Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-3_04-cv-04854/USCOURTS-cand-3_04-cv-04854-4/pdf.json

Nature of Suit Code: 430
Nature of Suit: Banks and Banking
Cause of Action: 28:1331 Fed. Question

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United States District Court

For the Northern District of California

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UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF CALIFORNIA

SIMON LOWES and SHIRLEY LOWES,

Plaintiffs,

 v.

HILL & CO. REAL ESTATE, FIRST

REPUBLIC BANK, ROBERT CRONHOLM,

ROBERT McLEOD AND SIDDNEY McLEOD, 

Defendants. 

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No. 04-4854 SC

ORDER GRANTING

DEFENDANTS' MOTIONS

FOR SUMMARY JUDGMENT

I. INTRODUCTION

Plaintiffs Simon and Shirley Lowes ("Plaintiffs" or the

"Loweses") originally brought this action in the Superior Court

for the County of San Francisco against Hill & Co. Real Estate

("Hill & Co."), First Republic Bank ("First Republic" or the

"Bank"), Robert Cronholm ("Cronholm"), and Robert and Siddney

McLeod (the "McLeods"; collectively, "Defendants"), alleging that

Defendants' misrepresentation with respect to the appraised value

of real property located at 2415-2419 Divisadero St., San

Francisco, California ("Divisadero St. Property"), caused

Plaintiffs to overpay for the Divisadero St. Property when they

purchased the property in September 2003. Plaintiffs further

assert a cause of action for a violation of the Federal Equal

Credit Opportunity Act, 15 U.S.C. § 1691 et seq., against First

Republic only, and it is this claim that served as the basis for

First Republic's removal of the action to this Court on 

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November 15, 2004. Each Defendant has filed a motion for summary

judgment, and Plaintiffs have opposed the motions in a single

opposition. For the reasons set forth herein, Defendants' motions

are hereby GRANTED and Judgment is ENTERED in their favor. 

II. BACKGROUND

This action centers on the nature and substance of

representations made to purchasers of real property - the Loweses

- by various individuals involved in facilitating that purchase in

September 2003. 

After living abroad for 18 years, Plaintiffs returned to the

San Francisco Bay Area and sought to purchase a home. See

Plaintiffs' Memorandum in Support of Opposition to Defendants'

Motion for Summary Judgment at 4 ("Pls.' Mem."). After

determining which San Francisco neighborhoods might suit their

needs, Plaintiffs visited the Divisadero St. Property in late

August 2003. Id. At that time, the owners of the Divisadero St.

Property - the McLeods - had put the property up for sale at a

then-reduced asking price of $1.65 million. Id. In connection

with their attempt to sell the Divisadero St. Property, the

McLeods employed Cronholm as their realtor, who was affiliated

with Defendant Hill & Co. Real Estate. See Declaration of Robert

McLeod ¶ 2("McLeod Decl."). 

While the McLeods were trying to sell the Divisadero St.

Property, they were simultaneously involved in the purchase of

another property, located on Lombard St. in San Francisco

("Lombard St. Property"). Id. ¶¶ 9-10. In connection with the

purchase of the Lombard St. Property, the McLeods applied for a

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"bridge loan" from First Republic, which was secured by the

Divisadero St. Property, even though that property was for sale at

that time. Id. ¶ 10, Exhibit A & B ("Ex."). In completing the

loan application for First Republic, the McLeods estimated, in May

2003, that the Divisadero St. Property was worth $1.75 million. 

Id. Ex. A. After receiving the McLeods' application, Stefani

Phipps, the loan officer at First Republic responsible for

handling the McLeods' application, prepared a typed version of the

original application and returned it to the McLeods for their

signatures. Id. Ex. B. While the vast majority of information

originally supplied by the McLeods was transcribed verbatim onto

the typewritten loan application, Ms. Phipps did revise downward -

to $1.6 million - the estimated value of the Divisadero St.

Property. Id. 

The McLeods were accompanied by Cronholm at the closing of

the Lombard St. Property. Id. ¶ 15; Deposition of Robert Cronholm

at 39:4-17 ("Cronholm Depo."). During the course of signing the

loan documents, Mr. McLeod arrived at a section of the document

package that evidently contained private financial information,

and at that point he asked Cronholm to refrain from looking on as

Mr. McLeod continued reviewing and signing the documents. Id. It

was at that point that Mr. McLeod noticed that First Republic had

valued the Divisadero St. Property at $1.6 million, a fact that he

apparently orally related to Cronholm. See id. at 39:4-17; McLeod

Decl. ¶ 15. That valuation evidently comported with Cronholm's

own independent understanding of the value of the property, as

Cronholm asserts that prior to listing the property in May 2003 he

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undertook his own evaluation of the Divisadero St. Property's

value by examining the price per square foot recently paid for

residences in Pacific Heights as well as in the Cow Hollow and

Marina neighborhoods of San Francisco. See Cronholm Decl. ¶¶ 7-

10. According to Cronholm, those analyses yielded estimates for

the value of the Divisadero St. Property between $1.293 million

and $2.473 million, depending on the neighborhood. Id. Finally,

Cronholm also asserts that he solicited opinions from colleagues

with respect to the value of the Divisadero St. Property and

received in return estimates ranging from $1.55 million to $1.995

million. Id. ¶ 11. Plaintiffs do not contest either the fact of

these analyses or their purported results. 

However, the official appraisal that had been commissioned by

First Republic in connection with the bridge loan did not affix a

value of $1.6 million to the Divisadero St. Property. Rather, on

May 13, 2003, the firm of Churton & Associates submitted an

official appraisal on the Divisadero St. Property that estimated

the value of the property at $1.45 million. See Declaration of

Stefani Phipps, Ex. A ("Phipps Decl."). That appraisal had been

commissioned by Ms. Phipps in connection with the McLeods'

application for the bridge loan, and represented a sufficiently

high value to satisfy First Republic's internal underwriting

guidelines for the loan sought by the McLeods. Id. ¶6. No other

official appraisal was carried out in connection with either the

McLeods' bridge loan or Plaintiffs' loan from First Republic. 

When Mrs. Lowes came to visit the Divisadero St. Property in

late August 2003, she encountered Cronholm and inquired as to the

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price range at which the McLeods might be willing to sell their

property. At that point, the asking price for the Divisadero St.

Property was listed at $1.65 million. See McLeod Decl. Ex. C.

During the course of the initial meeting between Cronholm and Mrs.

Lowes, and in the context of responding to Mrs. Lowes's inquiry

into what price the sellers might ultimately accept, Cronholm

noted that the Divisadero St. Property had recently been appraised

at $1.6 million. See Deposition of Simon Lowes at 23:6-9 ("Simon

Lowes Depo."); Pls.' Mem. at 4; Declaration of Shirley Lowes ¶ 3

("Shirley Lowes Decl.").

Negotiations between the Loweses and the McLeods began soon

thereafter, and the parties eventually settled on a purchase price

of $1.575 million. See Pls.' Mem. at 5. During the entire

transaction, Plaintiffs were represented by a licensed real estate

agent, Mary Toboni ("Toboni"), and her assistant, Wendy Soderborg

("Soderborg"), who were in communication with Cronholm regarding

the status of the negotiations. See Declaration of Mary Toboni ¶

6; ("Toboni Decl."); Declaration of Wendy Soderborg ¶ 4

("Soderborg Decl."). During one of these conversations, Cronholm

evidently noted to Ms. Toboni that the McLeods were unwilling to

sell the Divisadero St. Property for less than $1.6 million,

because that was the property's appraised value. See Cronholm

Depo. at 54:2-10, 55:2-55:18.

As the negotiations between the Loweses and McLeods were

proceeding, Plaintiffs sought to secure a loan from First

Republic. Their inquiries in this respect were directed to Ms.

Phipps, who worked with Plaintiffs to obtain approval for a loan

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in the amount of approximately $800,000.00. See Phipps Decl. ¶¶

10-13. Although Ms. Phipps and Mr. Lowes have differing

recollections as to who first suggested that the official Churton

& Associates appraisal be used in connection with the Loweses'

loan application, compare id. ¶ 13 with Simon Lowes Decl. ¶ 5, the

parties generally agree that First Republic saw no problem with

using the appraisal that had been commissioned in May 2003 in

connection with the McLeods' bridge loan. Id. 

This arrangement was satisfactory to First Republic because

the official appraised value of the Divisadero St. Property -

$1.45 million - was "more than ample for the loan amount," and was

convenient for Plaintiffs in that they saved the cost of

commissioning a new appraisal, approximately $700.00. See Phipps

Decl. ¶ 13; Simon Lowes Decl. ¶ 5. Plaintiffs do not assert that

Ms. Phipps or any other agent or representative of First Republic

ever informed them directly that the amount of the appraisal was

$1.6 million. Rather, the only representation from First Republic

to Plaintiffs or their agents allegedly communicating that the

official appraisal on the Divisadero St. Property had come in at

$1.6 million was from Ms. Phipps to Ms. Soderborg in a

conversation that apparently took place on September 22, 2003. 

See Deposition of Wendy Soderborg at 50:8-9 ("Soderborg Depo.");

Toboni Decl. ¶ 9. However, Ms. Phipps maintains that she was

never asked by Plaintiffs or their representatives about the

actual value of the appraisal, see Phipps Decl. ¶¶ 13, 22, 24, and

Ms. Soderborg does not recall whether she relayed the alleged $1.6

million appraisal figure to Ms. Toboni after her conversation. 

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See Soderborg Depo. at 89:10-18. Furthermore, Ms. Soderborg did

not inform Plaintiffs about the appraisal value allegedly

communicated to her in her conversation with Ms. Phipps until

after the close of escrow in November 2003. Id. at 50:17-51:3. 

Plaintiffs did ask First Republic for a copy of the official

appraisal prior to the close of the transaction, and Ms. Phipps

maintains that a copy was included in the package of documents

forwarded to the title company for execution at the closing. See

Phipps Depo. 42:9-25. However, after the parties realized that

the entity designated as the intended title holder of the

Divisadero St. Property - the Lowes family trust - could not hold

title without execution of the documents by both Mr. and Mrs.

Lowes, an occurence that was not possible at the time due to Mr.

Lowes's travel schedule, the closing documents were returned to

First Republic for appropriate changes. Ms. Phipps asserts that

she is not aware that the title company returned the appraisal to

Frist Republic along with the other documents and is not aware of

any reason the title company did not maintain a copy of the

appraisal in their files. See Phipps Decl. ¶¶ 17-18. In any

event, when the time came for Mrs. Lowes to execute the revised

closing documents, the appraisal was not included in the document

package. Whether this was due to an error on the part of First

Republic or the title company is unknown. While the absence of

the appraisal was of concern to Mrs. Lowes, she was evidently

convinced by Ms. Toboni and Ms. Soderborg to continue signing the

closing documents. Mrs. Lowes also asserts that the consistent

assumptions by all involved in the transaction that the official

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1 Plaintiffs originally asserted that they had suffered

compensable mental anguish and suffering, but have since dropped

that basis for relief. 

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appraisal was for $1.6 million helped convince her that she should

continue with the closing despite the fact that neither she nor

her husband had seen the appraisal. See Shirley Lowes Depo. at

40:10-41:8. 

Several weeks after the closing, Plaintiffs received a copy

of the official appraisal listing the Divisadero St. Property at a

value of $1.45 million. Plainitffs assert that, had they known

the actual amount of the official appraisal, they would not have

agreed to a sale price of $1.575 million, and that they have 

consequently suffered damages in the amount of $125,000.00.1

 

The discovery cutoff has since passed and the matter is

scheduled to go to trial beginning March 10, 2006. 

III. LEGAL STANDARD

Summary judgment is appropriate only "if the pleadings,

depositions, answers to interrogatories, and admissions on file,

together with the affidavits, if any, show that there is no

genuine issue as to any material fact." Celotex Corp. v. Catrett,

477 U.S. 317, 322 (1986). A genuine issue of fact exists when the

non-moving party produces evidence on which a reasonable trier of

fact could find in its favor viewing the record as a whole in

light of the evidentiary burden the law places on that party. 

Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 252-56 (1986). 

However, the adverse party may not rest upon the mere

allegations or denials of his or her pleadings, and rather must

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2

 The Court notes, however, that the result reached would not

be different even if Plaintiffs pursued their claim under a theory

of intentional misrepresentation, because that cause of action

requires proof that the defendant made a representation that he or

she knew to be untrue, whereas claims for negligent

misrepresentation require only that the plaintiff prove that the

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present admissible evidence showing there is a genuine issue for

trial. See Brinson v. Linda Rose Joint Venture, 53 F.3d 1044,

1049 (9th Cir. 1995). Summary judgment is therefore appropriate

against a party "who fails to make a showing sufficient to

establish the existence of an element essential to the party's

case, and on which that party will bear the burden of proof at

trial." Celotex 477 U.S. at 322-23. The more implausible the

claim or defense asserted by the opposing party, the more

persuasive its evidence must be to avoid summary judgment, see

Matsushita Electric Industrial Co. v. Zenith Radio Corp., 475 U.S.

574, 587 (1986), but "[t]he evidence of the non-moving party is to

be believed, and all justifiable inferences are to be drawn in its

favor." Anderson, 477 U.S. at 255.

IV. DISCUSSION

Plaintiffs have asserted a claim of misrepresentation against

all Defendants. Under California law, a cause of action for

misrepresentation can be of either the intentional or negligent

sort, however, both are considered types of deceit. See Cal.

Civil Code §§ 1709, 1710. Because the parties in this case have

largely cited authority concerning negligent misrepresentation,

and because all seem to assume that it is under this theory that

Plaintiffs proceed, the Court will analyze Plaintiffs' claim

against the elements of negligent misrepresentation.2 To prevail

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defendant's representation was made without any reasonable ground

for believing it to be true. See 6 Witkin Summary of California

Law, Torts §§ 767, 818 (10th Ed. 2005). 

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on a claim for negligent misrepresentation under California law, a

plaintiff must prove that (1) defendant made a representation as

to a past or existing material fact; (2) the representation was

untrue; (3) the defendant made the representation without any

reasonable ground for believing it to be true; (4) the

representation was made with the intent to induce plaintiff to

rely on it; (5) the plaintiff was unaware of the falsity of the

representation and justifiably acted in reliance on the truth of

the representation; (6) as a result of the plaintiff's reliance on

the truth of the representation, plaintiff suffered damages. See

6 Witkin Summary of California Law, Torts § 818 (10th Ed. 2005). 

Plaintiffs' second claim for violation of the Federal Equal Credit

Opportunity Act is asserted against First Republic only.

A. Plaintiffs' Claim Against Robert Cronholm

In support of his motion for summary judgment, Cronholm makes

three main arguments. First, Cronholm argues that Plaintiffs have

suffered no damages, because the fair market value of the property

received was commensurate with the price paid. See Defendant

Cronholm's Memorandum in Support of Motion for Summary Judgment at

9-11 ("Cronholm Mem."). Second, Cronholm contends that the claim

against him must fail because Plaintiffs cannot demonstrate that

he did not have a reasonable basis for making his representation

that the property had been appraised at $1.6 million. Id. at 12-

13. Finally, Cronholm argues that Plaintiffs cannot prove that

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their alleged reliance on Cronholm's representations was

reasonable because they were represented by a licensed realtor and

her assistant, and because the information regarding the value of

the Divisadero St. Property was equally available to both buyer

and seller. Id. at 14-15.

In response, Plaintiffs dispute the contention that the price

paid can be an acceptable measure of fair market value when the

transaction was marred by fraudulent conduct. See Pls.' Mem. at

20-21. Furthermore, Plaintiffs argue that Cronholm cannot

establish as a matter of law that his representations rested on a

reasonable, if erroneous, basis. Id. at 21-22. Finally,

Plaintiffs contend that the misrepresentation need not be the

predominant factor in inducing reliance, but rather is actionable

so long as it is a substantial factor. Id. at 23. 

The Court finds that Plaintiffs have failed to present any

evidence tending to establish the existence of a genuine issue of

material fact as to the question of whether Cronholm had a

reasonable basis for his representation. In their opposition to

Cronholm's motion for summary judgment, Plaintiffs' entire

argument on this point is as follows:

Cronholm cannot establish as a matter of law that his

representation innocent [sic]. Cronholm's factual basis that

he had a "reasonable basis" is suspect, and plaintiffs have

produced evidence to test such a contention. How could

Cronholm honestly believe that an appraisal determination,

being reviewed by Mr. McLeod, was privileged so that he could

not review. [sic] Mr. Cronholm had information from Ms.

Phipps, prior to the meeting where Mr. McLeod started the

misrepresentation, that she was altering the estimate of

value, and therefore Mr. Cronholm was on notice that the loan

documents were based on Ms. Phipps [sic] "questimate." [sic].

Pls.' Mem at 22. 

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Plaintiffs' argument on this point is flawed in several

respects. Perhaps most significantly, it misstates the burdens

imposed on the plaintiff and defendant by assuming that it is

Cronholm's burden to prove that his representation had a

reasonable basis. Rather, it is Plaintiffs' responsibility to

prove that Cronholm's representation had no reasonable basis as an

element of their case. See Byrum v. Brand, 219 Cal. App. 3d 926

(Cal. Ct. App. 1990); Cal. Jury. Instr. Civil §12.45 (BAJI).

Although Plaintiffs are the non-moving party and thus are entitled

to have all reasonable inferences drawn in their favor, they will

not be able to defeat Cronholm's motion by relying simply on bald

assertions containing legal conclusions that contradict Cronholm's

arguments. See Brinson, 53 F.3d at 1049. Rather, Plaintiffs at

this stage must provide evidence that demonstrates the existence

of a genuine issue of material fact. In this respect, Plaintiffs

have failed entirely. 

First, Plaintiffs appear to argue that Cronholm's stated

understanding that a section of the bridge loan documents

contained private information is either unreasonable or

disingenuous. See Pls.' Mem. at 22. Notably, however, Plaintiffs

do not refer the Court to any evidence that would support such a

contention. This stands in great contrast to the deposition

testimony of Mr. Cronholm that when Mr. McLeod came to a section

of the bridge loan documents containing personal financial

information, he asked Cronholm to avert his eyes. See Cronholm

Depo. at 39:7-17; see also McLeod Depo. at 9:5-16. It was only

then that Mr. McLeod mused out loud that the Divisadero St.

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Property had been valued at $1.6 million. See Cronholm Depo at

39:7-17; McLeod Depo. at 9:5-16. While the Court must refrain

from crediting the testimony at this stage, it is the province of

the Court to examine what evidence the parties have relied on in

support of their arguments, and where evidence of the moving party

is uncontroverted, summary judgment may be appropriate. See

Anderson, 477 U.S. at 250. 

Plaintiffs' other attempt to create a factual issue for trial

on this point also falls short. They assert, without reference to

the record, that Cronholm was on notice prior to the signing of

the bridge loan documents that Ms. Phipps would be revising

downward the value of the property. However, even if that is

true, it does nothing to create a genuine issue of fact as to

whether Cronholm had a reasonable basis to believe his client's

statement with respect to the property's value. Rather, it

appears to fortify Cronholm's position that he had a legitimate

and reasonable basis for believing that the property was valued at

$1.6 million, given that Ms. Phipps's statement, if any, would

have confirmed the property value later iterated by Mr. McLeod

when signing the bridge loan documents. 

Where the record in this case is complete and reveals

multiple different bases on which Cronholm could have reasonably

believed that his representation was accurate, Plaintiffs can

avoid summary judgment only by referring the Court to a document,

answer to interrogatory, deposition, declaration, affidavit, or

other piece of admissible evidence that would tend to contradict

the substantial evidence marshaled by Cronholm in support of his

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position that he had a reasonable basis for his representation. 

See FRCP 56; Celotex Corp., 477 U.S. at 323-24. "Evidence" within

the meaning of FRCP 56 does not encompass rhetorical questions or

blanket assertions containing legal conclusions unsupported by

citations. See Brinson, 53 F.3d at 1049. Where, as here,

Plaintiffs have not referred the Court to any evidence that would

establish the existence of a material fact on an issue on which

Plaintiffs will bear the burden of proof at trial, summary

judgment in favor of the moving party is proper. See Celotex 477

U.S. at 322-23. Accordingly, Defendant Cronholm's motion is

GRANTED and JUDGMENT entered in his favor.

B. Plaintiffs' Claim Against Robert and Siddney McLeod

Plaintiffs do not allege that Defendants Robert and Siddney

McLeod ever made any representation to them regarding the

appraised value of the Divisadero St. Property. Rather, the

McLeods have been named as Defendants in this matter under the

theory that as principals, the McLeods are responsible for the

actions of their agent, in this case Cronholm. See Pls.' Mem. at

24-25. However, a principal will not be liable under an agency

theory where the agent has been exonerated of any wrongdoing by

virtue of having obtained judgment in his favor. See Will v.

Southern Pac. Co., 18 Cal. 2d 468, 472 (Cal. 1941). Therefore, in

light of this Court's discussion in part A, supra, Defendants

Robert and Siddney McLeod's motion is hereby GRANTED and JUDGMENT

entered in their favor. 

C. Plaintiffs' Claims Against First Republic

Plaintiffs bring claims against First Republic for negligent

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misrepresentation and for violation of the Federal Equal Credit

Opportunity Act.

i. Negligent Misrepresentation

In their claim for negligent misrepresentation against First

Republic, Plaintiffs contend that First Republic's alleged

communication through Ms. Phipps to Plaintiffs' agent, Ms.

Soderborg, that the Divisadero St. Property had been appraised for

$1.6 million caused them damages by helping to convince them to

pay more for the property than it was worth. See Complaint ¶ 16

("Compl."). 

In support of its motion for summary judgment, First Republic

makes several arguments. The Bank initially argues that it is

entitled to summary judgment because First Republic did not owe

the Loweses a duty of care with respect to its appraisal of the

Loweses' collateral for their loan. See First Republic's

Memorandum in Support of Motion for Summary Judgment at 11-12

("First Republic Mem."). Second, the Bank argues that Plaintiffs

cannot prove that the Bank intended to induce Plaintiffs to rely

on the Bank's representations. Id. Finally, First Republic

argues that Plaintiffs cannot prove that they actually relied on

any representation made by the bank. Id. 

In response, Plaintiffs contend that First Republic has

missed the mark in its discussion of the Bank's duty with respect

to preparation of the appraisal, and that the relevant authority

governing Plaintiffs' claim shows that the Bank had a duty to

accurately represent the substance of the appraisal, regardless of

whether the Bank had any duty to competently prepare the

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appraisal. See Pls.' Mem. at 12-14. Second, Plaintiffs argue

that First Republic's misrepresentation induced Plaintiffs to

forego a second appraisal. Id. at 14-15. Plaintiffs do not

contend in the argument section of their moving papers that First

Republic intended to induce Plaintiffs' reliance, although

Plaintiffs apparently attempt to identify an issue of fact with

respect to this element in section III(B)(2) of their opposition. 

See id. at 10. 

While First Republic has relied heavily in its moving papers

on cases that discuss a lender's limited duty with respect to

borrowers and the preparation of appraisals, those cases deal with

claims for negligence rather than negligent misrepresentation. 

See Nymark v. Heart Federal Savings & Loan, 231 Cal. App. 3d 1089

(Cal. Ct. App. 1991); Borel Bank & Trust Co. v. Aubain, No. C-95-

20538, 1995 WL 743724 (N.D. Cal. Nov. 30, 1995). Rather, the

California Supreme Court has made clear that while a lender may

not owe a borrower any duty of care in connection with the

preparation of an appraisal of the borrower's collateral to be

used for the lender's own purposes, that principle does not extend

to shield a lender or other entity from liability for making a

negligent misrepresentation concerning the substance of an

appraisal. See Bily v. Arthur Young & Co., 3 Cal. 4th 370 (Cal.

1992); see also Byrum, 219 Cal. App. 3d at 941. The court's

decision in Bily set up the somewhat incongruent result where, as

here, a lender would face no liability for the negligent

preparation of an appraisal, yet could face liability for

negligently misrepresenting the substance of the appraisal. See

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Bily, 3 Cal. 4th at 407-08; see also Soderberg v. McKinney, 44

Cal. App. 4th 1760 (Cal. Ct. App. 1996). The cases cited by First

Republic in this respect are therefore inapposite, and

accordingly, the Court will analyze Plaintiffs' claim under the

same framework that applied to Plaintiffs' claims for negligent

misrepresentation against other defendants in this case.

As Plaintiffs themselves acknowledge, the claim of negligent

misrepresentation requires a showing that the defendant intended

to induce the plaintiff's reliance on the misrepresentation. See

Pls.' Mem. at 9-10; 6 Witkin Summary of California Law, Torts 

§ 818 (10th Ed. 2005). However, nothing in Plaintiffs' moving

papers or evidence suggests that First Republic intended to induce

Plaintiffs' reliance. Even drawing all justifiable inferences in

Plaintiffs' favor, the Court can find nothing that would even hint

at the possibility that the Bank or Ms. Phipps intended to induce

such reliance. 

This stands to reason, as there was no incentive for the Bank

to mislead Plaintiffs with respect to the value of the Divisadero

St. Property. Given that the May 2003 appraisal demonstrated more

than adequate value in relation to the loan sought by Plaintiffs,

the Bank was rightfully agnostic as to whether Plaintiffs

ultimately obtained a second appraisal. Plaintiffs have not

asserted that the Bank stood to gain either financially or

otherwise from inducing Plaintiffs to forego a second appraisal,

and in fact, logic would suggest that, if anything, the Bank would

have benefitted from encouraging Plaintiffs to seek an additional

appraisal because of the goodwill garnered from directing

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additional business to the Bank's appraiser. 

Furthermore, Plaintiffs have not alleged, and nothing in the

evidence implies, that a higher sale price for the Divisadero St.

Property would have benefitted the Bank in any way. However, the

Court recognizes that it is theoretically possible that First

Republic could have intended to induce Plaintiffs' reliance even

absent any potential benefit to the Bank. But at this stage of

the proceedings, Plaintiffs must present the Court with some

evidence that would suggest that a triable issue of fact exists on

this point, and in that respect Plaintiffs have failed. In fact,

on close examination, Plaintiffs' opposition is silent in this

respect, and after reviewing the entire record in this case, the

Court finds that discovery has yielded nothing that would, even

inferentially, suggest that First Republic intended to induce

Plaintiffs' reliance. Accordingly, the Court finds that there is

no genuine issue of material fact on this point - one on which

Plaintiffs will ultimately bear the burden at trial - and

therefore finds that First Republic is entitled to summary

judgment on this claim. First Republic's motion is therefore

GRANTED and JUDGMENT entered in its favor on this claim.

ii. Federal Equal Credit Opportunity Act

Plaintiffs have also alleged that First Republic failed to

comply with the requirements of the Federal Equal Credit

Opportunity Act, 15 U.S.C. § 1691 et seq. ("FECOA"), and that this

failure caused Plaintiffs damages in an unnamed amount. See

Compl. ¶¶ 23-26. FECOA sets forth in broad-brush strokes general

provisions enacted to prevent discrimination in connection with

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applications for credit. See 15 U.S.C. § 1691(a). FECOA also

requires that 

Each creditor shall promptly furnish an applicant, upon

written request by the applicant made within a reasonable

period of time of the application, a copy of the appraisal

report used in connection with the applicant's application

for a loan that is or would have been secured by a lien on

residential real property. The creditor may require the

applicant to reimburse the creditor for the cost of the

appraisal.

 

15 U.S.C. § 1691(e). 

Further regulations enacted pursuant to FECOA are set forth

at 12 C.F.R. § 202.14, which directs that a creditor who does not

routinely provide applicants with copies of the appraisal referred

to in section 1691(e) must provide the applicant with written

notice of his right to receive the appraisal, and must provide the

appraisal upon written request of the applicant. 12 C.F.R. 

§ 202.14(a)(2) & (a)(2)(i). Furthermore, 12 C.F.R. § 202.14

(a)(2)(ii) directs that a "creditor shall mail or deliver a copy

of the appraisal report promptly (generally within 30 days) after

the creditor receives an applicant's request, receives the report,

or receives reimbursement from the applicant for the report,

whichever is last to occur."

Plaintiffs assert that First Republic violated FECOA and the

relevant regulations by failing to provide Plaintiffs with proper

notice of their right to receive the appraisal being used in

connection with their loan. Compl. ¶ 25. While Plaintiffs

acknowledge receiving a notice from First Republic advising them

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of their right to receive the appraisal used in connection with

their loan, Plaintiffs assert that the notice they received from

First Republic was misleading and did not comply with FECOA or the

regulations. See Pls.' Mem. at 15-17. This is so, Plaintiffs

claim, because the notice they received from the Bank read as

follows:

With respect to the real estate loan you have applied for, 

please be advised that you have the right to receive, upon

your request, a copy of the appraisal report we may obtain in

connection with your application, provided that you have paid

for the appraisal. If you wish a copy, please write to us at

the mailing address set out below. 

Declaration of Batya Swenson, Ex. H ("Swenson Decl."). 

Because the notice provided by First Republic deviated from

the sample notice form set forth in 12 C.F.R. Supp. I Form C-9,

Plaintiffs argue, First Republic violated FECOA and is therefore

responsible for Plaintiffs' damages. See Pls.' Mem. at 16-17. 

Plaintiffs also assert that even if First Republic's deviation

from the sample form was permissible under the regulations, it was

misleading because it conditioned the right to receive the

appraisal on receipt of payment, and in this case Ms. Phipps

allegedly informed Plaintiffs that the Bank would provide a copy

of the appraisal free of charge. See Pls.' Mem. at 17. 

Even without reference to the fact that it remains unclear

whether the Loweses are able to bring a claim for damages for

failure to provide an appraisal under section 1691(e), see

Wiltshire v. Dhanraj, No. 03-CV-2856, 2005 WL 2239972 at *11 n. 11

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3 In addition to the foregoing, the statute also contains a

"good faith exception," that provides "No provision of this

subchapter imposing liability shall apply to any act done or

21

(E.D.N.Y. Sept. 14, 2005), the Court finds that the notice

provided by the Bank was consistent with the actual requirements

of FECOA and the regulations, and that any deviation from the

sample notice form was expressly authorized. First, the language

of the statute requires only that an appraisal be provided "upon

written request" and explicitly allows creditors to charge

borrowers for the cost of providing the appraisal. See § 1691(e). 

Nothing in 12 C.F.R. § 202.14(a)(2)(i) & (ii) alters these basic

requirements in any way material to the instant case. 

Furthermore, although it is true that the notice form supplied by

First Republic differed from the sample form set forth in 12

C.F.R. Supp. I Form C-9, such modifications are expressly allowed

by 12 C.F.R. Pt. 202, Supp. I Appendix C, which provides that,

with respect to the sample notice forms, "[c]reditors may design

their own form, add to, or modify the model form to reflect their

individual policies and procedures." Simply put, Plaintiffs have

not provided, and the Court is not aware of, any firm mandate set

forth anywhere in FECOA or its regulations that controls the

precise form of the notice supplied to persons seeking credit. 

Rather, the statute and its regulations seem to accord creditors a

good deal of leeway in designing their notice forms, so long as

certain basic pieces of information are supplied.3 The Court

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omitted in good faith in conformity with any official rule,

regulation, or interpretation thereof by the Board." 15 U.S.C. §

1691(e)e. 

4 The Court further notes that even if the Loweses'

acknowledgment of receipt of the notice counted as a written

request for the appraisal, which it does not, First Republic would

only then have been under an obligation to "promptly" provide

Plaintiffs with a copy of the appraisal, a time period that has

been defined in the regulations as "generally within 30 days." 

Therefore, even under this strained understanding, First Republic

would not have been under any obligation to provide the appraisal

until well after the close of escrow, which occurred on or about

October 2, 2003. The Court further notes that, while the parties

dispute whether a copy of the appraisal was provided at the first

scheduled closing, Plaintiffs acknowledge that they received a

copy, free of charge, on October 31, 2003, approximately 42 days

after Plaintiffs signed the appraisal notice form. See Shirley

Lowes Decl. Ex 2. 

22

finds that First Republic's notice form met that standard as a

matter of law, and that Plaintiffs are therefore unable to make

out a claim under FECOA. 

Finally, Plaintiffs contend that even if the Bank's notice

form was adequate, the signatures of Mr. and Mrs. Lowes

acknowledging receipt of the notice constitute a written request

for a copy of the appraisal. See Pls.' Mem. at 19. However, this

argument completely belies the plain language of the notice -

which expressly advised Plaintiffs of their right to receive a

copy of the appraisal and described the procedure to be followed

to obtain the appraisal - and the testimony of Mr. Lowes, who

stated that he read and understood the notice. See Simon Lowes

Depo. at 48:14-25. The Court therefore declines to construe

Plaintiffs' signatures on First Republic's appraisal notice form

as a written request for the appraisal.4 Accordingly, the Court

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hereby GRANTS First Republic's motion with respect to this claim

and enters JUDGMENT in its favor.

V. CONCLUSION

It is clear from the evidence gathered in this case that

Plaintiffs placed great reliance on their understanding that the

Divisadero St. Property had been officially appraised for $1.6

million four months prior to their purchase of the property. 

Without question, Defendants each played roles of varying degrees

of significance in initiating or propagating this

misrepresentation. However, given the fact that, under California

law, the tort of negligent misrepresentation is considered a

species of deceit, recovery under this theory requires carrying

the burden on several elements that can be difficult to prove. 

Not all misrepresentations that induce reliance are redressable,

therefore, and where, as here, Plaintiffs fail to introduce

evidence tending to create issues of fact on an element they will

ultimately bear the burden of proving at trial, summary judgment

is appropriate. While it may be unfortunate that Plaintiffs feel

they were duped or taken advantage of, this Court is powerless to

fashion a remedy for them where essential elements of their case

are lacking. There is simply no genuine issue of material fact to

be determined at trial, and as a matter of law, Defendants are

entitled to judgment in their favor. 

//

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Accordingly, the Court hereby GRANTS Defendants' motions and

enters JUDGMENT in favor of Defendants and against Plaintiffs.

IT IS SO ORDERED. 

Dated: February 23, 2006 

UNITED STATES DISTRICT JUDGE 

 

 

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