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

Filing 86

ORDER by Judge Claudia Wilken DENYING ( 47 , 55 ) CROSS-MOTIONS FOR SUMMARY JUDGMENT.(This Order also Grants 81 Administrative Motion to File Under Seal). (ndr, COURT STAFF) (Filed on 3/7/2013)

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1 IN THE UNITED STATES DISTRICT COURT 2 FOR THE NORTHERN DISTRICT OF CALIFORNIA 3 4 FEDERAL DEPOSIT INSURANCE CORPORATION, 5 No. C 11-3260 CW ORDER DENYING CROSS-MOTIONS FOR SUMMARY JUDGMENT (Docket Nos. 47 & 55) Plaintiff, 6 v. 7 JUDITH WARREN, et al., 8 Defendants. ________________________________/ 9 United States District Court For the Northern District of California 10 Plaintiff Federal Deposit Insurance Corporation (FDIC) brings 11 this action as receiver for IndyMac Bank, F.S.B., against 12 Defendant Judith Warren for breach of contract and negligent 13 misrepresentation.1 14 judgment. 15 oral argument, the Court denies both motions. The parties filed cross-motions for summary After considering all of the parties’ submissions and 16 BACKGROUND 17 Defendant Warren is a professional real estate appraiser 18 based in Sonoma County, California. 19 Lucey, Ex. B, at 1-9. 20 appraise a six-bedroom Victorian house in Healdsburg by a local 21 mortgage broker, Priority Lending. 22 on May 2, 2006 and submitted an appraisal report the following 23 week. 24 as a single-family residence with an estimated value of $2.4 25 million. Declaration of Nathaniel In April 2006, she was commissioned to Id. at 8; Compl. ¶ 10. Id. She visited the property Her report classified the property Lucey Decl., Ex. B, at 1-1 to 1-2. 26 27 28 1 FDIC also initially filed suit against a second defendant, Patricia Dennis but has voluntarily dismissed the claims against her. Docket No. 84. 1 Priority Lending used Warren’s appraisal report to broker a 2 loan for the property’s owner, Susan Moreno, who was seeking to 3 refinance at the time. 4 local mortgage lender, Paul Financial, LLC, underwrote and funded 5 a $1.4 million loan to Moreno in late May 2006. 6 Ignacio Gomez, Exs. B-G. 7 Financial sold the loan to IndyMac, a Los Angeles-based savings 8 and loan association, as part of a “secondary market bulk 9 transaction.” Lucey Decl., Ex. A, at 32:16-33:9. A Declaration of Three months later, in August 2006, Paul Id. at 36:2-:11; Gomez Decl. ¶ 19, Ex. H. Although United States District Court For the Northern District of California 10 the loan was packaged with other mortgages in the sale to IndyMac, 11 none of the parties knows the exact number of loans that IndyMac 12 acquired in the transaction. 13 36:12-:21. See Lucey Decl., Ex. A, at 14 IndyMac followed a specific protocol at that time for 15 deciding whether to bid on bulk loan packages in the secondary 16 mortgage market. 17 spreadsheets, called “datatapes,” which were created by loan 18 originators to summarize the basic characteristics of a loan 19 package for potential bidders. 20 Gomez Decl. ¶ 11. 21 loan in the package, including the loan amount, loan type, 22 interest rate, and appraised value of the encumbered property. 23 Lucey Decl., Ex. A, at 39:17-40:3, 45:4-:12. 24 IndyMac used this information to calculate the loan-to-value ratio 25 of every loan within a given package; if the loan-to-value ratio 26 for each loan fell within certain parameters, IndyMac would bid on 27 the package. 28 Because the datatapes stored all of the relevant information This protocol relied principally on a series of Lucey Decl., Ex. A, at 39:17-40:3; The datatapes contained information about every Like other banks, Id. 42:12-:19, 70:5-:9; Gomez Decl. ¶¶ 16-18, 22-24. 2 1 electronically, IndyMac’s entire process for purchasing mortgages 2 on the secondary market was automated. 3 Id. ¶¶ 16-18, 22-24. In 2006, when IndyMac purchased the Moreno loan, the bank’s 4 policy was to purchase only residential mortgages with a loan-to- 5 value ratio of less than sixty-five percent.2 6 This upper limit was intended to provide an “equity cushion,” 7 protecting the bank against losses if a borrower defaulted and the 8 bank was forced to foreclose on the property. 9 Moreno loan, which had a loan-to-value ratio of fifty-eight Gomez Decl. ¶ 22. Id. ¶ 33. The United States District Court For the Northern District of California 10 percent, easily fell within IndyMac’s parameters, based on the 11 figures in Warren’s appraisal report.3 12 Sometime in 2009, Moreno defaulted on her loan. Lucey Decl., 13 Ex. A, at 51:1-:6; Gomez Decl. ¶ 32. 14 foreclosure proceedings against her but was ultimately unable to 15 recoup all of its losses from sale of her property. 16 Ex. A, at 52:12-:16; Gomez Decl. ¶ 33. IndyMac commenced Lucey Decl., 17 On July 1, 2011, FDIC filed this suit as receiver for 18 IndyMac, alleging that Warren breached her appraisal contract. 19 Compl. ¶¶ 30-46. 20 overstated the value of Moreno’s property and incorrectly 21 classified it as a single-family residence despite evidence that 22 Moreno was using the property as a bed-and-breakfast at the time. 23 Id. ¶¶ 9-15. In particular, FDIC contends that Warren According to FDIC, Warren’s misrepresentations 24 25 26 27 28 2 The loan-to-value ratio is calculated by dividing the amount of the loan by the appraised value of the encumbered property. 3 In Moreno’s case, the loan-to-value figure would have been $1.4 million (her loan amount) divided by $2.4 million (the appraised value of her home), which equals roughly fifty-eight percent. 3 1 induced IndyMac to purchase the Moreno mortgage, which, 2 ultimately, caused it to suffer damages. 3 4 Id. ¶ 46. On October 9, 2012, Warren moved for summary judgment. FDIC cross-moved for summary judgment one week later. 5 LEGAL STANDARD 6 Summary judgment is properly granted when no genuine and 7 disputed issues of material fact remain, and when, viewing the 8 evidence most favorably to the non-moving party, the movant is 9 clearly entitled to prevail as a matter of law. Fed. R. Civ. United States District Court For the Northern District of California 10 P. 56; Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986); 11 Eisenberg v. Ins. Co. of N. Am., 815 F.2d 1285, 1288-89 (9th Cir. 12 1987). 13 The moving party bears the burden of showing that there is no 14 material factual dispute. 15 true the opposing party’s evidence, if supported by affidavits or 16 other evidentiary material. 17 815 F.2d at 1289. 18 in favor of the party against whom summary judgment is sought. 19 Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 20 587 (1986); Intel Corp. v. Hartford Accident & Indem. Co., 952 21 F.2d 1551, 1558 (9th Cir. 1991). 22 Therefore, the court must regard as Celotex, 477 U.S. at 324; Eisenberg, The court must draw all reasonable inferences Material facts which would preclude entry of summary judgment 23 are those which, under applicable substantive law, may affect the 24 outcome of the case. The substantive law will identify which 25 facts are material. Anderson v. Liberty Lobby, Inc., 477 U.S. 26 242, 248 (1986). 27 of proof on an issue at trial, the moving party may discharge its 28 burden of production by either of two methods: Where the moving party does not bear the burden 4 1 2 3 4 The moving party may produce evidence negating an essential element of the nonmoving party’s case, or, after suitable discovery, the moving party may show that the nonmoving party does not have enough evidence of an essential element of its claim or defense to carry its ultimate burden of persuasion at trial. Nissan Fire & Marine Ins. Co., Ltd., v. Fritz Cos., Inc., 210 F.3d 5 1099, 1106 (9th Cir. 2000). 6 If the moving party discharges its burden by showing an 7 absence of evidence to support an essential element of a claim or 8 defense, it is not required to produce evidence showing the 9 absence of a material fact on such issues, or to support its 10 United States District Court For the Northern District of California motion with evidence negating the non-moving party’s claim. Id.; 11 see also Lujan v. Nat’l Wildlife Fed’n, 497 U.S. 871, 885 (1990); 12 Bhan v. NME Hosps., Inc., 929 F.2d 1404, 1409 (9th Cir. 1991). If 13 the moving party shows an absence of evidence to support the non14 moving party’s case, the burden then shifts to the non-moving 15 party to produce “specific evidence, through affidavits or 16 admissible discovery material, to show that the dispute exists.” 17 Bhan, 929 F.2d at 1409. 18 If the moving party discharges its burden by negating an 19 essential element of the non-moving party’s claim or defense, it 20 must produce affirmative evidence of such negation. Nissan, 210 21 F.3d at 1105. If the moving party produces such evidence, the 22 burden then shifts to the non-moving party to produce specific 23 evidence to show that a dispute of material fact exists. Id. 24 If the moving party does not meet its initial burden of 25 production by either method, the non-moving party is under no 26 obligation to offer any evidence in support of its opposition. 27 28 5 1 Id. 2 ultimate burden of persuasion at trial. This is true even though the non-moving party bears the 3 4 Id. at 1107. DISCUSSION I. Breach of Contract (First Cause of Action) 5 A. 6 To establish liability for breach of contract, a plaintiff Warren’s Motion for Summary Judgment 7 must demonstrate that the defendant entered into a contract, 8 breached the contract, and caused the plaintiff to suffer damages 9 as a result. FDIC v. Levitt, 2011 WL 4591933, at *2 (S.D. Cal.); United States District Court For the Northern District of California 10 Roth v. Malson, 67 Cal. App. 4th 552, 557 (1998). 11 plaintiff asserts the claim as a third-party beneficiary, then it 12 must also show that the contract was made expressly for its 13 benefit. 14 Indem. Co., 95 Cal. App. 4th 669, 685 (2002). 15 When the Cal. Civ. Code. § 1559; San Diego Hous. Comm’n v. Indus. Here, FDIC has offered sufficient evidence to support an 16 inference that Warren is liable for breach of contract. 17 specifically to the “Appraiser’s Certification” that Warren signed 18 as part of her appraisal report, which acknowledges that any 19 “intentional or negligent misrepresentation(s) contained in this 20 appraisal report may result in civil liability.” 21 B, at 1-9. 22 insurers, government sponsored enterprises, and other secondary 23 market participants may rely on this appraisal report as part of 24 any mortgage finance transaction that involves any one or more of 25 these parties.” 26 sufficient to support an inference that Warren signed a contract 27 intended to benefit potential secondary market bidders like 28 IndyMac. It points Lucey Decl., Ex. The certification also provides that “mortgage Id. (emphasis added). 6 This language is 1 In addition to the certification, FDIC has offered evidence 2 that Warren misrepresented both the value and commercial nature of 3 the Healdsburg property. 4 another licensed real estate appraiser who asserts that Warren’s 5 report overvalued Moreno’s property by more than half a million 6 dollars. 7 declaration from Moreno herself stating that she was openly 8 operating a bed-and-breakfast on the property when Warren 9 conducted her appraisal. It provides a sworn declaration from Declaration of Howard Levy ¶ 15. FDIC also submits a See Moreno Decl. ¶¶ 2, 5-10. United States District Court For the Northern District of California 10 Specifically, Moreno claims that the house was in a “guest-ready” 11 state when Warren visited in May 2006, with a rack of “brochures 12 for local attractions” and a “guest book” displayed on the main 13 floor. 14 from Warren’s appraisal report -- which classified the property 15 simply as a single-family residence -- FDIC argues that Warren 16 knowingly misidentified the property as residential. 17 Id. ¶¶ 5, 10-11. Because this information was omitted Finally, FDIC presents evidence that IndyMac was harmed by 18 the alleged misrepresentations in Warren’s report. 19 declaration from IndyMac’s former vice-president stating that 20 Warren’s inflated appraisal value distorted the true loan-to-value 21 ratio of Moreno’s mortgage and, ultimately, led IndyMac to assume 22 unknown risks when it purchased the mortgage on the secondary 23 market. 24 on the loan in 2009, IndyMac was unable to sell the Healdsburg 25 property at its expected price and was forced instead to sell the 26 property at a significant loss. Gomez Decl. ¶¶ 31-33. It provides a As a result, when Moreno defaulted Id. 27 28 7 FDIC contends that IndyMac 1 would never have purchased the loan had it been properly 2 classified as a commercial property with a lower estimated value.4 3 Taken together, FDIC’s evidence is sufficient to support an 4 inference that Warren is liable to IndyMac for breach of contract. 5 Accordingly, Warren’s motion for summary judgment is denied with 6 respect to FDIC’s contract claim. 7 B. 8 Although FDIC has produced sufficient evidence to survive 9 FDIC’s Cross-Motion for Summary Judgment Warren’s summary judgment motion, it has not established that it United States District Court For the Northern District of California 10 is itself entitled to summary judgment. 11 disputes of material fact that preclude summary judgment here. 12 Most of these deal with whether and to what extent she actually 13 breached the appraisal contract. 14 Warren identifies several For example, Warren denies that she overstated the value of 15 Moreno’s property. 16 estate appraiser who states that, if anything, Warren’s 2006 17 appraisal report understated the value of the property by about 18 thirty-thousand dollars. 19 Ex. E. 20 by FDIC’s real estate appraiser, who estimated that Warren 21 overvalued the property by half a million dollars. 22 ¶ 15, Ex. D. 23 properly classified the property as residential and, relatedly, 24 whether she was qualified to appraise the property in the first 25 place. She submits a declaration from a licensed real Declaration of Ted Faravelli ¶ 12, This stands in stark contrast to the declaration submitted Levy Decl. The two appraisers also dispute whether Warren Id. ¶¶ 8-10; Faravelli ¶¶ 8, 10-11; see also Moreno Decl. 26 4 27 28 Any property value below $2.2 million would have pushed the Moreno mortgage’s loan-to-value ratio above IndyMac’s sixty-five percent ceiling and, thus, dissuaded the bank from bidding on the loan package. Gomez Decl. ¶ 23. 8 1 ¶¶ 2, 5-10 (stating that the property was used for commercial 2 purposes). 3 question of whether Warren breached the appraisal contract -- 4 cannot be resolved on summary judgment. 5 motion must be denied.5 6 II. These factual disputes -- which are central to the As such, FDIC’s cross- Negligent Misrepresentation (Second Cause of Action) 7 A. 8 To prevail on a negligent misrepresentation claim, a 9 Warren’s Motion for Summary Judgment plaintiff must show that (1) the defendant knowingly United States District Court For the Northern District of California 10 misrepresented a material fact; (2) the defendant intended to 11 induce the plaintiff to rely on its misrepresentation; and (3) the 12 plaintiff did, in fact, reasonably rely on the misrepresentation 13 and suffer damages as a result. 14 Cont’l Airlines, Inc. v. McDonnell Douglas Corp., 216 Cal. App. 3d 15 388, 402 (1989). 16 Levitt, 2011 WL 4591933, at *3; FDIC has produced sufficient evidence here to support an 17 inference that Warren is liable for negligent misrepresentation. 18 As noted above, FDIC has offered evidence that Warren knowingly 19 overstated the value of the Healdsburg property and incorrectly 20 classified it as a single-family residence. 21 Moreno Decl. ¶¶ 5, 10-11. 22 that Warren made these misrepresentations knowing that “secondary 23 market participants may rely on [her] appraisal report” in future 24 “mortgage finance transactions.” 25 Finally, FDIC has presented evidence that, if not for Warren’s See Levy Decl. ¶ 15; In addition, it has presented evidence See Lucey Decl., Ex. B, at 1-9. 26 5 27 28 FDIC’s attempt to discredit Warren’s expert does not alter this outcome. See Bator v. State of Hawai’i, 39 F.3d 1021, 1026 (9th Cir. 1994) (“At the summary judgment stage, . . . the district court may not make credibility determinations or weigh conflicting evidence.”). 9 1 alleged misrepresentations, IndyMac would have never purchased the 2 Moreno mortgage nor suffered any economic harm as a result. 3 Gomez Decl. ¶¶ 27-28, 31. 4 See Nevertheless, Warren contends that FDIC has not -- and 5 cannot -- produce evidence that IndyMac actually relied on her 6 alleged misrepresentations when it decided to purchase the Moreno 7 loan. 8 establish liability for negligent misrepresentation, the plaintiff 9 must make a showing of “actual reliance” on the defendant’s She notes that California courts have recognized that, to United States District Court For the Northern District of California 10 misrepresentation. 11 (1993) (citing Garcia v. Superior Court, 50 Cal. 3d 728, 737 12 (1990)). 13 that the defendant’s misrepresentation was communicated to the 14 plaintiff indirectly, such as through an intermediary. 15 Cal. 4th at 1095-1100. 16 alleged misrepresentation indirectly must still show ‘justifiable 17 reliance upon it’” to prevail on its negligent misrepresentation 18 claim. 19 See Mirkin v. Wasserman, 5 Cal. 4th 1082, 1088 This requirement cannot be satisfied merely by alleging Mirkin, 5 Rather, the plaintiff “who hears an Id. at 1096 (citing Restatement (Second) of Torts § 533). Here, FDIC acknowledges that it has no evidence that any 20 IndyMac employee actually looked at Warren’s appraisal report or 21 even at a datatape summarizing her report. 22 that IndyMac’s reliance on the report may be inferred from the 23 bank’s automated system for purchasing only residential mortgages 24 with a specific loan-to-value ratio. 25 that, without Warren’s appraisal report -- which allegedly 26 overvalued the Healdsburg property and misidentified it as 27 residential -- the Moreno mortgage would never have been included 28 in a purchase that met IndyMac’s purchasing criteria. 10 Still, FDIC asserts In other words, FDIC argues Thus, it 1 asserts, “the fact that IndyMac purchased the loan at all 2 establishes that it relied on Defendant’s Appraisal.” 3 Cross-Mot. & Opp. 18. Pl.’s FDIC has provided evidence that IndyMac’s entire system for 5 purchasing loans on the secondary mortgage market was automated. 6 Gomez Decl. ¶¶ 15-17. 7 IndyMac’s employees exercised minimal control and enjoyed limited 8 discretion. 9 IndyMac purchased loans on the secondary market, any “information 10 United States District Court For the Northern District of California 4 which was transferred from the datatape [onto IndyMac’s computers] 11 could not be manually altered by IndyMac’s employees.” 12 The automated nature of this process obviates the need for FDIC to 13 show that individual IndyMac employees actually read Warren’s 14 appraisal report. 15 electronic information about loan type and property value stored 16 on the datatapes -- sufficiently demonstrates that it relied on 17 the information in her report. 18 actual reliance may be inferred despite the lack of direct 19 evidence that a particular individual examined the datatape and 20 relied on it. 21 It acknowledges that, using this system, In fact, according to FDIC’s own evidence, when Id. ¶ 16. IndyMac’s purchasing formula -- which utilized Thus, under these circumstances, Warren contends that the California Supreme Court’s decision 22 in Mirkin, 5 Cal. 4th at 1108, precludes such an inference. 23 Mirkin, two stockholders brought a negligent misrepresentation 24 claim against a corporation, its directors, and its accounting 25 firm for allegedly inflating the corporation’s stock prices and 26 misrepresenting its financial prospects. 27 court held that the plaintiffs, who had purchased their stock in 28 the corporation at the inflated prices, could not state a claim 11 Id. at 1087-88. In The 1 because they “conceded that they could not plead that they had 2 actually read or heard the alleged misrepresentations.” 3 1088, 1089 n.2, 1108. 4 specifically rejected the plaintiffs’ argument that they were 5 entitled to a presumption of reliance because they “‘reli[ed] on 6 the integrity of the securities market and the securities offering 7 process.’” Id. at 1089 (quoting plaintiffs) (alteration in 8 original). It held that this broad reliance on market integrity 9 was insufficient to establish the “actual reliance” element of United States District Court For the Northern District of California 10 11 Id. at In reaching this conclusion, the court negligent misrepresentation. Id. at 1095-1101. Although IndyMac purchased the Moreno loan on an open market, 12 its reliance claim is not based on the integrity of that market. 13 Rather, FDIC has offered a detailed explanation of how IndyMac 14 relied on specific elements of Warren’s appraisal 15 report -- namely, its alleged misrepresentations about the 16 Healdsburg property -- in purchasing the loan. 17 outlined above, it has presented evidence to support that 18 explanation. 19 concrete than the plaintiffs’ theory in Mirkin. 20 for summary judgment must therefore be denied. Moreover, as Thus, FDIC’s theory of reliance is much more Warren’s motion 21 B. 22 As discussed above, the parties dispute whether Warren 23 actually misrepresented the value of the Healdsburg property and 24 whether she properly classified it as residential. 25 the same evidentiary conflicts that preclude the Court from 26 granting summary judgment on FDIC’s breach of contract claim also 27 preclude it from granting summary judgment on FDIC’s negligent 28 misrepresentation claim. FDIC’s Cross-Motion for Summary Judgment 12 Accordingly, 1 2 CONCLUSION For the reasons set forth above, the Court DENIES Warren’s 3 motion for summary judgment (Docket No. 47) and DENIES FDIC’s 4 cross-motion for summary judgment (Docket No. 55). 5 Warren’s late-filed motion to file documents under seal 6 (Docket No. 81) is GRANTED. 7 reasons to redact certain third-party financial information in her 8 supporting declarations. 9 Warren has presented compelling The parties are referred to Magistrate Judge Vadas for a United States District Court For the Northern District of California 10 settlement conference. 11 for 2:00 p.m. on June 26, 2013. 12 begin at 8:30 a.m. on July 18, 2013. 13 A final pretrial conference is scheduled A seven-day jury trial is set to IT IS SO ORDERED. 14 15 16 Dated: 3/7/2013 CLAUDIA WILKEN United States District Judge 17 18 19 20 21 22 23 24 25 26 27 28 13

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