Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-5_06-cv-02541/USCOURTS-cand-5_06-cv-02541-4/pdf.json

Nature of Suit Code: 890
Nature of Suit: Other Statutory Actions
Cause of Action: 15:1640 Truth in Lending

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Case No. C 06-2451-JF (HRL)

ORDER (1) GRANTING IN PART AND DENYING IN PART THE MOTION TO DISMISS OF PRIMEWEST, KAHN,

AND KATTUARA; AND (2) DENYING MOTION TO DISMISS OF ROMEO AND MCGIVERN

(JFEX2)

NOT FOR CITATION

IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF CALIFORNIA

SAN JOSE DIVISION

ARLENE VALDEZ,

 Plaintiff,

 v.

DOWNEY SAVINGS AND LOAN

ASSOCIATION, a California Corporation,

PRIMEWEST RESIDENTIAL LOANS, INC., a

California Corporation, HABIBULLAH M KAHN,

an individual, SAVINDAR K. KATTAURA, an

individual, ROMEO DE LA CRUZ, an individual,

SEAN MCGIVERN, an individual, et al.,

 Defendants.

Case Number C 06-2541-JF (HRL)

ORDER (1) GRANTING IN PART

AND DENYING IN PART THE

MOTION TO DISMISS OF

PRIMEWEST, KAHN, AND

KATTUARA; AND (2) DENYING

MOTION TO DISMISS OF ROMEO

AND MCGIVERN

[Docket. Nos. 43, 48 ]

I. BACKGROUND

Plaintiff Arlene Valdez (“Valdez”) filed her initial complaint in this action on April 12,

2006, alleging predatory lending practices on the part of lender Downey Savings and Loan

Association (“Downey”), loan broker Primewest Residential Loans, Inc. (“Primewest”), and two

Primewest employees, Habibullah Khan (“Khan”) and Savindar Kattaura (“Kattaura”). On July

3, 2006, Downey filed a motion for more definite statement. On August 21, 2006, Kattaura,

**E-filed 4/17/07**

Case 5:06-cv-02541-JF Document 76 Filed 04/17/07 Page 1 of 16
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Case No. C 06-2451-JF (HRL)

ORDER (1) GRANTING IN PART AND DENYING IN PART THE MOTION TO DISMISS OF PRIMEWEST, KAHN,

AND KATTUARA; AND (2) DENYING MOTION TO DISMISS OF ROMEO AND MCGIVERN

(JFEX2)

Primewest, and Khan moved to dismiss or strike the complaint. On October 11, 2006, this Court

granted the motions with leave to amend. Valdez filed the operative First Amended Complaint

(“FAC”) on October 23, 2006, alleging predatory lending practices on the part of Downey,

Primewest, Khan, Kattaura, and two additional Primewest employees, Romeo De La Cruz

(“Romeo”) and Sean McGivern (“McGivern”). Valdez alleges the following:

Valdez is an elderly widow living on a fixed monthly income. FAC ¶ 37. In April 2004,

she purchased a home located at 198 Dogaway Drive in San Jose, California (“the Dogaway

property”) with loans underwritten by World Savings Bank FSB (“World Savings”). Id. at ¶¶

38-39. Less than one year later, Valdez began receiving unsolicited telephone calls from a man

who stated that his name was “Romeo” and that he was calling on behalf of Primewest to assist

Valdez with refinancing her Dogaway property. Id. at ¶¶ 40-41. Romeo continued calling for a

month, and eventually Valdez confided to him that she had three goals: (1) to install a new patio

at the Dogaway property; (2) to transfer title of the Dogaway property to her son; and (3) to

establish an escrow/impound account from which real property taxes on the Dogaway property

would be paid automatically. Id. at ¶ 45. Romeo promised that all of these goals would be

accomplished by the proposed refinancing, and Valdez agreed to enter into the subject loan. Id.

at ¶¶ 46-47.

Shortly thereafter, Valdez was contacted by McGivern, who identified himself as

Romeo’s co-worker and stated that he would process the refinance loan. Id. at ¶ 49. McGivern

assured Valdez that the refinancing would accomplish her three goals and that the total finance

charges would be from $3,000 to $4,000. Id. at ¶ 52. Valdez told McGivern that she was on a

fixed income of $1,500 per month derived solely from Social Security benefits and her late

husband’s private pension plan. Id. at ¶ 54. McGivern obtained all of Valdez’s loan information

over the telephone, informed her that she would qualify for the refinance loan, and provided

Valdez’s information to Khan and Primewest. Id. at ¶¶ 55-56. 

On April 13, 2005, Romeo, McGivern and another person came to Valdez’s home and

presented Valdez with a large stack of transactional documents to sign. Id. at ¶¶ 59-60. Valdez

was not given an opportunity to examine all of the documents thoroughly, including the loan

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Case No. C 06-2451-JF (HRL)

ORDER (1) GRANTING IN PART AND DENYING IN PART THE MOTION TO DISMISS OF PRIMEWEST, KAHN,

AND KATTUARA; AND (2) DENYING MOTION TO DISMISS OF ROMEO AND MCGIVERN

(

3

Case No. C 06-2451-JF (HRL)

ORDER (1) GRANTING IN PART AND DENYING IN PART THE MOTION TO DISMISS OF PRIMEWEST, KAHN,

AND KATTUARA; AND (2) DENYING MOTION TO DISMISS OF ROMEO AND MCGIVERN

(JFEX2)

application, and she relied on the representations of McGivern and the others as to the

documents’ contents. Id. at ¶ 51. She then signed the paperwork as instructed. Id. Upon later

review, Valdez discovered that she actually was being charged more than $6,000 by Primewest. 

Id. at ¶ 63. On April 19, 2005, Valdez also discovered that despite earlier assurances that there

would be no prepayment penalty charge from the World Savings loan, she had in fact incurred a

prepayment penalty charge. Id. at ¶ 68. Valdez then instructed McGivern to cancel the loan, but

he stated that cancellation was impossible. Id. at ¶ 69. Valdez telephoned World Savings, which

recommended that she ask Primewest to “rewind the loan.” Id. at ¶ 72. Valdez left McGivern a

voice mail asking him to rewind the loan, but he did not return the call. Id. at ¶ 73. Valdez also

called Downey and asked that the loan be cancelled and/or rewound. Downey refused on the

ground that the loan already had closed. Id. at ¶¶ 75-76. Valdez continued her efforts to contact

Primewest, and she eventually spoke to Khan, who said he would look into the situation. Id. at ¶

77-78. However, Downey, Primewest, Khan, Kattaura, and McGivern failed to cancel or rewind

the loan. Id. at ¶ 79. According to the final HUD-1, the Downey loan was not funded until April

29, 2005 and thus could have been rewound at the time Valdez requested cancellation. Id. at ¶

81. The final HUD-1 listed a prepayment penalty to World Savings of $7,011.91. Id. at ¶ 82.

Valdez subsequently discovered that information on her loan application with respect to

her assets, income and employment history was falsified by someone other than herself. Id. at ¶

83. She also discovered that the closing costs included an origination fee of $6,075 to

Primewest. Id. at ¶ 85. She learned that Downey had increased the interest rate of her loan in

order to finance a kickback payment of $12,150 to Primewest and/or Kattaura and Khan. Id. at ¶

86. She also learned that Defendants had arranged for her to purchase a title insurance policy in

the amount of $445,000, even though the Downey loan totaled only $405,000. Id. at 90. The

final HUD-1 also showed that Valdez was charged a second time for a $325 appraisal of the

property, that there had been a $500 payment to Primewest for “processing,” and a payment of a

$50 “email fee” to Commonwealth Land Title Company. Id. at ¶¶ 91-93. Primewest never

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Case No. C 06-2451-JF (HRL)

ORDER (1) GRANTING IN PART AND DENYING IN PART THE MOTION TO DISMISS OF PRIMEWEST, KAHN,

AND KATTUARA; AND (2) DENYING MOTION TO DISMISS OF ROMEO AND MCGIVERN

(JFEX2) (

arranged for the escrow/impound account that Valdez had requested and never transferred title of

the Dogaway property to her son. Id. at ¶ 94.

Based upon these allegations, Valdez alleges the following claims: (1) violation of the

Real Estate Settlement Procedures Act (“RESPA”), 12 U.S.C. § 2601 et seq. (against Downey,

Primewest, and Kattaura); (2) breach of fiduciary duty (against Primewest, Khan and Kattaura);

(3) concealment (against Primewest, Kattaura, Khan, Romeo, and McGivern); (4) negligence

(against all Defendants); (5) negligent misrepresentation (against Primewest, Khan, Kattaura,

Romeo, and McGivern); (6) intentional misrepresentation (against Primewest, Khan, Kattaura,

Romeo, and McGivern); (7) fraud and Cal. Civ. Code § 3294 (against all Defendants); (8)

violation of California’s UCL, Cal. Bus. & Prof. Code § 17200 et seq. (against all Defendants);

and (9) violation of Cal. Bus. & Prof. Code § 10240, et seq. (against Primewest, Kattaura, and

Khan).

Primewest, Khan, and Kattaura move to dismiss and for enlargement of time. Delacruz

and McGivern have filed a separate motion to dismiss.

II. LEGAL STANDARD

A complaint may be dismissed for failure to state a claim upon which relief can be

granted for two reasons: (1) lack of a cognizable legal theory or (2) insufficient facts under a

cognizable legal theory. See Conley v. Gibson, 355 U.S. 41, 45-46 (1957); Robertson v. Dean

Witter Rynolds, Inc., 749 F.2d 530, 533-534 (9th Cir. 1984). For purposes of a motion to

dismiss, all allegations of material fact in the complaint are taken as true, and the Court must

construe the complaint in the light most favorable to the plaintiff. Jenkins v. McKeithen, 395

U.S. 411, 421 (1969); Clegg v. Cult Awareness Network, 18 F.3d 752, 754 (9th Cir. 1994). 

A complaint should not be dismissed “unless is appears beyond doubt the plaintiff can

prove no set of facts in support of his claim that would entitle him to relief.” Clegg, 18 F.3d at

754. Leave to amend must be granted unless it is clear that the complaint’s deficiencies cannot

be cured by amendment. Lucas v. Department of Corrections, 66 F.3d 245, 248 (9th Cir. 1995). 

Case 5:06-cv-02541-JF Document 76 Filed 04/17/07 Page 4 of 16
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Case No. C 06-2451-JF (HRL)

ORDER (1) GRANTING IN PART AND DENYING IN PART THE MOTION TO DISMISS OF PRIMEWEST, KAHN,

AND KATTUARA; AND (2) DENYING MOTION TO DISMISS OF ROMEO AND MCGIVERN

(JFEX2) (

When amendment would be futile, however, dismissal may be ordered with prejudice. Dumas v.

Kipp, 90 F.3d 386, 393 (9th Cir. 1996). 

III. DISCUSSION

A. MOTION TO DISMISS THE THIRD, FIFTH, SIXTH, AND SEVENTH CLAIMS

BECAUSE THEY ARE DUPLICATIVE AND FAIL TO PLEAD FRAUD WITH

SPECIFICITY

1. Concealment, Negligent Misrepresentation, Intentional Misrepresentation, and

Fraud

Defendants challenge Valdez’s third, fifth, sixth, and seventh claims for concealment,

negligent misrepresentation, intentional misrepresentation, and fraud, respectively, on the ground

that Valdez may assert only one claim for fraud rather than four separate claims based on

separate theories. Valdez’s third, fifth, and sixth claims are alleged against Defendants

Primewest, Khan, Kattaura, Romeo, and McGivern. The third claim for concealment alleges that

these defendants “concealed material facts from Ms. Valdez.” FAC ¶ 138. As stated in the

FAC, the concealed facts include, but are not limited to the following: 

1. The true fees charged to Ms. Valdez, directly and indirectly, in connection with

the

refinance of her existing mortgage loan;

2. The true character of the fees charged to Ms. Valdez;

3. The true potential effect that the undisclosed charges and fees would have on Ms.

Valdez’s monthly payment obligation;

4. The true approximate monthly mortgage obligation;

5. That the loan product provided to Ms. Valdez carried a higher than necessary

interest rate, simply for the purpose of increasing Defendants’ own profits. 

Id. Valdez’s fifth claim for negligent misrepresentation and sixth claim for intentional

misrepresentation both allege that Defendants “made several false representations of material

fact to Ms. Valdez in connection with the refinance transaction.” Id. at ¶¶ 147, 153. Valdez

alleges that Defendants “knew or . . . should have known, that the representations were false

when they made them . . . [and] knew or . . . should have known, that they were concealing

material facts from Ms. Valdez regarding the refinance transaction.” Id. at ¶¶ 148, 154. In her

sixth claim for intentional misrepresentation, Valdez also alleges that Defendants intended that

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Case No. C 06-2451-JF (HRL)

ORDER (1) GRANTING IN PART AND DENYING IN PART THE MOTION TO DISMISS OF PRIMEWEST, KAHN,

AND KATTUARA; AND (2) DENYING MOTION TO DISMISS OF ROMEO AND MCGIVERN

(JFEX2)

she rely on the misrepresentations. Id. at ¶ 156. Finally, Valdez’s seventh claim for fraud against

all Defendants alleges that:

Defendants induced Ms. Valdez to refinance her existing loan . . . by orally

misrepresenting to her, and concealing from her, the nature of the proposed loan

agreement (i.e., a refinance for a second home), the benefits Ms. Valdez would obtain

from refinancing (i.e., transfer of title to her son, and an impound account for property

taxes), and the financial consequences of refinancing her existing mortgage (i.e., that Ms,

Valdez would incur a prepayment penalty on her existing mortgage). 

Defendants allegedly knew the misrepresentations were false, and made the

misrepresentations “with the specific intent of fraudulently inducing [Valdez] to enter

into a loan agreement . . . .”

Id. at ¶¶ 161-63. According to Defendants, although Valdez has alleged multiple theories of

fraud, she has pled the violation of only one primary right and therefore may assert only one

claim.

a. Multiple Theories Supporting a Single Claim

Defendants contend that Valdez’s claims for concealment, intentional misrepresentation,

and negligent misrepresentation are duplicative of her claim for fraud. Valdez cites Cal. Civ.

Code §§ 1572 and 1710 in support of her argument that each claim is cognizable under

California law. Cal. Civ. Code § 1572 provides the definition for “actual fraud,” and Cal. Civ.

Code § 1710, separately defines deceit as: 

1. The suggestion, as a fact, of that which is not true, by one who does not believe it to

be true; 

2. The assertion, as a fact, of that which is not true, by one who has no reasonable ground

for believing it to be true; 

3. The suppression of a fact, by one who is bound to disclose it, or who gives information

of other facts which are likely to mislead for want of communication of that fact; or, 

4. A promise, made without any intention of performing it.

Valdez argues that § 1710 codifies separate claims for intentional misrepresentation, negligent

misrepresentation, concealment, and fraud, respectively. Valdez also cites the civil jury

instructions approved by the Judicial Council which recognize separate claims for intentional

misrepresentation, concealment, and negligent misrepresentation. See 1 Judicial Council of Cal.

Civ. Jury Instructions 1900, 1901, 1903 (Fall 2006 Ed.).

Defendants argue that although California official jury instructions demonstrate four

ways to prove deceit, as outlined in § 1710, there may be only one claim for relief. In support of

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Case No. C 06-2451-JF (HRL)

ORDER (1) GRANTING IN PART AND DENYING IN PART THE MOTION TO DISMISS OF PRIMEWEST, KAHN,

AND KATTUARA; AND (2) DENYING MOTION TO DISMISS OF ROMEO AND MCGIVERN

(JFEX2)

this position, Defendants cite Conger v. White 69 Cal.App.2d 28, 41 (1945), which states that,

“[i]n an action for damages for fraud, a complaint which alleges a series of fraudulent acts

committed in the execution of an entire scheme . . . states a single cause of action.” Conger,

however, is inapposite. In that case, the appellant challenged the pleading of a single cause of

action for fraud on the theory that plaintiff should have pled three separate causes of action. Id. 

The court rejected this argument because plaintiff claimed a conspiracy to defraud, and each

action constituted a part of the scheme. Id. “The three transactions were interwoven so that it

would have been impossible for plaintiff to prove fraud in the second or third purchases without

first proving fraud in the first one.” Id. Here, Valdez is asserting alternative theories of liability

based upon the same allegedly fraudulent conduct. Nothing in Conger suggests that the

assertion of alternative theories is inappropriate. Alternative theories of fraud commonly are

pled in federal district court. Accordingly, Defendants’ motion to dismiss on this ground will be

denied.

b. Primary Rights Theory

Defendants also place significant emphasis on the case of Stoner v. Williams, 46

Cal.App.4th 986 (1996), and mount a challenge to the FAC based on the “primary rights” theory

discussed in that case. See id. at 1003-04. Under the primary rights theory, “the ‘cause of action’

is based upon the harm suffered, as opposed to the particular theory asserted by the litigant. Even

where there are multiple legal theories upon which recovery might be predicated, one injury

gives right to only one claim for relief.” Id. at 1003 (citing Bay Cities Paving & Grading, Inc. v.

Lawyers’ Mutual Ins. Co. 5 Cal.4th 854, 860 (1993)). In Stoner, the plaintiff brought an action

for fraud based on various acts of misrepresentation, and the issue raised was whether the trial

court correctly instructed the jury that it did not need to agree on which act constituted fraud, as

long as all agreed that the elements of fraud were proven. Defendants focus on the fact that the

jury instructions introduced multiple theories of fraud for intentional misrepresentation,

intentional concealment, and negligent misrepresentation. See id. at 995. However, the court

merely noted that, “[t]he existence of multiple legal theories or acts on which that particular

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Case No. C 06-2451-JF (HRL)

ORDER (1) GRANTING IN PART AND DENYING IN PART THE MOTION TO DISMISS OF PRIMEWEST, KAHN,

AND KATTUARA; AND (2) DENYING MOTION TO DISMISS OF ROMEO AND MCGIVERN

(JFEX2)

fraud could be proved would not necessarily result in multiple causes of action.” Id. at 1002

(emphasis added). Although it observed that multiple theories of fraud might not necessarily

support separate claims for relief, the court did not foreclose that possibility. In fact, the Court

concluded that it was not error for the jury to find fraud on multiple theories even though

“[p]ursuant to the primary rights theory, Stoner suffered only one injury and she had only a

single cause of action for personal injury because of fraud.” Id. at 1004. It held that “[t]he

existence of multiple legal theories (e.g., intentional misrepresentation, concealment or negligent

misrepresentation) or multiple, alternative fraudulent acts . . . does not alter this conclusion.” Id. 

Accordingly, Valdez’s third, fifth, sixth, and seventh claims are not duplicative, and the motion

to dismiss them on this basis will be denied.

2. Pleading Fraud with Particularity

Defendants challenge Valdez’s third, fifth, sixth, and seventh causes of action for

concealment, negligent misrepresentation, intentional misrepresentation, and fraud, respectively,

on the ground that Valdez has failed to allege facts sufficient to state a claim for fraud against

Khan, Kattaura, and Romeo, individually. As against Khan and Kattaura, Defendants argue that

Valdez:

utterly fails to state with particularity how Khan and Kattaura, individually, participated

in the fraud, concealment, or misrepresentations or authorized and directed that they be

done. The only allegations against Khan and Kattaura individually are mere conclusory

allegations that Khan and Kattaura somehow controlled or directed McGivern and

Romeo under an unsubstantiated theory of agency. 

Primewest, Khan, Kattaura Mot. at 7. As against Romeo, Defendants contend that Valdez: 

utterly fails to state with particularity how [Romeo], individually, participated in the

fraud, concealment, or misrepresentation or authorized and directed that they be done. 

[Valdez] does not specifically show how [Romeo] had any reason to know what

happened concerning the loan following the initial phone calls. They are only conclusory

against [Romeo]. 

Romeo, McGivern Mot. at 7. 

An important purpose of pleading in the federal courts is to give the defendant fair

notice of the plaintiff’s claim, and the facts upon which the claim rests. In re Glenfed, Inc.

Securities Litigation, 42 F.3d 1541, 1547 (1994), overruled on other grounds, Marksman

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Case No. C 06-2451-JF (HRL)

ORDER (1) GRANTING IN PART AND DENYING IN PART THE MOTION TO DISMISS OF PRIMEWEST, KAHN,

AND KATTUARA; AND (2) DENYING MOTION TO DISMISS OF ROMEO AND MCGIVERN

(JFEX2)

Partners, L.P. v. Chantal Pharm. Corp., 927 F.Supp. 1297 (C.D. Cal. 996); see also

Washington v. Baenziger, 673 F.Supp. 1478, 1482 (N.D. Cal. 1987). However, when a

plaintiff asserts a claim for fraud, the complaint must do more than merely provide notice. 

See In re Glenfed, 42 F.3d at 1547. Federal Rule of Civil Procedure 9(b) states that “in all

averments of fraud or mistake, the circumstances constituting fraud or mistake shall be stated

with particularity.” Fed. R. Civ. P. 9(b). As applied by the Ninth Circuit, pleading is

sufficient under Rule 9(b) if the plaintiff provides “statements of the time, place and nature

of the alleged fraudulent activities . . . [M]ere conclusory allegations of fraud are

insufficient.” Moore v. Kaypart Package Express, Inc., 885 F.2d 531, 540 (9th Cir. 1989)

(citing Wool v. Tandem Computers, Inc., 818 F.2d 1433, 1439 (9th Cir.1987)). “To allege

fraud with particularity, a plaintiff must set forth more than the neutral facts necessary to

identify the transaction. The plaintiff must set forth what is false or misleading about a

statement, and why it is false.” Id. at 1548. “Averments of fraud must be accompanied by

‘the who, what, when, where, and how’ of the misconduct charged.” Vees v. Ciba-Geigy

Corp. USA, 317 F.3d 1097, 1106 (9th Cir. 2003) (citing Cooper v. Pickett, 137 F.3d 66, 627

(9th Cir. 1997)). It “is not fatal to [a] complaint that it does not describe in detail a single

specific transaction (i.e. shipment) in which [Defendant] transgressed . . . , by customer,

amount, and precise method. Comparable precedent does not require [such] detail.” Cooper,

137 F.3d at 627.

a. Khan and Kattaura

Valdez alleges claims of fraud against Khan on theories of direct liability, for Khan’s

own acts, and vicarious liability, for the acts of his agents. Valdez alleges claims of fraud

against Kattaura based on vicarious liability for the acts of his agents.

i. Direct Liability of Khan

With respect to Khan, Valdez alleges the following facts: after Valdez discovered the

fraudulent information in her loan papers, she contacted World Savings Bank and McGivern and

attempted to rewind the loan. FAC ¶ 63-76. “Ms. Valdez thereafter made further attempts to

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Case No. C 06-2451-JF (HRL)

ORDER (1) GRANTING IN PART AND DENYING IN PART THE MOTION TO DISMISS OF PRIMEWEST, KAHN,

AND KATTUARA; AND (2) DENYING MOTION TO DISMISS OF ROMEO AND MCGIVERN

(JFEX2)

contact Primewest and eventually spoke to defendant Khan over the telephone.” Id. at ¶ 77. 

“Ms. Valdez explained her experience to defendant Khan who informed her that he would ‘look

into it.’” Id. at ¶ 78. “Downey, Primewest, Khan, Kattaura, and McGivern failed to address Ms.

Valdez’ concerns and did not allow her to cancel the loan and did not take the necessary steps to

rewind the loan, including the submission of cancellation instruction.” Id. at ¶ 79. Valdez also

alleges that after McGivern obtained her loan information, he “provided such information to

defendants Khan and Primewest who completed Ms. Valdez’s loan application” which was

“falsified and contained many false or misleading misrepresentation concerning, inter alia, Ms.

Valdez’s assets, income and employment history, . . .” Id. at ¶ 55, 83. Defendants argue that

Valdez does not plead fraud with sufficient particularity against Khan because she fails to state

all of the following: (1) the fraudulent statement, (2) the time and place of the fraudulent

statement, (3) the person or persons making the fraudulent statement, (3) the method of

communicating the fraudulent statement, (4) an explanation of why the statement was

misleading, and (5) the injury. 

ii. Vicarious Liability of Khan and Kattaura

Valdez also alleges that Khan and Kattaura are vicariously liable for the fraudulent acts

of their agents. Defendants challenge 1) whether Khan and Kattaura ever can be vicariously

liable for the fraudulent acts of their agents, and 2) whether Valdez has plead facts with

sufficient particularity under Rule 9(b) to prove that Khan and Kattauera authorized or directed

fraudulent acts by their agents. 

According to the facts pled in the FAC, Kattaura was the Vice President of Primewest

and a licensed real estate broker by the California Department of Real Estate (“DRE”). FAC ¶

19, 20. Kahn was the President of Primewest, was a licensed real estate salesperson by the

DRE, and operated under Kattaura’s broker’s license. FAC ¶ 21. Both Romeo and McGivern

were non-licensed employees of Primewest. FAC ¶ 22, 23.

Defendants argue that Khan and Kattaura cannot be held vicariously liable for the acts of

their agents because they are officers of Primewest. “[D]irectors or officers of a corporation do

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Case No. C 06-2451-JF (HRL)

ORDER (1) GRANTING IN PART AND DENYING IN PART THE MOTION TO DISMISS OF PRIMEWEST, KAHN,

AND KATTUARA; AND (2) DENYING MOTION TO DISMISS OF ROMEO AND MCGIVERN

(JFEX2)

not incur personal liability for torts of the corporation merely by reason of their official position,

unless they participate in the wrong or authorize or direct that it be done.” United States Liability

Insurance Company v. Haidinger-Haiyes, Inc., 1 Cal.3d 586, 595 (1970) (citing 3 Witkin,

Summary of Cal. Law (7th ed. 1960) § 48(c), pp. 2342-43)) However, Haidinger-Haiyes also

observes that officers “may be liable, under the rules of tort and agency, for tortious acts

committed on behalf of the corporation.” Id. Accordingly, as a matter of law, Khan and

Kattaura can be held vicariously liable for their agents’ fraudulent misrepresentation committed

on behalf of Primewest.

Valdez argues further that Khan and Kattaura are vicariously liable not only as officers of

Primewest but also as licensed real estate brokers acting in the scope of their employment

relationship. Defendants rely upon Holley v. Crank, 400 F.3d 667, 671 (9th Cir. 2004) for the

proposition that “liability in the typical employment relationship runs between the corporation

and the salesperson and between the corporation and the supervisor, but not between the

salesperson and the supervisor.” Id. Importantly, Holley states an exception to that general rule. 

“California law makes the designated real estate broker of a real estate corporation personally

responsible for the supervision of the corporation's salespersons.” Id. 

As stated in the FAC, Kattaura is a licensed real estate broker, but Khan is a licensed real

estate salesperson. Kattaura, therefore, can be held vicariously liable for the acts of Romeo and

McGivern, under the exception noted in Holley. Kahn, however, as a licensed salesperson and

not a broker, does not fall within the exception. Any vicarious liability assigned to Kahn must

instead arise from his status as an officer, the fact that the fraudulent acts were committed on

behalf of the corporation, and the agency theory. See Haidinger-Haiyes, Cal.3d at 595 (citing 3

Witkin, § 48(c), pp. 2342-43).

Defendants challenge the application of the Holley exception in this case, arguing that the

corporation, Primewest, and not the individual officer, Kattaura, is vicariously liable as the

broker under Cal. Bus. & Prof. Code and Walters v. Marler, 83 Cal.App.3d 1 (1978). 

According to the FAC, Primewest is a licensed real estate broker under the DRE and Kattaura

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Case No. C 06-2451-JF (HRL)

ORDER (1) GRANTING IN PART AND DENYING IN PART THE MOTION TO DISMISS OF PRIMEWEST, KAHN,

AND KATTUARA; AND (2) DENYING MOTION TO DISMISS OF ROMEO AND MCGIVERN

(JFEX2)

was Primewest’s only designated officer licensed as a broker by the DRE. FAC ¶ 18, 20. 

Defendants cite Walters for the proposition that, “[a]ny action by the qualifying broker . . . must

be regarded as an action by the corporation and not by the broker as an individual.” Walters, 83

Cal.App.3d at 35. In Walters, Proulx was the qualifying officer for Lampiter, and Leseman was

the salesman under the supervision of Proulx. At issue was Proulx’s liability for Leseman's

negligent misrepresentations made to the buyer, Walters. In discussing the agency relationship,

the court stated that, “as an agent of the corporation, Proulx owed a duty to Lampliter to

supervise the work of Lampliter employees. . . However, Proulx owed no duty to Walters to

supervise Leseman's work; he therefore may not be held personally liable to Walters for

Leseman's negligent misrepresentations.” Id. Defendants contend that in this case, Primewest

may be vicariously liable for the acts of its agents, but that Kattaura may not be held liable. 

Even assuming that the Khan and Kattaura can be held vicariously liable for acts

committed by their agents, Defendants argue that Valdez does not plead facts with sufficient

particularity under Rule 9(b) to show that Khan and Kattaura authorized or directed fraudulent

acts by their agents. Valdez alleges in her FAC that she “is informed and believes that at all

relevant times alleged herein Primewest and Kattaura, as licensed mortgage brokers, controlled

and directed the manner in which Khan, as a Primewest officer and licensed sales agent

operating under Kattaura’s broker license, solicited, initiated, negotiated, processed and finalized

the Loan Agreement.” FAC ¶ 35. Valdez also alleges that she “is informed and believes that at

all relevant times herein Primewest, Kattaura and Khan, as licensed mortgage brokers and

broker’s agent and officers of Primewest, controlled and directed the manner in which Romeo

and McGivern, and other employees of Primewest, solicited, initiated, negotiated, processed and

finalized the Loan Agreement.” Id. at ¶ 36. 

The Court agrees with Defendants that Valdez’s fraud claims against Khan for direct

liability are not sufficiently specific to meet the heightened pleading requirement of Rule 9(b). 

The allegations against Khan are primarily conclusory. The only statement alleged to have been

made by Khan is that he would “look into it.” To satisfy Rule 9(b), more detail as to Khan’s

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Case No. C 06-2451-JF (HRL)

ORDER (1) GRANTING IN PART AND DENYING IN PART THE MOTION TO DISMISS OF PRIMEWEST, KAHN,

AND KATTUARA; AND (2) DENYING MOTION TO DISMISS OF ROMEO AND MCGIVERN

(JFEX2)

specific false statements or statements condoning concealment or misrepresentation must be

alleged. The Court also concludes that Khan cannot be held vicariously liable for the acts of his

agents. Khan is not a licensed broker, and Holley is clear that vicarious liability in a real estate

employment relationship in California exists between the broker and salesperson. At the

hearing, counsel for Valdez argued that Khan is a real estate broker as defined by Cal. Bus. &

Prof. Code § 10131. However, Cal. Bus. & Prof. Code § 10159.2 states expressly that: 

[t]he officer designated by a corporate broker licensee pursuant to Section 10211 shall

be responsible for the supervision and control of the activities conducted on behalf of

the corporation by its officers and employees as necessary to secure full compliance

with the provisions of this division, including the supervision of salespersons licensed to

the corporation in the performance of acts for which a real estate license is required.

As alleged in the FAC, Kattaura, and not Khan, was Primewest’s only designated officer. 

FAC ¶ 20.

Valdez’s allegations of vicarious liability against Kattaura under Holley are sufficient

because Kattaura is a licensed broker. Defendants in essence argue that Holley should be limited

to its facts, which involved a broker who exercised pervasive control over his corporation. 

However, Holley holds more broadly that a broker is liable for the acts of the salesperson,

regardless of the broker’s corporate position:

The statutory provisions regulating the real estate profession . . . places a direct, personal

responsibility on the designated officer/broker of a real estate corporation to supervise

the salespersons to assure compliance with the state and federal laws. This personal

obligation is independent from that of the normal responsibilities of a corporate officer or

of the corporation itself. This is a direct personal responsibility on the part of the

officer/broker that is subject to disciplinary action affecting that officer/broker's personal

broker's license.

Holley, 400 F.3d at 673. 

Accordingly, Valdez’s third, fifth, sixth, and seventh claims will be dismissed with

respect to Khan without leave to amend, and without prejudice. Defendants’ motion will be

denied as to Valdez’ fraud claims against Kattaura. 

c. Romeo

Defendants challenge Valdez’s claims of concealment, misrepresentation, and fraud

against Romeo on the ground that the FAC lacks specificity as required by Rule 9(b). As to

Romeo individually, Valdez pleads the following facts: Valdez received numerous, unsolicited

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Case No. C 06-2451-JF (HRL)

ORDER (1) GRANTING IN PART AND DENYING IN PART THE MOTION TO DISMISS OF PRIMEWEST, KAHN,

AND KATTUARA; AND (2) DENYING MOTION TO DISMISS OF ROMEO AND MCGIVERN

(JFEX2)

phone calls from Romeo, who said he was calling on behalf of Primewest. FAC ¶ 40. Romeo

told her that “she would get the best possible loan rate” and promised that all her goals for her

property would be accomplished. Id. at ¶ 45-46. Romeo went with McGivern and Carmina to

Valdez’s home to have her sign all of the loan documents. Id. at ¶ 59. “Valdez was presented

with a large stack of transactional documents and told that she needed to sign all of them . . .

[She] was never afforded an opportunity to thoroughly examine all of the documents, including

the completed loan application . . . she relied on the representations and expertise of the

Defendants . . . .” Id. at ¶ 61. “Valdez learned that her loan application was falsified and

contained many false or misleading misrepresentation concerning, inter alia, Ms. Valdez’s

assets, income and employment history, . . .” Id. at ¶ 83. Romeo concealed material facts from

Valdez with regard to the total fees charged, the true character of the fees, her monthly payment

obligation, and the true purpose of the higher interest rate, and Valdez alleged he did so with the

intent to defraud. Id. at ¶ 138, 140. 

The Court finds that as to Romeo the allegations of the FAC are sufficient to satisfy Rule

9(b). Accordingly, Defendants’ motion to dismiss the fraud claims against Romeo will be

denied.

B. 1MOTION TO DISMISS FOURTH CLAIM FOR NEGLIGENCE AGAINST KAHN

BECAUSE PLAINTIFF FAILED TO PLEAD A VIOLATION OF A DUTY OWED

DIRECTLY TO PLAINTIFF.

Valdez alleges a claim for negligence against all Defendants for breach of their duties of

care in exercising reasonable care and skill in performing their mortgage and lending 

services by failing to: 

thoroughly explain the terms of the refinance transaction and Loan Agreement, ensure

that Ms. Valdez understood the terms of the refinance transaction and Loan Agreement,

disclose the total and true character of the fees that would be charged to Ms. Valdez,

submit truthful financial information on the HUD-1 statement, and properly train and

supervise all Primewest salespersons, agents, and employees.

Defendants argue that Khan cannot be held liable for any direct negligence because his only

statement to Valdez was that he would “look into it.” FAC ¶ 78. Defendants also contend that

Khan cannot be held vicariously liable for negligent acts committed by Romeo or McGivern

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Case No. C 06-2451-JF (HRL)

ORDER (1) GRANTING IN PART AND DENYING IN PART THE MOTION TO DISMISS OF PRIMEWEST, KAHN,

AND KATTUARA; AND (2) DENYING MOTION TO DISMISS OF ROMEO AND MCGIVERN

(JFEX2)

because liability runs between a corporation and the salesperson, and not between the

salesperson and the supervisor. 

Although a claim based upon negligence does not require the heightened pleading

necessary for a fraud claim, the Court agrees with Defendants that the allegations against Khan

are insufficient to support a claim for negligence. As to Valdez’s argument regarding vicarious

liability, the Court again finds that since Khan is not a licensed broker, he cannot be held

vicariously liable. Accordingly, the negligence claim against Kahn will be dismissed without

leave to amend. 

IV. ORDER

Good cause therefore appearing, IT IS HEREBY ORDERED that the motion of

Primewest, Khan, and Kattaura is GRANTED in part and DENIED in part, as set forth above.

IF IS FURTHER ORDERED that the motion of Romeo and McGivern is DENIED. 

Defendants shall file their answer within thirty (30) days of the date of this Order. 

DATED: 4/16/07

__________________________________

JEREMY FOGEL

United States District Judge

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Case No. C 06-2451-JF (HRL)

ORDER (1) GRANTING IN PART AND DENYING IN PART THE MOTION TO DISMISS OF PRIMEWEST, KAHN,

AND KATTUARA; AND (2) DENYING MOTION TO DISMISS OF ROMEO AND MCGIVERN

(JFEX2)

Copies of Order have been served upon the following persons:

Eric M. Alderete 

ealderete@downeysavings.com, jessicavasquez@downeysavings.com 

Joshua David Brysk

josh@jgschwartz.com, bella@jgschwartz.com 

Alison Paige Buchanan 

apb@hogefenton.com 

Isela Castaneda 

isela.castaneda@dlapiper.com, alison.mcquade@dlapiper.com 

Rajiv Sajjan Dharnidharka

rajiv.dharnidharka@dlapiper.com, christina.wikner@dlapiper.com 

Christine M. Humphries 

chumphries@downeysavings.com, jessicavasquez@downeysavings.com 

Michael D. McSweeney 

mdm@hogefenton.com 

Kim Pederson 

kimp@lawfoundation.org 

James G. Schwartz 

jim@jgschwartz.com, bella@jgschwartz.com; roberta@jgschwartz.com 

Stephanie Sidra Alexandre Stevens 

stephanies@lawfoundation.org 

Aaron Wainscoat 

aaron.wainscoat@dlapiper.com, aaron.wainscoat@dlapiper.com; celestine.seals@dlapiper.com 

Yakov M. Zolotorev 

yakov.zolotorev@dlapiper.com, deborah.brown@dlapiper.com 

Sean McGivern

755 E. Capitol Avenue, #J-212

Milpitas, CA 95035

Case 5:06-cv-02541-JF Document 76 Filed 04/17/07 Page 16 of 16