Plascencia et al v. Lending 1st Mortgage et al

Filing 291


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1 IN THE UNITED STATES DISTRICT COURT 2 FOR THE NORTHERN DISTRICT OF CALIFORNIA 3 4 ARMANDO PLASCENCIA, et al., 5 6 7 Plaintiffs, v. LENDING 1ST MORTGAGE, et al., 8 9 Defendants. ________________________________/ United States District Court For the Northern District of California 10 No. C 07-4485 CW ORDER GRANTING PLAINTIFFS’ MOTION FOR RELIEF FROM NONDISPOSITIVE PRETRIAL ORDER OF MAGISTRATE JUDGE AND CLARIFYING CLASS CERTIFICATION ORDER (Docket No. 267) 11 12 Plaintiffs Armando and Melania Plascencia move for relief 13 from a magistrate judge’s August 5, 2011 Order Granting Discovery 14 Motion Contained in Joint Letter, allowing Defendants Lending 1st 15 Mortgage, LLC and EMC Mortgage Corporation to take up to fifteen 16 depositions from absent class members. Defendants oppose the 17 motion. Having considered the papers filed by the parties, the 18 19 Court GRANTS Plaintiffs’ motion and overrules the magistrate 20 judge’s order for depositions of absent class members. 21 also clarifies its August 21, 2009 Order Granting in Part and 22 Denying in Part Plaintiffs’ Motion to Certify Class (Class 23 Certification Order). 24 The Court Plaintiffs charge Defendants with violating the federal Truth 25 in Lending Act (TILA) and California statutory and common law in 26 connection with the sale of certain residential mortgage products. 27 28 They claim that Defendants’ loan documents did not disclose that 1 making only the minimum monthly payments would result in negative 2 amortization and that the one-percent “teaser” interest rate 3 Defendants gave at the start of the loan would remain in effect 4 for only a short period of time. 5 6 On June 24, 2011, Defendants and Plaintiffs submitted a joint letter to a magistrate judge. See Joint Letter Brief Regarding 7 Discovery Dispute, June 24, 2011, Docket No. 254. In their 8 9 letter, the parties explained their dispute over Defendants’ United States District Court For the Northern District of California 10 request to serve interrogatories on all class members and to 11 depose a limited number of class members. 12 Discovery from absent class members is not ordinarily 13 allowed. 14 514, 517 (S.D. Cal. 2008). McPhail v. First Command Fin. Planning, Inc., 251 F.R.D. Nonetheless, the magistrate judge 15 permitted Defendants to take up to fifteen depositions of absent 16 class members of Defendants’ choosing. Order Granting Discovery 17 18 Motion Contained in Joint Letter 1. 19 clear that his ruling was based on certain language in the Court’s 20 Class Certification Order. 21 Docket No. 258; Hr’g Tr. 12:22-13:6, 14:10-12, Aug. 5, 2011, 22 Docket No. 263. 23 The magistrate judge made See Hr’g Tr. 1:14-22, July 29, 2011, In the Class Certification Order, this Court held that 24 individual questions would not predominate regarding the reliance 25 26 element of Plaintiffs’ common law fraud claim, because absent 27 class members’ reliance may be presumed in the case of material 28 fraudulent omissions. The Court cited the United States Supreme 2 1 Court’s decision in Affiliated Ute Citizens of Utah v. United 2 States, 406 U.S. 128 (1972). 3 The citation to Ute was incorrect. The California Supreme 4 Court has held that the presumption of reliance established in Ute 5 does not apply to fraud claims under California common law. 6 Mirkin v. Wasserman, 5 Cal. 4th 1082, 1093 (1993). Nonetheless, 7 California courts have held that absent class members are entitled 8 9 to a similar presumption of reliance for state common law fraud United States District Court For the Northern District of California 10 claims in certain circumstances. First, a fraudulent omission 11 must be material, such that “a reasonable man would have relied 12 upon” the alleged omissions. 13 800, 814 n.9 (1971). 14 basis that a reasonable person would have wanted to know that the Vasquez v. Superior Court, 4 Cal. 3d Here, a jury could find on a class-wide 15 initial one percent rate was ephemeral and that negative 16 amortization was certain to occur if only the minimum payments 17 18 were made. 19 have taken out their loans if Defendants had clearly disclosed 20 this information. 21 22 23 The jury thus could find that class members would not Second, all class members must have received the same representations with allegedly fraudulent omissions; that is, the representations with misleading omissions must have been uniformly 24 given to class members. See Mirkin, 5 Cal. 4th at 1093-94 25 26 (refusing to apply the class-wide presumption of reliance 27 established in Occidental Land, Inc. v. Superior Court, 18 Cal. 3d 28 355 (1976), and Vasquez in a fraudulent omissions case where 3 1 plaintiffs had not “pled that the defendants had made identical 2 representations to each class member”). 3 alleged to have acted in a uniform way toward all class members, 4 by supplying class members with identical loan documents that 5 failed to state in clear language material terms of the loan. 6 Defendants here are Finally, the class representatives must establish “actual 7 reliance.” Iorio v. Allianz Life Ins. Co. of N. Am., 2008 U.S. 8 9 Dist. LEXIS 118344, at *79-80 (S.D. Cal.). See Mirkin, 5 Cal. 4th United States District Court For the Northern District of California 10 at 1095 (citing Vasquez, 4 Cal. 3d at 814-15; Occidental, 18 Cal. 11 3d at 362-63). 12 fact did rely upon Defendants’ omissions. 13 14 The named Plaintiffs have alleged that they in In discussing the presumption of reliance, this Court stated, “Defendants, of course, may attempt to rebut [the presumption of 15 reliance] at trial by introducing evidence that particular class 16 members were either aware of the loan terms or would have 17 18 purchased the loans even if the terms were clearly disclosed in 19 the documents.” 20 defeat the presumption by showing that the incomplete disclosures 21 were not uniform or would not be material to a reasonable person. 22 They may also rebut the presumption by introducing evidence 23 Class Certification Order 20. specific to the named Plaintiffs. Defendants may See Quezada, 2009 U.S. Dist. 24 LEXIS 122537, at *15 (noting that defendants have a unique defense 25 26 against the claims of the named plaintiff that they do not have 27 against other members of the class in that “defendants can argue 28 that plaintiff would not have behaved any differently had the 4 1 omitted information been disclosed in the loan documents because 2 she never read the loan documents or relied on them when she 3 decided to enter the loan”). 4 However, the class-wide presumption cannot be rebutted by 5 showing that individual absent class members did not rely upon the 6 fraudulent omissions. The presumption could be rebutted on a 7 class-wide basis only if there is evidence that can be properly 8 9 generalized to the class as a whole. See, e.g., Iorio, 2008 U.S. United States District Court For the Northern District of California 10 Dist. LEXIS 118344, at *93-94. (rejecting defendant’s survey 11 evidence offered to rebut the presumption of reliance because 12 defendant could not demonstrate that the survey was performed “in 13 accordance with generally accepted survey principles and that the 14 results were used in a statistically correct manner”). 15 The magistrate judge allowed Defendants to depose absent 16 class members based on the language of the Class Certification 17 18 Order quoted above. 19 be read to say that Defendants could attempt to rebut the class- 20 wide presumption of reliance by introducing evidence that certain 21 unnamed class members did not rely on the alleged omissions when 22 entering into the loans. 23 This sentence was not well-phrased and could Defendants can proffer such evidence only with respect to the particular class members who are named as 24 the class representatives. 25 26 A magistrate judge's order on a non-dispositive pre-trial 27 matter shall be modified or set aside only if the reviewing 28 district court finds that the order is clearly erroneous or 5 1 contrary to law. 2 erroneous when, "although there is evidence to support it, the 3 reviewing court on the entire evidence is left with the definite 4 and firm conviction that a mistake has been committed." 5 States v. U.S. Gypsum Co., 333 U.S. 364, 395 (1948). 6 Fed. R. Civ. P. 72(a). An order is clearly United The magistrate judge made a thoughtful and understandable 7 decision based on the language of this Court’s prior order. 8 9 However, a mistake was committed because of the lack of clarity in United States District Court For the Northern District of California 10 the prior order. The depositions ordered would not be 11 statistically representative of the class as a whole and thus this 12 discovery is not calculated to uncover relevant evidence. 13 14 CONCLUSION Based on the foregoing, the Court GRANTS Plaintiffs’ motion 15 for relief from the magistrate judge’s order (Docket No. 267) and 16 overrules the magistrate judge’s order that Defendants be allowed 17 18 19 20 to take fifteen depositions from absent class members. IT IS SO ORDERED. Dated: 11/28/2011 21 CLAUDIA WILKEN United States District Judge 22 23 24 cc: JCS 25 26 27 28 6

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