Soriano v. Countrywide Homes Loans, Inc. et al

Filing 139

ORDER Resolving Legal Issues Raised in Defendant's Trial Brief. Signed by Judge Lucy H. Koh on 6/2/2011. (lhklc2, COURT STAFF) (Filed on 6/2/2011)

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UNITED STATES DISTRICT COURT

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NORTHERN DISTRICT OF CALIFORNIA

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SAN JOSE DIVISION

United States District Court
For the Northern District of California

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NORLITO SORIANO,
Plaintiff,
v.
COUNTRYWIDE HOME LOANS, INC.,
SOLIDHOMES FUNDING, MANUEL
CHAVEZ, MARK FLORES, SOLIDHOMES
ENTERPRENEURS, INC., BANK OF
AMERICA CORP., AND DOES 5-100,
Defendants.

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Case No.: 09-CV-02415-LHK

ORDER RESOLVING LEGAL ISSUES
RAISED IN DEFENDANT’S TRIAL
BRIEF

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Plaintiff’s claims for violation of the Real Estate Settlement Procedures Act (“RESPA”, 12

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U.S.C. § 2601 et seq.) and violation of California’s Unfair Competition Law (“UCL,” Bus. & Prof.

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Code § 17200 et seq.) have survived summary judgment. See Dkt. No. 59, April 11, 2011 Order.

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Plaintiff’s UCL claim is based in part on the RESPA claim, in part on a claim for violation of the

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Truth in Lending Act (“TILA”, 15 U.S.C. § 1601 et seq.), and in part on allegedly unfair acts by

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defendant. This matter is set for trial beginning on June 6, 2011. The trial is to be bifurcated: the

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RESPA issue will be tried by a jury, and the UCL claim will be tried by the Court. A pretrial

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conference was held on May 4, 2011, and a further pretrial conference was held on May 27, 2011.

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On May 26, 2011, pursuant to this Court’s Guidelines for Final Pretrial Conference in Jury Trials,

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Defendant Countrywide Home Loans, Inc. (CHL) filed a trial brief. See Dkt. No. 122. In the trial

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brief, CHL raised two purely legal issues that could be dispositive of Plaintiff’s TILA and RESPA
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Case No.: 10-CV-02415-LHK
ORDER RESOLVING LEGAL ISSUES RAISED IN DEFENDANT’S TRIAL BRIEF

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claims. The Court ordered Plaintiff to respond to the arguments raised in CHL’s trial brief at the

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May 27, 2011 pretrial conference. Plaintiff submitted responsive briefing on May 29, 2011, May

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30, 2011 and May 31, 2011. For the reasons set forth below, CHL’s motion is GRANTED as to

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Plaintiff’s RESPA claim and DENIED as to Plaintiff’s TILA claim.
Procedural Background1

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I.

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CHL timely moved for summary judgment of all of Plaintiff’s claims, including the RESPA

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and TILA claims discussed in this Order. In its ruling, the Court found that Plaintiff had

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adequately supported his claimed pecuniary damages resulting from the alleged RESPA violation,

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in the form of the attorney’s fees incurred in sending two follow-up letters regarding the original

United States District Court
For the Northern District of California

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Qualified Written Request (QWR). CHL did not move for reconsideration of the Court’s Order on

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that ground. However, in its trial brief, CHL argues that the damages identified by the Court in the

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summary judgment Order are actually not available as RESPA damages because those expenses

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were incurred before any RESPA violation occurred.
In the summary judgment Order, the Court granted summary judgment of Plaintiff’s TILA

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claim for damages on the basis that it was time-barred. Plaintiff then sought clarification as to

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whether his time-barred TILA claim may serve as the basis for a UCL claim. CHL opposed

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Plaintiff’s motion. The Court concluded that a time-barred TILA claim may in fact serve as the

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basis for a UCL claim. In so holding, the Court addressed CHL’s argument (raised in its summary

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judgment motion) that Plaintiff had no evidence to support holding CHL viable for any TILA

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violation because the TILA Disclosure itself contains no inaccuracies when compared to the Note.

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The Court held that “an assignee may be held liable for a TILA violation when the TILA violation

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is ‘apparent on the face of the disclosure,’ meaning that it ‘can be determined to be incomplete or

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inaccurate by a comparison among the disclosure statement, any itemization of the amount

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financed, the note, or any other disclosure of disbursement.’” 15 U.S.C. § 1641(e)(2). The Court

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found that because Plaintiff had introduced evidence of some inconsistent disclosures, he had

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adequately demonstrated a material dispute such that his TILA claim survived summary judgment.

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The Court has set forth the factual background of Plaintiff’s claims in its April 11, 2011 Order,
assumes familiarity with those facts, and does not repeat them here.
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Case No.: 10-CV-02415-LHK
ORDER RESOLVING LEGAL ISSUES RAISED IN DEFENDANT’S TRIAL BRIEF

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In its trial brief, CHL renews the argument that an assignee cannot be liable for a TILA violation

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committed by the loan originator unless that violation is “apparent on the face of the disclosure

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statement.” Now, however, CHL has devoted several pages of briefing and provided numerous

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citations in support of this argument, whereas in its summary judgment motion this argument was

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limited to two paragraphs with no case citations.

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In its ruling on CHL’s summary judgment motion, the Court also found that Plaintiff had

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not adequately presented evidence to support a causal relationship between his claimed emotional

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distress damages and the asserted RESPA violation. The Court’s granting of summary judgment of

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Plaintiff’s claim for emotional distress damages was based on Plaintiff’s failure to carry the burden

United States District Court
For the Northern District of California

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in light of CHL’s summary judgment motion, which demonstrated that Plaintiff had no evidence

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linking his claimed emotional distress damages to the alleged RESPA violation. Plaintiff moved

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for reconsideration of this issue. In his motion for reconsideration, Plaintiff cited evidence that was

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not cited in his opposition to CHL’s summary judgment motion (even though the evidence was

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available to Plaintiff when the opposition was filed). The Court noted that it is not a settled issue

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whether emotional distress damages are even available for RESPA violations, but that in any case,

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Plaintiff had waived his right to present the arguments and evidence included in his motion for

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reconsideration because he had not raised them in opposition to CHL’s summary judgment motion.

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April 11, 2011 Order at 2-3.

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II.

Analysis
a. Waiver of CHL’s Arguments

Plaintiff argues that CHL has waived the right to raise the issues it has raised in its trial

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brief because it failed to make these arguments (or to cite the authority it now cites in support of

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them) in its motion for summary judgment. In support of this waiver argument, Plaintiff cites a

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case the Court cited in its Order denying Plaintiff’s motion for reconsideration, finding that

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Plaintiff waived his arguments regarding emotional distress damages because he failed to make

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those arguments in opposing CHL’s motion for summary judgment. “A motion for reconsideration

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‘may not be used to raise arguments or present evidence for the first time when they could

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reasonably have been raised earlier in the litigation.’” Marlyn Nutraceuticals, Inc. v. Mucos

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Pharma GmbH & Co., 571 F.3d 873, 880 (9th Cir. 2009).

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Plaintiff misunderstands the burden-shifting nature of a summary judgment motion. CHL

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moved for summary judgment of Plaintiff’s RESPA claim, and demonstrated that Plaintiff had no

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evidence to show a causal connection between the claimed emotional distress damages and the

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alleged RESPA violation. As a result, in opposing CHL’s summary judgment motion, Plaintiff

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carried the burden to introduce evidence showing that there was a material dispute of fact on this

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point. As recited in the Court’s Order on summary judgment, “[o]nce the moving party has

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satisfied its initial burden of production, the burden of proof shifts to the nonmovant to show that

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For the Northern District of California

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that there is a genuine issue of material fact. A party asserting that a fact is genuinely disputed

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must support that assertion by either citing to particular parts of materials in the record or by

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showing that the materials cited by the moving party do not establish the absence of a genuine

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dispute. Fed. R. Civ. P. 56(c).” April 11, 2011 Order at 6. Because Plaintiff failed to carry this

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burden in his opposition, the Court granted CHL’s summary judgment motion. As outlined in the

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Court’s Order denying reconsideration on this issue, pursuant to clear Ninth Circuit precedent,

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Plaintiff had waived the right to present those facts and argument because he failed to include them

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in his opposition brief.

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In contrast, the only burden CHL faced at the summary judgment phase was the burden of

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persuading the Court that it was appropriate to grant summary judgment in its favor. This is

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because Plaintiff did not move for summary judgment, so CHL did not face any burden of having

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claims summarily adjudicated against it. CHL’s summary judgment motion succeeded in some

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respects and failed in others. The fact that CHL failed to raise certain authority or arguments at the

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summary judgment phase, and therefore lost certain aspects of its summary judgment motion, does

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not bar CHL from making additional arguments in its trial brief. A trial brief “should address

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issues of law likely to arise during trial that are not already disposed of by motions in limine.”

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Robert E. Jones et al., Federal Civil Trials and Evidence 1:330 (2010). The Court shares Plaintiff’s

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frustration over CHL’s pattern of making assertions with little or no support, then seeking at a

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hearing or later pleading to raise case law CHL could have and should have previously raised.
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Case No.: 10-CV-02415-LHK
ORDER RESOLVING LEGAL ISSUES RAISED IN DEFENDANT’S TRIAL BRIEF

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Nonetheless, there is no basis to find that CHL waived its right to make these arguments by failing

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to do so earlier. There is no requirement that a party move for summary judgment at all. Plaintiff

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has introduced no authority requiring that a party make every possible legal and factual argument

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at summary judgment. In contrast, when a party faces a burden in opposing a motion for summary

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judgment, waiver can occur if the party fails to carry that burden by making argument or

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introducing evidence, loses summary judgment, and then moves for reconsideration on the basis of

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information it had access to when opposing the summary judgment motion.
Most importantly, however, sllowing the case to proceed to trial when it is legally

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impossible for the jury or the Court to find in favor of the Plaintiff is a waste of judicial resources.

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United States District Court
For the Northern District of California

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As discussed below, at least for Plaintiff’s RESPA claim, the Court believes it would be legal error

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for a jury to enter judgment in favor of Plaintiff.

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CHL did not submit these arguments in a request for renewed summary judgment or

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reconsideration. It submitted them in its trial brief, as legal issues for the Court to decide during or

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after trial. In its discretion, and because resolution of these purely legal issues could moot the need

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for a jury to be called in this case and/or limit the scope of the bench trial, the Court ordered that

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Plaintiff respond to these arguments and treats them as supplemental motions for summary

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judgment. Therefore, the Court resolves these issues below.

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b. Damages for Claimed RESPA Violation

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CHL timely moved for summary judgment of Plaintiff’s RESPA claim. Defendant’s

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motion to dismiss Plaintiff’s RESPA claim was based, in part, on its argument that Plaintiff had not

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sufficiently alleged that he sustained any damages “as a result of” the alleged RESPA violation.

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See Motion for Summary Judgment (SJ Mot.) at 10-13 (citing 12 U.S.C. § 2605(f)(1)(A)).

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Defendant argued that while Plaintiff alleged various damages, he had failed to show a causal

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connection between these alleged damages and the RESPA violation. The Court largely agreed

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that Plaintiff had failed to establish a causal connection between the claimed damages and the

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asserted RESPA violation. However, the Court held that Plaintiff “ha[d] sufficiently established a

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causal relationship between the claimed RESPA violation and the attorney’s fees Plaintiff incurred

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when his attorney sent follow-up correspondence to CHL after the initial QWR was sent. Had
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Case No.: 10-CV-02415-LHK
ORDER RESOLVING LEGAL ISSUES RAISED IN DEFENDANT’S TRIAL BRIEF

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CHL properly responded in the first instance, Plaintiff would not have incurred those additional

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fees, as no follow-up would have been required.” April 11, 2011 Order at 9-10.

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In its trial brief, CHL argues that based on the timing of Plaintiff’s follow-up letters, the

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attorney’s fees associated with sending them are not proper RESPA damages. Trial Brief at 4.

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This is because the letters were sent before CHL’s substantive response to Plaintiff’s initial QWR

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was due, and hence before RESPA was allegedly violated. Id. It is undisputed that the initial

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QWR was sent on September 20, 2007 and that CHL properly acknowledged receipt of it on

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October 3, 2007 (within 20 business days, as required by 12 U.S.C. § 2605(e)(1)(A)). Plaintiff

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alleges that CHL violated RESPA when it failed to provide a substantive response to the QWR.

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For the Northern District of California

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RESPA states that such a response must be provided within “60 days (excluding legal public

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holidays, Saturdays, and Sundays).” Sixty business days from September 20, 2007 is December

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18, 2007. However, the follow-up correspondence was sent on October 30, 2007 and November

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21, 2007. Therefore, CHL argues that the costs of sending the follow-up letters were not incurred

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“as a result of” any RESPA violation because no RESPA violation had yet occurred when the

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follow-up letters were sent.

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In support of its argument, CHL cites cases holding that a plaintiff must make a showing of

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pecuniary damages in order to state a claim for a RESPA violation. Allen v. United Fin. Mortg.

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Corp., 660 F.Supp.2d 1089, 1097 (N.D. Cal. 2009). In analyzing Plaintiff’s claimed RESPA

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damages, this Court previously relied on a later, consistent order in the Allen case, and on other

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cases holding that “filing suit generally does not suffice as a harm warranting actual [RESPA]

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damages” because, if it did, “every RESPA suit would have a built-in claim for damages.” Lal v.

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American Home Servicing, Inc., 680 F. Supp. 2d 1218, 1223 (E.D. Cal. 2010). By the same

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principle, the Court finds that due to the timing of Plaintiff’s follow-up letters, its initial conclusion

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that the expense of sending these letters was incurred “as a result of” a RESPA violation was

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incorrect. Plaintiff could not have incurred the costs of sending follow-up letters as a result of the

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alleged RESPA violation, because the alleged RESPA violation had not occurred when the letters

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were sent.

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Case No.: 10-CV-02415-LHK
ORDER RESOLVING LEGAL ISSUES RAISED IN DEFENDANT’S TRIAL BRIEF

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In opposing this motion, Plaintiff cites some district court decisions holding that the costs

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of sending a QWR and follow-up correspondence may be claimed as actual damages resulting from

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a RESPA violation. See, e.g., Rawlings v. Dovenmuehle Mortg., Inc., 64 F.Supp.2d 1156, 1164

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(M.D. Ala. 1999) (finding secretarial expenses and costs of travel to obtain “certified

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correspondence” to be actual damages under RESPA). However, automatically counting the cost

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of sending a QWR (or any follow-up correspondence) as RESPA damages would, as the court held

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in Lal, create a “built-in claim for damages” in every RESPA claim. The Court finds that such a

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holding would be inconsistent with the reasoning expressed in Lal and in this Court’s prior

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Summary Judgment Order. The Court’s previous ruling that Plaintiff had adequately stated a claim

United States District Court
For the Northern District of California

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for damages was based on the incorrect understanding that Plaintiff had sent the follow-up letters

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after CHL had failed to respond to the QWR and allegedly violated RESPA.

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Accordingly, the Court revises its previous summary judgment Order to find that Plaintiff

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cannot claim the costs associated with the follow-up letters as actual damages resulting from the

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alleged RESPA violation. Plaintiff has failed to allege a causal connection between the alleged

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RESPA violation and any pecuniary damages. Therefore, the Court grants summary judgment of

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Plaintiff’s RESPA claim in favor of CHL.

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c.

TILA Claim

In its trial brief, CHL argues that Plaintiff’s TILA claim is legally deficient because the

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asserted TILA violation was not apparent on the face of the TILA Disclosure Statement. The

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Court previously held that “an assignee may be held liable for a TILA violation when the TILA

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violation is ‘apparent on the face of the disclosure,’ meaning that it ‘can be determined to be

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incomplete or inaccurate by a comparison among the disclosure statement, any itemization of the

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amount financed, the note, or any other disclosure of disbursement.’” 15 U.S.C. § 1641(e)(2). See

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Pretrial Order of May 4, 2011 at 4. The Court held that Plaintiff had identified at least one

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inconsistent disclosure potentially giving rise to TILA liability —the Balloon Payment Disclosure,

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which states that Plaintiff’s loan “provides for 359 monthly payments of principal and interest in

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the amount of $711.54.” This disclosure appears to conflict with the terms of the Note and the

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other disclosure documents, which state that the $711.54 payments will cover principal and interest
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ORDER RESOLVING LEGAL ISSUES RAISED IN DEFENDANT’S TRIAL BRIEF

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only for a few months, after which the interest rate “may” rise. The Court also noted that multiple

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courts had found that TILA “prohibits conflicting or inconsistent disclosures, including situations

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in which the inconsistency arises from statements in multiple documents.” Pretrial Order of May

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4, 2011 at 4 (citing Romero v. Countrywide Bank, N.A., 740 F. Supp. 2d 1129, 1137 (N.D. Cal.

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2010). Accordingly, the Court found that Plaintiff’s TILA claim survived summary judgment.

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CHL now argues that the Court should only consider whether the TILA Disclosure

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Statement itself was inaccurate in light of the Note or another TILA-mandated disclosure. CHL

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argues that an inconsistency between the TILA Disclosure Statement and documents other than

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those listed above is irrelevant and cannot give rise to a TILA violation. CHL has not cited (and

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For the Northern District of California

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the Court is not aware of) any authority directly answering the question presented, namely, whether

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TILA disclosures which are consistent with the terms of the Note may still give rise to TILA

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liability when they are inconsistent with other (non-TILA-mandated) disclosures. However, the

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Court finds that the language of the statute is the best guide to answering this question. TILA itself

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states that an assignee may be liable for a TILA violation if it is “apparent on the face of the

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disclosure,” meaning that “the disclosure can be determined to be incomplete or inaccurate by a

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comparison among the disclosure statement, any itemization of the amount financed, the note, or

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any other disclosure of disbursement.’” 15 U.S.C. § 1641(e)(2) (emphasis added). Although

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Plaintiff alleges that the TILA Disclosure Statement itself was inaccurate, this is based on his

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unsuccessful argument that terms other than the terms appearing in the Note should apply to the

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Note. As discussed in previous orders, this Court (and the Superior Court pre-removal to federal

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court) have rejected this argument at least three times.

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TILA requires that lenders provide certain disclosures to borrowers reflecting the terms of

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the legal obligation between the parties. The Staff Commentary to TILA’s implementing statute,

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Regulation Z, states that “[t]he disclosures shall reflect the credit terms to which the parties are

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legally bound as of the outset of the transaction . . . The legal obligation normally is presumed to be

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contained in the note or contract that evidences the agreement . . . If the parties informally agree to

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a modification of the legal obligation, the modification should not be reflected in the disclosures

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unless it rises to the level of a change in the terms of the legal obligation.” 12 C.F.R. Pt. 226,
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ORDER RESOLVING LEGAL ISSUES RAISED IN DEFENDANT’S TRIAL BRIEF

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Supp. I, ¶17(c)(1). In light of this, the Court believes that CHL is correct in arguing that unless

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Plaintiff can show that there is an inaccuracy or omission in the TILA Disclosure Statement itself,

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Plaintiff cannot make out a claim for violation of TILA.

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Plaintiff filed two responses to CHL’s TILA argument. The first response is largely

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unhelpful. In it, Plaintiff cites a number of cases in which courts have denied summary judgment

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to defendants when plaintiffs have come forward with evidence of discrepancies between TILA-

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mandated disclosures and the operative contract (including a note or mortgage, but not including an

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additional disclosure such as the Balloon Payment Disclosure). See, e.g., In re Washington, Nos.

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06-CV-1625, 04-30492, 05-00021, 2007 WL 846658, at *6 (E.D. Pa., March 19, 2007) (reversing

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For the Northern District of California

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summary judgment of TILA claim where plaintiff identified a discrepancy between TILA-

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mandated disclosure and mortgage, which had been incorporated into the note); Brown v.

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Mortgagestar, 194 F.Supp.2d 473, 477 (S.D. W.Va. 2002) (denying motion to dismiss TILA claim

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where plaintiff identified discrepancies between TILA disclosure, deed of trust, and note). These

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cases support the Court’s conclusion that unless the Plaintiff can introduce evidence of an

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inconsistency between the TILA disclosure and the Note, he cannot show a TILA violation. None

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of Plaintiff’s cited cases find a TILA violation based on a TILA-mandated disclosure that

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accurately reflects the parties’ contract but fails to reflect an additional, inconsistent, non-TILA-

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mandated disclosure.

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In the second response, Plaintiff argues (without citing any authority) that CHL’s argument

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that the TILA Disclosure Statement is the sole TILA disclosure is a “false major premise,” and that

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instead, “all the disclosures are subject to TILA.” In light of the fact that all of the case authority

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cited by both parties thus far has analyzed only TILA Disclosures or TILA Disclosure Statements

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and the legal obligations they are meant to summarize, and especially in light of the statutory

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language stating that an assignee cannot be liable unless a TILA violation is clear on the face of

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“the disclosure statement,” the Plaintiff will have to provide some authority for this argument

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before the Court can adopt it. In addition, Plaintiff suggests that the TILA Disclosure Statement

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may have inaccuracies or omissions vis-a-vis the Note (rather than the Balloon Payment

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Disclosure). Plaintiff asks, “is it clear and conspicuous that the listed payments are for Principal
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and Interest? Minimum Payments? Interest Only? 15 or 30-year amortization? No.” Plaintiff

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does not identify what provisions in TILA require the disclosures he complains about or what

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provisions of the Note the disclosures omit or inaccurately reflect. Plaintiff will have to do much

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more than this to prove his TILA claim at trial. It is likely that this issue could have been resolved

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through summary judgment if both parties had more diligently pursued this case. As it stands, the

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Court will not grant summary judgment to CHL on Plaintiff’s TILA claim as it appears there is a

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genuine dispute as to whether the TILA Disclosure Statement accurately reflects the terms of the

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Note.

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III.

Conclusion

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For the Northern District of California

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CHL’s motion for summary judgment of Plaintiff’s RESPA claim is GRANTED, because

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Plaintiff cannot claim any pecuniary damages as a result of the alleged RESPA violation. CHL’s

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motion for summary judgment of Plaintiff’s time-barred TILA claim is denied. Therefore, it

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appears that the only issue remaining for trial is Plaintiff’s UCL claim based on the time-barred

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TILA claim and based on alleged unfair practices by CHL. Because the UCL claim is not for a

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jury to decide (as discussed in previous orders), this claim will be tried to the Court.

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IT IS SO ORDERED.

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Dated: June 2, 2011

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_________________________________
LUCY H. KOH
United States District Judge

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