Federal Deposit Insurance Corporation v. Levitt et al
Filing
15
ORDER denying Defendant's 7 Motion to Dismiss, granting without prejudice 7 Motion to Strike Prayer for Attorney's Fess and Costs and denying 7 Motion for More Definite Statement. FDIC is granted 10 days leave to amend from the date of entry of this Order. Signed by Judge Jeffrey T. Miller on 10/3/2011. (jah). Modified on 10/3/2011 - Confirmed ruling re More Definite Statement w/ Chambers(jah).
1
2
3
4
5
6
7
8
UNITED STATES DISTRICT COURT
9
SOUTHERN DISTRICT OF CALIFORNIA
10
11
12
FEDERAL DEPOSIT INSURANCE
CORPORATION as Receiver for INDYMAC
BANK F.S.B.,
CASE NO. 11cv1284 JM(BLM)
ORDER DENYING MOTION TO
DISMISS; GRANTING MOTION TO
STRIKE; GRANTING LEAVE TO
AMEND
Plaintiff,
13
vs.
14
15
GERALD LEVITT, dba GERALD LEVITT
APPRAISAL,
16
Defendant.
17
18
Defendant Gerald Levitt (“Levitt”), dba Gerald Levitt Appraisal, moves to
19
dismiss the claims alleged by Plaintiff Federal Deposit Insurance Corporation
20
(“FDIC”), as receiver for IndyMac Bank, pursuant to Fed.R.Civ.P. 12(b)(6) and to
21
strike its claim for attorney’s fees and costs pursuant to Fed.R.Civ.P. 12(f). The FDIC
22
only opposes the motion to dismiss. Pursuant to Local Rule 7.1(d)(1), this matter is
23
appropriate for decision without oral argument. For the reasons set forth below, the
24
court denies the motion to dismiss, grants the motion to strike the prayer for attorney’s
25
fees without prejudice, and grants 10 days leave to amend from the date of entry of this
26
order.
27
28
BACKGROUND
On June 10, 2011 the FDIC, as receiver for IndyMac Bank, (Compl. ¶1), filed a
-1-
11cv1284
1
complaint against Levitt alleging six claims for relief: three for breach of contract and
2
three for negligent misrepresentation. The complaint also requests an award of
3
attorney’s fees and costs. In broad brush, FDIC alleges that Levitt negligently
4
misrepresented and breached its contractual duties by preparing property appraisals
5
containing numerous material misrepresentations, including gross over-evaluation of
6
the properties at issue, which resulted in damages to the FDIC.
7
In 2007, the FDIC alleges that Levitt entered into agreements with three separate
8
mortgage brokers - - Diamond Valley Funding, Southern Fidelity Mortgage, LLC, and
9
Western Thrift and Loan - - to prepare appraisals for real properties located in San
10
Marcos, El Cajon, and San Diego, California. (Compl. ¶¶8, 18, 28). With respect to
11
each appraisal, Levitt agreed and represented that:
The lender/client may disclose or distribute this appraisal report to:
. . . another lender at the request of the borrower, the mortgagee or its
successors and assigns, mortgage insurers, government sponsored
enterprises, and other secondary market participants . . . without having to
get the appraiser’s consent. . .
12
13
14
The borrower, another lender at the request of the borrower, the
mortgagee or its successors and assigns, mortgage insurers, government
sponsored enterprises, and other secondary market participants may rely
on this appraisal report as part of any mortgage finance transaction that
involves one or more of these parties.
15
16
17
Any intentional or negligent misrepresentation(s) contained in this
appraisal report may result in civil liability. . . .
18
19
(Compl. ¶¶12, 22, 32).
20
21
22
23
24
25
26
FDIC alleges that Levitt breached the appraisal contract by, among other things,
(1) misrepresenting the value of the properties; (2) using improper and negligently
selected comparable sales; and (3) did not comply with the Uniform Standards of
Professional Appraisal Practice (“USPAP”). (Compl. ¶14, 24, 34). FDIC alleges it
suffered damages on the San Marcos, El Cajon, and San Diego properties in the
amounts of $376,458, $362,588, and $355,006, respectively. FDIC also seeks interest,
costs and attorney’s fees.
27
28
Levitt now moves to dismiss both claims and to strike the prayer for attorney’s
fees.
-2-
11cv1284
DISCUSSION
1
2
Legal Standards
3
Federal Rule of Civil Procedure 12(b)(6) dismissal is proper only in
4
"extraordinary" cases. United States v. Redwood City, 640 F.2d 963, 966 (9th Cir.
5
1981). Courts should grant 12(b)(6) relief only where a plaintiff's complaint lacks a
6
"cognizable legal theory" or sufficient facts to support a cognizable legal theory.
7
Balistreri v. Pacifica Police Dept., 901 F.2d 696, 699 (9th Cir. 1990). Courts should
8
dismiss a complaint for failure to state a claim when the factual allegations are
9
insufficient “to raise a right to relief above the speculative level.” Bell Atlantic Corp
10
v. Twombly, 550 U.S. 544, 555 (2007) (the complaint’s allegations must “plausibly
11
suggest[]” that the pleader is entitled to relief); Ashcroft v. Iqbal, 129 S.Ct. 1937 (2009)
12
(under Rule 8(a), well-pleaded facts must do more than permit the court to infer the
13
mere possibility of misconduct). “The plausibility standard is not akin to a ‘probability
14
requirement,’ but it asks for more than a sheer possibility that a defendant has acted
15
unlawfully.” Id. at 1949. Thus, “threadbare recitals of the elements of a cause of
16
action, supported by mere conclusory statements, do not suffice.” Id. The defect must
17
appear on the face of the complaint itself. Thus, courts may not consider extraneous
18
material in testing its legal adequacy. Levine v. Diamanthuset, Inc., 950 F.2d 1478,
19
1482 (9th Cir. 1991). The courts may, however, consider material properly submitted
20
as part of the complaint. Hal Roach Studios, Inc. v. Richard Feiner and Co., 896 F.2d
21
1542, 1555 n.19 (9th Cir. 1989).
22
Finally, courts must construe the complaint in the light most favorable to the
23
plaintiff. Concha v. London, 62 F.3d 1493, 1500 (9th Cir. 1995), cert. dismissed, 116
24
S. Ct. 1710 (1996). Accordingly, courts must accept as true all material allegations in
25
the complaint, as well as reasonable inferences to be drawn from them. Holden v.
26
Hagopian, 978 F.2d 1115, 1118 (9th Cir. 1992). However, conclusory allegations of
27
law and unwarranted inferences are insufficient to defeat a Rule 12(b)(6) motion. In
28
Re Syntex Corp. Sec. Litig., 95 F.3d 922, 926 (9th Cir. 1996).
-3-
11cv1284
1
The Breach of Contract Claim
2
Levitt argues that the complaint fails to identify any contract between him and
3
the three mortgage brokers. As a consequence, Levitt concludes that FDIC fails to state
4
a claim for breach of contract or that FDIC is a third party beneficiary of the contract.
5
To establish a breach of contract, FDIC must show (1) the existence of a contract,
6
(2) plaintiff’s performance under the contract, (3) defendant’s material breach of the
7
contract, and (4) damages arising from the breach. See Smith v. Royal Mfg. Co., 185
8
Cal.App.2d 315, 328 (1960); Roth v. Malson, 67 Cal.App.4th 552, 557 (1998). Here,
9
the complaint alleges that (1) Levitt contracted with the mortgage brokers to prepare
10
appraisals for the properties, (Compl. ¶¶ 8, 9, 18, 19, 28, 29); (2) the mortgage brokers
11
complied with their obligations under the contract, (Compl. ¶¶15,25, 35), by, among
12
other things, providing “valuable consideration” in exchange for the appraisals, (Compl.
13
¶¶8, 18, 28); (3) Levitt did not comply with the obligations and representations
14
contained in the appraisals and the USPAP, (Compl. ¶¶14, 24, 34); and (4) IndyMac
15
suffered consequential damages. (Compl. ¶¶26, 36, 46).
16
The court notes that the complaint generally alleges that the mortgage brokers
17
contracted with Levitt to conduct the property appraisals. While no particularized
18
written or oral contract is alleged in the complaint, FDIC alleges the approximate date
19
of the agreement (i.e. the date whereby the mortgage brokers requested, ordered, or
20
otherwise contracted for an appraisal with Levitt). (Compl. ¶18, 28, 38). While these
21
allegations are not specific, the allegations provide Levitt (in combination with his
22
unique knowledge of the underlying transactions) with sufficient notice such that he is
23
able to conduct discovery and to adequately respond to the complaint.
24
The court also finds that the complaint sufficiently alleges that FDIC is an alleged
25
third party beneficiary of the agreements between Levitt and the mortgage brokers.
26
“For a third party to qualify as a beneficiary under a contract, the contracting parties
27
must have intended to benefit that third party, and their intent must appear from the
28
terms of the contract.” Kirst v. Silna, 103 Cal.App.3d 759, 763 (1980) (citing
-4-
11cv1284
1
Cal.Civ.Code § 1559). The contracted for appraisals expressly provide, as set forth in
2
paragraph 23 of the certificates allegedly attached to the appraisals:
5
The borrower, another lender at the request of the borrower, the
mortgagee or its successors and assigns, mortgage insurers, government
sponsored enterprises, and other secondary market participants may rely
on this appraisal report as part of any mortgage finance transaction that
involves one or more of these parties.
6
(Compl. ¶¶ 12, 13, 22, 23, 32, 33). This provision expressly provides that mortgagees
7
may rely upon and benefit from the appraisals. Accordingly, the court concludes that
8
this provision permits FDIC to enforce the provisions and to prosecute the action in its
9
own name. See Restatement 2nd of Torts §552.
3
4
10
11
In sum, the motion to dismiss the breach of contract claims is denied.
The Negligent Misrepresentation Claim
12
For the tort of negligent misrepresentation, the California Supreme Court has
13
adopted the test articulated in the Restatement Second of Torts. See Bily v. Arthur
14
Young & Co., 3 Cal. 4th 370, 414 (1992). Under the Restatement rule, a person who
15
negligently supplies false information is liable for a loss suffered “(a) by the person or
16
one of a limited group of persons for whose benefit and guidance he [or she] intends to
17
supply the information or knows that the recipient intends to supply it; and (b) through
18
reliance upon it in a transaction that he [or she] intends the information to influence or
19
knows that the recipient so intends or in a substantially similar transaction.” Rest.2d
20
Torts (1977) § 552, subd. (2); Glenn K. Jackson Inc. R. Roe, 273 F.3d 1192 1200 (9th
21
Cir. 2001). Stated another way, the elements of negligent misrepresentation include:
22
(1) misrepresentation of a past or existing material fact, (2) without reasonable ground
23
for believing it to be true, (3) with intent to induce another's reliance on the
24
misrepresentation, (4) ignorance of the truth and justifiable reliance on the
25
misrepresentation by the party to whom it was directed, and (5) resulting damage. Fox
26
v. Pollack, 181 Cal.App.3d 954, 962 (1986). A misrepresentation claim must comply
27
with the particularity requirements of Fed.R.Civ.P. 9(b). Kearns v. Ford Motor Co.,
28
567 F.3d 11210, 1127 (9th Cir. 2009).
-5-
11cv1284
1
Here, the complaint alleges that Levitt prepared the three appraisals at issue; the
2
dates the appraisals were prepared; the appraisals materially over-represented the value
3
of the properties; the appraisals used improper and negligently selected comparable
4
sales for comparisons; the appraisals did not comply with USPAP; the appraisals were
5
made in the course of Levitt’s business; IndyMac was an intended beneficiary of the
6
appraisals and used them in connection with mortgage finance transactions; IndyMac
7
justifiably relied on the appraisals in deciding to fund the loans; and IndyMac was
8
damaged as the appraisals significantly overvalued the properties. (Comp. ¶¶38-42, 44-
9
48, 50-54). Nothing more is required to state a claim for negligent misrepresentation.
10
In sum, the motion to dismiss the negligent misrepresentation claims is denied.
11
The Motion to Strike
12
Levitt moves to strike the prayer for attorney’s fees and costs because Plaintiff
13
fails to identify any statutory or contractual provision permitting such fees. See
14
Santisas v. Goodin, 17 Cal.4th 5999, 608 (1998). Plaintiff did not oppose the motion
15
to strike but requests leave to file an amended complaint. As leave to amend is to be
16
freely given, Fed.R.Civ.P. 15(a), the court grants the motion to amend.
17
18
19
20
In sum, the court denies the motion to dismiss, grants the motion to strike, and
grants FDIC 10 days leave to amend from the date of entry of this order.
IT IS SO ORDERED.
DATED: October 3 , 2011
21
22
23
24
Hon. Jeffrey T. Miller
United States District Judge
25
26
27
28
-6-
11cv1284
Disclaimer: Justia Dockets & Filings provides public litigation records from the federal appellate and district courts. These filings and docket sheets should not be considered findings of fact or liability, nor do they necessarily reflect the view of Justia.
Why Is My Information Online?