Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-5_06-cv-02530/USCOURTS-cand-5_06-cv-02530-1/pdf.json

Nature of Suit Code: 443
Nature of Suit: Civil Rights Accommodations
Cause of Action: 42:405 Fair Housing Act

---

United States District Court

For the Northern District of California

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

1 Pursuant to 28 U.S.C. § 636(c) and Fed. R. Civ. P. 73, all parties have

expressly consented that all proceedings in this matter may be heard and finally adjudicated

by the undersigned.

NOT FOR CITATION

IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF CALIFORNIA

SAN JOSE DIVISION

JOSE RUIZ and GEORGINA RUIZ,

Plaintiffs,

 v.

DECISION ONE MORTGAGE COMPANY,

LLC; AMERICAN MUTUAL FINANCIAL

SERVICES; JOHNNY HWANG; ASHISH

OBEROI; IMRAN NASIR; ANDREW

MICHAEL OLDHAM; ANITA SIU YEE

CHEUNG,

Defendants. /

No. C06-02530 HRL

ORDER (1) GRANTING DECISION ONE

MORTGAGE’S MOTION TO STRIKE

PORTIONS OF THE COMPLAINT; AND

(2) GRANTING IN PART AND DENYING

IN PART DECISION ONE

MORTGAGE’S MOTION TO DISMISS

CLAIMS SEVEN AND EIGHT OF THE

COMPLAINT

[Re: Docket Nos. 14 and 17]

On July 25, 2006, this court heard the “Motion to Strike Portions of the Complaint” and

“Motion to Dismiss Claims Seven and Eight of the Complaint” filed by defendant Decision One

Mortgage Company (“Decision One”). Upon consideration of the moving and responding

papers filed by the parties, as well as the arguments of counsel, this court (1) grants Decision

One’s motion to strike as unopposed; and (2) grants in part and denies in part Decision One’s

motion to dismiss.1

I. BACKGROUND

This is a civil action which arises from defendants’ alleged predatory lending practices

for which plaintiffs seek damages, as well as declaratory and injunctive relief. According to the

*E-FILED ON 7/25/06*

Case 5:06-cv-02530-HRL Document 35 Filed 07/25/06 Page 1 of 9
United States District Court

For the Northern District of California

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

2

complaint, plaintiff Jose Ruiz is primarily a Spanish speaker, with limited ability to speak, read

or write in the English language. His wife, plaintiff Georgina Ruiz, speaks only Spanish. 

Plaintiffs claim that they are the victims of defendants’ “abusive and predatory” lending

practices in connection with the refinancing of their home mortgage. Among other things, they

claim that defendants misrepresented essential loan terms, used bait and switch tactics, charged

unreasonable, unearned and duplicative fees, and failed to translate loan documents from

English into Spanish. They assert that defendants have violated several federal and state laws,

and the complaint alleges eleven claims for relief: (1) violation of the Real Estate and

Settlement Procedures Act, 12 U.S.C. § 2607(a), et seq. and Federal Reserve Regulation X, 24

C.F.R. § 3500 et seq.; (2) violation of the Fair Housing Amendments Act, 42 U.S.C. § 3601 et

seq.; (3) violation of the Fair Employment and Housing Act, Cal. Govt. Code § 12955 et seq.;

(4) fraud; (5) violation of the Unfair Competition Act, Cal. Bus. & Prof. Code § 17200 et seq.;

(6) breach of fiduciary duty; (7) professional negligence; (8) violation of California Civil Code

§ 1632; (9) rescission/cancellation; (10) violation of the Equal Credit Opportunity Act, 15

U.S.C. § 1691 et seq.; and (11) notary malfeasance.

Presently before this court are two motions filed by defendant Decision One. First,

Decision One moves to strike portions of the complaint on the ground that amendments brought

about by the passage of Proposition 64 preclude plaintiffs from suing on behalf of the general

public or from seeking attorney’s fees under California’s Unfair Competition Laws. Second,

pursuant to Fed.R.Civ.P. 12(b)(6), Decision One moves to dismiss the seventh and eighth

claims for relief for professional negligence and for violation of California Civil Code section

1632. It contends that the complaint does not allege sufficient facts establishing that it owed

plaintiffs a duty of care. Decision One also asserts that California Civil Code section 1632 does

not cover the loan at issue. It further contends that, because Decision One is not a real estate

broker, California Civil Code section 1632 does not apply in any event.

II. LEGAL STANDARD

A motion to dismiss for failure to state a claim pursuant to Fed. R. Civ. P. 12(b)(6) tests

the legal sufficiency of the claims in the complaint. In such a motion, all material allegations in

Case 5:06-cv-02530-HRL Document 35 Filed 07/25/06 Page 2 of 9
United States District Court

For the Northern District of California

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

3

the complaint must be taken as true and construed in the light most favorable to the claimant. 

See Balistreri v. Pacifica Police Dep’t, 901 F.2d 696, 699 (9th Cir. 1990). “However, the court

is not required to accept legal conclusions cast in the form of factual allegations if those

conclusions cannot reasonably be drawn from the facts alleged.” Clegg v. Cult Awareness

Network, 18 F.3d 752, 754-55 (9th Cir. 1994). Dismissal is appropriate only when it “‘appears

beyond doubt that the plaintiff can prove no set of facts in support of his claim which would

entitle him to relief.’” Balistreri, 901 F.2d at 699 (quoting Conley v. Gibson, 355 U.S. 41, 45-

46 (1957)). Ordinarily, a court may only look at the face of the complaint and documents

attached to the complaint in deciding a Fed. R. Civ. P. 12(b)(6) motion to dismiss. See Hal

Roach Studios, Inc. v. Richard Feiner & Co., Inc., 896 F.2d 1542, 1555 n.19 (9th Cir. 1990).

III. DISCUSSION

A. Motion to Strike Portions of the Complaint

Decision One moves to strike those portions of the complaint in which plaintiffs purport

to seek relief “on behalf of the general public” and claim entitlement to the recovery of

attorney’s fees pursuant to California’s Unfair Competition Laws. The court may strike “from

any pleading any insufficient defense, or any redundant, immaterial, impertinent, or scandalous

matter.” FED.R.CIV.P. 12(f). Here, Decision One argues that amendments to California’s

Unfair Competition Laws, brought about by the passage of Proposition 64 in 2004, bar plaintiffs

from suing on behalf of the general public or from seeking the recovery of attorney’s fees. 

Plaintiffs state that they do not oppose Decision One’s motion to strike. Accordingly, the

motion is granted.

B. Motion to Dismiss Claims Seven and Eight of the Complaint

1. Seventh Claim for Relief: Professional Negligence

Plaintiffs assert their claim for professional negligence against nearly all defendants,

including Decision One. They allege that Decision One, as the mortgage loan lender, is liable

because it “acted negligently in failing to properly consider, investigate, evaluate or audit

plaintiffs’ loan application and/or ability to repay loans.” (Complaint, ¶ 118). Additionally,

they allege that “[d]efendants owed plaintiffs a duty to act with that degree of skill, prudence

Case 5:06-cv-02530-HRL Document 35 Filed 07/25/06 Page 3 of 9
United States District Court

For the Northern District of California

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

4

and diligence as other mortgage brokers and lenders of ordinary skill and capacity in the

performance of the services they undertake.” (Id., ¶ 116). Further, the complaint alleges that

“[d]efendants knew or should have known to utilize the best practices for underwriting,

originating and issuing loans when considering the Decision [One] loans to plaintiffs but

negligently failed to do so.” (Id., ¶ 120).

Decision One moves to dismiss this claim, arguing that it owed no duty of care to

plaintiffs in its capacity as the mortgage lender. In California, generally, there is no duty of care

owed to a borrower by a lender. See Nymark v. Heart Federal Savings & Loan Ass’n, 231 Cal.

App.3d 1089, 283 Cal. Rptr. 53, 56 (1991) (“[A]s a general rule, a financial institution owes no

duty of care to a borrower when the institution’s involvement in the loan transaction does not

exceed the scope of its conventional role as a mere lender of money.”). “Liability to a borrower

for negligence arises only when the lender ‘actively participates’ in the financed enterprise

‘beyond the domain of the usual money lender.’” Wagner v. Benson, 101 Cal. App.3d 27, 161

Cal. Rptr. 516, 521 (1980) (citing Connor v. Great Western Savings & Loan Ass’n, 69 Cal.2d

850, 73 Cal. Rptr. 369 (1968); Bradler v. Craig, 274 Cal. App.2d 466, 79 Cal. Rptr. 401 (1969);

Kinner v. World Savings & Loan Ass’n, 57 Cal. App.3d 724, 129 Cal. Rptr. 400 (1976)).

Plaintiffs argue that Nymark and Wagner are factually distinguishable and that their

holdings should be limited to the particular facts of each case. In Nymark, the court concluded

that the lender owed no duty to the borrower in the preparation of its property appraisal in

connection with its loan approval process. Nymark, 283 Cal. Rptr. at 59. In Wagner, the court

found that the lender owed no duty of care to the borrowers with respect to the prosperity of a

financial investment that the borrowers made with the borrowed funds. Wagner, 161 Cal. Rptr.

at 521. Further, plaintiffs contend that both Nymark and Wagner cite Connor v. Great Western

Savings & Loan Ass’n, 69 Cal.2d 850, 73 Cal. Rptr. 369 (1968), which concerned whether a

duty was owed to third parties not in privity of contract with the lender. Nevertheless, as noted

above, both Nymark and Wagner recognize the general rule that no duty of care is owed by a

lender to a borrower. Here, the complaint contains no allegations indicating that Decision One

Case 5:06-cv-02530-HRL Document 35 Filed 07/25/06 Page 4 of 9
United States District Court

For the Northern District of California

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

5

acted beyond the scope of its conventional activities as a lender of money. Nor do plaintiffs

indicate that the deficiency may be cured by amendment.

Plaintiffs nonetheless argue that the loan at issue in Wagner was commercial, whereas

the loan at issue in the instant action is residential. They assert that “extensive regulation and

consumer protections” pertaining to residential loans – namely, the Truth in Lending Act, the

Real Estate and Settlement Procedures Act, the Home Ownership and Equity Protection Act,

California Civil Code § 1632, and California Financial Code § 4970 et seq. – give rise to a

lender’s duty of care to a borrower for residential loans, even if no such duty would arise in the

commercial context. However, plaintiffs have not cited any authority to support this

proposition.

Plaintiffs contend that a lender may be held liable in negligence to a borrower, citing

Washington Mutual Bank v. Super. Ct., 75 Cal. App.4th 773, 89 Cal. Rptr.2d 560 (1999) and

Wanger v. EMC Mortgage Corp., 103 Cal. App.4th 1125, 127 Cal. Rptr.2d 685 (2002). 

However, neither case addressed the existence of a duty between a lender and a borrower. In

Washington Mutual Bank, the court addressed a preemption issue and held that state law claims

based on the violation of Real Estate and Settlement Procedures Act requirements and related

regulations are not expressly preempted by federal law. Washington Mutual Bank, 89 Cal.

Rptr.2d at 571. In Wanger, the court reversed summary judgment in favor of a lender, finding

that there were material issues of fact as to the borrower’s claim that the notice of transfer

requirement under the Real Estate and Settlement Procedures Act had been violated. Wanger,

127 Cal. Rptr.2d at 690, 694-95.

This court concludes that plaintiffs have not alleged that Decision One owed them a

duty establishing direct liability. Nevertheless, it agrees that plaintiffs have, for purposes of a

Fed.R.Civ.P. 12(b)(6) motion to dismiss, sufficiently alleged an agency relationship between

Decision One and the defendant mortgage loan broker. Here, plaintiffs cite Montoya v.

McLeod, 176 Cal. App.3d 57, 221 Cal. Rptr. 353 (1985) for the proposition that a broker may

be an agent of both the lender and the borrower. Montoya appears to address only the

relationship between a broker (and the broker’s employee) and the borrowers. Id. at 64. 

Case 5:06-cv-02530-HRL Document 35 Filed 07/25/06 Page 5 of 9
United States District Court

For the Northern District of California

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

6

However, the parties have cited no authority indicating that a broker may never be the agent of

a lender. The complaint contains a boilerplate allegation of agency between and among all

defendants, which is incorporated into the claim for professional negligence. (Complaint ¶¶ 27,

114). Although Decision One asserts that the defendant mortgage broker was not its agent, it

acknowledges that plaintiffs’ agency allegation survives dismissal at the pleading stage. See

Greenberg v. Sala, 822 F.2d 882, 886 (9th Cir. 1987) (“[A]s a matter of law, allegations of

agency, vicarious liability, and/or respondeat superior are not required. A person legally

responsible for an act may be alleged to have committed it without going into the theories

which support that ultimate fact.”).

Accordingly, Decision One’s motion to dismiss plaintiffs’ professional negligence claim

is granted, but only insofar as it alleges direct liability by Decision One. The motion to dismiss

is denied to the extent that plaintiffs’ negligence claim is based upon the secondary liability of

Decision One.

2. Eighth Claim for Relief: Violation of California Civil Code § 1632

California Civil Code section 1632 provides, in relevant part:

Any person engaged in a trade or business who negotiates primarily

in Spanish, Chinese, Tagalog, Vietnamese, or Korean, orally or in

writing, in the course of entering into any of the following, shall

deliver to the other party to the contract or agreement and prior to

the execution thereof, a translation of the contract or agreement in the

language in which the contract or agreement was negotiated, which

includes a translation of every term and condition in that contract

or agreement.

CAL. CIV. CODE § 1632(b). The statute was enacted “to increase consumer information and

protections for the state’s sizeable and growing Spanish-speaking population.” Id., §

1632(a)(1).

Plaintiffs assert their claim for violation of California Civil Code section 1632 against

nearly all defendants, including Decision One. They allege that “[d]efendants failed to provide

any loan documentation in the Spanish language despite the fact that the loans were negotiated

in Spanish.” (Complaint, ¶ 124). Further, they allege that “[p]ursuant to subdivision (k) of

Case 5:06-cv-02530-HRL Document 35 Filed 07/25/06 Page 6 of 9
United States District Court

For the Northern District of California

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

7

California Civil Code § 1632, defendants must allow plaintiffs to rescind such loans.” (Id. ¶

125).

Decision One argues that this claim must be dismissed because California Civil Code

section 1632(b)(2) specifically excludes loans secured by real property, like the type of loan at

issue in the instant case. Plaintiffs counter that Decision One overlooks the exception stated in

section 1632(b)(4). Indeed, section 1632(b)(4) states that notwithstanding the exclusion of

loans secured by real property, the statute applies to “a loan or extension of credit for use

primarily for personal, family or household purposes where the loan or extension of credit is

subject to the provision of Article 7 (commencing with Section 10240) of Chapter 3 of Part I of

Division 4 of the Business and Professions Code . . ..” CAL. CIV. CODE § 1632(b)(4). The cited

section of the California Business and Professions Code, in turn, applies to certain loans secured

by real property which are negotiated by a real estate broker. See CAL. BUS. & PROF. CODE, §

10240. In the instant case, the complaint alleges sufficient facts showing that the loan at issue

falls within California Civil Code section 1632, by virtue of the exception stated in section

1632(b)(4).

Decision One maintains that section 1632 is inapplicable because it was not acting as a

real estate broker. However, as discussed above, the court has concluded that plaintiffs have,

under liberal federal pleading standards, stated a claim against Decision One under a theory of

secondary liability. Plaintiffs’ agency allegation is incorporated into their claim for violation of

California Civil Code section 1632. (Complaint, ¶ 123). Accordingly, Decision One’s motion

to dismiss plaintiffs’ claim under California Civil Code section 1632 is granted, but only insofar

as it alleges direct liability by Decision One. The motion to dismiss is denied to the extent that

plaintiffs’ claim is based upon the secondary liability of Decision One.

IV. ORDER

Based on the foregoing, IT IS ORDERED THAT:

1. Decision One’s “Motion to Strike Portions of the Complaint” is GRANTED as

unopposed. The following portions of the complaint are stricken:

a. Page 2, ¶ 1: “on behalf of the general public”;

Case 5:06-cv-02530-HRL Document 35 Filed 07/25/06 Page 7 of 9
United States District Court

For the Northern District of California

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

8

b. Page 17, ¶ 103: “and the general public” and “and the general public”;

c. Page 17, ¶ 104: “and the general public”; and

d. Page 17: ¶ 106 in its entirety.

2. Decision One’s motion to dismiss plaintiffs’ seventh claim and eighth claims for

relief is GRANTED IN PART AND DENIED IN PART. Decision One’s motion as to

plaintiffs’ claims for professional negligence and violation of California Civil Code section

1632 is GRANTED insofar as these claims allege direct liability as to Decision One. The

motion to dismiss is otherwise DENIED to the extent that these claims are based upon

secondary liability of Decision One.

Dated:

 

HOWARD R. LLOYD

UNITED STATES MAGISTRATE JUDGE

July 25, 2006

Case 5:06-cv-02530-HRL Document 35 Filed 07/25/06 Page 8 of 9
United States District Court

For the Northern District of California

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

9

5:06-cv-2530 Notice will be electronically mailed to: 

Kerstin Arusha kerstina@lawfoundation.org 

Joseph C. Campo campo@lbbslaw.com 

Sharon Cohen Collier scollier@archernorris.com

William J. Goines goinesw@gtlaw.com, sandiferc@gtlaw.com 

Karen Rosenthal rosenthalk@gtlaw.com 

Stephanie Sidra Alexandre Stevens stephanies@lawfoundation.org 

Counsel are responsible for distributing copies of this document to co-counsel who have

not registered for e-filing under the court’s CM/ECF program.

Case 5:06-cv-02530-HRL Document 35 Filed 07/25/06 Page 9 of 9