Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-4_13-cv-02876/USCOURTS-cand-4_13-cv-02876-4/pdf.json

Parties Involved:
Michele D. Koo
Counter-claimant
Richard C. Lehman
Counter-claimant
Simmons First National Bank
Counter-defendant

Document Text:

United States District Court

For the Northern District of California

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UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF CALIFORNIA

SIMMONS FIRST NATIONAL BANK,

Plaintiff,

v.

RICHARD C. LEHMAN, et al.,

Defendants.

___________________________________/

No. C-13-02876 DMR

ORDER ON PARTIES’ MOTIONS FOR

SUMMARY JUDGMENT [DOCKET

NOS. 77, 86]

Plaintiff Simmons First National Bank (“Simmons”) brings this action for judicial

foreclosure against real property owned by Defendants Richard C. Lehman and Michele D. Koo. 

Both parties now move for summary judgment pursuant to Federal Rule of Civil Procedure 56. 

[Docket No. 77 (Defs.’ Mot.), 86 (Pl.’s Mot.).] Simmons also moves to supplement the evidence

submitted in opposition to Defendants’ motion for summary judgment. [Docket No. 105.] Having

carefully considered the parties’ arguments, the relevant legal authority, and having had the benefit

of oral argument, the court hereby denies Defendants’ motion for summary judgment and grants

Simmons’s motion for summary judgment. The court also grants in part Simmons’s motion to

supplement the evidence.

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1 The court grants Simmons’s requests for judicial notice in support of its motion for summary

judgment (Docket No. 87) and opposition to Defendants’ motion for summary judgment (Docket No.

97), as well as Defendants’ requests for judicial notice in support of their opposition to Simmons’s

motion for summary judgment (Docket No. 101) and reply (Docket No. 104). The documents attached

thereto include court filings from related proceedings in Missouri. These filings have a direct relation

to the matters at issue and are properly judicially noticed. See United States ex rel. Robinson Rancheria

Citizens Council v. Borneo, Inc., 971 F.2d 244, 248 (9th Cir. 1992). They also include true and correct

copies of official public records of the San Mateo County Recorder’s Office, and their authenticity is

capable of accurate and ready determination by resort to sources whose accuracy cannot reasonably be

questioned. See Fed. R. Evid. 201(b). 

2

I. Facts & Background1

This dispute concerns a February 4, 2009 deed of trust (“the Deed of Trust”) recorded

against Defendants’ residential property in Woodside, California (“the Woodside property”). The

Deed of Trust secured a $3 million loan to Bonhomme Investment Partners, LLC (“Bonhomme”)

made by Excel Bank (“Excel”). (Renner Decl., Jan. 13, 2015, ¶ 7, Ex. 5 (Deed of Trust).) At the

time Excel made the loan, Defendant Lehman and third party Donald Davis were the sole owners of

Bonhomme. Lehman is married to Koo. Excel failed in October 2012 and the Federal Deposit

Insurance Corporation (“FDIC”) took control of Excel’s assets as a receiver. Simmons acquired

certain of Excel’s assets through a Purchase and Assumption Agreement between Simmons and the

FDIC, including the Bonhomme loan and the Deed of Trust. (Renner Decl. ¶ 10, Ex. 7.) 

The circumstances of the Bonhomme loan are as follows: in early 2009, Davis, Bonhomme’s

then-manager, asked Excel for a loan for Bonhomme to use as a line of credit. On February 6, 2009,

Bonhomme delivered to Excel five documents in connection with the loan (“the Loan Documents”): 

C a promissory note for the amount of $3,000,000 with a maturity date of February 6, 2010,

executed by Davis and Lehman on behalf of Bonhomme (“the Note”). The Note provides

that it is secured by a deed of trust dated February 6, 2009 “covering 60 Prospect St,

Woodside, CA, 94062,” the Woodside property. (Renner Decl. ¶ 3, Ex. 1 (Note).)

C a personal guaranty executed by Lehman securing Bonhomme’s debts, liabilities and

obligations regarding the $3,000,000 (“the Guaranty”). The Guaranty provides that it is

“secured by a mortgage or security agreement dated 02/06/2009.” (Renner Decl. ¶ 4, Ex. 2

(Guaranty).)

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C an agreement executed by Davis and Lehman on behalf of Bonhomme extending a line of

credit in the amount of $3,000,000 by Excel (“the Line of Credit agreement”). The Line of

Credit agreement states that “I have signed the following documents in connection with this

line of credit and note(s) entered into in accordance with this line of credit . . . mortgage

dated FEBRUARY 06, 2009 . . . guaranty dated FEBRUARY 06, 2009.” (Renner Decl. ¶ 5,

Ex. 3 (Line of Credit agreement).)

C a third party pledge agreement granting Excel a security interest in the Woodside property on

behalf of Bonhomme, executed by Lehman and purporting to contain Koo’s signature. 

(Renner Decl. ¶ 6, Ex. 4 (Third Party Pledge).)

C a notarized “Long Form Deed of Trust and Assignment of Rents” dated February 4, 2009 and

recorded on February 17, 2009 against the Woodside property, providing that it was for the

purpose of securing the Note. (Deed of Trust.) The document was executed by Lehman and

purports to contain Koo’s signature and initials. The Deed of Trust was notarized by Richard

C. Fellhauer, a notary public in Missouri. 

Bonhomme failed to pay the outstanding principal, interest, and charges on the Note at maturity, and 

Simmons now seeks to foreclose on the Deed of Trust.

Defendants do not dispute any of the facts set forth above. Koo denies having signed the

Third Party Pledge or the Deed of Trust, asserting that her signatures on those documents were

forged. She does not identify anyone whom she contends is responsible for the forgery.

II. Procedural History

On May 22, 2013, Simmons filed a state court complaint against Defendants for judicial

foreclosure, specific performance, and injunctive relief. Defendants removed the case to federal

court on June 21, 2013. In July 2013, Defendants answered and asserted affirmative defenses,

including that they were induced to enter into the loan transactions by oral representations made by

Shaun Hayes, a shareholder of Excel’s holding company. [Docket Nos. 12 (Koo Answer) ¶ 28, 15

(Lehman Answer) ¶ 28.] They also asserted that “[n]either Defendant Lehman nor Defendant Koo

executed the Trust Deed before the notary public who purported to notarize the Trust Deed,” and

that the Deed of Trust was fraudulent at its inception. (Koo Answer ¶ 41; Lehman Answer ¶ 41.) 

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On January 8, 2015, the court granted Simmons leave to file an amended complaint. [Docket

No. 91.] On January 9, 2015, Simmons filed an amended complaint, again alleging claims for 1)

judicial foreclosure; 2) specific performance; and 3) injunctive relief. It also alleged alternative

bases for enforcing the Deed of Trust, including, inter alia, estoppel. [Docket No. 92 (Am.

Compl.).] Defendants answered on January 22, 2015, bringing counterclaims for 1) slander and

disparagement of title; 2) quiet title; and 3) declaratory judgment. [Docket Nos. 98 (Koo Answer to

Am. Compl.), 99 (Lehman Answer to Am. Compl.).]

Defendants move for summary judgment. Simmons moves for partial summary judgment on

Defendants’ fraud-based affirmative defenses.

III. Legal Standard

A court shall grant summary judgment “if . . . there is no genuine dispute as to any material

fact and the movant is entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(a). The burden of

establishing the absence of a genuine issue of material fact lies with the moving party, see Celotex

Corp. v. Catrett, 477 U.S. 317, 322-23 (1986), and the court must view the evidence in the light

most favorable to the non-movant. See Scott v. Harris, 550 U.S. 372, 378 (2007) (citation omitted). 

A genuine factual issue exists if, taking into account the burdens of production and proof that would

be required at trial, sufficient evidence favors the non-movant such that a reasonable jury could

return a verdict in that party’s favor. Anderson v. Libby Lobby, Inc., 477 U.S. 242, 248. The court

may not weigh the evidence, assess the credibility of witnesses, or resolve issues of fact. See id. at

249. 

To defeat summary judgment once the moving party has met its burden, the nonmoving party

may not simply rely on the pleadings, but must produce significant probative evidence, by affidavit

or as otherwise provided by Federal Rule of Civil Procedure 56, supporting the claim that a genuine

issue of material fact exists. TW Elec. Serv., Inc. v. Pac. Elec. Contractors Ass’n, 809 F.2d 626, 630

(9th Cir. 1987) (citations omitted). In other words, there must exist more than “a scintilla of

evidence” to support the non-moving party’s claims, Anderson, 477 U.S. at 252; conclusory

assertions will not suffice. See Thornhill Publ’g Co. v. GTE Corp., 594 F.2d 730, 738 (9th Cir.

1979). Similarly, “[w]hen opposing parties tell two different stories, one of which is blatantly

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28 2 Lehman does not deny having executed the Loan Documents himself. 

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contradicted by the record, so that no reasonable jury could believe it, a court should not adopt that

version of the facts” when ruling on the motion. Scott, 550 U.S. at 380.

Where, as here, the parties have filed cross-motions for summary judgment, “[e]ach motion

must be considered on its own merits.” Fair Hous. Council of Riverside Cnty., Inc. v. Riverside

Two, 249 F.3d 1132, 1136 (9th Cir. 2001). “In fulfilling its duty to review each cross-motion

separately, the court must review the evidence submitted in support of each cross-motion.” Id.

IV. Discussion

A. Defendants’ Motion

Defendants move for summary judgment on the grounds that there are no genuine issues of

material fact as to whether Koo executed the Deed of Trust or authorized anyone to sign the Deed of

Trust on her behalf. Defendants submit a declaration by Koo in which she states “I did not sign the

[Deed of Trust], and I did not place any initials on the CA Deed of Trust. I did not authorize anyone

to sign my name on the CA Deed of Trust, and I did not authorize anyone to place my initials on the

CA Deed of Trust. I am not aware who signed my name on the CA Deed of Trust, or who placed

my initials on the CA Deed of Trust.” (Koo Decl., Nov. 5, 2014, ¶ 2.) She also states that she has

never met Fellhauer, the notary public who notarized the Deed of Trust. (Koo Decl. ¶ 3.) Koo also

testified at deposition in July 2014 that she had never seen the Deed of Trust before her deposition,

had never discussed the Deed of Trust with Lehman, and that Lehman had never told her that the

Deed of Trust had been recorded against the Woodside property. (Koo Dep. 100-101.) Defendants

also submit a declaration by Lehman, in which he states that he did not sign or initial Koo’s name on

the Deed of Trust, nor authorize anyone to sign or initial her name on the Deed of Trust. (Lehman

Decl., Nov. 6, 2014, ¶ 2.)2

 According to Defendants, based on their unequivocal testimony

regarding the Deed of Trust, there is no dispute of fact as to whether Koo executed the document

and they are entitled to judgment as a matter of law. In response, Simmons presents evidence that it

contends create a triable fact as to whether 1) Koo signed the Deed of Trust; 2) Lehman was

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3 California Civil Code § 1181 provides that “[t]he proof or acknowledgment of an instrument

may be made before a notary public at any place within this state.” 

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authorized to sign Koo’s name on the Deed of Trust; and 3) Koo is estopped from denying that she

signed the Deed of Trust.

Pursuant to California Evidence Code section 1451:

A certificate of the acknowledgment of a writing other than a will, or a certificate of

the proof of such a writing, is prima facie evidence of the facts recited in the

certificate and the genuineness of the signature of each person by whom the writing

purports to have been signed if the certificate meets the requirements of Article 3 . .

. .

Cal. Evid. Code § 14513

; see also Mo. Rev. Stat. § 490.410 (“[e]very instrument in writing,

conveying or affecting real estate, which shall be acknowledged or proved, and certified as herein

prescribed, may, together with the certificates of acknowledgment or proof, and relinquishment, be

read in evidence, without further proof.”). Further, California Evidence Code section 602 provides

that “[a] statute providing that a fact or group of facts is prima facie evidence of another fact

establishes a rebuttable presumption.” This presumption extends to deeds of trust. See Hernandez

v. Madrigal, No. 2:09-cv-00413-MCE-GGH, 2010 WL 1493506, at *3 (E.D. Cal. Apr. 14, 2010)

(citations omitted). Therefore, the notarized Deed of Trust is presumed genuine, and the document

is “as strong as if the facts certified had been duly sworn to in open court by a witness apparently

disinterested and worthy of belief.” Ware v. Julien, 122 Cal. App. 354, 355 (1932) (citation

omitted). The presumption is not conclusive, but “the burden of overcoming [the presumption] is on

the one who disputes” it; here, Defendants. Du Bois v. Larke, 175 Cal. App. 2d 737, 745 (1959). 

“When a disputable presumption is controverted by other evidence, a question of fact arises which

must be resolved by the trial court.” Id. The document itself, standing alone, is sufficient “to send a

case to the jury, so that they may decide between the probative force of the certificate supported by

the presumption that it states the truth, on the one hand, and the evidence produced in rebuttal,

whatever it may be, on the other.” Ware, 122 Cal. App. at 355-56.

Accordingly, based on the presumption that the Deed of Trust is genuine, a jury must weigh

the evidence of the Deed of Trust itself against Defendants’ evidence that Koo’s signature on the

document was forged. See Hernandez, 2010 WL 1493506, at *3 (denying summary judgment in

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4

 In its motion to supplement the record, Simmons asks the court to consider initial and

supplemental expert reports by its retained handwriting expert dated January 30 and February 2, 2015,

respectively, in which he provides an opinion about the genuineness of the purported Koo signatures

on the Deed of Trust. Regarding the expert report, Simmons asserts that it only obtained in-person

handwriting exemplars from Koo at her second deposition on January 27, 2015, and its expert produced

a supplemental report on February 2 incorporating his analysis of the new exemplars. It also asks the

court to consider an email exchange dated May 6, 2013 between Koo and a real estate agent regarding

the Woodside property which were not produced until January 27, 2015. The court construes

Simmons’s motion as an administrative motion pursuant to Civil Local Rule 7-11. Defendants did not

file an opposition to Simmons’s motion to supplement. The court grants the motion as to the May 2013

emails and will consider them, but denies the motion as to the expert reports on the grounds that the

reports are unnecessary to resolving Simmons’s motion for summary judgment. 

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action by mortgagor to void a refinanced loan; “it is for the jury to weigh the evidence of the alleged

forged loan documents themselves against the evidence produced by Plaintiff indicating forgery.”). 

While Defendants’ motion for summary judgment must be denied on the ground that the

Deed of Trust is presumed genuine, see Ware, 122 Cal. App. at 355-56, Simmons’ opposition does

not rest solely on this argument. It also presents evidence that it claims raises a triable issue of fact

concerning whether Koo did in fact sign the Deed of Trust. Federal Rule of Evidence 901 provides

that handwriting may be authenticated by a non-expert, lay witness as long as the witness’s

familiarity with the handwriting “was not acquired for the current litigation.” Fed. R. Evid.

901(b)(2); see United States v. Dreitzler, 577 F.2d 539, 553 n.24 (9th Cir. 1978) (noting that a

witness who was defendant’s former secretary “was a qualified non-expert to testify as to whether

handwriting on certain government exhibits was that of [the defendant’s].”). Laura Feuerborn, who

is the former office manager of Lehman’s medical practice, testified that she has seen documents

Koo has signed with her initials, “MDK,” and that the initials on the Deed of Trust appear similar to

those she has seen Koo sign. (Feuerborn Dep. 75-76.) She also testified that the signature on the

Third Party Pledge appears to be written by Koo. (Feuerborn Dep. 87-88.) Joanne Hetlage, the

office manager of Koo’s medical practice, testified that she had seen Koo initial documents “[a]

hundred” times, and that the initials on the Deed of Trust appear to be written by Koo. (Hetlage

Dep. 38-39, 42.) Finally, David Apted, who has been Defendants’ financial advisor for over 12

years, testified that the signature above Koo’s name on the Deed of Trust “kind of looks like hers.” 

(Apted Dep. 15, 31-32.)4

 While the testimony of Feuerborn, Hetlage, and Apted does not

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unequivocally authenticate Koo’s signature and initials on the Deed of Trust, the court finds that this

evidence is enough to raise a genuine dispute of fact as to whether Koo signed the Deed of Trust.

 Simmons also presents evidence that it argues raises triable issues of fact regarding

authorization. “A spouse may act as agent for the other in transactions affecting community

property.” United States v. Real Property Located at 3756 W. 106th Street, 940 F.2d 1537, 2 (9th

Cir. 1991) (citing In re Nelson, 761 F.2d 1320, 1322 (9th Cir. 1985) (affirming bankruptcy court’s

finding of “implied actual authority” where spouse was aware husband had signed her name to

documents, knew husband had signed her name to loan documents and had authority to do so, and

permitted husband to handle her personal finances)). Here, Koo testified that she did not authorize

anyone to sign her name or place her initials on the Deed of Trust, (Koo Decl. ¶ 2), and that Lehman

has never signed any documents on her behalf. (Koo Dep. 131.) However, Simmons submits

evidence contradicting Koo’s assertion that Lehman has never signed documents on her behalf and

supporting its claim that Lehman signed Koo’s name on the Deed of Trust. Feuerborn testified that

she had seen Lehman sign Koo’s name during a period of time when Koo was out of town, and that

it was “kind of common for him to do it.” (Feuerborn Dep. 110-11.) Deanna Frailey, a former

office manager of Lehman’s medical practice, testified that she had seen Lehman sign documents

more than 100 times, and stated that Koo’s initials on the Deed of Trust and Third Party Pledge

resembled Lehman’s handwriting. (Frailey Dep. 67-68, 69-71, 73, 88-89.) She also testified that

she was aware that Lehman had signed Koo’s name on documents for Credit Suisse, Defendant’s

financial advisor. (Frailey Dep. 80-81.) Hetlage testified that she had personally signed over 100

documents on Koo’s behalf, including bank deposit slips. (Hetlage Dep. 42-43.) Simmons also

presents evidence that Lehman handles financial transactions for Koo. (Koo Dep. 49-51.) 

Additionally, Simmons presents evidence that appears to contradict Koo’s own testimony

that she was unaware that the Deed of Trust had been recorded against the Woodside property. In an

email exchange about a possible sale of the Woodside property with a real estate agent, Tony

Fregoso, Koo wrote to Fregoso on May 6, 2013 that “[w]e currently use that property as collateral

on a startup and I don’t want to go through the legal time & expense of substituting collateral etc if

the buyers aren’t serious.” (Murphy Decl., Feb. 5, 2015, ¶ 7 Ex. 4 (“the Fregoso email”).) This

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statement could be construed as an admission that Koo knew the Woodside property was pledged as

security for the Bonhomme loan. This evidence, along with the testimony by Feuerborn, Frailey,

and Hetlage, which Defendants do not challenge, is sufficient to raise a genuine dispute of fact

regarding whether Koo authorized Lehman to sign the Deed of Trust on her behalf. See In re

Nelson, 761 F.2d at 1322 (“Under California law, questions regarding the existence of an agency are

questions of fact.”). 

Simmons also argues that Koo should be estopped from denying that she signed the Deed of

Trust pursuant to MacKay v. Darusmont, 46 Cal. App. 2d 21 (1941). In MacKay, the court held that

a spouse was estopped from attacking a transfer of property she claimed was community property

without her signature where she had enabled and caused the property’s title to be placed in her

husband’s name alone as separate property, knew of the sale to buyers, knew the consideration the

buyers paid her husband, and spoke with the buyers and never disclosed her community interest. Id.

at 26-27; see also In re Nelson, 761 F.2d at 1323 (spouse estopped from attacking validity of deed of

trust she did not personally sign where it was “clear that [the spouse] received in one way or another

the benefit of the loan proceeds.”). In 2013, Lehman transferred his interest in Bonhomme to

Lehman and Koo. It is also undisputed that proceeds from the $3 million line of credit were used to

pay off $33,901.99 in outstanding property taxes due on the Woodside property. (Robertson Decl.,

Jan. 15, 2015, ¶¶ 3-8, Ex. 1 (reflecting payments by Excel to San Mateo County Tax Collector).) 

Further, the Fregoso email could lead a factfinder to infer that Koo was aware that the Woodside

property was security for the Bonhomme loan. Therefore, Simmons argues she benefitted from the

loan, yet waited until this litigation to disavow the transaction and assert that her signature on the

Deed of Trust was forged. Additionally, Simmons presents evidence that Koo was aware of the

appraisal of the Woodside property, arranged by Davis, and that she consented to the appraisal. 

(Koo Dep. 119-122.) The court finds that these facts are sufficient to raise a dispute of fact as to

whether Koo is estopped from denying the validity of the Deed of Trust. See In re Marriage of

Burkle, 139 Cal. App. 4th 712, 751 (2006) (doctrines of estoppel, ratification, and laches barred

spouse from challenging validity of transfer of community property by husband because she

accepted benefits of transaction over five-year period with knowledge of transfer). 

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5 Simmons also argues that the Deed of Trust is immediately enforceable because Koo never

commenced an action to void the instrument. See Clar v. Cacciola, 193 Cal. App. 3d 1032, 1036 (1987)

(“unauthorized gifts, sales or encumbrances of community property are not void, but voidable, and this

only at the instance of the other spouse or his or her personal representative”); 5 Miller & Starr, Cal.

Real Est. § 12:54 (3d ed.) (“An encumbrance without the consent of a spouse is only voidable by the

nonconsenting spouse and is valid if he or she does not challenge the conveyance or encumbrance. . .

. Any action to avoid the transaction by the nonconsenting spouse must be commenced within three

years after knowledge of the transaction . . .”). However, in her answer to Simmons’s amended

complaint, filed after Simmons’s opposition to Defendants’ motion for summary judgment, Koo brings

counterclaims for slander and disparagement of title, quiet title, and declaratory judgment, seeking to

void the Deed of Trust. (Koo Answer to Am. Compl. ¶¶ 56-74.) Therefore, this argument is moot.

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In sum, the court finds that Simmons has introduced evidence sufficient to raise triable issues

of fact regarding whether Koo signed the Deed of Trust, authorized Lehman to sign the Deed of

Trust on her behalf, or should be estopped from disavowing the Deed of Trust. Accordingly,

Defendants’ motion for summary judgment is denied.5

B. Simmons’s Motion

1. Whether Simmons’s Motion is Moot

Simmons moves for summary judgment on Defendants’ second through fifth affirmative

defenses in which Defendants allege that they were induced to enter into the loan transactions by

misrepresentations and omissions made by Shaun Hayes, a shareholder of Excel’s holding company.

On January 22, 2015, after Simmons filed its motion, Defendants filed answers, affirmative

defenses, and counterclaims to Simmons’s amended complaint, superseding their original answers. 

Defendants contend that Simmons’s motion is moot because it is directed to the affirmative defenses

in their original answers. However, upon careful review of Defendants’ original and operative

answers, the court finds that they allege the same fraud-based affirmative defenses based on

identical facts; i.e., Excel and Hayes’s “misrepresentations of material facts and their omission of

material facts.” (Compare Lehman Answer ¶¶ 28-31 with Lehman Answer to Am. Compl. ¶¶ 38-41;

Koo Answer ¶¶ 28-31 with Koo Answer to Am. Compl. ¶¶ 38-41.) The only substantive change is

the addition of the affirmative defense of fraud in the factum, which is also based on Excel and

Hayes’s “misrepresentations of material facts and their omission of material facts.” (Lehman

Answer to Am. Compl. ¶37; Koo Answer to Am. Compl. ¶ 37.) As Simmons’s motion challenges

the legal sufficiency of Defendants’ affirmative defenses, including the affirmative defense of fraud

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in the factum, (see Pl.’s Mot. 14-19), and none of Defendants’ changes to their affirmative defenses

materially affect Simmons’s motion, the court will not require Simmons to file a new motion for

summary judgment. See Buechler v. Your Wine & Spirit Shoppe, Inc., 846 F. Supp. 2d 406, 414 (D.

Md. 2012) (holding that a motion for summary judgment was not mooted by the filing of amended

complaint because “such a motion is not directed at the adequacy of a complaint’s allegations but is

instead focused on the merits of the substantive claim.”); see also Fed. R. Civ. P. 1 (the Federal

Rules of Civil Procedure “should be construed and administered to secure the just, speedy, and

inexpensive determination of every action and proceeding”). 

Accordingly, the court construes Simmons’s motion as a motion for summary judgment on

the following operative affirmative defenses: 1) fraud in the factum (second affirmative defense); 2)

fraud in the inducement (third); 3) violations of the Securities Exchange Act, 15 U.S.C. § 78a, et

seq. (fourth); 4) violations of the Missouri Securities Act, Mo. Rev. Stat. § 409.5-501, et seq. (fifth);

and 5) negligent misrepresentations (sixth). 

2. Applicability of 12 U.S.C. § 1823(e)

Through the affirmative defenses at issue in this motion, Defendants assert that the Loan

Documents, including the Deed of Trust, are void, invalid, or otherwise unenforceable because they

“resulted from misrepresentations as to the character and/or essential terms of the proposed

agreements and transactions” by Excel and Hayes, which were relied upon by Bonhomme and

Lehman. (Lehman Answer to Am. Compl. ¶¶ 37, 38; see also ¶¶ 39-41; Koo Answer to Am. Compl.

¶¶ 37, 38; see also ¶¶ 39-41.) Specifically, Defendants assert that Excel and Hayes’s

misrepresentations and omissions include the following: 

(1) Excel Bank and Shaun Hayes deceptively conditioned Excel Bank’s loan to

Bonhomme, as well as a loan from Truman Bank, on Bonhomme’s purchasing

certain common stock in Truman Bank’s parent holding company, Truman

Bancorp, Inc. (“Bancorp”) (the “Bancorp Common Stock”); (2) Excel Bank and

Shaun Hayes failed to provide material information regarding the applicable

lending standards for Excel Bank and Truman Bank; (3) Excel Bank and Shaun

Hayes failed to disclose that Truman Bank and Bancorp were having financial

difficulties, or that the Bancorp Common Stock was worth less than the cost of

purchasing it; (4) Excel Bank and Shaun Hayes falsely stated that Lehman would

need to pledge certain California property he jointly owned with his wife . . . Koo

(“the property”) to secure Bonhomme’s loan, that Lehman’s pledge of the Property

was necessary to meet Excel Bank’s lending standards, and that, if Lehman pledged

the Property, Excel Bank would at a later date substitute the Bancorp Common

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Stock as collateral for the loan and release its lien on the Property; and (5) Excel

Bank and Shaun Hayes failed to disclose that Bancorp and Truman Bank were

subject to a December 10, 2008 Agreement by and between The Templar Fund,

Inc., Bancorp, FFC Financial Corporation, Truman Bank and the Federal Reserve

Bank of St. Louis (the “Consent Decree”), which Consent Decree governed and

restricted certain actions by Bancorp and Truman Bank.

(Lehman Answer to Am. Compl. ¶ 37; Koo Answer to Am. Compl. ¶ 37.) Simmons argues that

these defenses rely on “oral side agreements or conditions that tend to diminish Simmons’s interest”

in the loan and are therefore barred by 12 U.S.C. § 1823(e) and the Supreme Court’s holding in

D’Oench, Duhme & Co. v. FDIC, 315 U.S. 447, 461 (1942) (the “D’Oench, Duhme doctrine”). 

(Pl.’s Mot. 8.) 

12 U.S.C. § 1823(e) and the D’Oench, Duhme doctrine “prohibit unwritten, undocumented

claims and defenses against the FDIC or an assignee bank.” Cmty. Bank of Ozarks v. FDIC, 984

F.2d 254, 256 (8th Cir. 1993); see Brookside Assocs. v. Rifkin, 49 F.3d 490, 493 (9th Cir. 1995)

(“[t]he D’Oench, Duhme doctrine . . . is a principle of equitable estoppel that permits bank

examiners to rely on the records of a bank in evaluating the bank’s financial condition, by protecting

the bank authorities from suits founded on undisclosed conditions or deceptive documents.”

(citations omitted)). An agreement that would effectively limit the liability of a borrower to the

FDIC must satisfy strict statutory requirements. Section 1823(e) provides in relevant part that “[n]o

agreement which tends to diminish or defeat the interest of the [FDIC] in any asset acquired by it

under this section or section 1821 of this title, . . . as receiver of any insured depository institution,

shall be valid against the [FDIC]” unless the agreement:

(A) is in writing,

(B) was executed by the depository institution and any person claiming an adverse

interest thereunder, including the obligor, contemporaneously with the acquisition

of the asset by the depository institution,

(C) was approved by the board of directors of the depository institution or its loan

committee, which approval shall be reflected in the minutes of said board or

committee, and

(D) has been, continuously, from the time of its execution, an official record of the

depository institution.

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6 The Tenth Circuit further explained the purpose of section 1823(e) in FDIC v. Arciero, 741

F.3d 1111 (10th Cir. 2013), noting that the FDIC would be at a disadvantage “in litigating such claims

because its personnel lack first-hand knowledge of the relevant events, and those who would have such

knowledge–the failed bank’s directors, officers, and employees–often have nothing personally at stake

while their loyalties may be to the bank customers rather than to the FDIC.” Id. at 1115. Therefore,

section 1823(e) “allow[s] federal and state bank examiners to rely on a bank’s records in evaluating the

worth of the bank’s assets.” Langley v. FDIC, 484 U.S. 86, 91-92 (1987) (“[n]either the FDIC nor state

banking authorities would be able to make reliable evaluations if bank records contained seemingly

unqualified notes that are in fact subject to undisclosed conditions.”). 

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12 U.S.C. § 1823(e)(1). The “function and purpose of D’Oench, Duhme and section 1823(e) . . . [is

to] preclude[] obligors from asserting side deals or secret agreements which may mislead bank

examiners against the [FDIC] to diminish the value of written loan obligations. Section 1823(e) bars

the use of extrinsic agreements to diminish or defeat the [FDIC’s] interest in an asset, unless the

documents meet specific requirements.” Resolution Trust Corp. v. Kennelly, 57 F.3d 819, 821 (9th

Cir. 1995) (quoting FDIC v. Zook Bros. Constr. Co., 973 F.2d 1448, 1450-51 (9th Cir. 1992)).6 The

protections of section 1823(e) and the D’Oench, Duhme doctrine extend to private institutions who

acquire assets of failed financial institutions from the FDIC. Newton v. Uniwest Fin. Corp., 967

F.2d 340, 347 (9th Cir. 1992); Cmty. Bank of Ozarks, 984 F.2d at 257. A party asserting an

affirmative defense based on an agreement with a bank bears the burden of proving that the

agreement meets all of the requirements of section 1823(e)(1). FDIC v. Arciero, 741 F.3d 1111,

1116 (10th Cir. 2013) (party raising affirmative defense has burden of showing agreement meets

section 1823(e)(1)’s requirements); FDIC v. Manatt, 922 F.2d 486, 488 (8th Cir. 1991) (“[i]f the

agreement fails to meet any one of the four requirements [of section 1823(e)], the FDIC is not bound

by the agreement”).

 In Langley v. FDIC, 484 U.S. 86 (1987), the Supreme Court expanded the scope of

D’Oench, Duhme by holding that the term “agreement” in section 1823(e) “covers more than

promises to perform acts in the future”; it also includes misrepresentations constituting fraud in the

inducement. Id. at 92-94. Since Langley, numerous courts have concluded that fraud based upon

material omissions, as opposed to affirmative misrepresentations, also falls within the meaning of

“agreement” under section 1823(e). See, e.g., FDIC v. Hudson, 800 F. Supp. 867, 871 (N.D. Cal.

1990) (citing FDIC v. Bell, 892 F.2d 64, 66 (10th Cir. 1989)); Avirez, Ltd. v. Resolution Trust Corp.,

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7 Rule 10b-5 of the Securities Exchange Act provides:

It shall be unlawful for any person, directly or indirectly, by the use of any means or

instrumentality of interstate commerce, or of the mails or of any facility of any national

securities exchange,

(a) To employ any device, scheme, or artifice to defraud,

(b) To make any untrue statement of a material fact or to omit to state a material fact

necessary in order to make the statements made, in the light of the circumstances under

which they were made, not misleading, or

(c) To engage in any act, practice, or course of business which operates or would operate

as a fraud or deceit upon any person, 

in connection with the purchase or sale of any security. 

17 C.F.R. § 240.10b-5. The Missouri Securities Act provision is nearly identical. It provides:

It is unlawful for a person, in connection with the offer, sale, or purchase of a security, directly

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876 F. Supp. 1135, 1141 (C.D. Cal. 1995) (“section 1823(e) applies as much to misrepresentation

claims based upon non-disclosures as to those based upon affirmative assertions.”); FDIC v.

Tarkanian, No. 10cv980-WQH-BGS, 2012 WL 1327849, at *4 (S.D. Cal. Apr. 17, 2012) (following

Avirez, granting summary judgment on counterclaims based upon misrepresentations and

omissions).

Simmons argues that the allegations supporting the affirmative defenses at issue here are

based upon “alleged misrepresentations, misleading omissions, or side promises.” (Pl.’s Mot. 9.) In

their third affirmative defense, “fraud in the inducement,” Defendants allege that the Loan

Documents are “void, invalid, and unenforceable” due to Excel and Hayes’s misrepresentations and

omissions, including failing to provide material information regarding applicable lending standards;

conditioning the loan on Bonhomme’s purchasing Bancorp stock, which was worthless; falsely

promising that if Lehman pledged the Woodside property to secure the loan, Excel would later

substitute Bancorp stock as collateral and release its lien on the Woodside property; and failing to

disclose the existence of a restrictive consent decree governing Bancorp and Truman Bank. 

Defendants’ fourth and fifth affirmative defenses are for violations of the Securities Exchange Act,

15 U.S.C. § 78a, et seq., and Rule 10b-5 promulgated thereunder, 17 C.F.R. § 240.10b-5, and

violations of the Missouri Securities Act, Mo. Rev. Stat. § 409.5-501, et seq.,7

 which each make it 

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or indirectly:

(1) To employ a device, scheme, or artifice to defraud;

(2) To make an untrue statement of a material fact or to omit to state a material fact

necessary in order to make the statement made, in the light of the circumstances under

which it is made, not misleading; or

(3) To engage in an act, practice, or course of business that operates or would operate

as a fraud or deceit upon another person.

Mo. Ann. Stat. § 409.5-501.

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unlawful for a person to make an “untrue statement of a material fact or to omit to state a material

fact” in connection with the purchase or sale of a security. 17 C.F.R. § 240.10b-5; Mo. Ann. Stat. §

409.5-501. In their sixth affirmative defense, “negligent misrepresentations,” Defendants allege that

the Excel and Hayes’s “material misstatements and omissions of fact . . . if not intentional, were

negligent and reckless.” (Koo Answer to Am. Compl. ¶ 41; Lehman Answer to Am. Compl. ¶ 41.) 

These defenses rest on the same facts supporting the fraud in the inducement defense; specifically,

the allegation that Defendants “were induced by Excel Bank’s and Shaun Hayes’ misstatements and

omissions” in violation of those laws. (Koo Answer to Am. Compl. ¶¶ 39, 40; Lehman Answer to

Am. Compl. ¶¶ 39, 40; see Defs.’ Opp’n 8 (“the misrepresentations induced Bonhomme to enter into

the Note, and that ‘but for’ those misrepresentations, Bonhomme would not have executed the

Note.).) As Defendants have produced no written documentation of these misrepresentations,

omissions, and promises that would satisfy the requirements of section 1823(e), Simmons asserts

that the counterclaims fail as a matter of law.

Defendants do not address Simmons’s arguments that counterclaims based upon allegations

of fraud in the inducement are barred unless they comply with section 1823(e)(1), and accordingly

concede this issue. Therefore, summary judgment is granted as to Defendants’ third, fourth, fifth,

and sixth affirmative defenses: 1) fraud in the inducement (third); 2) violations of the Securities

Exchange Act, 15 U.S.C. § 78a, et seq. (fourth); 3) violations of the Missouri Securities Act, Mo.

Rev. Stat. § 409.5-501, et seq. (fifth); and 4) negligent misrepresentations (sixth).

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Defendants argue that the remaining counterclaim for fraud in the factum renders the loan

void, rather than voidable, thus taking it out of the protections of section 1823(e). Defendants rely

on Langley, in which the Court distinguished fraud in the factum from fraud in the inducement,

noting that fraud in the factum “would take the instrument out of § 1823(e), because it would render

the instrument entirely void, thus leaving no ‘right, title or interest’ that could be ‘diminish[ed] or

defeat[ed].’” Langley, 484 U.S. at 93-94 (internal citations omitted). First, the Ninth Circuit has

noted that this statement was “dictum,” and that the Court “did not expressly hold that the defense of

fraud in the factum is not barred by section 1823(e) and D’Oench, Duhme.” Kennelly, 57 F.3d at

822 (declining to decide the issue because it concluded that defendants had failed to allege or

establish fraud in the factum). 

More importantly, Defendants have not adequately alleged or established fraud in the

factum. Restatement (Second) of Contracts section 163 provides: “If a misrepresentation as to the

character or essential terms of a proposed contract induces conduct that appears to be a

manifestation of assent by one who neither knows nor has reasonable opportunity to know of the

character or essential terms of the proposed contract, his conduct is not effective as a manifestation

of assent.” Restatement (Second) of Contracts § 163 (1981). “Fraud in the factum is ‘the sort of

fraud that procures a party’s signature to an instrument without knowledge of its true nature or

contents.’” Kennelly, 57 F.3d at 822 (citing Langley, 484 U.S. at 93); see also Black’s Law

Dictionary 776, fraud in the factum (10th ed. 2014) (“Compared to fraud in the inducement, fraud in

the factum occurs only rarely, as when a blind person signs a mortgage when misleadingly told that

the paper is just a letter.”). Here, Defendants do not allege or present evidence that Excel or Hayes

misrepresented anything about the “character or essential terms” of any of the Loan Documents,

including the Deed of Trust. In fact, in their opposition, they admit that “the alleged fraudulent

misrepresentations by Excel Bank and Hayes do not contradict the relevant terms and conditions of

the Note or Deed of Trust,” (Defs.’ Opp’n 8 (emphasis added)), thus conceding that there was no

misrepresentation as to the character or essential terms of the Loan Documents. In other words, 

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8 Because the court grants Simmons’s motion based on section 1823(e), it need not reach

Simmons’s remaining arguments in support of its motion.

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there is no dispute that the Loan Documents evidenced a loan transaction purporting to encumber the

Woodside property. See Beazie v. Amerifund Fin., Inc., No. 09-00562 JMS/KSC, 2011 WL

2457725, at * (D. Haw. June 16, 2011) (“the FAC does not assert fraud in the factum–Plaintiff knew

he was entering into a mortgage loan transaction on the subject property.”). Nor do Defendants cite

any evidence that they lacked “reasonable opportunity to know of the character or essential terms”

of the loan transaction. While Lehman denies any recollection of the circumstances during which he

signed the Loan Documents, (Lehman Dep. 105, 107, 187-88, 199, 200-208), Simmons presents

deposition testimony by Davis, Bonhomme’s managing member, in which he admits he was

provided with the Loan Documents and had the opportunity to read and review them before signing

and that he understood the nature of the documents. (Davis Dep. 53-56, 61-62, 66-68, 89-90, 93-94,

155-57.) 

In sum, Defendants present no evidence to establish that a genuine dispute of fact exists as to

whether their second affirmative defense sounds in fraud in the factum. The court finds that

Defendants’ second affirmative defense is based upon fraud in the inducement, because it is

premised on alleged misrepresentations, omissions of material facts, and side promises that induced

Bonhomme to enter into the loan. Accordingly, the allegations of misrepresentations, omissions,

and side promises fall within the meaning of “agreements” under section 1823(e)(1). As Defendants

have failed to submit evidence that the agreements satisfy the requirements of section 1823(e)(1),

they cannot form the basis of affirmative defenses. Therefore, Simmons’s motion for summary

judgment is granted as to Defendants’ second affirmative defense, labeled “fraud in the factum.”8

V. Conclusion

For the foregoing reasons, Defendants’ motion for summary judgment is denied. Simmons’s

motion is granted. Summary judgment is granted as to Defendants’ affirmative defenses of 1) fraud

in the factum; 2) fraud in the inducement; 3) violations of the Securities Exchange Act, 15 U.S.C. §

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78a, et seq.; 4) violations of the Missouri Securities Act, Mo. Rev. Stat. § 409.5-501, et seq.; and 5)

negligent misrepresentations. 

IT IS SO ORDERED.

Dated: February 13, 2015

 DONNA M. RYU

United States Magistrate Judge

UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF CALIFORN

I

A

IT IS SO ORDERED

Judge Donna M. Ryu

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