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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IN THE UNITED STATES DISTRICT COURT

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FOR THE NORTHERN DISTRICT OF CALIFORNIA

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FEDERAL DEPOSIT INSURANCE
CORPORATION,

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No. C 11-3260 CW
ORDER DENYING
CROSS-MOTIONS FOR
SUMMARY JUDGMENT
(Docket Nos. 47 &
55)

Plaintiff,

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v.

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JUDITH WARREN, et al.,

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Defendants.
________________________________/

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United States District Court
For the Northern District of California

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Plaintiff Federal Deposit Insurance Corporation (FDIC) brings

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this action as receiver for IndyMac Bank, F.S.B., against

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Defendant Judith Warren for breach of contract and negligent

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misrepresentation.1

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judgment.

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oral argument, the Court denies both motions.

The parties filed cross-motions for summary

After considering all of the parties’ submissions and

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BACKGROUND

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Defendant Warren is a professional real estate appraiser

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based in Sonoma County, California.

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Lucey, Ex. B, at 1-9.

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appraise a six-bedroom Victorian house in Healdsburg by a local

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mortgage broker, Priority Lending.

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on May 2, 2006 and submitted an appraisal report the following

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week.

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as a single-family residence with an estimated value of $2.4

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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.

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FDIC also initially filed suit against a second defendant,
Patricia Dennis but has voluntarily dismissed the claims against her.
Docket No. 84.

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Priority Lending used Warren’s appraisal report to broker a

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loan for the property’s owner, Susan Moreno, who was seeking to

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refinance at the time.

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local mortgage lender, Paul Financial, LLC, underwrote and funded

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a $1.4 million loan to Moreno in late May 2006.

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Ignacio Gomez, Exs. B-G.

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Financial sold the loan to IndyMac, a Los Angeles-based savings

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and loan association, as part of a “secondary market bulk

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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

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the loan was packaged with other mortgages in the sale to IndyMac,

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none of the parties knows the exact number of loans that IndyMac

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acquired in the transaction.

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36:12-:21.

See Lucey Decl., Ex. A, at

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IndyMac followed a specific protocol at that time for

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deciding whether to bid on bulk loan packages in the secondary

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mortgage market.

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spreadsheets, called “datatapes,” which were created by loan

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originators to summarize the basic characteristics of a loan

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package for potential bidders.

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Gomez Decl. ¶ 11.

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loan in the package, including the loan amount, loan type,

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interest rate, and appraised value of the encumbered property.

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Lucey Decl., Ex. A, at 39:17-40:3, 45:4-:12.

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IndyMac used this information to calculate the loan-to-value ratio

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of every loan within a given package; if the loan-to-value ratio

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for each loan fell within certain parameters, IndyMac would bid on

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the package.

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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.

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electronically, IndyMac’s entire process for purchasing mortgages

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on the secondary market was automated.

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Id. ¶¶ 16-18, 22-24.

In 2006, when IndyMac purchased the Moreno loan, the bank’s

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policy was to purchase only residential mortgages with a loan-to-

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value ratio of less than sixty-five percent.2

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This upper limit was intended to provide an “equity cushion,”

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protecting the bank against losses if a borrower defaulted and the

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bank was forced to foreclose on the property.

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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

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percent, easily fell within IndyMac’s parameters, based on the

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figures in Warren’s appraisal report.3

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Sometime in 2009, Moreno defaulted on her loan.

Lucey Decl.,

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Ex. A, at 51:1-:6; Gomez Decl. ¶ 32.

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foreclosure proceedings against her but was ultimately unable to

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recoup all of its losses from sale of her property.

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Ex. A, at 52:12-:16; Gomez Decl. ¶ 33.

IndyMac commenced

Lucey Decl.,

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On July 1, 2011, FDIC filed this suit as receiver for

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IndyMac, alleging that Warren breached her appraisal contract.

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Compl. ¶¶ 30-46.

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overstated the value of Moreno’s property and incorrectly

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classified it as a single-family residence despite evidence that

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Moreno was using the property as a bed-and-breakfast at the time.

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Id. ¶¶ 9-15.

In particular, FDIC contends that Warren

According to FDIC, Warren’s misrepresentations

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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.

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induced IndyMac to purchase the Moreno mortgage, which,

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ultimately, caused it to suffer damages.

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Id. ¶ 46.

On October 9, 2012, Warren moved for summary judgment.

FDIC

cross-moved for summary judgment one week later.

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LEGAL STANDARD

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Summary judgment is properly granted when no genuine and

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disputed issues of material fact remain, and when, viewing the

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evidence most favorably to the non-moving party, the movant is

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clearly entitled to prevail as a matter of law.

Fed. R. Civ.

United States District Court
For the Northern District of California

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P. 56; Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986);

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Eisenberg v. Ins. Co. of N. Am., 815 F.2d 1285, 1288-89 (9th Cir.

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1987).

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The moving party bears the burden of showing that there is no

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material factual dispute.

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true the opposing party’s evidence, if supported by affidavits or

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other evidentiary material.

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815 F.2d at 1289.

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in favor of the party against whom summary judgment is sought.

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Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574,

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587 (1986); Intel Corp. v. Hartford Accident & Indem. Co., 952

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F.2d 1551, 1558 (9th Cir. 1991).

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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

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are those which, under applicable substantive law, may affect the

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outcome of the case.

The substantive law will identify which

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facts are material.

Anderson v. Liberty Lobby, Inc., 477 U.S.

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242, 248 (1986).

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of proof on an issue at trial, the moving party may discharge its

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burden of production by either of two methods:

Where the moving party does not bear the burden

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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

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1099, 1106 (9th Cir. 2000).
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If the moving party discharges its burden by showing an
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absence of evidence to support an essential element of a claim or
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defense, it is not required to produce evidence showing the
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absence of a material fact on such issues, or to support its
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United States District Court
For the Northern District of California

motion with evidence negating the non-moving party’s claim.

Id.;

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see also Lujan v. Nat’l Wildlife Fed’n, 497 U.S. 871, 885 (1990);
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Bhan v. NME Hosps., Inc., 929 F.2d 1404, 1409 (9th Cir. 1991).

If

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the moving party shows an absence of evidence to support the non14
moving party’s case, the burden then shifts to the non-moving
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party to produce “specific evidence, through affidavits or
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admissible discovery material, to show that the dispute exists.”
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Bhan, 929 F.2d at 1409.
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If the moving party discharges its burden by negating an
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essential element of the non-moving party’s claim or defense, it
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must produce affirmative evidence of such negation.

Nissan, 210

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F.3d at 1105.

If the moving party produces such evidence, the

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burden then shifts to the non-moving party to produce specific
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evidence to show that a dispute of material fact exists.

Id.

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If the moving party does not meet its initial burden of
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production by either method, the non-moving party is under no
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obligation to offer any evidence in support of its opposition.
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Id.

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ultimate burden of persuasion at trial.

This is true even though the non-moving party bears the

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Id. at 1107.

DISCUSSION
I.

Breach of Contract (First Cause of Action)

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A.

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To establish liability for breach of contract, a plaintiff

Warren’s Motion for Summary Judgment

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must demonstrate that the defendant entered into a contract,

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breached the contract, and caused the plaintiff to suffer damages

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as a result.

FDIC v. Levitt, 2011 WL 4591933, at *2 (S.D. Cal.);

United States District Court
For the Northern District of California

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Roth v. Malson, 67 Cal. App. 4th 552, 557 (1998).

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plaintiff asserts the claim as a third-party beneficiary, then it

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must also show that the contract was made expressly for its

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benefit.

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Indem. Co., 95 Cal. App. 4th 669, 685 (2002).

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When the

Cal. Civ. Code. § 1559; San Diego Hous. Comm’n v. Indus.

Here, FDIC has offered sufficient evidence to support an

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inference that Warren is liable for breach of contract.

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specifically to the “Appraiser’s Certification” that Warren signed

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as part of her appraisal report, which acknowledges that any

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“intentional or negligent misrepresentation(s) contained in this

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appraisal report may result in civil liability.”

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B, at 1-9.

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insurers, government sponsored enterprises, and other secondary

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market participants may rely on this appraisal report as part of

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any mortgage finance transaction that involves any one or more of

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these parties.”

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sufficient to support an inference that Warren signed a contract

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intended to benefit potential secondary market bidders like

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IndyMac.

It points

Lucey Decl., Ex.

The certification also provides that “mortgage

Id. (emphasis added).

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This language is

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In addition to the certification, FDIC has offered evidence

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that Warren misrepresented both the value and commercial nature of

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the Healdsburg property.

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another licensed real estate appraiser who asserts that Warren’s

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report overvalued Moreno’s property by more than half a million

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dollars.

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declaration from Moreno herself stating that she was openly

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operating a bed-and-breakfast on the property when Warren

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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

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Specifically, Moreno claims that the house was in a “guest-ready”

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state when Warren visited in May 2006, with a rack of “brochures

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for local attractions” and a “guest book” displayed on the main

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floor.

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from Warren’s appraisal report -- which classified the property

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simply as a single-family residence -- FDIC argues that Warren

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knowingly misidentified the property as residential.

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Id. ¶¶ 5, 10-11.

Because this information was omitted

Finally, FDIC presents evidence that IndyMac was harmed by

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the alleged misrepresentations in Warren’s report.

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declaration from IndyMac’s former vice-president stating that

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Warren’s inflated appraisal value distorted the true loan-to-value

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ratio of Moreno’s mortgage and, ultimately, led IndyMac to assume

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unknown risks when it purchased the mortgage on the secondary

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market.

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on the loan in 2009, IndyMac was unable to sell the Healdsburg

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property at its expected price and was forced instead to sell the

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property at a significant loss.

Gomez Decl. ¶¶ 31-33.

It provides a

As a result, when Moreno defaulted

Id.

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FDIC contends that IndyMac

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would never have purchased the loan had it been properly

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classified as a commercial property with a lower estimated value.4

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Taken together, FDIC’s evidence is sufficient to support an

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inference that Warren is liable to IndyMac for breach of contract.

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Accordingly, Warren’s motion for summary judgment is denied with

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respect to FDIC’s contract claim.

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B.

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Although FDIC has produced sufficient evidence to survive

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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

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is itself entitled to summary judgment.

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disputes of material fact that preclude summary judgment here.

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Most of these deal with whether and to what extent she actually

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breached the appraisal contract.

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Warren identifies several

For example, Warren denies that she overstated the value of

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Moreno’s property.

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estate appraiser who states that, if anything, Warren’s 2006

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appraisal report understated the value of the property by about

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thirty-thousand dollars.

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Ex. E.

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by FDIC’s real estate appraiser, who estimated that Warren

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overvalued the property by half a million dollars.

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¶ 15, Ex. D.

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properly classified the property as residential and, relatedly,

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whether she was qualified to appraise the property in the first

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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.

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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.

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¶¶ 2, 5-10 (stating that the property was used for commercial

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purposes).

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question of whether Warren breached the appraisal contract --

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cannot be resolved on summary judgment.

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motion must be denied.5

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II.

These factual disputes -- which are central to the

As such, FDIC’s cross-

Negligent Misrepresentation (Second Cause of Action)

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A.

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To prevail on a negligent misrepresentation claim, a

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Warren’s Motion for Summary Judgment

plaintiff must show that (1) the defendant knowingly

United States District Court
For the Northern District of California

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misrepresented a material fact; (2) the defendant intended to

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induce the plaintiff to rely on its misrepresentation; and (3) the

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plaintiff did, in fact, reasonably rely on the misrepresentation

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and suffer damages as a result.

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Cont’l Airlines, Inc. v. McDonnell Douglas Corp., 216 Cal. App. 3d

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388, 402 (1989).

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Levitt, 2011 WL 4591933, at *3;

FDIC has produced sufficient evidence here to support an

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inference that Warren is liable for negligent misrepresentation.

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As noted above, FDIC has offered evidence that Warren knowingly

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overstated the value of the Healdsburg property and incorrectly

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classified it as a single-family residence.

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Moreno Decl. ¶¶ 5, 10-11.

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that Warren made these misrepresentations knowing that “secondary

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market participants may rely on [her] appraisal report” in future

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“mortgage finance transactions.”

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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.

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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.”).

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alleged misrepresentations, IndyMac would have never purchased the

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Moreno mortgage nor suffered any economic harm as a result.

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Gomez Decl. ¶¶ 27-28, 31.

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See

Nevertheless, Warren contends that FDIC has not -- and

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cannot -- produce evidence that IndyMac actually relied on her

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alleged misrepresentations when it decided to purchase the Moreno

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loan.

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establish liability for negligent misrepresentation, the plaintiff

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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

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misrepresentation.

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(1993) (citing Garcia v. Superior Court, 50 Cal. 3d 728, 737

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(1990)).

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that the defendant’s misrepresentation was communicated to the

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plaintiff indirectly, such as through an intermediary.

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Cal. 4th at 1095-1100.

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alleged misrepresentation indirectly must still show ‘justifiable

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reliance upon it’” to prevail on its negligent misrepresentation

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claim.

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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

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IndyMac employee actually looked at Warren’s appraisal report or

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even at a datatape summarizing her report.

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that IndyMac’s reliance on the report may be inferred from the

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bank’s automated system for purchasing only residential mortgages

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with a specific loan-to-value ratio.

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that, without Warren’s appraisal report -- which allegedly

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overvalued the Healdsburg property and misidentified it as

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residential -- the Moreno mortgage would never have been included

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in a purchase that met IndyMac’s purchasing criteria.
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Still, FDIC asserts

In other words, FDIC argues

Thus, it

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asserts, “the fact that IndyMac purchased the loan at all

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establishes that it relied on Defendant’s Appraisal.”

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Cross-Mot. & Opp. 18.

Pl.’s

FDIC has provided evidence that IndyMac’s entire system for

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purchasing loans on the secondary mortgage market was automated.

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Gomez Decl. ¶¶ 15-17.

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IndyMac’s employees exercised minimal control and enjoyed limited

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discretion.

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IndyMac purchased loans on the secondary market, any “information

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United States District Court
For the Northern District of California

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which was transferred from the datatape [onto IndyMac’s computers]

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could not be manually altered by IndyMac’s employees.”

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The automated nature of this process obviates the need for FDIC to

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show that individual IndyMac employees actually read Warren’s

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appraisal report.

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electronic information about loan type and property value stored

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on the datatapes -- sufficiently demonstrates that it relied on

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the information in her report.

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actual reliance may be inferred despite the lack of direct

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evidence that a particular individual examined the datatape and

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relied on it.

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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

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in Mirkin, 5 Cal. 4th at 1108, precludes such an inference.

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Mirkin, two stockholders brought a negligent misrepresentation

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claim against a corporation, its directors, and its accounting

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firm for allegedly inflating the corporation’s stock prices and

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misrepresenting its financial prospects.

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court held that the plaintiffs, who had purchased their stock in

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the corporation at the inflated prices, could not state a claim
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Id. at 1087-88.

In

The

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because they “conceded that they could not plead that they had

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actually read or heard the alleged misrepresentations.”

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1088, 1089 n.2, 1108.

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specifically rejected the plaintiffs’ argument that they were

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entitled to a presumption of reliance because they “‘reli[ed] on

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the integrity of the securities market and the securities offering

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process.’”

Id. at 1089 (quoting plaintiffs) (alteration in

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original).

It held that this broad reliance on market integrity

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was insufficient to establish the “actual reliance” element of

United States District Court
For the Northern District of California

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Id. at

In reaching this conclusion, the court

negligent misrepresentation.

Id. at 1095-1101.

Although IndyMac purchased the Moreno loan on an open market,

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its reliance claim is not based on the integrity of that market.

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Rather, FDIC has offered a detailed explanation of how IndyMac

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relied on specific elements of Warren’s appraisal

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report -- namely, its alleged misrepresentations about the

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Healdsburg property -- in purchasing the loan.

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outlined above, it has presented evidence to support that

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explanation.

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concrete than the plaintiffs’ theory in Mirkin.

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for summary judgment must therefore be denied.

Moreover, as

Thus, FDIC’s theory of reliance is much more
Warren’s motion

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B.

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As discussed above, the parties dispute whether Warren

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actually misrepresented the value of the Healdsburg property and

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whether she properly classified it as residential.

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the same evidentiary conflicts that preclude the Court from

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granting summary judgment on FDIC’s breach of contract claim also

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preclude it from granting summary judgment on FDIC’s negligent

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misrepresentation claim.

FDIC’s Cross-Motion for Summary Judgment

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Accordingly,

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CONCLUSION
For the reasons set forth above, the Court DENIES Warren’s

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motion for summary judgment (Docket No. 47) and DENIES FDIC’s

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cross-motion for summary judgment (Docket No. 55).

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Warren’s late-filed motion to file documents under seal

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(Docket No. 81) is GRANTED.

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reasons to redact certain third-party financial information in her

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supporting declarations.

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Warren has presented compelling

The parties are referred to Magistrate Judge Vadas for a

United States District Court
For the Northern District of California

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settlement conference.

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for 2:00 p.m. on June 26, 2013.

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begin at 8:30 a.m. on July 18, 2013.

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A final pretrial conference is scheduled
A seven-day jury trial is set to

IT IS SO ORDERED.

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Dated: 3/7/2013

CLAUDIA WILKEN
United States District Judge

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