Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-casd-3_08-md-01988/USCOURTS-casd-3_08-md-01988-4/pdf.json

Nature of Suit Code: 371
Nature of Suit: Truth in Lending
Cause of Action: 15:1601 Truth in Lending

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UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF CALIFORNIA

IN RE: COUNTRYWIDE FINANCIAL

CORP. MORTGAGE MARKETING AND

SALES PRACTICES LITIGATION,

____________________________________

THIS DOCUMENT RELATES TO:

Dorothy Peralta, et al. v. Countrywide Home

Loans, Inc., et al., Case No. 10cv0257 DMS

(WMC)

CASE NO. 08md1988 DMS (WMC)

 10cv0257 DMS (WMC)

ORDER DENYING PLAINTIFF’S

MOTION FOR CLASS

CERTIFICATION

[Docket Nos. 439, 127]

This matter comes before the Court on Plaintiff’s motion for class certification. Defendants

Countrywide Home Loans, Inc. and Countrywide Bank, FSB filed an opposition to the motion, and

Plaintiff submitted a reply. David Arbogast, Chumahan Bowen, Steven Bronson and J. Mark Moore

appeared and argued on behalf of Plaintiff, and Thomas Hefferon, Brooks Brown and Robert Bader

appeared and argued on behalf of Defendants. After hearing oral argument, the Court allowed

supplemental briefing on Plaintiff’s motions to strike and objections to Defendants’ evidence, which

the parties have now submitted. Having carefully considered the pleadings and arguments of counsel,

the Court denies the motion.

/ / /

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I. 

BACKGROUND

This case is part of a multi-district litigation regarding individuals and several business entities

involved in mortgage lending across the country. This case, in particular, which involves California

residents only, has a unique procedural history going back to May 25, 2007. On that date, Steven

Bigverde, along with Carrie Shaw and Aaron K. Dunn, filed a Complaint against Countrywide Bank

FSB, Countrywide Home Loans, Inc., Countrywide Financial Corporation and Treasury Bank, N.A.

in the United States District Court for the Central District of California. On August 6, 2007, the

defendants filed a motion to dismiss that Complaint. The plaintiffs responded by filing a First

Amended Complaint on August 28, 2007, which the defendants moved to dismiss. On January 7,

2008, the court granted that motion and gave the plaintiffs leave to file a Second Amended Complaint,

which they did. The Second Amended Complaint added Dorothy Peralta as a plaintiff, and dropped

Ms. Shaw and Mr. Dunn as plaintiffs. The defendants moved to dismiss the Second Amended

Complaint, which the court granted. The court also gave the plaintiffs leave to file a Third Amended

Complaint, which they did. The defendants thereafter moved to dismiss the Third Amended

Complaint, after which the plaintiffs voluntarily dismissed their case. 

Twenty-nine days later, on June 2, 2009, the plaintiffs filed another case in Alameda Superior

Court. They thereafter filed a First Amended Class Action Complaint (“FAC”) on June 18, 2009. The

FAC named Bigverde and Peralta as plaintiffs, and also named an additional plaintiff, James Moscoso.

On July 17, 2009, the defendants removed the case to the United States District Court for the Northern

District of California. The plaintiffs thereafter moved to remand the case, and the defendants moved

for dismissal and to transfer the case to the Central District. The court denied the motion to remand,

and granted the motion to transfer. The plaintiffs submitted a request to appeal the remand decision

to the Ninth Circuit, which granted the request. While that request was pending, the case was

transferred to this Court pursuant to an order from the Judicial Panel on Multidistrict Litigation. 

After the transfer to this Court, the parties filed supplemental briefs in support of and in

opposition to the motion to dismiss. This Court stayed its decision on the motion pending a ruling

from the Ninth Circuit on the remand issue. The Ninth Circuit issued its ruling on April 15, 2010, in

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which it vacated the order granting the request to appeal and dismissed the appeal as improvidently

granted. Thereafter, this Court issued an order granting in part and denying in part Defendants’

motion to dismiss. Specifically, the Court granted the motion as to the claims of Plaintiffs Bigverde

and Moscoso, but denied the motion as to certain claims of Plaintiff Peralta. 

In the FAC, Plaintiff Peralta alleges she entered into an Option Adjustable Rate Mortgage

(“ARM”) loan with Defendants. Plaintiff alleges the Notes for these loans are based on a “teaser”

interest rate, which ranges from 1% to 3%, and the payment schedule for the first two to five years

of the loan listed in the Truth in Lending Disclosure Statements (“TILDS”) is based upon the “teaser”

interest rate, even though the “teaser” interest rate adjusts after only one month. (FAC ¶17.) Plaintiff

alleges that after the interest rate adjustment, the monthly payment listed in the TILDS is no longer

sufficient to pay the interest on the loan, resulting in negative amortization. (Id. ¶18.) Plaintiff alleges

Defendants knew negative amortization was “certain” to occur, but they failed to disclose that fact to

Plaintiff. (Id. ¶¶18-20.) Plaintiff alleges that by the time she learned her loans would negatively

amortize, she was locked into the loan by a “draconian” prepayment penalty. (Id. ¶24.) 

These allegations serve as the factual basis for Plaintiff’s remaining legal claim, which alleges

Defendants engaged in unlawful and unfair business practices in violation of California Business &

Professions Code § 17200. In support of this claim, Plaintiff relies on the loan documents and the

accompanying required disclosure statements. (Id. ¶¶1, 31.) Plaintiff asserts these documents were

uniform, which makes her case “ideally suited for class-wide adjudication[.]” (Mem. of P. & A. in

Supp. of Mot. at 1.) Accordingly, she seeks certification of the following class: 

All California residents who, from May 25, 2003 through the date that notice is mailed

to Class Members, entered into an Option Adjustable Rate Mortgage (“Option ARM”)

loan from Countrywide Home Loans, Inc., which loan had the following

characteristics: (i) the yearly numerical interest rate listed on page one of the Note is

3.0% or less; (ii) in the section entitled “Interest,” the Promissory Note states that this

rate “may” instead of “will” or “shall” change (e.g., “The interest rate I will pay may

change”); (iii) the yearly numerical interest rate listed on page one of the Note was

only effective through the due date for the first monthly payment and then adjusted to

a rate which is the sum of an “index” and “margin”; and (iv) the Note does not contain

any statement that paying the amount listed as the “initial monthly payment(s)” will

definitely result in negative amortization or deferred interest. Excluded from the Class

are Defendants’ employees, officers, directors, agents, representatives, and their family

members, as well as the Court and its officers, employees, and relatives. 

(Id. at 2.) 

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1

 Plaintiff moves to strike these Declarations from the record on the ground that Defendants

failed to identify the Declarants in a timely manner. Defendants respond that they were simply

following Plaintiff’s lead in refusing to identify arguments and evidence in support of class

certification until the motion was filed. Defendants also state they provided supplemental discovery

responses identifying these Declarants, and any failure to disclose them earlier was harmless. The

Court agrees with Defendants, and thus denies Plaintiff’s motion to strike these Declarations. 

Plaintiff also raises evidentiary objections to the individual Declarations, however, none of

those objections is persuasive. First, Plaintiff objects to the Declarations on the ground they are

irrelevant. Specifically, Plaintiff asserts the Declarations do not address the loans at issue in this case,

i.e., Option ARM loans with a one-month “teaser” rate, but rather are addressed to Option ARM loans

in general. However, Defendants explain that the overwhelming majority of Option ARM loans sold

in California during the relevant time period were one-month “teaser” loans. (See Decl. of Davis Lee

in Supp. of Opp’n to Mot. ¶¶ 5-6.) Accordingly, the Court overrules Plaintiff’s relevancy objection.

Plaintiff also objects to certain Declarations on the grounds they violate the best evidence rule, lack

foundation and are unreliable. The Court finds these objections lack merit, and thus overrules those

objections, as well. 

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Despite Plaintiff’s attempt to confine this case to the loan documents, Defendants argue the

Court will have to consider all of the disclosures made by the brokers and loan officers to the

individual borrowers, including other written disclosures and oral discussions. Defendants submitted

substantial evidence to support this position, including numerous declarations from independent

mortgage brokers and Defendants’ former or current loan officers about their practices in handling

these transactions. (See Decl. of Fred Arnold in Supp. of Opp’n to Mot. (“Arnold Decl.”); Decl. of

Christopher John Bianchi in Supp. of Opp’n to Mot. (“Bianchi Decl.”); Decl. of Al Hensling in Supp.

of Opp’n to Mot. (“Hensling Decl.”); Decl. of Fred Itzkovics in Supp. of Opp’n to Mot. (“Itzkovics

Decl.”); Decl. of Robert Nicholson in Supp. of Opp’n to Mot. (“Nicholson Decl.”); Decl. of Carl

Streicher in Supp. of Opp’n to Mot. (“Streicher Decl.”); Decl. of George D. Tribble in Supp. of Opp’n

to Mot. (“Tribble Decl.”); Decl. of Thomas Walters in Supp. of Opp’n to Mot. (“Walters Decl.”);

Decl. of Leanna Wooten in Supp. of Opp’n to Mot. (“Wooten Decl.”). Generally, these Declarations

explain that these transactions involve more than just the exchange of written loan documents. Rather,

these transactions involve the exchange of numerous other written documents, and more importantly,

oral discussions about the features of the various loan products, interest rate options, negative

amortization, and other issues of interest and specific to individual borrowers.1

 

/ / /

/ / /

/ / /

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2

 Fed. R. Civ. P. 23(a) provides: “One or more members of a class may sue or be sued as

representative parties on behalf of all members only if: (1) the class is so numerous that joinder of all

members is impracticable; (2) there are questions of law or fact common to the class; (3) the claims

or defenses of the representative parties are typical of the claims or defenses of the class; and (4) the

representative parties will fairly and adequately protect the interests of the class.” Fed. R. Civ. P.

23(a).

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II. 

DISCUSSION

A. Legal Standard

“The class action is ‘an exception to the usual rule that litigation is conducted by and on behalf

of the individual named parties only.’” Wal-Mart Stores, Inc. v. Dukes, ___U.S.___, 131 S.Ct. 2541,

2550 (2011) (citing Califano v. Yamasaki, 442 U.S. 682, 700-01 (1979)). To qualify for the exception

to individual litigation, the party seeking class certification must provide facts sufficient to satisfy the

requirements of Federal Rules of Civil Procedure 23(a) and (b). Doninger v. Pacific Northwest Bell,

Inc., 564 F.2d 1304, 1308-09 (9th Cir. 1977). 

Federal Rule of Civil Procedure 23(a) sets out four requirements for class certification –

numerosity, commonality, typicality, and adequacy of representation.2

 A showing that these

requirements are met, however, does not warrant class certification. Plaintiff also must show that one

of the requirements of Rule 23(b) is met. Here, Plaintiff relies on Rule 23(b)(3), which requires “that

the questions of law or fact common to class members predominate over any questions affecting only

individual members, and that a class action is superior to other available methods for fairly and

efficiently adjudicating the controversy.” Fed. R. Civ. P. 23(b)(3).

The district court must conduct a rigorous analysis to determine whether the prerequisites of

Rule 23 have been met. Gen. Tel. Co. v. Falcon, 457 U.S. 147, 161 (1982). It is a well-recognized

precept that “the class determination generally involves considerations that are ‘enmeshed in the

factual and legal issues comprising the plaintiff’s cause of action.”’ Coopers & Lybrand v. Livesay,

437 U.S. 463, 469 (1978) (quoting Mercantile Nat’l Bank v. Langdeau, 371 U.S. 555, 558 (1963)).

However, “[a]lthough some inquiry into the substance of a case may be necessary to ascertain

satisfaction of the commonality and typicality requirements of Rule 23(a), it is improper to advance

a decision on the merits at the class certification stage.” Moore v. Hughes Helicopters, Inc., 708 F.2d

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475, 480 (9th Cir. 1983) (citation omitted). Rather, the court's review of the merits should be limited

to those aspects relevant to making the certification decision on an informed basis. See Fed. R. Civ.

P. 23 advisory committee notes. If a court is not fully satisfied that the requirements of Rules 23(a)

and (b) have been met, certification should be refused. Falcon, 457 U.S. at 161. 

B. Rule 23(a)

Rule 23(a), and its prerequisites for class certification – numerosity, commonality, typicality,

and adequacy of representation – are addressed in turn.

1. Numerosity

Rule 23(a)(1) requires the class to be “so numerous that joinder of all members is

impracticable.” Fed. R. Civ. P. 23(a)(1); Staton v. Boeing Co., 327 F.3d 938, 953 (9th Cir. 2003). The

plaintiff need not state the exact number of potential class members; nor is a specific minimum

number required. Arnold v. United Artists Theatre Circuit, Inc., 158 F.R.D. 439, 448 (N.D. Cal.

1994). Rather, whether joinder is impracticable depends on the facts and circumstances of each case.

ld. Here, Plaintiff states, and Defendants do not dispute, that there are nearly 60,000 potential class

members. A class of this magnitude satisfies the first requirement of Rule 23(a).

2. Commonality

The second element of Rule 23(a) requires the existence of “questions of law or fact common

to the class.” Fed. R. Civ. P. 23(a)(2). This requirement is met through the existence of a “common

contention” that is of “such a nature that it is capable of classwide resolution[.]” Dukes, 131 S.Ct. at

2551. As summarized by the Supreme Court:

“What matters to class certification ... is not the raising of common ‘questions’ – even

in droves – but, rather the capacity of a classwide proceeding to generate common

answers apt to drive the resolution of the litigation. Dissimilarities within the proposed

class are what have the potential to impede the generation of commons answers.”

ld. (quoting Richard A. Nagareda, Class Certification in the Age of Aggregate Proof, 84 N.Y.U. L.

Rev. 97, 132 (2009)).

In this case, Plaintiff lists a number of legal and factual issues that she asserts are common to

the class. (See Mem. of P. & A. in Supp. of Mot. at 11-12.) In particular, Plaintiff states each member

of the proposed class obtained an Option ARM loan directly from Countrywide, and each member of

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the proposed class received “standardized loan documents that all failed to disclose the same material

information.” (Id. at 11.) While these issues may be common to the class and subject to common

proof, Defendants raise other arguments in support of their position that the commonality element is

not satisfied here. As discussed in more detail below, the Court agrees with Defendants that there are

dissimilarities in the proposed class that “impede the generation of common answers apt to drive the

resolution of the litigation.” Dukes, 131 S.Ct. at 2551. Thus, Plaintiff has failed to establish

commonality under Rule 23(a).

3. Typicality

The next requirement of Rule 23(a) is typicality, which focuses on the relationship of facts and

issues between the class and its representative. “[R]epresentative claims are ‘typical’ if they are

reasonably co-extensive with those of absent class members; they need not be substantially identical.”

Hanlon v. Chrysler Corp., 150 F.3d 1011, 1020 (9th Cir. 1998). “The test of typicality is whether

other members have the same or similar injury, whether the action is based on conduct which is not

unique to the named plaintiffs, and whether other class members have been injured by the same course

of conduct.” Hanon v. Dataproducts Corp., 976 F.2d 497, 508 (9th Cir. 1992) (citation and internal

quotation marks omitted).

Here, Plaintiff asserts her claim is typical of the claims of the members of the proposed class

because their claims rely on a uniform set of documents. Plaintiff also contends she is typical of the

proposed class members because they all purchased the same loan product. Defendants argue Plaintiff

is not typical of the proposed class members because she obtained her loan from a broker. However,

that fact does not render Plaintiff atypical. Most of the members of the proposed class obtained their

loans through a broker, and the remainder obtained their loans through a loan officer employed by

Countrywide. (See Decl. of Kathleen Keener in Supp. of Opp’n to Mot. ¶ 6.) Thus, Plaintiff has

satisfied the typicality requirement. 

4. Adequacy of Representation

The final requirement of Rule 23(a) is adequacy. Rule 23(a)(4) requires a showing that “the

representative parties will fairly and adequately protect the interests of the class.” Fed. R. Civ. P.

23(a)(4). This requirement is grounded in constitutional due process concerns; “absent class members

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must be afforded adequate representation before entry of judgment which binds them.” Hanlon, 150

F.3d at 1020 (citing Hansberry v. Lee, 311 U.S. 32,42-43 (1940)). In reviewing this issue, courts must

resolve two questions: “(1) do the named plaintiffs and their counsel have any conflicts of interest with

other class members, and (2) will the named plaintiffs and their counsel prosecute the action

vigorously on behalf of the class?” Id. (citing Lerwill v. lnflight Motion Pictures, Inc., 582 F.2d 507,

512 (9th Cir. 1978)). The named plaintiffs and their counsel must have sufficient "zeal and

competence" to protect the interests of the rest of the class. Fendler v. Westgate-California Corp., 527

F.2d 1168, 1170 (9th Cir. 1975).

Plaintiff here has demonstrated the absence of any conflict between herself and her counsel

and the members of the proposed class. Plaintiff has also demonstrated that she and her counsel will

vigorously prosecute the case on behalf of the class. Accordingly, Plaintiff has satisfied the adequacy

requirement.

C. Rule 23(b)

The next issue is whether Plaintiff has shown that at least one of the requirements of Rule

23(b) is met. Amchem Products, Inc. v. Windsor, 521 U.S. 591, 614-15 (1997). In this case, Plaintiff

asserts she has met the requirements of Rule 23(b)(3). Certification under Rule 23(b)(3) is proper

"whenever the actual interests of the parties can be served best by settling their differences in a single

action." Hanlon, 150 F.3d at 1022 (internal quotations omitted). Rule 23(b)(3), as discussed, calls

for two separate inquiries: (1) do issues of fact or law common to the class "predominate" over issues

unique to individual class members, and (2) is the proposed class action "superior" to other methods

available for adjudicating the controversy. Fed. R. Civ. P. 23(b)(3). In adding the requirements of

predominance and superiority to the qualifications for class certification, "the Advisory Committee

sought to cover cases ‘in which a class action would achieve economies of time, effort, and expense,

and promote ... uniformity of decisions as to persons similarly situated, without sacrificing procedural

fairness or bringing about other undesirable results.’” Amchem, 521 U.S. at 615 (quoting Fed. R. Civ.

P. 23(b)(3) advisory committee notes).

A “central concern of the Rule 23(b)(3) predominance test is whether 'adjudication of common

issues will help achieve judicial economy.’” Vinole v. Countrywide Home Loans, Inc., 571 F.3d 935,

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944 (9th Cir. 2009) (quoting Zinser v. Accufix Research Inst., Inc., 253 F.3d 1180, 1189 (9th Cir.

2001)). Thus, courts must determine whether common issues constitute such a significant aspect of

the action that “there is a clear justification for handling the dispute on a representative rather than on

an individual basis.” 7A Charles Alan Wright, et al., Federal Practice and Procedure § 1778 (3d ed.

2005). The predominance inquiry under Rule 23(b) is rigorous, Amchem, 521 U.S. at 624, as it “tests

whether proposed classes are sufficiently cohesive to warrant adjudication by representation.” Id. at

623.

In this case, the only claim remaining is Plaintiff’s claim under California’s Unfair

Competition Law (“UCL”), Cal. Bus. & Prof. Code § 17200. This statute prohibits “any unlawful,

unfair or fraudulent business act or practice and unfair, deceptive, untrue or misleading advertising[.]”

Cal. Bus. & Prof. Code § 17200. Here, Plaintiff alleges Defendants’ conduct was both unlawful and

unfair in that Defendants, among other things, violated California Civil Code §§ 1572 (Actual Fraud),

1573 (Constructive Fraud), and 1710 (Deceit) by engaging in the referenced fraudulent practices.

(FAC ¶ 91.) To state a claim under California’s UCL, “‘it is necessary only to show that members

of the public are likely to be deceived’” by the defendant’s conduct. Stearns v. Ticketmaster Corp.,

655 F.3d 1013, 1020 (9th Cir. 2011) (quoting In re Tobacco II Cases, 46 Cal. 4th 298, 312 (2009)). The

focus of the UCL – a consumer protection law – is on the defendant’s conduct, and not on the

plaintiff’s damages. Id. Indeed, the UCL provides only for equitable relief, such as injunctive relief

and restitution in light of the statute’s overarching purpose of protecting the general public from

unscrupulous business practices. Id. Accordingly, “‘relief under the UCL is available without

individualized proof of deception, reliance and injury.’” Id. (quoting Tobacco II, 46 Cal. 4th at 320).

Plaintiff argues that in light of this standard common issues predominate because her claim

rests on uniform written disclosures that were likely to deceive class members. (Mem. of P. & A. in

Supp. of Mot. at 15.) In support of this argument, Plaintiff relies on several cases. First, she relies

on Yokoyama v. Midland National Life Ins. Co., 594 F.3d 1087 (9th Cir. 2010). That case involved

a claim under Hawaii’s Deceptive Practices Act, a counterpart to California’s UCL. There, the

plaintiffs alleged that representations in the defendant’s sales and marketing brochures were

misleading and deceptive in that the defendant “represents that its annuities protect its clients from

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the risks of the stock market and that Midland fails to include in its documentation facts necessary to

inform prospective purchasers of the true risks, possible detriments, and unsuitability of Midland’s

long-term annuities for seniors.” Id. at 1090. The district court denied class certification on the

ground that individual issues of reliance would predominate over any common issues. The Ninth

Circuit disagreed with the district court’s interpretation of Hawaii law, and instead found that reliance

could be shown by an objective, reasonable person standard. Id. at 1093. In light of that legal error,

the Ninth Circuit reversed the district court’s denial of class certification. 

Plaintiff likens her case to Yokoyama, specifically that portion of the case that describes the

plaintiff’s claim as one that relies exclusively on written materials. However, there is a critical

distinction between the facts of Yokoyama and the facts of this case: In Yokoyama, the defendant

“obligate[d] its brokers, with respect to each sale, ... to certify that nothing was said that is inconsistent

with Midland’s brochures and disclosure forms.” Id. at 1090. In contrast, Defendants here imposed

no such obligation on their loan officers or the independent brokers. On the contrary, Defendants

assert their brokers and loan officers “provided the supposedly omitted information to each borrower

in oral communications or in other loan documents that varied from borrower to borrower.” (Opp’n

to Mot. at 11) (citations omitted). 

For instance, Fred Arnold, a mortgage broker who placed loans with Countrywide, states: 

In explaining POA loans to my borrowers, my practice was to describe, in detail, the

interest rate change and negative amortization features of the product, as well as the

costs of the product as compared to other adjustable and fixed-rate products. In my

experience, good originators offered more than one loan product for the borrower to

consider, and when I offered a POA loan, I explained the monthly payments options

available to borrower-clients in the early years of a POA loan, including the options

to make a minimum payment, interest-only payment, and/or 15-year or 30-year

amortizing payment, and the negative amortization consequences of choosing the

minimum payment option. I found that it was critical to explain the negative

amortization feature, and I always explained that a loan will negatively amortize if the

borrower made the minimum payment. 

(Arnold Decl. ¶ 7.) Leanna Wooten, a former loan originator with Countrywide’s Consumer Markets

Division (“CMD”), also states: 

When customers requested a POA loan, my usual practice, and Countrywide’s policy

as I understood it, was to provide customers with detailed information, both oral and

written, about the loan’s terms and features as well as about how the loan worked. For

example, I carefully explained to each borrower that the initial, low interest rate on the

loan would last for only a short time - usually one to three months and then increase

to the sum of the set margin and variable index. I also explained to each customer that,

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3

 Many of the other cases Plaintiff relies on are distinguishable for the same reason. See

Lozano v. AT&T Wireless Services, Inc., 504 F.3d 718 (9th Cir. 2007) (affirming certification of class

because claim “based on uniform disclosures made by AWS to all its consumers[.]”); Schramm v.

JPMorgan Chase Bank, N.A., No. LA CV09-09442 JAK (FFMx), 2011 WL 5034663, at *4 (C.D. Cal.

Oct. 19, 2011) (finding predominance requirement met where UCL claim was based on “same

allegedly misleading language.”); In re National Western Life Ins. Deferred Annuities Litig., 268

F.R.D. 652, 664 (S.D. Cal. 2010) (finding predominance requirement met where claims based on

uniform, written materials); Kingsbury v. U.S. Greenfiber, LLC, No. CV 08-00151 AHM (JTLx), 2011

WL 2619231, at *6 (C.D. Cal. May 23, 2011) (finding predominance requirement satisfied where

claim rests on omission of material information from standard purchase agreement); Abels v. JBC

Legal Group, P.C., 227 F.R.D. 541, 544-45 (N.D. Cal. 2005) (commonality requirement met where

claim arises out of standard letter sent to each member of proposed class); Randolph v. Crown Asset

Management, LLC, 254 F.R.D. 513, 519-20 (N.D. Ill. 2008) (finding predominance requirement met

where “claims are based on standardized form complaints and supporting affidavits.”); Dupler v.

Costco Wholesale Corp., 249 F.R.D. 29, 37-38 (E.D.N.Y. 2008) (finding predominance requirement

satisfied where case involved use of form contracts); Wisneski v. Nationwide Collections, Inc., 227

F.R.D. 259, 260 (E.D. Pa. 2004) (same as Abels).

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after the expiration of the initial, low rate, the interest rate would continue to be linked

to a set margin and variable index that would determine whether the rate increased or

decreased during the life of the loan. As part of this explanation, I made it a point to

inform each borrower of the maximum and minimum interest rate under the POA loan,

as well as that increases in the interest amounts due on the loan that would flow from

increases in the interest rate. ... I also explained the monthly payment options available

to the borrower in a POA loan, how the payment options worked and, in particular, the

negative amortization consequences using the minimum payment option.

(Wooten Decl. ¶¶ 5-6.) 

Plaintiff ignores this evidence, and the distinction it creates between the facts of her case and

the facts of Yokoyama. However, that distinction takes Plaintiff’s case outside the bounds of

Yokoyama, and severely limits, if not eliminates, Yokoyama’s application to this case.3 

Plaintiff also cites two cases that arise out of circumstances identical to those underlying this

case, i.e., cases involving “teaser” interest rates with resulting negative amortization if the minimum

payment was made by the borrower, to support her argument for a finding of predominance. See

Lymburner v. U.S. Financial Funds, Inc., 263 F.R.D. 534 (N.D. Cal. 2010); Plascencia v. Lending 1st

Mortgage, 259 F.R.D. 437 (N.D. Cal. 2009). These cases, however, were decided before Wal-Mart,

131 S.Ct. at 2557-61 (recognizing defendant’s right to raise individual affirmative defenses), and

Stearns, 655 F.3d at 1020 (citing Wal-Mart and cautioning predominance may be lacking in UCL

claim where no cohesion among class members exists “because they were exposed to quite disparate

information from various representatives of the defendant.”) To be sure, a mortgage loan transaction

involves numerous documents, many of which are standardized, and most of which contain confusing

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and arcane language, but – as established here – the transaction also may involve discussions, both

oral and written, between the individual borrower and his or her broker or loan officer over features

of the loan (such as negative amortization) later questioned in ensuing litigation. The courts in

Lymburner and Plascencia expressly declined to address the impact, if any, of such discussions with

class borrowers in the context of a UCL claim: “The ‘individual circumstances of each class member’s

loan need not be examined because the class members are not required to prove reliance and

damage.’” Lymburner, 263 F.R.D. at 543 (quoting Plascencia, 259 F.R.D. at 448). But as Stearns

makes clear, while class members need not prove individualized deception, reliance and injury, the

Court must consider whether disclosures to class members were made and, if so, whether such

disclosures: (a) tend to defeat the claim that the common conduct attributed to the defendant is likely

to deceive the entire class, and (b) are so numerous and individualized that they defeat commonality.

In this case, Defendants have come forward with evidence that reflects the individualized

nature of the loan purchase and refinance transactions in question. That evidence demonstrates that

these transactions varied from borrower to borrower. (See Arnold Decl. ¶ 6 (“My conversations with

POA loan borrowers varied from transaction to transaction because every consumer is different and

every transaction is different.”); Bianchi Decl. ¶ 5 (stating discussions with borrowers differed “based

on borrower needs and preferences.”); Hensling Decl. ¶¶ 12-13 (stating communications with

borrowers varied from transaction to transaction)). In light of this evidence, the transactions at issue

here lack the “cohesion” necessary for a finding of predominance. See Stearns, 655 F.3d at 1020 (no

predominance where there is “no cohesion among the members because they were exposed to quite

disparate information from various representatives of the defendant.”) 

The facts of this case are akin to the facts of Kaldenbach v. Mutual of Omaha Life Ins. Co., 178

Cal. App. 4th 830 (2009), and Fairbanks v. Farmers New World Life Ins. Co., 197 Cal. App. 4th 544

(2011). In Kaldenbach, the plaintiff brought an action against Mutual of Omaha (Mutual) concerning

the sale of a so-called “vanishing premium” life insurance policy, in which the plaintiff was led to

believe that after making four annual premium payments ($12,648 total), the cash reserves on his

policy – earned through high rates of interest on the cash accumulation of his premium payments –

would be sufficient to cover his life insurance until the maturity date of the policy. Id. at 835-36.

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Eight years after making his last premium payment, however, Mutual notified the plaintiff that his

cash reserves were insufficient and if he did not start making premium payments again his policy

would lapse. Id. at 836. The plaintiff alleged for himself and on behalf of putative class members that

Mutual provided uniform sales materials and training methods to its agents that allowed them to

mislead customers into believing that a low cost of actual insurance could be invested by Mutual with

a sufficient return to cover future premium payments until maturity of the policy, when in fact (given

higher costs of mortality and declining interest rates) the policy could not perform as represented. Id.

Mutual denied the allegations, and came forward with evidence that it had no control over the training

materials read or sales methods used by the independent sales agents. Id. at 839. Each sales

presentation, according to Mutual, “‘was left up to the agent’s sole discretion and would vary from

agent to agent and prospect to prospect,’ depending on the purchaser’s needs.” Id. 

In affirming the trial court’s denial of class certification under the UCL, the Kaldenbach court

held:

[T]he determination of what business practices were allegedly unfair turns on

individual issues. ...[T]he viability of a UCL claim would turn on inquiry into the

practices employed by any given independent agent – such as ... what materials,

disclosures, representations, and explanations were given to any given purchaser.

Id. at 849-50.

Like Kaldenbach, in Fairbanks, the plaintiffs brought a claim against Farmers for violation

of the UCL “in connection with Farmers’ marketing and sale of universal life insurance policies.” 197

Cal. App. 4th at 546. Specifically, the plaintiffs alleged “that Farmers designed and marketed its ...

policies in such a way that the premiums paid would be inadequate to keep the policies in effect until

maturity, resulting in the underfunding of the policies and their eventual lapse.” Id. at 550. The trial

court denied the plaintiffs’ motion for class certification on the ground that common issues did not

predominate. In particular, the court found predominance lacking because “(1) the representations

made to prospective policyholders were not common; and (2) whether any particular misrepresentation

was material was also not common, as resolution of the issue would depend on the particular needs

of the prospective policyholder.” Id. at 559. 

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4

 Defendants also point out that Countrywide made its loans through multiple separate

divisions. “Each division operated separately, offered varying loan products, and interacted with

prospective borrowers differently.” (Opp’n to Mot. at 4.) Plaintiff’s loan was made through the

Wholesale Lending Division (“WLD”), which used independent brokers. Thus, Plaintiff and “the

majority of California borrowers who obtained their POA loans through WLD during the putative

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The court of appeal agreed with those findings, and thus affirmed the denial of class

certification. Relying on Kaldenbach, the Fairbanks court stated, “a class action cannot proceed for

a fraudulent business practice under the UCL when it cannot be established that the defendant engaged

in uniform conduct likely to mislead the entire class.” Id. at 562 (citations omitted). Like Plaintiff

here, the plaintiffs in Fairbanks attempted to defeat that finding by relying on the policy language,

which the court stated was “indisputably amenable to common proof.” Id. at 564. However, the court

went on to state it would be “impossible to consider the language of the policies without considering

the information conveyed by the Farmers agents in the process of selling them.” Id. The court also

agreed with the trial court’s finding that materiality was not subject to common proof. Although the

court acknowledged that materiality was subject to an objective standard, it found “the issue is

nonetheless subject to individual proof under the circumstances of this case.” Id. at 565. In support

of that finding, the court noted that individuals purchase different types of life insurance for different

reasons, “including: the ability to skip payments and not lose coverage; the ability to increase or

decrease FFUL premiums as financial circumstances require; the ability to change the death benefit

without obtaining a new policy; and the ability to accrue tax-deferred interest.” Id. The court also

cited evidence that “roughly half of the FFUL policyholders surveyed would have purchased the

policy even if they had been told that the premiums were not guaranteed to keep the policy in force

to maturity.” Id. 

Here, as in Kaldenbach and Fairbanks, the determination of whether Defendants’ business

practices were likely to deceive turns on numerous individual issues. Plaintiff must show “uniform

conduct likely to mislead the entire class” to satisfy the predominance requirement. Kaldenbach, 178

Cal. App. 4th at 850. Like the plaintiffs in Fairbanks, Plaintiff here attempts to meet that showing by

relying exclusively on the written documents, but that approach ignores the nature of the transaction

as one that involves not only the exchange of written documents but also considerable oral and written

discussions between the individual borrowers and their brokers.4

 

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class period had no communications at all with [Countrywide]. This is because they dealt exclusively

with independent mortgage brokers, over whom [Countrywide] had no control, in the loan selection,

application and origination process.” (Id.) (citing Arnold Decl., ¶ 4-5; Garrison Decl., ¶ 3-8; Hensling

Decl., ¶ 9-11; Itzkovics Decl., ¶ 14-16; Tribble Decl., ¶ 6, 12-13.)

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Furthermore, Plaintiff has not shown that the materiality element of her UCL claim is subject

to proof by common evidence. Indeed, Plaintiff fails to provide any evidence to support this

argument. Plaintiff simply assumes that the information allegedly omitted in standard loan documents,

i.e., an “ephemeral teaser rate” which would “increase sharply after one month” and thus, “guarantee

negative amortization” if the minimum payment was made, was “objectively material” to the entire

class. (See Reply Br., at 1.) Defendants, however, submitted evidence that members of the proposed

class were situated differently. (See Hensling Decl. ¶ 13; Streicher Decl. ¶ 6; Walters Decl. ¶ 7;

Wooten Decl. ¶ 3.) For instance, some borrowers: 

wanted POAs and other loan products with lower interest rates in the initial years of

the loan in order to save money. Other borrowers ... expressed that they had difficulty

meeting their existing mortgage payments and wanted to refinance to reduce their

interest rate and monthly payments. Other borrowers wanted to reduce the length of

the loan from a 30-year loan to a 20- or 15-year loan. Other borrowers wanted POA

and other loan products with lower interest rates and payments in the early years of the

loan because they intended to own the property, as a primary residence or investment,

for a short time and/or wanted additional resources to make improvements to the

property after the purchase. Other borrowers wanted POA or other loan products with

lower initial rates and payments because they anticipated future increases in income

or property values and such products allowed them to purchase a more expensive home

than, for example, 30 or 40-year fixed rate products. Other borrowers wanted the

monthly payment flexibility of POA loans because of fluctuation in their income or

household expenses from month-to-month. Other borrowers were planning to relocate

and wanted to reduce their interest rate and use the property as a rental property rather

than as their principal residence.

(Wooten Decl. ¶ 3.) The evidence submitted by Defendants illustrates that numerous class members

may have been unconcerned with negative amortization given plans, for example, to sell their property

at later time in a then-rising housing market. Under these circumstances, the element of materiality

is not subject to common proof on a classwide basis. See Fairbanks, 197 Cal. App. 4th at 565 (stating

materiality not subject to common proof where reasons for purchasing insurance varied). 

Plaintiff argues Kaldenbach, and by extension, Fairbanks, are inapplicable to the facts of this

case because in those cases “there was no uniform practice committed by defendant, whereas here

there is.” (Reply at 10 n.13.) However, simply repeating the refrain that this case involves “uniform

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 Because Plaintiff’s motion is denied on these grounds, the Court declines to address the

balance of Defendants’ arguments.

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conduct” does not make it so. Although the written documents at issue here may be uniform, or at

least similar enough that they are subject to common proof, it is impossible to consider the written

documents without also considering the oral and written discussions between the borrowers and the

brokers. Those discussions are not subject to common proof, but rather raise individual issues that

predominate over any other common issues in this case. Accordingly, the predominance requirement

is not met on Plaintiff’s claim under the UCL. Absent a showing of predominance, Plaintiff is not

entitled to class certification.5

 

III. 

CONCLUSION

For the reasons set out above, Plaintiff’s motion for class certification is denied.

IT IS SO ORDERED.

DATED: December 16, 2011

HON. DANA M. SABRAW

United States District Judge

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