Federal Deposit Insurance Corporation as Receiver for Indymac Bank FSB v. Warren et al

Filing 27

ORDER by Judge Claudia Wilken DENYING PLAINTIFF'S 13 MOTION TO STRIKE. (ndr, COURT STAFF) (Filed on 10/25/2011)

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1 IN THE UNITED STATES DISTRICT COURT 2 FOR THE NORTHERN DISTRICT OF CALIFORNIA 3 4 5 FEDERAL DEPOSIT INSURANCE CORPORATION, as receiver for INDYMAC BANK, F.S.B, 6 7 8 9 United States District Court For the Northern District of California 10 11 12 13 14 15 Plaintiff, No. C 11-3260 CW ORDER DENYING PLAINTIFF'S MOTION TO STRIKE (Docket No. 13) v. JUDITH A. WARREN, an individual d/b/a J WARREN APPRAISAL SERVICE, type of entity unknown; PATRICIA L. DENNIS, an individual d/b/a BOHANNON APPRAISAL, type of entity unknown; and DOES 1 through 10, inclusive, Defendants. ________________________________/ Plaintiff Federal Deposit Insurance Corporation, as receiver for IndyMac Bank, F.S.B., has sued Judith A. Warren, an individual 16 doing business as J. Warren Appraisal Service, and Patricia L. 17 18 Dennis, an individual doing business as Bohannon Appraisal, for 19 claims arising from the appraisal of certain real property. 20 FDIC's first cause of action alleges that Defendants breached 21 their contracts by failing to describe the property adequately, 22 misrepresenting the property's value, using improper and 23 negligently selected comparable sales, failing to comply with the 24 The Uniform Standards of Professional Appraisal Practice and failing 25 to discuss adequately the fact that the property was a bed-and26 27 28 breakfast, not a single family home. The FDIC's second cause of action alleges that Defendants negligently misrepresented the 1 value of the property. 2 the complaint. 3 the FDIC moves to strike Warren's second affirmative defense, 4 contributory or comparative negligence, and her ninth affirmative 5 defense, comparative indemnification. 6 Defendants have filed separate answers to Pursuant to Federal Rule of Civil Procedure 12(f), Docket No. 13. Having considered all of the parties' submissions, the Court DENIES the 7 motion. 8 LEGAL STANDARD 9 United States District Court For the Northern District of California 10 Federal Rule of Civil Procedure 12(f) states that a "court 11 may strike from a pleading an insufficient defense or any 12 redundant, immaterial, impertinent, or scandalous matter." 13 R. Civ. P. 12(f). 14 to avoid the expenditure of time and money that must arise from Fed. "The function of a 12(f) motion to strike is 15 litigating spurious issues by dispensing with those issues prior 16 to trial." Fantasy, Inc. v. Fogerty, 984 F.2d 1524, 1527 (9th 17 18 Cir. 1993) (internal alterations and quotation marks omitted), 19 overruled on other grounds by 510 U.S. 517 (1994). 20 immaterial if it has no essential or important relationship to a 21 claim for relief or defense. 22 Co., 618 F.3d 970, 974 (9th Cir. 2010). 23 Matter is Whittlestone, Inc. v. Handi-Craft Impertinent matter is that which does not pertain to issues in question. Id. 24 DISCUSSION 25 26 Warren pleads IndyMac's comparative fault in her second and 27 ninth affirmative defenses in a general manner that appears 28 directed at both causes of action. 2 The FDIC contends that the 1 defenses are insufficient as to its breach of contract and 2 negligent misrepresentation claims. 3 indicating that comparative fault, in general, is not a defense to 4 a claim for breach of contract. 5 Lines Ins. Co., 23 Cal. 4th 390, 402 (2000). 6 The FDIC cites authority Kransco v. Am. Empire Surplus Kransco does not establish that comparative fault is never a defense, under 7 California law, to contract claims. 8 9 The FDIC also argues that Van Meter v. Bent Constr. Co., 46 United States District Court For the Northern District of California 10 Cal. 2d 588, 595 (1956), demonstrates that Warren cannot assert an 11 affirmative defense to the FDIC's negligent misrepresentation 12 claim based on comparative fault. 13 a species of the tort of deceit. 14 Cal. 4th 370, 407 (1992). Negligent misrepresentation is Bily v. Arthur Young & Co., 3 "Where the defendant makes false 15 statements, honestly believing that they are true, but without 16 reasonable ground for such belief, he may be liable for negligent 17 18 misrepresentation, a form of deceit." 19 marks omitted). 20 that a defendant who misrepresents facts and induces the plaintiff 21 to rely on the misrepresentations is barred from asserting that 22 the plaintiff's reliance was negligent unless the plaintiff's 23 Id. (internal quotation In Van Meter the California Supreme Court held conduct, in light of his or her intelligence and information, is 24 preposterous or irrational. 46 Cal. 2d at 595. 25 26 Warren's opposition brief makes clear that her comparative 27 negligence defense will challenge IndyMac's conduct and actions in 28 underwriting the loans. Although Warren's answer and brief do not 3 1 specify what actions will be challenged, she may seek to defend 2 herself by asserting that IndyMac failed to follow underwriting 3 procedures or neglected to review borrower loan applications. 4 FDIC is correct that Warren cannot prevail if this defense is 5 limited to evidence that IndyMac did not review borrower loan 6 applications. The Such an oversight would not make IndyMac's reliance 7 on Warren's appraisal irrational or preposterous. However, the 8 9 Court does not assume that Warren's defense is so limited. United States District Court For the Northern District of California 10 Discovery may reveal evidence about what IndyMac knew or did, such 11 that its reliance on the appraisal was irrational or preposterous. 12 If discovery does not produce such evidence, the FDIC may move for 13 summary judgment to dispose of the issue. 14 The district court in FDIC v. Kirkland, 2010 U.S. Dist. LEXIS 15 143691, *5-6 (C.D. Cal.), reached a different conclusion, 16 reasoning that the defendant's affirmative defense of comparative 17 18 fault was precluded as a matter of law and granting the FDIC's 19 motion to strike the defense. 20 proposition that, with respect to an allegation of deceit, the 21 plaintiff's behavior is considered as part of the analysis of 22 whether the plaintiff's reliance was reasonable. 23 The court cited Van Meter for the The court did not acknowledge Van Meter's holding that a defense based on 24 comparative fault is permissible when the plaintiff's reliance is 25 26 27 irrational or preposterous. Therefore, Kirkland overlooked that the defense is cognizable, albeit in limited circumstances. 28 4 1 FDIC v. Munoz, 2011 U.S. Dist. LEXIS 105500 (C.D. Cal.) is 2 also unpersuasive. 3 who misrepresents facts and induces the plaintiff's reliance on 4 those facts may assert a defense based on the plaintiff's conduct 5 if the plaintiff's reliance is preposterous or irrational. 6 The court there recognized that a defendant However, the court then stated that the risk of falsity is on the 7 one who makes a representation, disregarding law that, as a matter 8 9 United States District Court For the Northern District of California 10 11 of law, the risk is not placed in all circumstances solely on the person who makes a negligent misrepresentation. Striking Warren's second and ninth affirmative defenses is 12 unwarranted. 13 Practice and Procedure ยง 1381 (noting that motions to strike are 14 disfavored and "will not be granted if the insufficiency of the 5C Charles Alan Wright & Arthur R. Miller, Federal 15 defense is not clearly apparent."). 16 CONCLUSION 17 18 The FDIC's motion, Docket No. 13, is DENIED. 19 IT IS SO ORDERED. 20 21 22 Dated: 10/25/2011 CLAUDIA WILKEN United States District Judge 23 24 25 26 27 28 5

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