Wells Fargo Bank, National Association et al v. City of Richmond, California et al

Filing 27

RESPONSE (re 25 Ex Parte Application RE: SCHEDULING OF PRELIMINARY INJUNCTION MOTION ) filed byDeutsche Bank National Trust Company, Deutsche Bank Trust Company Americas, Wells Fargo Bank, National Association. (Attachments: # 1 Declaration, # 2 Exhibit A, # 3 Exhibit B, # 4 Exhibit C, # 5 Exhibit D, # 6 Exhibit E, # 7 Exhibit F, # 8 Exhibit G, # 9 Exhibit H, # 10 Exhibit I, # 11 Exhibit J, # 12 Exhibit K, # 13 Exhibit L, # 14 Exhibit M, # 15 Proposed Order)(Tsai, Rocky) (Filed on 8/16/2013)

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ROCKY C. TSAI (SBN 221452)
([e-mail])
ROPES & GRAY LLP
Three Embarcadero Center
San Francisco, CA 94111-4006
Telephone: [phone]
Facsimile: [phone]
Attorneys for Plaintiffs Wells Fargo Bank,
N.A., as Trustee, et al.
ADDITIONAL COUNSEL LISTED
ON SIGNATURE PAGE

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UNITED STATES DISTRICT COURT

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NORTHERN DISTRICT OF CALIFORNIA

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SAN FRANCISCO DIVISION

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WELLS FARGO BANK, NATIONAL
ASSOCIATION, as Trustee, et al.,

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Plaintiffs,

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v.
CITY OF RICHMOND, CALIFORNIA, a
municipality, and MORTGAGE
RESOLUTION PARTNERS LLC,
Defendants.

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Case No. CV-13-3663-CRB

PLAINTIFFS’ OPPOSITION TO
DEFENDANTS’ EX PARTE MOTION TO
STRIKE PLAINTIFFS’ MOTION FOR A
PRELIMINARY INJUNCTION

ACCOMPANYING PAPERS: Declaration of John
C. Ertman, Esq.
Honorable Charles R. Breyer

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_________________________________________________________________________________________________
OPPOSITION TO EX PARTE MOTION; Case No. CV-13-3663-CRB

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Plaintiffs submit this Memorandum in opposition to Defendants’ ex parte motion to strike

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Plaintiffs’ Motion for Preliminary Injunction (“PI Motion”) from the Court’s calendar on the

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grounds that the PI Motion is not ripe for review by this Court.

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Introduction
The PI Motion seeks to preliminarily enjoin Defendants City of Richmond (“Richmond”) and

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Mortgage Resolution Partners LLC (“MRP”) from further implementing their unprecedented and

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unconstitutional plan to generate profits for MRP and its investors by seizing certain targeted

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mortgage loans from residential mortgage-backed securitization (“RMBS”) trusts (the “Trusts”)

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through Richmond’s eminent domain power (the “Loan Seizure Program” or “Program”). On the

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same day that Plaintiffs filed the PI Motion, counsel for Plaintiffs sent a letter to Defendants

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requesting that they agree to stay further implementation of the Program pending this Court’s

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adjudication of the serious constitutional challenges raised in the PI Motion. See Accompanying

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Declaration of John C. Ertman (“Ertman Decl.) Ex. K. In a series of meet and confer telephone

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conferences, Defendants’ counsel made clear that not only would Defendants not agree to suspend

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the Program pending adjudication of the PI Motion, but they specifically would not agree to hold off

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on initiating state court eminent domain proceedings in which they could quickly seize loans by

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utilizing California’s “Quick Take” procedure, which is one of the central elements of the Richmond

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Seizure Program. Ertman Decl. ¶ 20.

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Having refused to voluntarily stay the imminent threat of loan seizures while the PI Motion is

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pending, Defendants now, under the guise of an ex parte procedural motion, seek to remove the PI

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Motion from the Court’s calendar altogether, arguing that the PI Motion is not “ripe” for review.

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Def. Mem. at 1. Defendants’ ex parte Motion is both procedurally improper and substantively

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without merit, and should be summarily denied.

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Defendants’ Ex Parte Application Is Not Properly Before the Court

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As a threshold matter, Defendants’ ex parte Motion violates the Local Rules and the Court’s

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Standing Order regarding ex parte applications. Civil Local Rule 7-10, entitled “Ex Parte Motions”

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provides that a party may file an ex parte motion “only if a statute, Federal Rule, local rule or

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Standing Order authorizes the filing of an ex parte motion in the circumstances and the party has
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OPPOSITION TO EX PARTE MOTION; Case No. CV-13-3663-CRB

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complied with the applicable provisions allowing the party to approach the Court on an ex parte

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basis. The motion must include a citation to the statute, rule or order which permits the use of an ex

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parte motion to obtain the relief sought.”

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Here, Defendants purport to bring their ex parte Motion pursuant to this Court’s Standing

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Order No. 4 (Def. Mem. at 1), which provides that parties seeking to “continue hearings, request

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special status conferences, modify briefing schedules, or make other procedural changes shall

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submit a signed stipulation and proposed order, or, if stipulation is not possible, an ex parte

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application in writing.” (emphasis added).

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By arguing that the PI Motion is not ripe and therefore should be stricken without

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consideration, Defendants seek substantive relief, not procedural relief; they essentially request that

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the PI Motion be denied on the merits on an ex parte basis. Defendants’ ex parte Motion is thus

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beyond the limited scope of Civil Local Rule 7-10 and this Court’s Standing Order No. 4, and should

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be rejected on that basis alone. To the extent Defendants believe they have a valid ripeness

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argument, they should raise that argument in opposition to Plaintiffs’ PI Motion, so that Plaintiffs

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have an opportunity to respond to their argument, and the Court can consider the issue on a complete

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record. The Court’s ex parte procedure is not designed to afford the Court a full opportunity to

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consider and rule upon such weighty issues, and the Court should deny Defendants’ Motion as

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procedurally improper. See Anderson Props. v. Dante, No. 13-00218 (JGB), 2013 U.S. Dist. LEXIS

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25562, at *1 (C.D. Cal. Feb. 21, 2013) (criticizing party for bringing substantive ex parte motion and

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holding that motion should be heard pursuant to “regular noticed motion procedures”).

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There Is No Basis to Strike the PI Motion
Defendants argue that Plaintiffs’ PI Motion should be stricken because it is too speculative

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and rests upon “contingent future events”: in particular, the issuance of a resolution of necessity by

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Richmond’s City Council. Although an ex parte motion is not an appropriate vehicle for raising this

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substantive “ripeness” argument (and Plaintiffs will, of course, respond to this argument and any

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other arguments Defendants raise in opposition to the PI Motion in the normal course), Plaintiffs will

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note here that counsel’s suggestion that Defendants might not go forward with their Program is itself

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entirely speculative. Indeed, as discussed in more detail below, Defendants already have taken
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OPPOSITION TO EX PARTE MOTION; Case No. CV-13-3663-CRB

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substantial steps in implementing the Program in accordance with their pre-determined plan, and

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have refused to halt any aspect of the Program while the PI Motion is being litigated.

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Where, as here, an eminent domain program will inevitably cause harm to the property

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owner, the owner does “not have to await the consummation of threatened injury to obtain

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preventive relief.” Regional Railroad Reorganization Act Cases, 419 U.S. 102, 142 (1974); see also

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Employers Ins. Of Wausau v. Fox Entm’t Grp., Inc., 522 F.3d 271, 278 (2d Cir. 2008) (“That the

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liability may be contingent does not necessarily defeat jurisdiction of a declaratory judgment action.

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Rather, courts should focus on the practical likelihood that the contingencies will occur.”).

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Indeed, numerous federal courts have adjudicated claims for declaratory and injunctive relief

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regarding the unconstitutionality of private takings claims where some of the formal steps required

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to implement the seizure had not yet occurred. In Hawaii Housing Authority v. Midkiff, 467 U.S.

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229 (1984), a leading case on the exercise of eminent domain, the suit for injunctive relief was filed

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in federal court once the parties were required to engage in an arbitration process – akin to

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“negotiation” that Richmond claims to be pursuing through its offer letters in this case – even though

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the arbitration had not commenced and subsequent steps of the takings process were yet to occur, yet

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at no level of the federal judiciary was the ripeness of the plaintiffs’ suit questioned. Id. at 235; see

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also Cottonwood Christian Center v. Cypress Redevelopment Authority, 218 F.Supp.2d 1203, 1214

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(C.D. Cal. 2002) (district court granted a preliminary injunction for violations of the public use

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clause, among other statutory claims, in a case for declaratory and injunctive relief filed months

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before the city ultimately resolved to take the land in question as required under California law).

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There is no requirement that a party await the outcome of the specific steps of state or local eminent

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domain procedures before seeking injunctive relief for private takings in federal court. See

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Armendariz v. Penman, 75 F.3d 1311, 1321, n. 5 (9th Cir. 1996).

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Here, Defendants’ own actions and public statements confirm their intent to proceed with the

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seizure of loans through eminent domain, despite the fact that over the past several months

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Defendants have been repeatedly advised as to the unlawfulness of the Program and of the

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devastating harm the Program would cause, not only to the RMBS trusts that hold the mortgage

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loans targeted for eminent domain seizure, but also across the local and national mortgage and
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OPPOSITION TO EX PARTE MOTION; Case No. CV-13-3663-CRB

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housing markets. Accordingly, the PI Motion is not barred by the fact that Richmond has not yet

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issued a resolution on public necessity.

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The plan to seize loans in Richmond through eminent domain is not, as Defendants suggest,

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“purely hypothetical” (Ertman Decl. Ex. L at 3), but has been in place for at least several months,

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and Richmond has already taken several concrete steps to implement the Loan Seizure Program. In

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April 2013, the City Manager of Richmond formally recommended that the City Council enter into a

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partnership with MRP so that MRP could advise Richmond “on the acquisition of mortgage loans

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through the use of eminent domain.” Declaration of John Ertman (“Ertman PI Decl.”), Dkt. 9, Ex. H

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at 1.

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That same month, Richmond’s City Council deliberated the proposal at a public hearing,

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where it expressly discussed that loans would be seized by eminent domain, and formally voted (6-0,

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with one member absent) to authorize the implementation of the Loan Seizure Program. See Ertman

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Decl. ¶¶ 4, 6 (the City Manager explained that, under the Program, if there was not a “negotiated

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purchase” of a targeted mortgage, “the City would be asked to use eminent domain to acquire the

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mortgage.”). After the hearing, Richmond executed a formal Advisory Services Agreement with

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MRP, which expressly provides that MRP will advise Richmond on “acquiring mortgage loans

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through the use of eminent domain.” See Ertman Decl. ¶ 5.

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In the months surrounding the City Council’s vote to approve the Program, Richmond was

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the target of significant lobbying efforts against implementation of the Program, where the same

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constitutional and other legal concerns raised in Plaintiffs’ Complaint and PI Motion were addressed

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to Richmond. See, e.g., Ertman Decl. Ex. A (March 13, 2013 letter from trade association to the

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Mayor of Richmond discussing legal concerns and harm caused by implementation of the Program

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to association’s members and others, and attaching a legal memorandum discussing the illegality of

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the program).

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When presented with those arguments, Richmond and MRP repeatedly refused to back down,

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instead insisting that they would carry out their plan to seize loans under eminent domain. For

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example, in an op-ed, the Mayor of Richmond – who also serves on Richmond’s City Council –

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declared that “[w]e are not backing down” from “[t]he same Wall Street banks that targeted our
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communities with predatory loans [that] are now trying to scare and bully us . . . We have a local

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solution to a national crisis Wall Street created.” Ertman Decl. Ex. D (June 17 op-ed in San

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Francisco Chronicle).

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On July 31, 2013, as part of the rolling out of the Loan Seizure Program, Richmond issued

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offer letters to trustees and servicers with respect to a first wave of 624 targeted loans. See Ertman

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PI Decl. Ex. A; Declaration of Kevin Trogdon (“Trogdon Decl.”), Dkt. 12, Ex. B; Declaration of

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Ronaldo Reyes (“Reyes Decl.”), Dkt. 13, Ex. 1. This is a prerequisite step before property can be

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seized under California eminent domain law. See Cal. Gov. Code § 7267.2 (prior to adopting a

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resolution of necessity, “the public entity shall establish an amount that it believes to be just

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compensation therefor, and shall make an offer to the owner or owners of record to acquire the

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property for the full amount so established”). Those offer letters offered to acquire the loans from

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the trusts at deeply discounted prices, and advised that Richmond could seize the targeted loans

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under eminent domain if the offers were not accepted. See Ertman PI Decl. Ex. A at 2 (“in the event

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that negotiations fail to result in agreement,” Richmond could “decide[] to proceed with the

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acquisition of the Loans through eminent domain”); Trogdon Decl. Ex. B at 2; Reyes Decl. Ex. 1 at

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2. The offer letters provided a deadline for responses to the offers of August 13, 2013: three days

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ago. And as Defendants know, at least some of the trustees, including the Plaintiff Trustees here,

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have already responded to the offer letters with written rejections. See Ertman Decl. Ex. J.

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Significantly, initial analysis of the loans that are the subject of the offer letters confirm that

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the majority (approximately two-thirds) are performing loans, and thus fit the profile of loans that

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meet MRP’s criteria for inclusion in the Program (because only such performing loans can qualify

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for refinancing and can be flipped for a profit). See Trogdon Decl. ¶ 14. Moreover, as noted above,

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because the trusts in which the loans are held are organized as Real Estate Mortgage Investment

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Conduits, or “REMICs”, they are prohibited from selling the loans to Richmond, a fact the

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Defendants have openly acknowledged. See Ertman Decl. Ex. I (MRP FAQ Sheet), at 3 (“Private

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securitization trusts hold approximately $ 1.4 trillion of loans; we could offer to buy their underwater

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loans, but their trust agreements forbid them to voluntarily sell the loans.”).

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Thus, there is no purpose for issuing offer letters to purchase these performing loans, except

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the statutory prerequisite for seizing them pursuant to the Program, as threatened in the “offer”

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letters themselves, and Defendants’ assertion in their Motion that they are simply seeking to acquire

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the loans right now only on a “voluntary” basis is belied by their own statements to the contrary.

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Defendants’ mischaracterization of the true purpose of the offer letters is further evidence that they

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are not being forthcoming with Plaintiffs, or with the Court, and further supports the need for

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injunctive relief.

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Even in the days since this action was filed, Defendants have publicly expressed their

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intention to seize mortgage loans under eminent domain. See, e.g., Ertman Decl. Ex. G (Mayor

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“sa[id] she’s not deterred from moving ahead with the city’s plan to forcibly purchase mortgages

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from bondholders using the city’s power of eminent domain despite a court challenge and the

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possibility of additional action by a federal regulator.”); Ex. F (emailed statement to Bloomberg in

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which Mayor wrote: “The banks and financial institutions are not helping. . . . Their greed caused the

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problem and they have no solution for cities like Richmond. . . . Cities like Richmond have a right

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and obligation to utilize such a program for the public benefit.”). On the very day that Plaintiffs

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filed this motion, Richmond’s Mayor publicly declared that “I am absolutely not backing down”

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from the Program. Id. Ex. H (Mayor of Richmond “said that the city will not be dissuaded from its

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plan to use eminent domain to seize underwater mortgages.”)

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In light of the express statements made by Richmond and MRP, there is no question that

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Plaintiffs intend to proceed with the Program and, in accordance with their pre-determined plan,

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quickly commence state court proceedings in which they can utilize a “Quick Take” procedure to

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quickly seize possession of the targeted loans. Once a loan is seized it becomes difficult, if not

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impossible, for the loans to be restored to the RMBS trusts from which they were taken. Thus, by

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proceeding in this fashion, Defendants can effectively frustrate the ability of Plaintiffs to obtain full

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and effective injunctive relief from this Court. Defendants’ intentions are only confirmed by their

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rejection of Plaintiffs’ proposal to stay implementation of the Program pending adjudication of the

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constitutional challenges now before the Court.

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Because there is a “practical likelihood” that the Program will be implemented, Plaintiffs’ PI

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Motion is unquestionably ripe for adjudication. See Employers Ins., 522 F.3d at 278 (“[t]hat the

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liability may be contingent does not necessarily defeat jurisdiction of a declaratory judgment action.

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Rather, courts should focus on the practical likelihood that the contingencies will occur.”).

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There are several additional reasons that the PI Motion is ripe for consideration now. The PI

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Motion, which violates numerous constitutional proscriptions of a categorical and threshold nature,

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does not depend upon the specifics of how Richmond will effectuate its Loan Seizure Program, or the

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compensation it offers. First, all of the loans targeted by Defendants, and all of the RMBS trusts that

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hold them, are located outside of Richmond (most are outside of California), and Richmond already

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has sent offer letters to Plaintiffs and other trustees offering to acquire the loans under threat of

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eminent domain seizure. This extraterritorial attempt to pursue out-of-Richmond property is real, not

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hypothetical, and is in blatant violation of the due process requirements of the U.S. and California

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Constitutions, and is already causing harm to Plaintiffs by forcing them to protect themselves in court

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from a jurisdictionally baseless extraterritorial seizure program. These geographic realities also mean

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that the Program will necessarily impact commercial transactions across state lines, in violation of the

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Dormant Commerce Clause. Nothing decided at a necessity hearing could possibly alter these

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constitutional infirmities. Thus, these unconstitutional and illegal aspects of the Program are ripe for

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review now.

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Furthermore, Plaintiffs have submitted evidence that the Richmond Seizure Program already is

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causing economic harm, and imminently threatens to cause even more harm, both to the Trusts and

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their beneficiaries, and to the mortgage lending market more generally. As discussed in Plaintiffs’ PI

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Motion, Defendants plan to strip more than $200 million of valuable assets away from RMBS trusts on

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an expedited basis. The record also shows that the Defendants’ initiation and continued pursuit of the

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Program has already begun to harm the national mortgage lending market. As some market analysts

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have observed, the threat of mortgage loan seizures by eminent domain has already caused “sizable

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dispersion in jumbo [mortgage] rates,” thereby penalizing home buyers with higher interest rates as a

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result of the Defendants’ actions to date. See Decl. of Phillip Burnaman, Dkt. 11, at ¶ 51 (citing May

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10, 2013 J.P. Morgan research report). As set forth in Plaintiffs’ PI Motion, the imminent harm to the

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national economy will be even greater if the Program is allowed to continue.

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Conclusion
In light of the foregoing, Defendants’ purported solution – that they will agree to provide

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Plaintiffs 15 days notice prior to proceeding to a necessity hearing in which to seek judicial relief –

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is illusory and irrelevant. Indeed, it is ironic that Defendants assert in one part of their Motion that it

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will take them significantly more time to respond fully to the PI Motion than a 30-day briefing

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schedule allows, and have requested a 30-day delay of the hearing on that basis, yet at the same time

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Plaintiffs suggest that the PI Motion be indefinitely postponed and rescheduled on an emergency

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basis to be fully briefed and adjudicated in 15 days once the hearing on necessity is noticed. Such a

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schedule is unrealistic and betrays that Defendants’ true purpose is to frustrate this Court’s

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jurisdiction over Plaintiffs’ federal constitutional claims.

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If Defendants have a genuine desire to proceed in an efficient and organized manner, then

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they should agree to stay further implementation of the Program pending the Court’s adjudication of

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this matter, and the parties, with the approval of the Court, can set a reasonable schedule. Although

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Defendants have steadfastly refused all requests to stay implementation of the Program, the Plaintiffs

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would be willing to postpone the scheduled September 13, 2013 hearing on the PI Motion if the

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Defendants agree not to schedule and give any notice of a necessity hearing on the Loan Seizure

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Program until after the conclusion of the PI Hearing. Otherwise the Plaintiffs respectfully request

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that the PI Motion be heard on September 13 as scheduled, or on a mutually agreeable date before

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then to accommodate Defendants’ counsel’s vacation schedule.

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DATED: August 16, 2013
Respectfully submitted,

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By: /s/ Rocky C. Tsai
______________________________________

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OPPOSITION TO EX PARTE MOTION; Case No. CV-13-3663-CRB

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Thomas O. Jacob (SBN 125665)
[e-mail]
WELLS FARGO & COMPANY
Office of General Counsel
45 Fremont Street, Twenty-Sixth Floor
MAC A0194-266
San Francisco, CA 94105
Telephone: [phone]
Facsimile: [phone]

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Attorney for Wells Fargo Bank

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ROPES & GRAY LLP
Attorneys for Plaintiffs
Rocky C. Tsai (SBN 221452)
([e-mail])
ROPES & GRAY LLP
Three Embarcadero Center
San Francisco, CA 94111-4006
Telephone: [phone]
Facsimile: [phone]

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John C. Ertman
([e-mail])
(admitted pro hac vice)
Lee S. Gayer
([e-mail])
Evan P. Lestelle
([e-mail])
ROPES & GRAY LLP
1211 Avenue of the Americas
New York, NY 10036-8704
Telephone: [phone]
Facsimile: [phone]

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Douglas H. Hallward-Driemeier
([e-mail])
(admitted pro hac vice)
ROPES & GRAY LLP
One Metro Center
700 12th Street, NW
Suite 900
Washington, DC 20005-3948
Phone: [phone]

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Daniel V. McCaughey
([e-mail])
Nick W. Rose
([e-mail])
ROPES & GRAY LLP
800 Boylston St.
Boston, MA
Phone: [phone]

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OPPOSITION TO EX PARTE MOTION; Case No. CV-13-3663-CRB