Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-casd-3_12-cv-02982/USCOURTS-casd-3_12-cv-02982-4/pdf.json

Nature of Suit Code: 190
Nature of Suit: Other Contract Actions
Cause of Action: 12:1819 FDIC: Corporate Powers

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UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF CALIFORNIA

REZA JAFARI, FIRST AMERICAN TITLE

INSURANCE COMPANY, a California

Corporation,

Plaintiffs,

CASE NO. 12cv2982-LAB (RBB)

ORDER DENYING MOTION TO

DISMISS AND GRANTING MOTION

FOR SUMMARY JUDGMENT

vs.

FEDERAL DEPOSIT INSURANCE

CORPORATION, as Receiver for La Jolla

Bank; DOES 1 through 50, inclusive,

Defendants.

Reza Jafari and First American Title Insurance Company brought this suit against the

Federal Deposit Insurance Corporation (FDIC), in its capacity as receiver (FDIC-R), relating

to Jafari's home purchase gone awry. The FDIC-R has filed a motion to dismiss for lack of

jurisdiction or, in the alternative, summary judgment. (Docket no. 110.) 

I. Factual Background

A. La Jolla Bank Loan

In December 2007 La Jolla Bank made a $2.45 million construction loan to ALB

Properties, LLC for construction of a home located at 14747 Roxbury Terrace, Rancho

Santa Fe, California. The loan was secured by a deed of trust and a personal guarantee

from ALB's managing member, Birger Bacino. The deed of trust was a second lien on the

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property, behind a first deed of trust held by Chevy Chase Bank.

B. Default and Bankruptcy 

In 2009 Bacino began defaulting on loans, including the La Jolla Bank loan. In

December 2009, Bacino and ALB filed separate Chapter 7 bankruptcy petitions. On

February 19, 2010, the Office of Thrift Supervision closed La Jolla Bank and appointed the

FDIC as its receiver.

C. Proposed Short Sale of the Roxbury Terrace Property to Jafari

In September 2011, Jafari entered into an agreement with Bacino to purchase the

Roxbury Terrace property for $4.475 million. The proposed purchase price would not pay

off Chevy Chase Bank as the first lienholder (which was owed more than $7.7 million), the

FDIC-R (which was owed $3.36 million), or several third parties that had filed mechanic's

liens. Thus, it was a "short sale."

D. The FDIC-R's September 8, 2011 Letter

The FDIC-R sent a letter addressed to Bacino in connection with the proposed short

sale. The letter confirmed that the FDIC-R would accept $135,000 for the release of its lien

on the Roxbury Terrace property, subject to several conditions. The conditions required:

Bacino and ALB to sign and return the letter, and thereby acknowledge that the

FDIC-R was not waiving its rights against them;

Bacino and ALB to provide opinion letters from their bankruptcy counsel stating

that the FDIC-R's release of the collateral didn't require approval of the

bankruptcy court and that the loan agreement and guarantee would remain

effective against them in subsequent litigation;

An October 1, 2011 deadline for the FDIC-R's release of the collateral;

That the opinion letters and signatures be provided to the FDIC-R prior to the

October 1, 2011 deadline; and

All parties to sign the letter for it to be effective.

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It explained "each of the representations, warranties, terms and conditions set forth in this

letter are material inducements to the FDIC-R to enter into the agreement evidenced by this

Letter."

E. September 23, 2011 Closing

While Bacino signed the letter, ALB didn't. Additionally, Bacino and ALB didn't provide

the required opinion letters to the FDIC-R. Thus, the FDIC-R did not release its lien or

reconvey its deed of trust for the Roxbury Terrace property. Nonetheless, on September 23,

2011, Bacino, Jafari, Heritage Escrow Company, and First American closed the sale, with

Heritage serving as the escrow agent and First American issuing title insurance to Jafari. 

While First American had received the FDIC-R's letter before the September 23, 2011

closing, it didn't confirm that the letter's requirements had been met.

F. Jafari's Administrative Claim and Subsequent Litigation

On September 26, 2011, the FDIC-R's servicing agent received notice of a $135,000

wire from First American. The FDIC-R rejected the proposed payment, and advised Heritage

that the conditions required to release its security interest hadn't yet occurred and, therefore,

it wouldn't release the security interest on the property. All of the other lenders, including

Chevy Chase Bank, accepted the tendered funds and reconveyed their liens. Thus, the

FDIC-R's lien was elevated to a first priority position. On April 2, 2012, the FDIC-R recorded

a notice of default on the Roxbury Terrace property.

On May 21, 2012, Jafari submitted a Proof of Claim through the FDIC's administrative

process alleging breach of contract, unjust enrichment, rescission, and equitable

subrogation. The FDIC-R disallowed the claim. On August 1, 2012, the FDIC-R published

a notice of sale as to the Roxbury Terrace Property, and Jafari sued to enjoin foreclosure. 

On August 27, 2012, after the Court denied Jafari's request for injunctive relief, First

American paid the FDIC-R $3,649,067, representing the outstanding balance on ALB's note.

After First American paid off ALB's note, Jafari added First American as a plaintiff and

Plaintiffs filed their First Amended Complaint (FAC). (Docket no. 46.) The FAC is premised

on the FDIC-R's September 8, 2011 letter and contends Jafari is an intended third party

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beneficiary of the letter. The FDIC-R moved to dismiss the FAC, contending that the claims

of First American must be dismissed because it hadn't gone through the FDIC's

administrative claims process. (Docket no. 48.) The Court denied the motion, explaining that

First American and Jafari stand in the same shoes because First American was the force

behind Jafari's claims from the beginning of this case and First American's claims against the

FDIC-R are the same as those that Jafari previously brought administratively. (Docket no.

57 at 2–4.)

II. Discussion

The FDIC-R contends that the Financial Institutions Reform, Recovery, and

Enforcement Act of 1989 (FIRREA), Pub. L. No. 101-73, 103 Stat. 183, strips the Court of

jurisdiction over Plaintiffs' claims because they failed to fully exhaust their administrative

remedies. See 12 U.S.C. § 1821(d)(13)(D). It also asks the Court to dismiss Plaintiffs' unjust

enrichment and equitable subrogation claims "to the extent that they seek coercive relief

beyond damages." In the alternative, the FDIC-R argues that the Court should enter

summary judgment against Jafari and First American. It argues that Jafari lacks any

damages and isn't a real party in interest because First American paid Jafari's alleged loss. 

It also argues that neither plaintiff has a cognizable action for breach of contract, unjust

enrichment, or equitable subrogation—the three claims in the FAC.

A. Legal Standard

A party may move to dismiss a claim for lack of subject matter jurisdiction. Fed. R.

Civ. P. 12(b)(1). Plaintiffs have the burden of establishing that subject matter jurisdiction is

proper. Kokkonen v. Guardian Life Ins. Co., 511 U.S. 375, 377 (1994).

Summary judgment is appropriate where "there is no genuine issue as to any material

fact and . . . the moving party is entitled to judgment as a matter of law." Fed. R. Civ. P.

56(c). As the moving party, the FDIC-R has the burden to demonstrate the absence of a

factual issue for trial. Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). To meet this

burden, it may show that Jafari and First American lack evidence to support their case. Id.

/ / /

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at 325. If it makes this showing, Jafari and First American must go beyond the pleadings and

set forth "specific facts" to show a genuine issue for trial. Id. at 324.

B. Motion to Dismiss for Failure to Exhaust of Administrative Remedies

The FDIC-R contends that the Court's order permitting First American to proceed in

this case "reveal[s] additional jurisdictional obstacles that the Court has not addressed. . . ." 

It contends that Jafari's administrative claims didn't exhaust the claims stated in the FAC

because the administrative claims were based on future harm from the FDIC-R's refusal to

release its lien until ALB's loan balance was paid, while the FAC is based on First American's

payment of the loan balance.

FIRREA strips courts of jurisdiction over claims that have not been exhausted through

this process:

Except as otherwise provided in this subsection, no court shall have jurisdiction

over–

(i) any claim or action for payment from, or any action seeking a

determination of rights with respect to, the assets of any depository

institution for which the [FDIC] has been appointed receiver, including

assets which the [FDIC] may acquire from itself as such receiver; or

(ii) any claim relating to any act or omission of such institution or the

[FDIC] as receiver.

12 U.S.C. § 1821(d)(13)(D). When determining whether claims have been administratively

exhausted, courts look to whether the administratively presented claims provide the FDIC

with adequate notice of the claims raised in the lawsuit. Brown Leasing Co. v. FDIC, 833

F.Supp. 672, 675 (N.D. Ill. 1993) ("This Court simply finds that the FDIC is entitled to fair

notice of the facts and legal theories on which a claimant seeks relief from the failed

institution."); Branch v. FDIC, 833 F. Supp. 56, 60 (D. Mass. 1993) ("[T]he appropriate

question . . . is whether Branch's administrative claims provided the particular FDIC

receiverships with adequate notice of the challenged claims and with sufficient information

and detail about the claims to enable the FDIC expeditiously and fairly to allow or disallow

the claims."). "FIRREA does not limit the dollar amount of plaintiff's district court claim to that

which plaintiff earlier sought in its claim before the FDIC." FDIC v. Hickey, 757 F. Supp. 2d

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194, 197 (E.D.N.Y. 2010) (quotation omitted). Nor does it limit a plaintiff's district court case

to the causes of action alleged during the administrative process. Telecenter, Inc. v. FDIC

ex rel. First Commercial Bank of Tampa Bay, 2015 WL 403186, at *6 (M.D. Fla. Jan. 28,

2015).

The Court finds that Jafari's administrative claims provided sufficient notice of the

claims presented in the FAC. Indeed, the Court has already found that First American's

"claims against the FDIC now are the same as those that Jafari previously brought

administratively." (Docket no. 57 at 4.) They involve the same factual predicate and include

the same causes of action. The only additional fact in the FAC is that First American has

now paid off the FDIC-R. But payment couldn't have come as a surprise to the FDIC-R—it's

precisely what the FDIC-R demanded of Plaintiffs. As Jafari explained in his Proof of Claim,

"the FDIC-R is demanding over $3 million as the price for a reconveyance." First American's

payment was the natural consequence of this demand. See, e.g, Premier Tierra Holdings,

Inc. v. Ticor Title Ins. Co. of Florida, 2011 WL 2313206, at *3 (S.D. Tex. June 9, 2011) (If a

title defect is discovered, the title insurer "may pay the insured the full policy amount, take

affirmative action to clear the defect, or . . . purchase the indebtedness secured by the

insured mortgage."). The FDIC-R's motion to dismiss for failure to exhaust is DENIED.

C. Motion to Dismiss Claims for Equitable Relief

FIRREA "prevents courts from granting any equitable relief against the FDIC." Sharpe

v. FDIC, 126 F.3d 1147, 1154 (9th Cir. 1997); 12 U.S.C. § 1821(j). Based on this provision,

the FDIC-R moves to dismiss Plaintiffs' second and third causes of action for unjust

enrichment and equitable subrogation "insofar as these requests exceed the 'claim for money

damages.'" The Court has already found that the unjust enrichment and equitable

subrogation claims are ultimately claims for money damages. (Docket no. 57 at 6–8.) The

FDIC-Rs motion to dismiss under § 1821(j) is DENIED.

D. Motion for Summary Judgment on Jafari's Claims

According to the FAC, First American "paid the FDIC the entire amount owed on the

La Jolla Bank Note" and two days later "the FDIC executed and delivered a full reconveyance

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of the La Jolla Bank Deed of Trust." (Docket no. 46, ¶ 32.) Based on this allegation, the

FDIC-R moves for summary judgment on all of Jafari's claims, arguing that he has no

damages and is not a real party in interest. In response, Plaintiffs argue that: (1) Jafari has

been damaged because First American's payment to the FDIC-R depleted Jafari's policy

limits; (2) an unjust enrichment claim need not be brought by the party who incurred the loss;

and (3) the FDIC-R waived its real party in interest objection by not raising it earlier.

If the insurer has paid the entire loss suffered by the insured, it is the only real party

in interest and must sue in its own name. United States v. Aetna Cas. & Sur. Co., 338 U.S.

366, 380–81 (1949). In that case, the district court should dismiss the insured, because it

is no longer a real party in interest. See Hilbrands v. Far E. Trading Co., 509 F.2d 1321,

1322 (9th Cir. 1975) ("Since Guam Maintenance's insurer paid the entire loss suffered by that

employer, Guam Maintenance had no interest in the action. The district court correctly

dismissed the employer as substituted plaintiff and we affirm as to this dismissal."). "If [the

insurer] has paid only part of the loss, both the insured and insurer . . . have substantive

rights against the tortfeasor which qualify them as real parties in interest." Aetna, 338 U.S.

at 381.

Because it's undisputed that First American paid the entire amount owed on the La

Jolla Bank note, Jafari isn't a real party in interest. The Court finds no support for Plaintiffs'

diminution of policy limits argument, and Plaintiffs cite to none. Indeed, the real party in

interest rule articulated in Aetna would be eviscerated if a decrease in policy limits was

sufficient to make an insured a real party in interest, even though their loss had been paid

in full.

Plaintiffs' argument that an unjust enrichment claim can be brought by a party that

hasn't incurred a loss also lacks merit. A claim based on unjust enrichment requires "receipt

of a benefit and the unjust retention of the benefit at the expense of another." Kelleher v.

Kelleher, 2014 WL 94197, at *7 (N.D. Cal. 2014) (quotation omitted). The plaintiff must have

suffered the injury to maintain an unjust enrichment claim. Pelletier v. Pac. WebWorks, Inc.,

2010 WL 4924995, at *1 & n.3 (E.D. Cal. Nov. 29, 2010); see also Bykov v. Radisson Hotels

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Int'l, Inc., 2006 WL 752942, at *6 (D. Minn. Mar. 22, 2006) (dismissing unjust enrichment

claim because plaintiff hadn't suffered a loss).

While Plaintiffs are correct that real party in interest objections must be raised with

"reasonable promptness" and can be waived, "courts have generally only found waivers

where the objections were raised during pretrial proceedings or on the eve of trial." In re

Vitamins Antitrust Litig., 2001 WL 755852, at *3 n.5 (D.D.C. June 7, 2001) (collecting cases). 

The FDIC-R hasn't waived this objection.

The FDIC-R's motion for summary judgment on Jafari's claims is GRANTED.

E. Motion for Summary Judgment on Breach of Contract Claim

Plaintiffs' breach of contract claim is premised on the FDIC-R's September 8, 2011

letter. They contend that, pursuant to the letter, the FDIC-R is obligated to release its lien

on the Roxbury Terrace property in exchange for $135,000. They dismiss the remainder of

the conditions in the letter as immaterial, arguing that their nonperformance doesn't excuse

the FDIC-R's alleged obligation under the letter. The FDIC-R contends Plaintiffs have no

cognizable breach of contract claim because: (1) Plaintiffs are third parties to the letter with

no right to enforce its terms; (2) ALB never signed the letter, so the FDIC-R's obligations

under the letter never arose; and (3) ALB and Bacino never provided the attorney opinion

letters, and therefore never exercised the option in the letter.

1. Jafari and First American as Third Party Beneficiaries

Plaintiffs argue that the FDIC-R knew Bacino was contractually obligated to Jafari to

deliver title free and clear of all existing liens and the letter was intended to enable Bacino

to fulfill this contractual obligation. They contend "Jafari was not merely an intended

beneficiary of the Release Letter, he was a reason the contract was conceived, drafted and

entered." According to Plaintiffs, this shows Jafari was an intended third party beneficiary

of the letter, and can therefore sue to enforce its terms.

"[O]nly a party to a contract or an intended third-party beneficiary may sue to enforce

the terms of a contract or obtain an appropriate remedy for breach." GECCMC 2005-C1

Plummer St. Office Ltd. P'ship v. JPMorgan Chase Bank, Nat. Ass'n, 671 F.3d 1027, 1033

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(9th Cir. 2012). When a government contract is at issue, plaintiffs must overcome a

presumption that nonparties who benefit from the contract are incidental, rather than

intended, beneficiaries. Id. at 1033–34. Intended third party beneficiary status isn't

established by "a contract's recitation of interested constituencies, vague hortatory

pronouncements, statements of purpose, explicit reference[s] to a third party, or even a

showing that the contract operates to the third parties' benefit and was entered into with them

in mind." Id. at 1033 (citations, brackets, and quotations omitted). Instead, the language of

the contract must show "a clear intent to rebut the presumption that the third parties are

merely incidental beneficiaries." Id. at 1033–34 (brackets omitted).

Here, the language of the letter indicates that the parties intended to foreclose claims

by non-signatories. The letter states that it "shall inure to the benefit of and bind the

successors, assigns, heirs, executors, and administrators of the parties." This language

evinces an intent to limit intended beneficiaries to the contracting parties. See Klamath

Water Users Protective Ass'n v. Patterson, 204 F.3d 1206, 1212 (9th Cir. 1999) (finding

language stating, "This contract binds and inures to the benefit of the parties hereto, their

successors and assigns. . ." indicated "the intent of the parties to limit intended beneficiaries

to the contracting parties"). Thus, while there may have been "an intention to benefit a third

party," Plaintiffs can't show "an intention that the third party should have the right to enforce

that intention." Astra USA, Inc. v. Santa Clara Cnty., 131 S. Ct. 1342, 1348 (2011) (quoting

9 J. Murray, Corbin on Contracts § 45.6, p. 92 (rev. ed. 2007)). Plaintiffs have failed to

overcome the presumption that Jafari is an incidental rather than intended beneficiary to the

FDIC-R's letter.

2. Execution of the FDIC-R's Letter 

The FDIC-R's letter states "[t]his letter shall not be binding upon, or effective against,

any party signing a counterpart unless and until all parties have signed counterparts." It's

undisputed that ALB never signed the letter. (Docket no. 119, ¶ 10.) "In the context of the

document as a whole . . . [it's] difficult to conclude that the quoted sentence means anything

other than what it plainly says: that the agreement is not binding until all parties have signed." 

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PSM Holding Corp. v. Nat'l Farm Fin. Corp., 339 F. App'x 693, 694 (9th Cir. 2009) (finding

no contract had been formed where the relevant document stated "[t]his Agreement shall

become binding when one or more counterparts hereof, individually or taken together, shall

bear the signatures of all of the parties reflected hereon as signatories," but some parties

didn't sign). As a result, just as in PSM Holding, the letter never became a binding contract.

3. Opinion Letters from Counsel

The FDIC-R's letter made clear that the FDIC-R's agreement was "subject to" several

unperformed conditions. Before the FDIC-R was required to release its lien on the Roxbury

Terrace property, ALB and Bacino were each required to provide opinion letters from their

counsel. The letter explained:

The release of collateral must occur on or before October 1, 2011 (the

"Release Date"). . . . Should the release of collateral not occur prior to the

expiration of the Release Date, all of the terms, conditions, and provisions of

this letter shall expire. . . . The letters from counsel for Borrower and

Guarantor must be received, reviewed and approved, in the sole and absolute

discretion of the FDIC-R, prior to the Release Date. Borrower and Guarantor

are encouraged to provide the letters well in advance of the Release Date, as

it will take the FDIC-R time to process and evaluate the letters.

Thus, ALB and Bacino were required to provide the attorney opinion letters before October 1,

2011, and if they didn't, the terms of the letter would expire.

The FDIC-R contends that these conditions created an unexercised and now-expired

unilateral option contract. An option is a contract to keep a separate contract offer open for

a prescribed period. 1 Witkin, Summary of Cal. Law (10th ed. 2005), Contracts § 168, p. 33.

The letter isn't a promise to keep a separate offer open. It's an offer to enter into a bilateral

contract with conditions precedent to the FDIC-R's performance obligations. Cf. Lowe v.

Massachusetts Mut. Life Ins. Co., 54 Cal. App. 3d 718, 729 (Ct. App. 1976) ("There is a

presumption in favor of interpreting ambiguous agreements to be bilateral rather than

unilateral.").

While the letter isn't an option, the unfulfilled conditions in the letter can still foreclose

Plaintiffs' breach of contract claim. "Under the law of contracts, parties may expressly agree

that a right or duty is conditional upon the occurrence or nonoccurrence of an act or event." 

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Platt Pacific, Inc. v. Andelson, 6 Cal.4th 307, 313 (1993). "'Subject to' is generally construed

to impose a condition precedent." Rubin v. Fuchs, 1 Cal. 3d 50, 54, 459 P.2d 925, 928

(1969). If a condition precedent "is not fulfilled, the right to enforce the contract does not

evolve." Kadner v. Shields, 20 Cal.App.3d 251, 258 (1971). The "nonoccurrence of a

condition precedent may be excused for a number of legally recognized reasons." Platt

Pacific, 6 Cal.4th at 314.

Plaintiffs contend the opinion letter provisions are immaterial and, therefore, didn't

excuse the FDIC-R's performance. They also contend that the Court should excuse the

non-occurrence of the opinion letter provision to avoid forfeiture, which also turns on the

materiality of the provision. Restatement (Second) of Contracts § 229 (1981) ("To the extent

that the non-occurrence of a condition would cause disproportionate forfeiture, a court may

excuse the non-occurrence of that condition unless its occurrence was a material part of the

agreed exchange."); Hammes Co. Healthcare, LLC v. Tri-City Healthcare Dist., 2011 WL

6182423, at *9 (S.D. Cal. Dec. 13, 2011). But the letter states that "[e]ach of the

undersigned acknowledge that each of the representations, warranties, terms and conditions

set forth in this letter are material inducements to the FDIC-R to enter into the

agreement. . . ." And, "[t]he facts recited in a written instrument are conclusively presumed

to be true as between the parties thereto, or their successors in interest. . . ." Cal. Evid.

Code § 622; Fed. R. Evid. 302. Plaintiffs cannot now dispute the materiality of the opinion

letters requirement because, even if the letter were a binding contract, and even if Plaintiffs

were third party beneficiaries to the contract, third party beneficiaries have "no greater rights"

under a contract than the contracting parties. Hollister v. Benzl, 71 Cal. App. 4th 582, 586,

83 Cal. Rptr. 2d 903 (1999).

For each of these reasons, the FDIC-R's motion for summary judgment on Plaintiffs'

breach of contract claim is GRANTED.

/ / /

/ / /

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F. Motion for Summary Judgment on Unjust Enrichment Claim

The FDIC-R seeks summary judgment on Plaintiffs' unjust enrichment claim because:

(1) it's inconsistent with their breach of contract cause of action, and (2) Plaintiffs can't show

unjust enrichment.

1. Inconsistency with Breach of Contract Action 

The FDIC-R argues that Plaintiffs' unjust enrichment claim should be dismissed

because they also assert a breach of contract action and "unjust enrichment is an action in

quasi-contract, which does not lie when an enforceable, binding agreement exists defining

the rights of the parties." Solano v. America's Servicing Co., 2011 WL 4500874, at *9 (E.D.

Cal. Sept. 27, 2011). However, "even though a plaintiff may not ultimately prevail under both

unjust enrichment and breach of contract, it may plead both in the alternative." Weingand

v. Harland Fin. Solutions, Inc., 2012 WL 3763640, at *4 (N.D. Cal. Aug. 29, 2012). Plaintiffs

affirm that they make these claims in the alternative and are not seeking to recover on both

claims. Thus, the breach of contract allegations in the FAC don't preclude Plaintiffs' unjust

enrichment cause of action.

2. Plaintiffs' Evidence of Unjust Enrichment

A "common law claim for unjust enrichment is an action for restitution" which "applies

where a plaintiff has no enforceable contract but nonetheless confers a benefit on the

defendant that the defendant has knowingly accepted under circumstances, making it

inequitable for the defendant to retain the benefit without paying for its value." Chasnik v.

Bank of Am. Home Loans Servicing LP, 2011 U.S. Dist. LEXIS 156743 (C.D. Cal. Oct. 26,

2011). "To the extent a claim for unjust enrichment is available, it generally requires proof

of receipt of a benefit and unjust retention of the benefit at the expense of another." Kelleher

v. Kelleher, 2014 WL 94197, at *7 (N.D. Cal. 2014) (quotation omitted). "The benefits must

generally be conferred by mistake, fraud, coercion, or request; otherwise, though there is

enrichment, it is not unjust." Id. (quotation omitted). "Benefits, such as payment of money

or transfer of property, conferred under duress, undue influence, or any other form of

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coercion, may ordinarily be recovered in a quasi-contract action." 1 Witkin, Summary of Cal.

Law (10th ed. 2005), Contracts § 1030, p. 1121.

Plaintiffs contend that the FDIC-R coerced payment by threatening to foreclose on the

Roxbury Terrace property unless the La Jolla Bank loan was paid in full. However, "[a]

person who has conferred a benefit upon another in response to the institution or threat of

civil proceedings against him by the other . . . is not entitled to restitution merely because the

other has begun or threatened to begin civil proceedings against him." Restatement (First)

of Restitution § 71 (1937). Plaintiffs have offered no evidence to indicate that the FDIC-R

acted wrongfully in threatening foreclosure. They don't dispute that the FDIC-R had a valid

lien securing the property. The FDIC-R had no obligation to release the lien without full

payment, and the unexecuted contract offer made to Bacino and ALB doesn't change that. 

Nor does Chevy Chase Bank's separate decision to settle its first priority lien. If anything,

First American's loss is due to its own negligence. First American could have avoided its loss

by declining to issue title insurance to Jafari until the requirements listed in the FDIC-R's

letter were met.

[I]t is difficult to think of a situation in which a title insurance company could not

claim unjust enrichment as to someone who might inadvertently benefit by their

negligence. Either they insure or they don't. It is not the province of the court

to relieve a title insurance company of its contractual obligation.

Coy v. Raabe, 69 Wash. 2d 346, 351, 418 P.2d 728, 731 (1966). The FDIC-R's receipt and

retention of First American's payment is not unjust. Its motion for summary judgment on

Plaintiffs' unjust enrichment claim is GRANTED.

G. Motion for Summary Judgment on Equitable Subrogation Claim

The FDIC-R also moves for summary judgment on Plaintiffs' equitable subrogation

claim. Equitable subrogation is appropriate where:

(1) Payment [was] made by the subrogee to protect his own interest. (2) The

subrogee [has] not . . . acted as a volunteer. (3) The debt paid [was] one for

which the subrogee was not primarily liable. (4) The entire debt [has] been

paid. (5) Subrogation [would] not work any injustice to the rights of others.

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Han v. United States, 944 F.2d 526, 529 (9th Cir. 1991) (quoting Caito v. United California

Bank, 20 Cal.3d 694, 704 (1978)). "Equitable subrogation is a broad equitable remedy, not

limited to circumstances where these five factors are met, but is appropriate whenever one

person, not acting as a mere volunteer or intruder, pays a debt for which another is primarily

liable, and which in equity and good conscience should have been discharged by the latter." 

Id. (quotation omitted). However, equitable subrogation is denied to a party who has actual

knowledge of an existing encumbrance. Id.; Smith v. State Sav. & Loan Assn., 175 Cal. App.

3d 1092, 1098 (Ct. App. 1985). "[T]he type of notice that will defeat equitable subrogation

should be such as to suggest the person seeking relief knowingly or with something

approaching gross recklessness disregarded information and seeks to capitalize on his own

ignorance to the detriment of an innocent third party." Bedrock Fin., Inc. v. United States,

2012 WL 5499403, at *5 (E.D. Cal. Nov. 13, 2012) (vacated on other grounds).

It's undisputed that Plaintiffs knew of the FDIC-R's security interest in the Roxbury

Terrace property before closing. (Docket no. 119, ¶¶ 14–15.) Thus, they had "actual

knowledge of" the FDIC-R's "existing encumbrance." Han, 944 F.2d at 529 (citing Smith, 175

Cal. App. 3d at 1098). It's also undisputed that First American received copy of the FDIC-R's

letter before closing, but nevertheless issued title insurance to Jafari. (Id., ¶ 16.) Thus, it

knowingly disregarded the FDIC-R's security interest, and now seeks to force the FDIC-R to

accept partial performance of its unaccepted offer. Equitable subrogation is not available to

Plaintiffs. The FDIC-R's motion for summary judgment on Plaintiffs' equitable subrogation

claim is GRANTED.

III. Conclusion

The FDIC-R's motion to dismiss is DENIED and its motion for summary judgment is

GRANTED.

IT IS SO ORDERED.

DATED: June 8, 2015

Honorable Larry Alan Burns

UnitedStatesDistrictCourt

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