management conference on March 7, 2013, the court told FDIC that if it wished to seek 26 leave to file a Second Amended Complaint, it needed to file and serve a noticed motion. 27 28 On March 12, 2013, FDIC did so. Motion, ECF No. 50. With its proposed Second Amended Complaint, FDIC intends to assert the following additional claims: (1) professional negligence C 12-01419 LB ORDER 4 1 against Mr. Reyes; (2) breach of contract against Mr. Reyes (based on the Appraisal); and (3) breach 2 of contract/indemnification against Cal Coast (based on a newly-discovered agreement between 3 Home Savings and Cal Coast). Mr. Reyes and Cal Coast both oppose FDIC’s motion.4 Cal Coast 4 Opposition, ECF No. 54; Reyes Opposition, ECF No. 56. 5 ANALYSIS 6 7 I. LEGAL STANDARD Under Rule 15, after a responsive pleading is filed, “a party may amend its pleading only with 8 the opposing party’s consent or the court’s leave.” Fed. R. Civ. P. 15(a)(2). “The court should 9 freely give leave when justice so requires.” Id. This leave policy is applied with “extreme court considers five factors to determine whether to grant leave to amend: (1) bad faith; (2) undue 12 For the Northern District of California liberality.” See Eminence Capital, LLC v. Aspeon, Inc., 316 F.3d 1048, 1051 (9th Cir. 2003). A 11 UNITED STATES DISTRICT COURT 10 delay; (3) prejudice to the opposing party; (4) futility of amendment; and (5) whether the plaintiff 13 previously amended his complaint. See Nunes v. Ashcroft, 375 F.3d 805, 808 (9th Cir. 2004). Delay 14 alone is insufficient to justify denial of leave to amend. Jones v. Bates, 127 F.3d 839, 847 n.8 (9th 15 Cir. 1997). Of the factors, prejudice to the opposing party is the “touchstone of the inquiry under 16 rule 15(a)” and “carries the greatest weight.” See Eminence Capital, 316 F.3d at 1052. Absent 17 prejudice or a strong showing on other factors, a presumption exists under Rule 15(a) favoring 18 granting leave to amend. See id. The party opposing a motion to amend bears the burden of 19 showing prejudice. DCD Programs, Ltd. v. Leighton, 833 F.2d 183, 187 (9th Cir. 1987). 20 But motions to amend the pleadings filed after the date set in the court’s scheduling order must 21 satisfy the more stringent “good cause” showing required under Rule 16. See Johnson v. Mammoth 22 Recreations, Inc., 975 F.2d 604, 607-08 (9th Cir. 1992). “Unlike Rule 15(a)’s liberal amendment 23 policy which focuses on the bad faith of the party seeking to interpose an amendment and the 24 prejudice to the opposing party, Rule 16(b)’s ‘good cause’ standard primarily considers the diligence 25 of the party seeking the amendment.” Id. at 609. 26 II. APPLICATION 27 28 4 Although Mr. Reyes’s opposition was not timely filed, the court nevertheless considers it for purposes of this order. C 12-01419 LB ORDER 5 1 A. FDIC’s Proposed Claims against Mr. Reyes 2 As explained above, FDIC wants to reassert a professional negligence claim and a breach of 3 contract claim against Mr. Reyes based on Home Savings’s alleged status as a third party beneficiary 4 to a contract between Cal Coast and Mr. Reyes for the Appraisal. Mr. Reyes opposes the reassertion 5 of these claims on the grounds that they are futile and that FDIC waited too long to reassert them. 6 The court first turns to the five factors described above. There is no indication that FDIC seeks their reassertion. This makes sense because there still is plenty of time left in this case (fact 9 discovery currently closes in September 2013 and trial currently is set for March 24, 2014). And, 10 despite Mr. Reyes’s statement, the claims do not appear to be futile. See FDIC v. Gulparast, No. 11 5:12-CV-02528-EJD, 2012 WL 5077150 (N.D. Cal. Oct. 18, 2012) (allowing a professional 12 For the Northern District of California to reassert these claims in bad faith, and Mr. Reyes does not argue that he would be prejudiced by 8 UNITED STATES DISTRICT COURT 7 negligence claim to survive the pleading stage where a plaintiff adequately alleged its intended third 13 party beneficiary status). 14 But there has been a long delay from the time these claims were originally asserted to now, and 15 they could have been reasserted earlier. In 2011, the Superior Court, citing Bily and Soderberg, 16 dismissed and struck the professional negligence claim and breach of contract claim, respectively, 17 with leave to amend. Yet Home Savings (who was the plaintiff then, and which had different 18 counsel than FDIC does now) did not amend them. It was not until March 2013 that FDIC (who 19 since has taken over as the plaintiff) filed a motion for leave to file a Second Amended Complaint to 20 reassert them. As cover for this delay, FDIC argues that a recent decision by another judge in this 21 District changed the law with respect to when a third party may bring a professional negligence 22 claim against an appraiser, but this is not accurate. In FDIC v. Gulparast, Judge Davila concluded 23 that FDIC (which was the plaintiff in that case, too) had adequately alleged its intended third party 24 beneficiary status, in accordance with Bily and Soderberg, because it alleged that the appraiser 25 included a “Certification # 23,” which, according the plaintiff’s allegations, “requires an appraiser to 26 acknowledge that certain parties other than the Lender/Client and/or the Intended User, such as 27 ‘[t]he borrower, another lender at the request of the borrower, the mortgagee or its successors and 28 assigns, mortgage insurers, government sponsored enterprises, and other secondary market C 12-01419 LB ORDER 6 1 participants,’ may rely on the appraisal report.” Id. at *4. Judge Davila thus determined that, “[a]t 2 this stage in the proceedings, it would not be appropriate to determine the intent of the parties to the 3 contract. Rather, the facts as pleaded in the complaint, taken as true, and drawing all inferences in 4 the light most favorable to the non-moving party, sufficiently show that Plaintiff is a member of the 5 class for whose benefit the contract between Swanson and American Prime Funding was made.” Id. 6 at *5 (citing Paulson v. CNF Inc., 559 F.3d 1061, 1079 (9th Cir. 2009) (reversing the district court’s 7 dismissal of a professional negligence claim and holding that a consulting firm may owe a duty to a 8 company’s former employees if the employees could be considered a third party beneficiary of the 9 service agreement between the consulting firm and the company); FDIC v. Grankel, No. 23 provided a plausible basis on which to plead a third party beneficiary breach of contract claim 12 For the Northern District of California 11–CV–03279, 2011 WL 5975262 at *3–4 (N.D. Cal. Nov. 29, 2011) (holding that Certification # 11 UNITED STATES DISTRICT COURT 10 and denying Defendant’s motion to dismiss as to that claim, but declining to hold at the motion to 13 dismiss stage that the FDIC was actually an intended beneficiary of the appraisal)).5 14 The problem for FDIC here is that the arguments that the plaintiff in Gulparast made were 15 nothing new—they were based on Bily and Soderberg and thus could have been made by Home 16 Savings to the Superior Court. FDIC statement that the Superior Court did not have the “benefit” of 17 the Gulparast decision when it sustained the demurrers is true but misses the point; the Superior 18 Court could have had the “benefit” of the arguments that were made in Gulparast, had Home 19 Savings made them. 20 Nevertheless, the court believes that, considering all of the circumstances of this case, allowing 21 FDIC to reassert its claims against Mr. Reyes is appropriate. As mentioned above, there is plenty of 22 time left in this case to deal with these new claims, and Mr. Reyes does not argue that he would be 23 prejudiced by them. Again, delay alone is insufficient to justify denial of leave to amend. Jones, 24 25 26 27 28 5 The court notes that FDIC states in its motion that “the subject appraisal contains the same ‘Certification # 23’ cited in Gulparast, and FDIC’s proposed SAC has pleaded that Home Savings was an ‘intended third-party beneficiary of Reyes’s services, expressly entitled to rely on the Appraisal, and entitled to all rights and remedies available to the client of a professional services provider.” Motion, ECF No. 50 at 9. It is true that FDIC alleges in the proposed Second Amended Complaint that it was an intended third party beneficiary, but FDIC alleges nothing about any Certification #23, the allegations about which were crucial to Judge Davila’s decision. C 12-01419 LB ORDER 7 1 127 F.3d at 847 n.8. And although there was a delay from the time the claims originally were 2 dismissed by the Superior Court to the time FDIC filed its motion, the effect of that delay appears to 3 be minimal. Accordingly, the court finds, under the standards articulated above, the court grants 4 FDIC’s motion to reassert claims for professional negligence or breach of contract against Mr. 5 Reyes. 6 B. FDIC’s Proposed Claims against Cal Coast 7 In its proposed Second Amended Complaint, FDIC asserts two new claims—one for breach of 8 contract and one for indemnification—against Cal Coast, both of which are based on a recently- 9 discovered written agreement between Cal Coast and Home Savings. See Motion, ECF No. 50 at 2. Bakshi) executed multiple agreements, including multiple ‘Addendum(s) to New Broker Agreement’ 12 For the Northern District of California FDIC alleges that “prior to the filing of this action, Cal Coast (by and through its principal, Roger 11 UNITED STATES DISTRICT COURT 10 (the ‘Broker Agreement’) with Home Savings.” Proposed SAC, ECF No. 50-11 at 7 ¶ 28. FDIC 13 does not attach the Broker Agreement to either its motion or its proposed Second Amended 14 Complaint, but it does allege that it “contained numerous representations and warranties” including: 15 3. Broker’s Representations and Warranties. Broker represents and warrants to Lender as follows: 16 ... 17 18 19 (c) No statement or representation made or document submitted to the Lender is untrue, inaccurate, incomplete or misleading in any respect whatsoever, and Broker will immediately report to Lender any known or believed to be false, inaccurate, altered, or forged statement, representation or document which may come to its attention. 20 21 (d) All documents furnished to Lender have been prepared and executed and copies delivered as required by law. . . 22 ... 23 6. Indemnification. Broker agrees to indemnify, hold harmless and defend Lender, its agents, servants, directors, officers, employees, successors, assigns, and its affiliates (the “Indemnified Parties” from and against any and all losses, claims, demands, damages, expenses or costs which in any way arise out of or relate to any alleged act or omission or Broker or any of its directors, officers, employees, or agents, whether in connection with an Application, a loan or this Agreement. Broker’s indemnification obligations shall include reasonable attorney’s fees incurred by any Indemnified Party, with or without suit, in defending against any and all claims by any third parties, including without limitation, Applicants and governmental agencies. 24 25 26 27 28 ... C 12-01419 LB ORDER 8 1 2 3 14. Attorneys’ Fees. If any legal action or other proceeding is brought for the enforcement of this Agreement, or because of an alleged dispute, breach, default, or misrepresentation in connections with any provisions of this Agreement, the prevailing party or parties shall be entitled to reasonable attorney’s fees and other costs incurred in the action or proceeding, in addition to any other relief to which it or they may be entitled. 4 Id. at 7-8 ¶ 28. In short, FDIC alleges that Cal Coast’s and Mr. Reyes conduct with respect to the 5 Loan breached the Broker Agreement and triggered its indemnification and attorney’s fees 6 provisions. Id. at 13-14 ¶¶ 54-57. 7 Cal Coast challenges the addition of these new claims on three grounds. First, Cal Coast argues 8 that FDIC’s failure to attach the Broker Agreement to the proposed Second Amended Complaint 9 renders the claim insufficient. Second, it says that the Broker Agreement on which FDIC bases its 10 claim was executed in 2011 and argues that the Broker Agreement has nothing to do with the Loan 11 For the Northern District of California UNITED STATES DISTRICT COURT or the events—which took place in 2007—at issue in this action. Third, Cal Coast argues that FDIC 12 has waited too long to add these new claims. 13 Looking to the relevant factors, the court concludes that FDIC’s proposed claims may be added. 14 There is no indication that FDIC seeks to add it in bad faith. And despite Cal Coast’s assertion, 15 there is no undue delay, as FDIC discovered the Broker Agreement in February 2013 and filed its 16 motion for leave to file a Second Amended Complaint within a few weeks. Cf. Texaco, Inc. v. 17 Ponsoldt, 939 F.2d 794, 799 (9th Cir. 1991) (holding that an eight-month delay between the time of 18 obtaining a relevant fact and seeking a leave to amend is unreasonable). FDIC could not have 19 previously amended the complaint for this reason as well. Furthermore, Cal Coast does not argue 20 that it would be prejudiced by the addition of this claim, and the court again notes that there still is 21 plenty of time left in this case. Nor is the claim futile. While FDIC admits that this particular 22 Broker Agreement was executed in 2011, FDIC argues that the Broker Agreement’s existence 23 suggests that prior broker’s agreements might exist as well, and it points out that the reason others 24 may not have been found (yet) is that Cal Coast has not produced any Loan related documents 25 (possibly because Cal Coast apparently shredded them in 2010, prior to the institution of this 26 27 28 C 12-01419 LB ORDER 9 1 2 action).6 This is enough at this stage. FDIC has shown that all of the Rule 15 factors support allowing it to add the claim against Cal 3 Coast. Moreover, in light of the recent discovery of the Broker Agreement, the court finds that 4 FDIC has shown good cause for amendment under Rule 16 as well. Johnson, 975 F.2d at 609 5 (“Rule 16(b)’s ‘good cause’ standard primarily considers the diligence of the party seeking the 6 amendment”). 7 8 9 CONCLUSION For the foregoing reasons, the court GRANTS FDIC’s motion for leave to file a Second Amended Complaint. FDIC may file a Second Amended Complaint that reasserts claims for contract/indemnification against Cal Coast. FDIC shall file a Second Amended Complaint within 14 12 For the Northern District of California professional negligence or breach of contract against Mr. Reyes and alleges a claim for breach of 11 UNITED STATES DISTRICT COURT 10 days from the date of this order as a new, separate document on the court’s ECF system. 13 This disposes of ECF No. 50. 14 IT IS SO ORDERED. 15 Dated: May 2, 2013 _______________________________ LAUREL BEELER United States Magistrate Judge 16 17 18 19 20 21 22 23 24 25 26 27 28 6 It appears that FDIC attempted to obtain a copy of any agreement between Home Savings and Cal Coast through discovery but Cal Coast responded that “[i]n 2010, responding party shredded and discarded its records regarding loan agreement that occurred in 2007 and prior years.” Responses to Request for Documents, ECF No. 50-8 at 4-5. C 12-01419 LB ORDER 10

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