Phleger v. Countrywide Home Loans, Inc. et al

Filing 281

ORDER by Judge Saundra Brown Armstrong, GRANTING IN PART AND DENYING IN PART 241 Motion for Summary Judgment or, in the alternative, Motion for Partial Summary Judgment Against Plaintiff (lrc, COURT STAFF) (Filed on 3/3/2009) Modified on 3/4/2009 (jlm, COURT STAFF).

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 JEAN PHLEGER, Plaintiff, v.

UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF CALIFORNIA OAKLAND DIVISION No. C 07-01686 SBA ORDER [Docket No. 242]

COUNTRYWIDE HOME LOANS, INC., doing business as AMERICA'S WHOLESALE LENDER, et al., Defendants.

And related cross-, counter-, and third-party suits

INTRODUCTION This matter arises from a dispute over a $3.3 million mortgage and a $550,000 home equity line of credit secured against plaintiff/counter-defendant Jean Phleger's home in San Francisco. Phleger has sued defendants/counter-plaintiffs (1) Countrywide Home Loans, Inc. dba America's Wholesale Lender, (2) Countrywide Bank, N.A., and (3) Reconstruct Company, N.A. (collectively, "Countrywide"), for, inter alia, violating the Truth in Lending Act (the "TILA"), 15 U.S.C. § 1601, et seq., cancellation, and rescission due to mistake, incapacity, and failure of consideration. Countrywide has counter-sued Phleger for, inter alia, judicial foreclosure on the deeds of trust securing the mortgage and the line of credit. Phleger has also sued third-party defendant Stewart Title of California, Inc. ("Stewart") for negligence, breach of fiduciary duty, and indemnity. Before the Court is Countrywide's Motion for Summary Judgment or, in the Alternative, Partial Summary Judgment against Plaintiff (the "Motion") [Docket No. 241]; Phleger's Memorandum of Points and Authorities in Opposition to the Motion (the "Opposition") [Docket No. 242]; and Countrywide's Reply Brief in Support of the Motion (the "Reply") [Docket No. 266]. The Court finds this matter appropriate for resolution without a hearing under Federal Rule of Civil Procedure 78(b). For the reasons discussed below, the Court GRANTS in part and DENIES in part

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the Motion, as follows. (1) The Court DENIES partial summary judgment on the issue of whether Phleger made

an election of remedies when she previously filed a Motion for Partial Summary Judgment [Docket No. 200] against Countrywide; (2) The Court GRANTS partial summary judgment on the issue of whether Edison was

Phleger's actual agent, but DENIES partial summary judgment on the issues of (a) whether Edison was Phleger's ostensible agent; (b) whether Edison had the actual authority to obtain a mortgage or line of credit from Countrywide; (c) whether Phleger is liable under the doctrine of respondeat superior for Edison's conduct in obtaining this mortgage and line of credit; and (d) whether Edison had the ostensible authority to obtain this mortgage and line of credit; (3) The Court DENIES partial summary judgment on Phleger's cancellation claim to the

extent predicated on her alleged election of remedies by previously filing a Motion for Partial Summary Judgment [Docket No. 200] against Countrywide, but GRANTS partial summary judgment on this claim to the extent predicated on fraud in the inception or execution; (4) The Court GRANTS partial summary judgment on Phleger's claim of rescission

based on unilateral mistake of fact; and GRANTS partial summary judgment on Phleger's claim of rescission based on incapacity; (5) The Court DENIES partial summary judgment on Phleger's claim of rescission based

on a failure of consideration, to the extent predicated on the fact that her initials are missing from two Uniform Residential Loan Applications; but GRANTS partial summary judgment on this claim, to the extent predicated on: (a) her failure to sign Countrywide's mortgage and line of credit documents; (b) the absence of a power of attorney specific to Green Street; (c) Stewart's breaches of its duty to the escrow parties or to follow the escrow or closing instructions; (d) Countrywide's review of a Landsafe Credit Merge Report; (e) Countrywide's signatures missing from exhibits 14 through 16 and 23 of Phleger's deposition transcript; and (f) an alleged breach of a contract between Countrywide and defendant/third-party plaintiff First National Mortgage Sources, LLC regarding supervising defendant/third-party plaintiff George W. Hannah II; and (6) The Court DENIES partial summary judgment on Phleger's claim for violating the 2

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TILA; DENIES partial summary judgment on Phleger's claim for declaratory relief; and DENIES partial summary judgment on Phleger's claim for injunctive relief. BACKGROUND I. Factual Developments Plaintiff/counter-defendant Jean Phleger is 70 years old and owns 2728 Green Street ("Green Street"), her San Francisco home, as well as property in Woodside California. In July 2005, these assets were purportedly worth approximately $6.7 million and $30.0 million, respectively. Despite these assets, in 2005, Phleger had little liquidity. She was paying her bills and daily expenses by drawing from a $1 million Wells Fargo line of credit, secured against Green Street, which had a balance in excess of $900,000. She wanted to increase her credit line, to avoid having to dip into a retirement account or other sources. Sometime between March and May 2005, her daughter, Kelley Phleger, and her son-in-law, Don Johnson, introduced her to cross-defendant/third-party defendant Michael Edison, owner of Private Wealth Management. Phleger met with Edison on May 6, 2005, at her Woodside property. He represented to her that he could increase her Wells Fargo credit line up to $3 to $4 million. Although she felt these limits were "fine," she did not feel such high limits were a "necessity." Docket No. 243, Ex. "J" at 188. Edison's intent, however, was to siphon off for his own benefit a substantial portion of any funds obtained, without Phleger's knowledge. At this meeting, Phleger signed two limited powers of attorney (the "LPOAs"), allowing Edison to handle her banking and lending with Wells Fargo Bank and with Union Bank.1 After the May meeting, Edison contacted defendant/third-party plaintiff George W. Hannah II ("Hannah"), an employee of defendant/third-party plaintiff First National Mortgage Sources, LLC ("First National"). At Edison's request, Hannah prepared two Uniform Residential Loan Applications ("URLAs") for Phleger: one for a $4 million mortgage, and one for a $500,000 line of credit. In order to complete the URLAs, Hannah contacted Edison's agents a number of times, who

1

Although Phleger testified that she signed the LPOAs at her May 6 meeting, their cover letter references a February 2005 meeting between Phleger and Edison, the LPOAs are dated February 18, 2005, and appear to have been signed and faxed by Phleger to Edison in March 2005. 3

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advised him that they would obtain the information from Phleger, and call him with it. He completed the URLAs on July 12, 2005. The URLAs contain a number of errors, including specifying that the applications are for joint borrowers, and listing the wrong construction date for Green Street, the wrong birth date for Phleger, and specifying that she is self-employed and retired. One URLA specifies that she is a White female, while the other specifies that she is White Hispanic/Latino female. One URLA specifies that she was interviewed by telephone, while the other fails to specify any interview method. Both URLA's provide her address at Green Street, but specify a Henderson, Nevada mailing address and telephone number. On July 19, 2005, a week after the URLAs were completed, Phleger traveled to Nevada to meet with Edison. There, she also met his employee Micah Heisler. Phleger and Edison discussed her existing line of credit, her lifestyle, her annual real estate appreciation, et seq. Further, she signed what she variously describes as "a small pile of papers," a "number of documents[,]" or "a lot of papers." Docket No. 243, Ex. "J" at 159; Docket No. 262, Ex. "A" at 191. This included an application to increase her existing line of credit, and what she later testified was, what she thought was another LPOA. She in fact gave Edison an unlimited power of attorney (the "UPOA") over all her affairs.2 Phleger also testified that at this meeting she signed an application to establish joint Wells Fargo checking and savings accounts in Las Vegas,3 which she believed Edison would use to pay her bills during her frequent trips out of town. Hannah testified that he first met Phleger at this July 19, 2005 meeting. He did not see her sign the URLAs, however, which bear the purported signature of Jean C. Phleger and a handwritten
2

Although she testified that she recalled signing this power of attorney at the July 19, 2005 meeting, it is dated May 6, 2005, the date of her Woodside meeting with Edison. The UPOA is unlimited in scope, and in part, it expressly allows Edison: [t]o execute, acknowledge and deliver any and all contracts, debts, leases, assignments of mortgage, extensions of mortgage, satisfactions of mortgage, release of mortgage, subordination agreements and any other instruments or agreement of any kind or nature whatsoever, in connection therewith, and affecting any and all property presently mine or hereafter acquired, located anywhere, which to my said attorney-in-fact may seem necessary or advantageous for my interest. Docket No. 243, Ex. "B" at 1, para. 6. This application, however, is dated May 25, 2005. 4

3

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date of "7/19/05[.]" He later received the signed URLAs from Edison. He never saw Phleger again, until a deposition in this matter. Phleger testified that she never met nor spoke with Hannah prior to filing this suit in August 2006. On or about August 3, 2005, Hannah contacted Stewart to open an escrow transaction. He provided a copy of the UPOA to Stewart and a copy to Countrywide. On August 3, 2005, Phleger called her UBS stock broker, Jonathan Usich. His notes from their conversation state: Gail Webb [Phleger's secretary] is retiring. Jean has hire [sic] Michael Edison, a wealth manager from Las Vegas to take over Gail's duties. She claims he is a ver [sic] sophisticated individual and she intends to have him manage "everything." I questioned her on his business name, asset [sic] under management, fee structure, experience, methodology, services, etc. . . . She didn't have a clear answer on anything. She kept on repeating he is very sophisticated and will be forming trusts, insurance policies, and cure her problems relating to estate tax and cash flow. Docket No. 243, Ex. "C" at 1. On August 22, 2005, while in New York, she met with Edison at the Pierre Hotel. Three to five days prior she had a bout of sciatica. She had seen various doctors, and on August 22 took "maybe" "a very small dose of Valium," and "maybe" 800 mg of Bufferin or other ibuprofen. Docket No. 243, Exs. J at 261-62, K at 332-33. Due to back spasms, she could sit, but found it hard to do so. Nonetheless, she was able to walk to the meeting. Edison was "a little vague," but told her that the application for a line of credit increase had not gone through, and that she had to sign more papers for an additional line of credit.4 Docket No. 243, Ex. "J" at 262. She was distracted at this meeting due to her "very severe" back injury. Id. On August 26, 2005, Countrywide generated an Underwriting Decision/Condition Letter, which specifies that Phleger's purported application for a $4 million loan has been suspended, but a counter-offer has been made for $3.3 million. It also specifies as an "open" condition for "Prior to

4

The parties have not produced or provided any further information regarding these papers. 5

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Doc" that any "Power of Attorney must be specific to the property at closing and must be durable[.]" See Docket No. 262, Ex. "I" at 1. The "Prior to Doc" conditions in the Letter precede the "Prior to Funding" conditions. See id. The Countrywide Tech Manual used for underwriting also specifies that Countrywide "will accept powers of attorney that are specific to the transaction and legally enforceable in the state in which the property is located." See Docket No. 262, Ex. "K" at 85. Countrywide's agent Brian McClure testified that this is Countrywide's policy. The Countrywide agent that processed the URLAs, Brent Mochel, testified that from 2003 through 2005, his average mortgage loan ranged from $250,000 to $300,000, and that he only handled five to ten loans over a million dollars. He recalled that at one point, Hannah set up a threeway telephone call with him and Edison, which lasted about ten minutes. Mochel found this unusual in that Hannah often did such calls with "his processor," but not with a financial person in Edison's position. Docket No. 262, Ex. "J" at 56. Mochel told Edison that Countrywide needed certain documents to finalize Phleger's transaction, and Edison said, "I'll get you what documentation I want to get to you," and abruptly hung up the telephone. Id. at 57. Mochel was a "little shocked," as Edison sounded "short and curt," and unwilling to help. Id. at 57-58. At the time, Mochel thought to himself, "well that was different." Id. at 59. In August 2005, Phleger's home equity credit line balance was $959,000. On or about August 30, 2005, Edison obtained a new Wells Fargo home equity credit line for $1.47 million, used it to pay off the prior credit line, and unsuccessfully attempted to have the $500,384 remainder wired to the Las Vegas joint account. On August 31, 2005, Edison sent Phleger a letter to sign, which directed Wells Fargo to take the proceeds from her line of credit and transfer them from her California account to her Las Vegas account, as Edison had directed Wells Fargo to do, under his power of attorney. The letter also informed Wells Fargo that Edison would manage the Las Vegas account, and that it should direct any questions or concerns to his private telephone line, provided in the letter. She signed the letter, and faxed it to Edison and one of his associates, the same day she received it. On September 2, 2005, Edison provided Usich at UBS with a copy of the UPOA, in order to obtain documents related to Phleger's stock accounts. Usich had never before seen a UPOA for an 6

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able-minded individual. Concerned, he called Phleger. On September 5, 2005, she returned his call, and after hearing his concerns, agreed to contact him later and set up a meeting to discuss the situation. On September 6, 2005, Usich faxed a copy of the UPOA to Phleger for her review. Phleger has testified that when she spoke with Usich, she did not understand why Edison would need a UPOA to increase her line of credit. As such, "a red flag went up," and she called her son, though she did not recall what his response was. Docket No. 243, Ex. "J" at 164. She took no further action, however, because someone had told her that a power of attorney was unenforceable unless notarized, which the UPOA was not.5 She thus did not believe that Edison could use it for anything other than increasing her line of credit. On or before September 16, 2005, Countrywide prepared a Deed of Trust for a $3.3 million mortgage, and a Deed of Trust and Assignment of Rents for a $550,000 line of credit (the "LOC"), both secured against Green Street. It also prepared one Notice of Right to Cancel ("NORTC") for the mortgage on or before September 15, 2005, one NORTC for the LOC on or before September 16, 2005, and closing instructions on or before September 15, 2005. It sent these documents to Stewart. On or before September 16, 2005, Stewart prepared escrow instructions. The closing instructions require that all documents be signed before September 17, 2005. They also require that the loan close "on or before the earliest to occur of (1) 09/21/2005 when the dates in the loan documents will no longer be valid, or (2) 09/22/2005, when the interest rate lock expires." Docket No. 209, Ex. "C" at 1, ¶ A. Stewart's agent testified that on September 15, 2005, Hannah sent her an e-mail, instructing her to send all the transaction documents to Edison at a New York or New Jersey address and to an e-mail address. Later on September15 or 16, Hannah instructed that rather than e-mail the documents, she should overnight them to Edison in Las Vegas for Saturday delivery. On Friday, September 16, 2005, she sent the documents to Edison via overnight delivery. She testified that she might have also e-mailed them, but she does not recall.

5

The LPOAs are also unnotarized. 7

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6

Notary Public Jeanie Hilario testified that on Sunday, September 16, 2005,6 a woman presented to her as Jean Phleger signed the deeds, the NORTCS, and the escrow instructions, and that she notarized the documents this same day. These documents bear what purports to be Phleger's signature and a handwritten date of September 16, 2005. Further, the notary documents bear what purports to be Hilario's signature and a handwritten date of September 16, 2005. Hilaro also testified, however, that she was not licensed in California, and on the forms, all pre-printed designations for a California signing have been stricken to reflect a Clark County, Nevada signing.7 Edison's employee, Heisler, also testified that Phleger was present for this Sunday closing in San Francisco. He did not see her sign any documents, however. All he saw from his table was her and Edison sitting at a table on the opposite side of a very large restaurant in the hotel. After an hour or so, Edison's wife told Heisler that he could leave and should return by 1:00 or 2:00 p.m., to fly back to Nevada. He found this unusual, as he was there to discuss insurance with Phleger. Nonetheless, he left. Phleger has denied signing any loan documents on September 16 or 18, 2005. She testified that she was in Los Angeles on Friday, September 16, 2005, and flew up to the Bay area on Saturday, September 17, 2005. On Sunday, September 18, 2005, she stayed in Woodside all day, watching tennis on television, as she "was in a lot of [back] pain[.]" Docket No. 262, Ex. "R" at 368. On Monday, September 19, 2005, she flew back to Los Angeles, for the nighttime premiere of a new television series starring Johnson. Both NORTCs specify that the borrower has the right to cancel the transaction within three business days of the latest of the following: (1) the transaction date; (2) the receipt of Truth-inLending disclosures; or (3) the receipt of the NORTC. Each NORTC has a handwritten transaction date of "9/16/05[.]" Docket No. 202, Ex. "E." Each NORTC specifies that if the borrower cancels

The Court takes judicial notice under Federal Rule of Evidence 201(b) that September 16, 2005 was a Friday. Countrywide has produced what is purportedly Hilario's notary book, indicating two documents were signed by a Jean Phleger on September 16, 2008. Docket No. 243, Ex. "Q." Notably, the entries in the "Fingerprint and Other Information" column merely indicate "Loan #1" and "Loan #2." See id. 8

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by mail, telegram, or other delivery of written notice, he or she must send it by midnight of "9/20/05" or midnight of the third business day following the latest of the three events. Id. Stewart's agent handwrote the "9/20/05" date on the NORTCs, after she received the transaction documents back from Edison, purportedly signed by Phleger and notarized by Hilario on September 16, 2005. She did not suspect any improprieties attributable to the September 16, 2005 signature dates, as she believed at that time that she might have e-mailed the documents to the email Edison provided. She sent the documents to Countrywide. Countrywide's funding agent, Brent McClure, testified that in 2005, when he received loan documents back from a closing for review prior to funding, they included URLAs. He also testified that Countrywide's standard practice was to return an improperly executed URLA to the title company for proper execution. He also testified that he would have done this had Phleger's URLA been missing a signature, date, or her initials on any page. After Countrywide reviewed the signed transaction documents received from Stewart, it released the mortgage and LOC funds to Stewart. After the closing, Edison used the $3.85 million to retire the $1.47 million Wells Fargo home equity credit line, and had the $2.3 million remainder wired to the Las Vegas joint account. He then transferred the funds to other accounts and used them for his own benefit. II. Procedural Developments On February 1, 2006, Phleger revoked Edison's power of attorney. On February 14, 2006, she sued him and Private Wealth Management, in San Francisco Superior Court, and he defaulted. On August 16, 2006, she sued Countrywide, First National, and Hannah.8 On February 13, 2007, Edison was indicted for wire fraud. On October 14, 2008, he pled guilty to three counts of wire fraud, 18 U.S.C. § 1343, two counts of mail fraud involving another victim, 18 U.S.C. § 1341, conspiracy to obstruct justice,9 18 U.S.C. §§ 371, 1519, and obstruction of justice, 18 U.S.C. §§ 2, 1519. He is now serving a 63-month sentence. He has agreed he owes

8

First National and Hannah settled with Phleger, with the Court's approval, on November 11, 2008. See Docket No. 246. Edison had his wife prepare false documents for the United States Attorney indicating Phleger had loaned him $2.25 million. 9

9

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$2,309,830 to Phleger as restitution. In his plea, he did not discuss any parties to this matter, other than Phleger. On March 8, 2007, Phleger filed a second amended complaint (the "SAC"). She sued Countrywide for (1) a TILA violation, (2) negligence,10 (3) cancellation of contract, (4) rescission of contract based on mistake, incapacity, and failure of consideration, (5) conspiracy to defraud, (6) breach of fiduciary duty, (7) elder abuse, and (8) unjust enrichment. The SAC recites that "Jean Phleger hereby intends service of this [SAC] in this action to serve as notice of rescission of the [mortgage] and [LOC] Loan Agreements[.]" Docket No. 202, Ex. "F" at 1. ¶ 84. She also seeks a declaration and injunction against Countrywide, consequential and punitive damages, and attorneys' fees and costs. On March 23, 2007, Countrywide removed the matter to this Court based on the TILA claim, first raised in the SAC. See Docket No. 1. On June 18, 2007, Countrywide counterclaimed against Phleger and cross-complained against Edison. See Docket No. 80. Against Phleger, it asserts claims for judicial foreclosure of the mortgage and the LOC, money owed on notes, breach of contract, unjust enrichment, equitable subrogation, and declaratory relief, and asserts that she owes $3.85 million. See id. Against Edison, it claims equitable indemnity. See id. On July 26, 2007, Phleger filed a third-party complaint against Stewart, alleging negligence, breach of fiduciary duty, and indemnity. See Docket No. 87. On November 16, 2007, the Court granted Phleger's application for a temporary restraining order to prevent Countrywide from selling Green Street at public auction. See Docket No. 144. On December 17, 2007, the Court approved a stipulated preliminary injunction between Phleger and Countrywide enjoining Green Street's non-judicial sale pending disposition of this matter. See Docket No. 185. On January 4, 2008, the Court denied Stewart's motion to strike (construed by the Court as a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6)), except to the extent Phleger had alleged a TILA violation. See Docket No. 188. On October 6, 2008, Phleger filed a Motion for Partial Summary Judgment [Docket

10

The Court dismissed this claim on June 4, 2007. See Docket No. 72. 10

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No. 200], seeking partial summary judgment on her claim against Countrywide for violating the TILA. She asserts that the undisputed facts show that the transaction documents were signed on September 18, 2005. See Docket No. 268 at 7. She thus asserts that Countrywide violated the TILA, as the NORTCs, which only provided until September 20, 2005 for rescission, did not provide three business days to rescind as required by the TILA. See id. The Court denied this motion, because there is a genuine issue of material fact as to whether the transaction documents were signed on September 16 or 18, 2005. See Docket No. 268 at 6-7. On October 14, 2008, Phleger filed a motion for partial summary judgment on her negligence and breach of fiduciary claims against Stewart [Docket No. 207]. And, on October 14, 2008, Stewart filed a motion for summary judgment, or alternatively, partial summary judgment [Docket No. 211]. The Court granted and denied both of these motions in part. See Docket No. 268 at 2. The disposition of these cross-motions was detailed, and will not be repeated here. The Court notes, however, that the undisputed evidence presented with the cross-motions showed that Stewart sent the transaction documents to Edison by overnight delivery, on September 16, 2005, then received them back from Edison on Monday, September 19, 2005, with signatures dated September 16, 2005. See id. at 11-12. The Court found that by proceeding with the escrow despite this clear evidence of fraud, Stewart breached its duty to Phleger, should a factfinder determine her to be Countrywide's borrower. See id. As a result, the Court granted partial summary judgment for Phleger on the issue of Stewart's liability on her negligence and breach of fiduciary claims, to the extent premised on Stewart's breach of duty to the escrow parties, breach of duty to follow the escrow instructions, and breach of duty to follow certain closing instructions. See id. at 18-20.11 On November 7, 2008, Countrywide filed the Motion for Summary Judgment or, in the Alternative, Partial Summary Judgment against Plaintiff (the "Motion") before the Court. LEGAL STANDARD Summary judgment is appropriate if no genuine issue of material fact exists and the moving
11

Although Phleger and Countrywide have provided additional evidence with the pleadings before the Court, which evidence was not before the Court when it disposed of Phleger's two prior motions and Stewart's motion, nothing has been provided which would cause the Court to alter its disposition of these three prior motions. 11

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party is entitled to judgment as a matter of law. See Fed. R. Civ. P. 56(c); Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986). The party moving for summary judgment must demonstrate that there are no genuine issues of material fact. See Horphag v. Research Ltd. v. Garcia, 475 F.3d 1029, 1035 (9th Cir. 2007). An issue is "genuine" if the evidence is such that a reasonable jury could return a verdict for the non-moving party. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986); Rivera v. Philip Morris, Inc., 395 F.3d 1142, 1146 (9th Cir. 2005). An issue is "material" if its resolution could affect the outcome of the action. Anderson, 477 U.S. at 248; Rivera, 395 F.3d at 1146. In responding to a properly supported summary judgment motion, the non-movant cannot merely rely on the pleadings, but must present specific and supported material facts, of significant probative value, to preclude summary judgment. See Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 586 n.11 (1986); Leisek v. Brightwood Corp., 278 F.3d 895, 898 (9th Cir. 2002); Fed. Trade Comm'n v. Gill, 265 F.3d 944, 954 (9th Cir. 2001). In determining whether a genuine issue of material fact exists, the court views the evidence and draws inferences in the light most favorable to the non-moving party. See Anderson, 477 U.S. at 255; Sullivan v. U.S. Dep't of the Navy, 365 F.3d 827, 832 (9th Cir. 2004); Hernandez v. Hughes Missile Sys. Co., 362 F.3d 564, 568 (9th Cir. 2004). ANALYSIS I. Election of Remedies Countrywide requests partial summary judgment on the issue of whether Phleger made an election of remedies by filing her Motion for Partial Summary Judgment against Countrywide on her TILA claim. Mot. at 11. Countrywide alleges that her motion was based on the undisputed fact that she signed the transaction documents on September 18, 2005. Id. at 11-12. Relying on Suffield Bank v. LaRoche, 752 F.Supp. 54, 63 (D.R.I. 1990), and Le Barron v. Le Barron Peters, 290 A.D.2d 710, 736 N.Y.S.2d 726, 726 (2002), Countrywide concludes that by filing, Phleger elected this theory for the remainder of this litigation, and cannot now deny it. Mot. at 12. Phleger counters that in her Motion for Partial Summary Judgment she alleges that the undisputed facts show that someone else had signed the documents on September 18, 2005. Opp'n 12

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at 11. She also claims that she alleges that were she found liable for this person's actions, then Countrywide would be barred from proceeding against her, due to its TILA violation. Id. She also challenges Countrywide's reliance on Le Barron, by asserting that California's doctrine of election of remedies applies to this matter, not New York's. Id. at 11-12. She asserts that under California law, she has not elected a remedy, because only if her actions have substantially prejudiced Countrywide would she have to make an election prior to judgment. Id. at 11-12 Countrywide replies that Phleger cannot raise a TILA violation, unless she signed the transaction documents, relying on Jensen v. Ray Kim Ford, Inc., 920 F.2d 3, 3-4 (7th Cir. 1990). Reply at 7-8. Countrywide claims that Jensen holds that a "forgery" claim bars a TILA claim. Id. Countrywide then argues that under either Latman v. Burdette, 366 F.3d 774, 781 (9th Cir. 2004), or California law, Phleger has elected a remedy. Id. at 8. "The doctrine of election of remedies prevents a party from obtaining double redress for a single wrong." Latman, 366 F.3d at 781. "The doctrine `refers to situations where an individual pursues remedies that are legally or factually inconsistent.' " Id. at 781-82 (quoting Alexander v. Gardner-Denver Co., 415 U.S. 36, 49 (1974)). As a general rule, three elements must be present for a party to be bound to an election of remedies: (1) two or more remedies must have existed at the time of the election, (2) these remedies must be repugnant and inconsistent with each other, and (3) the party to be bound must have affirmatively chosen, or elected, between the available remedies. Latman, 366 F.3d at 782. The doctrine is no longer strictly enforced in the federal courts. Lund v. Albrecht, 936 F.2d 459, 464 (9th Cir. 1991) (citing Taylor v. Burlington N. RR. Co., 787 F.2d 1309, 1317 (9th Cir. 1986)). And since the adoption of the Federal Rules of Civil Procedure, it "applies only after a judgment on one of the causes of action is entered." Haphey v. Linn County, 924 F.2d 1512, 1519 (9th Cir. 1991) (quoting Taylor, 787 F.2d at 1317). The Court first notes that the California doctrine of election of remedies applies to the extent California law supplies the rule of decision. See In re Prestige Ltd. Partnership-Concord, 234 F.3d 13

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1108, 1114 (9th Cir. 2000); In re Reaves, 285 F.3d 1152, 1156-58 (9th Cir. 2002); Bankers Trust Co. v. Pac. Employers Ins. Co., 282 F.2d 106, 110 (9th Cir. 1960). Here, Countrywide argues that Phleger elected her remedy by filing a Motion for Partial Summary Judgment alleging a TILA violation. The TILA is a federal law. Thus, the federal doctrine of election of remedies governs this matter, not California's doctrine. The Court also notes that Phleger correctly states the position she took in her Motion for Partial Summary Judgment: she never alleges that the undisputed facts show that she signed any transaction documents on September 18, 2005. Thus, Countrywide's argument fails for lack of a factually true predicate. Even if Countrywide had stated a factually true predicate, however, it has misconstrued and misapplied the doctrine of election of remedies. First, the doctrine of election of remedies "applies only after a judgment on one of the causes of action is entered." Haphey, 924 F.2d at 1519 (quoting Taylor, 787 F.2d at 1317) (emphasis added). Thus, because Phleger did not obtain a partial summary judgment on her TILA claim, she did not elect remedies. As for Countrywide's reliance on LaRoche, 752 F.Supp. at 63, the LaRoche court granted partial summary judgment for the plaintiff, who was thus held to have elected remedies. As for Le Barron, it turns on New York law, which is inapplicable here.12 See Le Barron, 736 N.Y.S.2d at 726. Finally, Countrywide's reliance on Jensen is misplaced. Jensen holds that because a forged contract is null and void and does not bind its parties, it cannot give rise to a TILA claim, though it might give rise to common law tort claims. See Jensen, 920 F.2d at 3-4. The Court notes that if a factfinder determines that Edison forged Phleger's signature on the transaction documents, and that Phleger is not the borrower responsible to Countrywide for the mortgage and the LOC, then she will be unable to pursue a TILA claim against Countrywide. Countrywide has not identified any forged contracts, however, which are null and void as to Phleger, so as to bring this matter under Jensen.
12

Further, while New York law holds that a party elects remedies by filing for summary judgment, Jones Lang Wootton USA v. LeBoeuf, Lamb, Greene & MacRae, 243 A.D.2d 168, 674 N.Y.S.2d 280, 286 (1998) ("[S]ummary judgment being the procedural equivalent of a trial, a litigant must elect among inconsistent positions upon seeking expedited disposition."), the doctrine appears strongest in cases, unlike this one, involving claims for breach of contract and quasicontract, also known as unjust enrichment, see Unisys Corp. v Hercules Inc., 224 A.D.2d 365, 367, 638 N.Y.S.2d 461, 462-63 (1996), appeal withdrawn by 658 N.Y.S.2d 246, 680 N.E.2d 620 (1997); H.B.L.R., Inc. v. Command Broad. Assocs., Inc., 156 A.D.2d 151, 548 N.Y.S.2d 198 (1989). 14

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The Court thus DENIES Countrywide's Motion for Partial Summary Judgment on the issue of whether Phleger made an election of remedies when she filed her Motion for Partial Summary Judgment against Countrywide.13 II. Edison's Agency In California, "[a]n agent is one who represents another, called the principal, in dealings with third persons. Such representation is called agency." Cal. Civ. Code § 2295. "An agency is either actual or ostensible." Id. § 2298. An agent's authority may also be actual or ostensible. See id. §§ 2315-17. Countrywide requests partial summary judgment as to whether Edison was Phleger's actual and/or ostensible agent, with actual and/or ostensible authority to engage in the mortgage and LOC transactions with Countrywide, and thus bind Phleger by his actions. Mot. at 12. In support, Countrywide notes that the following facts are undisputed. On May 6, 2005, Phleger discussed with Edison increasing her home equity line of credit up to possibly $4 million. Id. at 13. On or before this date she signed LPOAs allowing Edison to handle her banking and lending with Wells Fargo and Union Bank. Id. On July 19, 2005, she and Edison established a joint checking account. Id. On or before this date, she signed the UPOA, though she claims she thought it was an LPOA. Id. By the end of the summer, all her bills and statements were going to Edison. Id. at 14. On August 3, 2005, she told her stockbroker that Edison was very sophisticated and would manage "everything" and "form[] trusts, insurance policies, and cure her problems relating to estate tax and cash flow." See id. at 13. Between September 2 and 5, 2005, she and her stockbroker discussed his concerns with her UPOA, which he faxed to her. Id. Phleger then realized that Edison was using the UPOA to contact parties other than Wells Fargo or Union Bank. Id. Even though "a red flag went up," Phleger did not disavow it, nor contact Edison, as she purportedly thought it legally void. See id.
13

In its Reply, Countrywide asserts that by filing her motion, Phleger is bound by res judicata or collateral estoppel. Id. at 9. Not only do these arguments appear more tenuous than Countrywide's election of remedies argument, the Ninth Circuit holds that "[t]he doctrines of election of remedies and res judicata are distinct." Haphey, 924 F.2d at 1519 (noting several differences exist in their theoretical bases). As such, Countrywide may not substitute one for the other. Because Phleger did not raise these doctrines in her opposition, Countrywide has raised a new argument in its Reply. The Court declines to consider arguments which Countrywide should have raised in its Motion. See Zamani v. Carnes, 491 F.3d 990, 997 (2007). 15

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In opposition, Phleger counters that Edison was not her actual or ostensible agent nor had actual or ostensible authority to deal with Countrywide, because Countrywide never accepted the UPOA as evidence of an agency relationship. Opp'n at 14. Phleger notes that Countrywide's policy is to "accept powers of attorney that are specific to the transaction . . . ." See Docket No. 262, Ex. "K" at 85 (emphasis added); Opp'n at 5. She points out that Countrywide's agent confirmed this policy in his deposition. Moreover, she observes that on August 26, 2005, there was an "open" condition in her Underwriting Decision/Condition Letter, which stated that any "Power of Attorney must be specific to the property at closing[.]" See Docket No. 262, Ex. "I" at 1; Opp'n at 5. She observes, however, that the UPOA was not specific to Green Street. Opp'n at 5. The Court addresses the parties' arguments by separately considering whether Edison had actual and/or ostensible agency and actual and/or ostensible authority. A. Actual Agency

"An agency is actual when the agent is really employed by the principal." Civ. Code § 2299. Countrywide asserts that it is undisputed that Phleger employed Edison as her agent to handle all her legal and financial affairs. Mot. at 14. Phleger counters that Edison was not her actual agent because Countrywide never accepted the UPOA as evidence of an agency relationship. Opp'n at 14. The Court notes that actual agency turns on whether Phleger employed Edison, see Civ. Code § 2299, not whether Countrywide reasonably believed that she had employed Edison. The Court finds that by signing the LPOA, Phleger employed Edison to handle her lending and banking. She continued his employment by signing the UPOA, even if she believed at the time that it was another LPOA. As such, Edison was her actual agent from at least May 6, 2005 until she revoked the UPOA on February 1, 2006. The Court thus GRANTS Countrywide's Motion for Partial Summary Judgment on the issue of whether Edison was Phleger's actual agent. B. Ostensible Agency

"An agency is ostensible when the principal intentionally, or by want of ordinary care, causes a third person to believe another to be his agent who is not really employed by him." Id. § 2230 (emphasis added). The parties dispute whether Edison was Phleger's ostensible agent, but do so as part of their dispute as to whether he was her actual agent, without distinguishing the two 16

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concepts. See Mot. at 14; Opp'n at 14. The Court notes that because Phleger "really employed" Edison as her actual agent, Edison was not Phleger's ostensible agent. The Court thus DENIES Countrywide's Motion for Partial Summary Judgment on the issue of whether Edison was Phleger's ostensible agent. C. Actual Authority

"Actual authority is such as a principal intentionally confers upon the agent, or intentionally, or by want of ordinary care, allows the agent to believe himself to possess." Id. § 2316. Countrywide asserts it is undisputed that Phleger intentionally gave Edison an UPOA, and thus the actual authority to handle all her legal and financial matters, which included obtaining up to $4 million secured by Green Street, from third parties such as Countrywide. Mot. at 14-16. Alternatively, Countrywide asserts that because Phleger failed to disavow the UPOA, after her stockbroker faxed it to her in early September 2005, then by "want of ordinary care," she allowed Edison to believe that he had the authority to obtain up to $4 million secured by Green Street, by dealing with third parties such as Countrywide. Id. Her want of ordinary care is allegedly confirmed by the fact that she did not disavow the UPOA, because she believed it was null and void as unnotarized. See id. This, however, would have also meant that her unnotarized LPOAs were null and void, depriving Edison of any attorney-in-fact powers, yet she took no action to address this alleged problem. See id. Relying on Mannion v. Campbell Soup Co., 243 Cal.App.2d 317, 320, 52 Cal.Rptr. 246 (1966), Phleger asserts that she never intentionally conferred on Edison the authority to steal from her, nor could he have reasonably developed such a belief due to any alleged negligence on her part. Opp'n at 14-15. Countrywide replies that Mannion merely states the statutory principles underlying agency law in California, and does not address, much less support, the manner in which Phleger applies them to the facts of this matter. Reply at 11. The Court first notes that Countrywide correctly interprets Mannion, and that it does not help Phleger. The Court also agrees with Countrywide's authority analysis. The Court notes that on or before May 6, 2005, Phleger intentionally gave Edison the actual authority to obtain a $4 million credit line secured against Green Street from Wells Fargo or Union Bank. On or before July 19, 17

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2005, Phleger signed the UPOA, though she later testified she thought at the time it was an LPOA. Assuming this is true, Phleger did not disavow the UPOA, on September 6, 2005, when she received a copy of it from her stockbroker. At this point, for want of ordinary care, she allowed Edison to believe that he had the actual authority to obtain $4 million secured against Green Street from third parties other than Wells Fargo or Union Bank.14 That said, however, the Court notes that despite the UPOA, Edison apparently could not obtain the mortgage or the LOC from Countrywide without Phleger's express approval, in the form of her signatures on the transaction documents. She denies signing these documents, however. Construing the evidence in Phleger's favor, see Anderson, 477 U.S. at 255, a reasonable factfinder could find that Edison forged Phleger's signature on the transaction documents. If so, he would have exceeded the scope of his actual authority. Thus, there is a genuine issue of material fact as to whether he had the actual authority to obtain the mortgage and the LOC from Countrywide. The Court thus DENIES Countrywide's Motion for Partial Summary Judgment on the issue of whether Edison had the actual authority to obtain the mortgage or the LOC from Countrywide. D. Respondeat Superior

Countrywide anticipates in its Opposition that Phleger will argue that she is not responsible for Edison's acts, because he stole from her. Mot. at 14. Countrywide, however, asserts that under § 2338 and § 2339 of the California Civil Code she is nonetheless liable for his conduct under the doctrine of respondeat superior. Mot. at 14-15. Section 2338 states in part that "a principal is responsible to third persons for the negligence of his agent in the transaction of the business of the agency, including wrongful acts committed by such agent in and as a part of the transaction of such business[.]" In turn, § 2339 addresses an agent's wrongs committed not in the transaction of the business of the agency. De Mirjian v. Ideal Heating Corp., 112 Cal.App.2d 251, 253, 246 P.2d 51 (1952). It states that "[a] principal is responsible for no other wrongs committed by his agent than those mentioned in [§ 2338], unless he has authorized or ratified them, even though they are
14

Phleger testified that she contacted her son about the UPOA, though she did not recall his response. It is undisputed, however, that her son contacted Phleger's stockbroker in October 2005, regarding Edison's plans for his mother's finances. Thus, there is no evidence of her disavowing the UPOA until she revoked it on February 1, 2006. 18

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committed while the agent is engaged in his service." Countrywide asserts that Edison committed the tort of fraud. Mot. at 14. It notes that Grigsby v. Hagler, 25 Cal.App.2d 714, 716, 78 P.2d 444 (1938), holds that under § 2338, "[i]t is well settled in this state that a principal is liable to third parties not only for the negligence of his agent in the transaction of the business of the agency but also for the frauds or other wrongful acts committed by such agent in and as a part of the transaction of such business." Mot. at 14 (emphasis added). Phleger counters that she is not liable under respondeat superior for Edison's alleged fraud, because Countrywide never relied on Edison's UPOA, because by its own guidelines, the transaction required a power of attorney specific to Green Street, which did not exist. Opp'n at 5, 14. The Court first notes that assuming for the sake of argument that Edison exceeded the scope of his actual authority by forging Phleger's name on the transaction documents, then if he did so in a "transaction of the business of the agency," then Phleger would be liable for his conduct under the doctrine of respondeat superior. "Where an actual agent acts outside his or her authority but within the scope of employment, the principal is liable to the injured third party." 3 B. E. Witkin, Summary of Cal. Law, Agency & Employment, § 175 (10th ed. 2005). The question then is whether Edison acted within the scope of his employment. Grigsby v. Hagler provides the answer. In Grigsby, a beverage delivery person, whose duties included collecting charges from the customers on his route, overcharged them without his employer's knowledge, and pocketed the difference. Grigsby, 25 Cal.App.2d at 714-15. The employer was forced to reimburse the customers, under § 2338. Id. at 715-16. The court reasoned that the employer directed Grigsby to collect the charges, authorized him to do so, and enabled him to do so by providing him with a truck and a "sales pad." Id. at 716. The employer thus directly enabled the employee's fraud, which only varied from his regular course of business by an adjustment of the delivery charges. Id. The court concluded that "[a]lthough he exceeded his authority he was not acting without the scope of his employment," subjecting his employer to liability under § 2338. Id. Phleger does not address whether she stands in the same shoes as Grigsby's employer. The Court notes, however, that she does, to a point. She employed Edison to obtain up to $4 million secured by Green Street from third parties such as Countrywide. Thus, this was the "business of the 19

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agency." See Civ. Code § 2338. In turn, the mortgage and LOC transactions with Countrywide were "transaction[s] of the business of the agency." See id. Therefore, if Edison forged Phleger's name on the transaction documents, he did so "in and as a part of the transaction of such business." See id. Thus, as in Grigbsy, Phleger directed, authorized, and enabled Edison to commit his fraud, directly related to his employment, which only varied from his regular course of business in that he added her name to the transaction documents. The Court concludes that Edison's hypothetical forgery would have exceeded the scope of his actual authority, but would not have exceeded the scope of his employment.15 Unlike Grigsby's employer, however, Phleger is not subject to liability under § 2338. The elements of fraud are: "(1) misrepresentation of a material fact (consisting of false representation, concealment or nondisclosure); (2) knowledge of falsity (scienter); (3) intent to deceive and induce reliance; (4) justifiable reliance on the misrepresentation; and (5) resulting damage." City of Atascadero v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 68 Cal.App.4th 445, 481-82, 80 Cal.Rptr.2d 329 (1998); see Civ. Code §§ 1572, 1709-1710. "It is essential . . . that the person complaining of fraud actually have relied on the alleged fraud, and suffered damages as a result." Merrill Lynch, 80 Cal.Rptr.2d at 482 (emphasis added). Countrywide alleges that Edison committed a fraud upon it, for which Phleger is liable under the doctrine of respondeat superior. A condition, however, for the approval of the mortgage and LOC transactions was that Edison "must" provide Countrywide with a power of attorney specific to Green Street, which he never did. This absence is all the more remarkable, given that Countrywide's agents should have been more circumspect than usual, as they testified that they handled very few transactions over $1 million, much less for $3.85 million. This absence is even more remarkable, given that Countrywide's processing agent was a "little shocked" early on in the processing, when in an "unusual" occurrence, a conference call between the agent, Hannah, and Edison, Edison was rude and uncooperative regarding getting documentation together. See Docket No. 262, Ex. "J" at 56-59.
15

Construing this evidence in Phleger's favor, See Anderson, 477 U.S. at

Section 2339, addressing an agent's acts which exceed the scope of their employment, is thus inapplicable to this matter. 20

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255, a reasonable factfinder could find that Countrywide was on notice regarding irregularities in Edison's conduct, and that it could not have justifiably relied on any alleged misrepresentations he made, when it never even recognized him as Phleger's agent for purposes of borrowing money against Green Street. Because there is a genuine issue of material fact as to whether Edison committed fraud, there is a genuine issue of material fact as to whether Phleger could be responsible for such fraud under the doctrine of respondeat superior. The Court thus DENIES Countrywide's Motion for Partial Summary Judgment on the issue of whether Phleger is liable under the doctrine of respondeat superior for Edison's conduct in obtaining the mortgage or the LOC from Countrywide. E. Ostensible Authority

"Ostensible authority is such as a principal, intentionally or by want of ordinary care, causes or allows a third person to believe the agent to possess." Id. § 2317. "A principal is bound by acts of his agent, under a merely ostensible authority, to those persons only who have in good faith, and without want of ordinary care, incurred a liability or parted with value, upon the faith thereof." Civ. Code § 2334. The "essential elements" of ostensible authority "are representation by the principal, justifiable reliance thereon by a third person, and change of position or injury resulting from such reliance." Yanchor v. Kagan, 22 Cal.App.3d 544, 549, 99 Cal.Rptr. 367 (1971). 1. Representation by the Principal

Relying on Gaine v. Austin, 58 Cal.App.2d 250, 136 P.2d 584 (1943), and Reusche v. California Pacific Title Ins. Co., 231 Cal.App.2d 731, 42 Cal.Rptr. 262 (1965), Countrywide argues that based on Phleger's statements to her stockbroker that Edison was handling "everything," and her knowledge that he was providing the UPOA to third parties other than Wells Fargo or Union Bank, e.g., her stockbroker, Edison had ostensible authority to transact business with Countrywide. Mot. at 14-16. Phleger counters that regardless of what she allegedly told her stockbroker, Countrywide fails to show any communications from her or her stockbroker to Countrywide which would allow Countrywide to believe that Edison was her agent. Opp'n at 15. The Court notes that there is no evidence of any direct communications between Phleger or Countrywide, nor is there any evidence that she affirmatively directed anyone to deal with Countrywide. In this regard, Gaine does not help Countrywide. In Gaine, a principal told his agent 21

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to sell a property, and he told a person living on the property that his agent was going to sell it. Gaine, 58 Cal.App.2d at 252-58. The person directed buyers to the agent, who sold them the property. Id. The court held that the principle had given ostensible authority to his actual agent with regards to the buyers. Id. at 259-60. Gaine is inapposite to this matter. In contrast, Reusche is more on point. In Reusche, an agent forged a principle's signature on loan documents without the principal's knowledge. Reusche, 231 Cal.App.2d at 734. Despite numerous contacts regarding the loan from third parties, before and after closing, the principal never disavowed the forgery, directed inquiries to her agent, and later made several payments. Id. at 734-35. The court held that the principal thus gave ostensible authority to her actual agent with regards to these third parties. Id. at 737-78. Unlike Reusche, Phleger never ratified Edison's conduct involving Countrywide. Nonetheless, when she failed to disavow the UPOA on September 6, 2005, and knew that Edison was using it with third parties other than Wells Fargo and Union Bank, she could reasonably foresee that he would use it with third parties like Countrywide to accomplish the ends of the UPOA. She should have known that, by her want of ordinary care, she would cause third persons who received a copy of the UPOA to believe that Edison possessed the authority it provided. Thus, as of September 6, 2005, she gave him ostensible authority with regards to any person who had or later received a copy of the UPOA. 2. Justifiable Reliance thereon by a Third Person

"A principal is bound by acts of his agent, under a merely ostensible authority, to those persons only who have in good faith, and without want of ordinary care, incurred a liability or parted with value, upon the faith thereof." Civ. Code § 2334 (emphasis added). The Court already found that there is a genuine issue of material fact as to whether Countrywide justifiably relied on Edison's status or conduct. See part II.D supra (discussing the doctrine of respondeat superior). For the same reasons that the Court reached this conclusion, it also finds that there is a genuine issue of material fact as to whether Countrywide in good faith relied on Edison's status or conduct. See id. 3. Change of Position or Injury Resulting from Such Reliance

Because a genuine issue of material fact exists as to whether Countrywide reasonably or in good faith relied on Edison's conduct as Phleger's purported agent, there is a genuine issue of 22

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material fact as to whether it changed its position or was injured due to such reliance. 4. Summary

Phleger has shown that a genuine issue of material fact exists as to whether Edison had ostensible authority to borrow money from Countrywide on Phleger's behalf. The Court thus DENIES Countrywide's Motion for Partial Summary Judgment on the issue of whether Edison had the ostensible authority to obtain the mortgage or the LOC from Countrywide. III. Cancellation "A written instrument, in respect to which there is a reasonable apprehension that if left outstanding it may cause serious injury to a person against whom it is void or voidable, may, upon his [or her] application, be so adjudged, and ordered to be delivered up or canceled." Cal. Civ. Code. § 3412. "To `cancel' a contract means to abrogate so much of it as remains unperformed. It differs from `rescission,' which means to restore the parties to their former position. The one refers to the state of things at the time of the cancellation; the other to the state of things existing when the contract was made." Young v. Flickinger, 75 Cal.App. 171, 174, 242 P. 516 (1925). The Court's cancellation powers arise in equity, and are much broader than those which apply to rescission. Boyd v. Lancaster, 56 Cal.App.2d 103, 110, 132 P.2d 214 (1942). In her SAC, Phleger pleads cancellation on two grounds. First, she alleges that she did not sign any loan documents on September 16, 2005. SAC ¶ 50. Countrywide counters that Phleger cannot prevail on this basis, because she elected remedies when she filed her Motion for Partial Summary Judgment on the basis that she signed the transaction documents on September 18, 2005. Mot. at 16. The Court already found, however, that Phleger did not elect remedies by filing her motion. The Court thus DENIES Countrywide's Motion for Partial Summary Judgment on Phleger's cancellation claim to the extent predicated on her alleged election of remedies by filing her Motion for Partial Summary Judgment against Countrywide. Turning to Phleger's second ground for cancellation, she pleads that she was the victim of fraud in the inception or execution of the transaction documents, due to directions and misrepresentations provided by Edison while she was impaired due to medication. Id. ¶ 51. Countrywide asserts that Phleger has produced no evidence to support this allegation. Id. at 16-18. 23

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16

"California law distinguishes between fraud in the `execution' or `inception' of a contract and fraud in the `inducement' of a contract." Rosenthal v. Great W. Fin. Sec. Corp., 14 Cal.4th 394, 415, 926 P.2d 1061 (1996). In brief, in the former case " `the fraud goes to the inception or execution of the agreement, so that the promisor is deceived as to the nature of his act, and actually does not know what he is signing, or does not intend to enter into a contract at all, mutual assent is lacking, and [the contract] is void. In such a case it may be disregarded without the necessity of rescission.' " Id. (quoting Ford v. Shearson Lehman Amer. Express, Inc., 180 Cal.App.3d 1011, 1028, 225 Cal.Rptr. 895 (1986)); Duffens v. Valenti, 161 Cal.App.4th 434, 449, 74 Cal.Rptr.3d 311 (2008). Fraud in the inducement, by contrast, occurs when " `the promisor knows what he is signing but his consent is induced by fraud, mutual assent is present and a contract is formed, which, by reason of the fraud, is voidable. In order to escape from its obligations the aggrieved party must rescind. . . .' " Rosenthal, 14 Cal.4th at 415 (quoting Ford, 180 Cal.App.3d at 1028); Duffens, 161 Cal.App.4th at 449. Phleger contends that she was not in San Francisco on September 18, 2005, but in Woodside, and thus did not sign any transaction documents on this day. Opp'n at 18. She also claims that she does not remember signing any transaction documents. Id. And she claims that on September 18, 2005 she "was in a lot of [back] pain[,]" Docket No. 262, Ex. "R" at 368, which prevented her from traveling.16 Id. As such, she argues that she did not have a reasonable opportunity to review any documents prior to signing them. Id. She concludes that under Jones v. Adams Financial Services, 71 Cal.App.4th 831, 84 Cal.Rptr.2d 151 (1999), there is a genuine issue of material fact as to whether she was Edison's victim of fraud in the execution or inception. Opp'n at 18-19. The Court notes that Phleger has not produced any evidence that she took any medication on or about September 16 through 18, 2005. The Court also notes that she has not produced any evidence that on these days she was deceived by Edison as to the nature of her act, and actually did The Court notes, however, it is undisputed that she flew up from Los Angeles the previous day, and flew back down the next day. 24

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not know what she was signing, or did not intend to enter into a contract at all, when she in fact signed the transaction documents. See Rosenthal, 14 Cal.4th at 415. Rather, Phleger has only produced evidence that she did not sign any transaction documents on September 16 or 18, 2005. That she does not recall signing these documents is consistent with not having done so. If Phleger meant by her lack of recollection that she suffered on these days from a mental and/or emotional impairment, then she should have produced supporting evidence to this effect. While it is disputed as to whether she signed the transaction documents on either September 16 or 18, 2005, there is no dispute regarding Edison's alleged misrepresentations to her on these days, as there is no evidence to show that any occurred. As for her Jones argument, it is without merit. Jones held that a defense to fraud in the inception or execution is that a signer had a reasonable chance, prior to signing, to review the contract. 71 Cal.App.4th at 836-37. Nonetheless, Jones also held that this defense is unavailable where a signer is unable to take advantage of a pre-signature review, due to severe impairments, such as blindness, Alzheimer's, et seq. Id. Phleger seeks to invert Jones, and make the absence of a reasonable opportunity for review an element of fraud in the inception or execution. It is not. Further, the lack of a reasonable opportunity due to physical absence, rather than impairment, is not a scenario encompassed by Jones. Phleger has thus failed to show that Jones applies to her matter. The Court GRANTS Countrywide's Motion for Partial Summary Judgment on Phleger's cancellation claim to the extent predicated on fraud in the inception or execution. IV. Rescission Phleger pleads three bases for rescinding the transaction documents: unilateral mistake, incapacity, and failure of consideration. SAC ¶¶ 57-78. A. Unilateral Mistake of Fact

By statute, a party to a contract may seek to rescind it due to bilateral mistake, that is, due to a mistake on the part of "the party as to whom he [or she] rescinds" or "any other party to the contract jointly interested with such party." Id. § 1688(b)(1). California, however, also recognizes rescission based on unilateral mistake. Donovan v. RRL Corp., 26 Cal.4th 261, 280-82, 109 Cal.Rptr.2d 807 (2001). A "[m]istake may be either of fact or law." Civ. Code § 1576. Phleger 25

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pleads a unilateral mistake of fact. SAC ¶ 59. The elements of a cause of action for unilateral mistake of fact are: (1) a party made a mistake regarding a basic assumption upon which that party made the contract; (2) the mistake has a material effect upon the agreed exchange of performances that is adverse to that party; (3) that party does not bear the risk of the mistake; and (4) the effect of the mistake is such that enforcement of the contract would be unconscionable. Donovan v. RRL Corp., 26 Cal.4th 261, 282, 109 Cal.Rptr.2d 807 (2001). Phleger pleads two grounds for rescinding based on a unilateral mistake of fact. She first alleges that she did not sign any loan documents on September 16, 2005. SAC ¶ 58. Countrywide counters that Phleger cannot prevail on this basis, because she elected remedies when she filed her Motion for Partial Summary Judgment on the basis that she signed the transaction documents on September 18, 2005. Mot. at 16, 18. The Court has already found, however, that Phleger did not elect remedies by filing her motion. Nonetheless, if a factfinder determines that she did not sign any loan documents on September 16 or 18, 2005, then she will be unable to rescind based on a unilateral mistake of fact. This is because not signing a contract does not fit under Donovan's fourelement test, of which the first element is "a mistake regarding a basic assumption upon which that party made the contract." The Court thus GRANTS Countrywide's Motion for Partial Summary Judgment on Phleger's claim of rescission based on unilateral mistake of fact, to the extent predicated on her not signing the transaction documents. Phleger also pleads that she signed the transaction documents, because she had mistaken beliefs based on misrepresentations that Edison provided to her regarding the basic nature of the documents. SAC ¶¶ 59-60. Specifically, she claims that she had no knowledge that he had applied for and had obtained multiple loans from Countrywide, including a home mortgage loan. Id. ¶ 60. Countrywide asserts that Phleger has produced no evidence to show that Edison made any misrepresentations. Mot. at 18. Phleger argues that she believed that she would receive a line of credit from Wells Fargo, not a mortgage from Countrywide, and in an amount less than $3.85 million. Opp