Patino et al v. Franklin Credit Management Corporation et al

Filing 74

ORDER by Judge Laurel Beeler granting the plaintiff's temporary restraining order and establishing the process forward. ECF Nos. 67 , 69 , 70 . (lblc1S, COURT STAFF) (Filed on 4/5/2017)

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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 United States District Court Northern District of California 11 12 PENNY L. PATINO, Case No.16-cv-02695-LB Plaintiff, 13 ORDER GRANTING THE PLAINTIFF’S TEMPORARY RESTRAINING ORDER v. 14 15 FRANKLIN CREDIT MANAGEMENT CORPORATION, et al., 16 Defendants. Re: ECF Nos. 67, 69, 70 17 18 INTRODUCTION & BACKGROUND 19 In this mortgage-foreclosure case, the defendants are moving forward with a trustee’s sale of 20 Ms. Patino’s home. The court assumes familiarity with the case’s facts and incorporates by 21 reference its order on the defendants’ most recent motion to dismiss.1 To summarize, though, Ms. 22 Patino — whose history of mental and physical abuse and cognitive abilities rendered her unable 23 to understand the significance of her financial decisions — obtained a $155,571.67 home-equity 24 credit line.2 She alleges that, although suffering from a mental disorder, she properly rescinded the 25 loan under the Truth in Lending Act (“TILA”).3 But her lender, Cal State 9 Credit Union, refused 26 1 27 28 Order – ECF No. 51. 2 Second Amended Compl. (“SAC”) – ECF No. 65, ¶¶ 17, 20. 3 Id. ¶¶ 21–23. ORDER — No. 16-cv-02695-LB 1 to accept her rescission and returned her check (for the full loan balance) with an “X” and the 2 word “void” written on it.4 Ms. Patino’s “post[-]traumatic stress disorder prevented [her] from 3 fully understanding this sequence of events, and from fully understanding that no rescission had 4 taken place.”5 And because the loan was never cancelled, Ms. Patino “was compelled to continue 5 to make her line of equity payments, which payments included principal and interest.”6 Ms. Patino 6 thus seeks relief under TILA and asserts additional claims for wrongful foreclosure, unfair 7 business practices, breach of contract, intentional and negligent infliction of emotional distress, 8 and quiet title. She seeks damages, and declaratory and injunctive relief. Now, after moving the trustee’s sale multiple times, the defendants are proceeding with the 10 sale of Ms. Patino’s home. Ms. Patino seeks a temporary restraining order (“TRO”).7 The court 11 United States District Court Northern District of California 9 ordered the defendants to respond (they did),8 and the court held a hearing on the matter. For the 12 reasons stated on the record at the hearing, and as described below, the court grants Ms. Patino’s 13 TRO. 14 15 LEGAL STANDARD 16 A temporary restraining order preserves the status quo and prevents irreparable harm until a 17 hearing can be held on a preliminary injunction application. See Granny Goose Foods, Inc. v. 18 Brotherhood of Teamsters & Auto Truck Drivers, 415 U.S. 423, 439 (1974). A temporary 19 restraining order is an “extraordinary remedy” that the court should award only when a plaintiff 20 makes a clear showing that it is entitled to such relief. See Winter v. Natural Res. Defense Council, 21 Inc., 555 U.S. 7, 22 (2008). A temporary restraining order may be issued without providing the 22 opposing party an opportunity to be heard only if “specific facts in an affidavit or a verified 23 24 4 Id. ¶ 23. 5 Id. ¶ 28. 6 Id. ¶ 27. 27 7 See ECF Nos. 67, 69, 70. 28 8 See Opposition – ECF No. 72. 25 26 ORDER — No. 16-cv-02695-LB 2 1 complaint clearly show that immediate and irreparable injury, loss, or damage will result to the 2 movant before the adverse party can be heard in opposition.” Fed. R. Civ. P. 65(b)(1)(A). 3 The standards for a temporary restraining order and a preliminary injunction are the same. See 4 Stuhlbarg Int’l Sales Co., Inc. v. John D. Brush & Co., Inc., 240 F.3d 832, 839 n.7 (9th Cir. 2001). 5 A movant must demonstrate (1) a likelihood of success on the merits, (2) a likelihood of 6 irreparable harm that would result if an injunction were not issued, (3) the balance of equities tips 7 in favor of the plaintiff, and (4) an injunction is in the public interest. See Winter, 555 U.S. at 20. 8 The irreparable injury must be both likely and immediate. See id. at 22–23. “[A] plaintiff must 9 demonstrate immediate threatened injury as a prerequisite to preliminary injunctive relief.” 10 Caribbean Marine Servs. Co., Inc. v. Baldrige, 844 F.2d 668, 674 (9th Cir. 1988). United States District Court Northern District of California 11 Before Winter, the Ninth Circuit employed a “sliding scale” test that allowed a plaintiff to 12 prove either “(1) a likelihood of success on the merits and the possibility of irreparable injury; or 13 (2) [ ] serious questions going to the merits were raised and the balance of hardships tips sharply 14 in its favor.” See Walczak v. EPL Prolong, Inc., 198 F.3d 725, 731 (9th Cir. 1999). In this 15 continuum, “the greater the relative hardship to [a movant], the less probability of success must be 16 shown.” Id. After Winter, the Ninth Circuit held that although the Supreme Court invalidated the 17 sliding scale approach, the “serious questions” prong of the sliding scale survived so long as the 18 movant satisfied the other elements for preliminary relief. Alliance for Wild Rockies v. Cottrell, 19 632 F.3d 1127, 1131–32 (9th Cir. 2011). Thus, a preliminary injunction may be appropriate when 20 a movant raises “serious questions going to the merits” and the “balance of hardships tips sharply 21 in the plaintiff’s favor,” provided that the other elements for relief also are satisfied. Id. at 1132, 22 1135. 23 ANALYSIS 24 25 1. A Temporary Restraining Order is Appropriate to Preserve the Status Quo 26 First, the facts alleged in the Second Amended Complaint (“SAC”) raise (at least) serious 27 questions going to the merits of Ms. Patino’s claims. The defendants argue the opposite because, 28 they say: (1) Ms. Patino signed an interest-reduction agreement that affirmed the loan (defeating ORDER — No. 16-cv-02695-LB 3 1 her rescission claim) and waived her right to TILA set off and recoupment; (2) she should be 2 judicially estopped from making her claims because she did not disclose them in her prior 3 bankruptcy filings; and (3) she has unclean hands because she has not made loan payments since 4 November 2008, owes $93,909.25 in interest, and did not fully cooperate in earlier ADR 5 processes.9 At this stage of the case, the court denies the defendants’ arguments. Ms. Patino argues that the 6 7 interest-reduction agreement is unenforceable. For example, she argues that the agreement is 8 unconscionable, there was no intentional waiver, the terms are ambiguous, and she did not have 9 the capacity to enter into the agreement. In light of the allegations in the SAC, these arguments are 10 potentially meritorious. United States District Court Northern District of California 11 The court also will not now judicially estop Ms. Patino from asserting her claims. Morris v. 12 California, 966 F.2d 448, 453 (9th Cir.1991) (“[J]udicial estoppel is an equitable doctrine invoked 13 by a court at its discretion.”) (internal quotations omitted). Judicial estoppel is an equitable 14 doctrine that prevents a party from benefitting by taking one position but then later seeking to 15 benefit by taking a clearly inconsistent position. Hamilton v. State Farm Fire & Cas. Ins. Co., 270 16 F.3d 778, 782 (9th Cir. 2001). It is intended to protect the integrity of the judicial process by 17 preventing a litigant from “playing fast and loose with the courts.” Russell v. Rolfs, 893 F.2d 1033, 18 1037 (9th Cir. 1990). Courts consider several factors to determine whether to invoke judicial 19 estoppel, including: (1) “a party’s later position must be ‘clearly inconsistent’ with its earlier 20 position”; (2) the party must have “succeeded in persuading a court to accept that party’s earlier 21 position”; and (3) “the party seeking to assert an inconsistent position would derive an unfair 22 advantage or impose an unfair detriment on the opposing party if not estopped.” Hamilton v. State 23 Farm Fire & Cas. Ins. Co., 270 F.3d 778, 782–83 (9th Cir. 2001) (citing New Hampshire v. 24 Maine, 532 U.S. 742, 750–51 (2001)) (internal quotations omitted). On balance, these factors do 25 not weigh in favor of judicially estopping Ms. Patino from asserting her claims, at least not at this 26 27 28 9 See Opposition at 2–4. ORDER — No. 16-cv-02695-LB 4 1 stage of the case. This is especially true in light of her mental capacity and the absence of indicia 2 of bad-faith, fast-and-loose conduct. And for similar reasons — particularly the absence of bad faith — the court will not now hold 3 4 that Ms. Patino is barred by unclean hands. 5 Second, there is a likelihood of irreparable harm if the TRO is not granted. If the sale goes 6 forward, Ms. Patino will lose her home. Any monetary recovery will not necessarily compensate 7 her for that harm, and so the loss is irreparable. And this harm is likely and immediate because the 8 sale is scheduled for tomorrow, April 6, 2017. Third, the balance of equities tips strongly in favor of granting the TRO. On one hand, Ms. 10 Patino stands to lose her home. On the other hand, the defendants have identified only a single 11 United States District Court Northern District of California 9 burden if the TRO is granted: “If the sale on April 6, 2017 does not move forward, the sale cannot 12 be postponed any further, and therefore the notice of sale will need to be reset[ and] the 13 Defendants will incur additional fees and costs.”10 The balance of equities favors granting the 14 TRO. Fourth, the parties did not identify a public interest implicated by the TRO. The court finds 15 16 that the public interest will not be harmed by stopping the sale of Ms. Patino’s home. 17 In sum, Ms. Patino raises “serious questions going to the merits” of her claims and the 18 “balance of hardships tips sharply” in her favor. Alliance for Wild Rockies, 632 F.3d at 1132, 19 1135. Because she also satisfies the other elements for a TRO, see id., the court grants her 20 application. 21 22 2. Process Moving Forward 23 At the TRO hearing, the court discussed with the parties the process moving forward. Ms. 24 Patino wants to first address the defendants’ anticipated motion to dismiss. The defendants want to 25 first brief and hold a hearing on a preliminary injunction. Because this TRO was issued with 26 notice to the defendants, the court need not set a preliminary-injunction hearing “at the earliest 27 28 10 Opposition at 2. ORDER — No. 16-cv-02695-LB 5

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