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Timestamp: 2019-04-24 14:32:05+00:00

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FindACase | Petersen v. Bank of America Corp.
Petersen v. Bank of America Corp.
BANK OF AMERICA CORPORATION et al., Defendants and Respondents.
Appeals from a judgment and an order of the Superior Court of Orange County No. 30-2011-00449059, Gail Andrea Andler, Judge.
Brookstone Law, Vito Torchia, Jr., Sasan Behnood, Carlos E. MacManus and Deron Colby for Plaintiffs and Appellants.
Bryan Cave, Stuart W. Price, Trevor Allen and Douglas E. Winter for Defendants and Respondents.
listed in the caption of the third amended complaint. Strictly speaking, though, this is a “mass action, ” not a “class action.” Had this case been filed prior to 2005, in all probability it would have been filed as a class action. However, in 2005, Congress enacted the Class Action Fairness Act of 2005 (CAFA) codified at 28 United States Code section 1332(d). (See generally Visendi v. Bank of America (9th Cir. 2013) 733 F.3d 863, 866-867 (Visendi).) CAFA allows the removal to federal court of state court class actions when there is a class with 100 or more class members, with at least one class member from a different state than at least one defendant, and there is more than $5 million at stake. (Newberg on Class Actions (5th ed. 2012) § 6:14, pp. 542-646.) That is certainly this case—(fit had been filed as a class action. And perhaps even if it had not been so pleaded.
We face two questions of state law: First, despite the rather staggering number of joined plaintiffs, does the third amended complaint allege, to track the statutory language of section 378, the “same... series of transactions” that will entail litigation of at least one common question of law or fact? Focusing on the language of the statute and the applicable precedent construing it, we conclude it does. Just a few years after section 378’s enactment in 1927, our Supreme Court declared the statute’s same-series-of-transactions language is to be construed broadly in favor of joinder. (Joerger v. Pacific Gas & Electric Co. (1929) 207 Cal. 8, 19 [276 P. 1017].) It has never retreated from that position.
The third amended complaint alleges that in the mid-2000’s, defendant Countrywide Financial Corporation developed a two-prong business strategy to increase its profits: First, Countrywide would use captive real estate appraisers to provide dishonest appraisals that would inflate home prices beyond levels that would otherwise prevail in an honest market; second, Countrywide would induce its borrowersthese plaintiffs in particularto take loans Countrywide knew they could not afford bye misleading them as to their ability to pay their loans, including misrepresenting key terms of the loans themselves. Countrywide did this because it had no intention of keeping the loans on its books, but intended to bundle them into saleable tranches and sell them to investors.
The 965 plaintiffs are people who borrowed money from Countrywide in the mid-2000’s, to their ultimate chagrin. As we explain below, there are sufficient common questions of law and fact in this case to satisfy section 378, including whether a mortgage lender has a duty to its borrowers not to encourage “high ball, ” dishonest appraisals and whether Countrywide really had a deliberate strategy of placing borrowers into loans it “knew” and the word “knew” is a key part of plaintiffs’ pleading they could not afford?
The applicability of section 378 is the comparatively easy question. Language and precedent dictate the result. The harder question is whether California’s procedures governing permissive joinder are up to the task of managing mass actions like this one. Again, we answer in the affirmative. And again, Brinker provides the relevant template. While we reverse the judgment dismissing all but one plaintiff for misjoinder, we emphasize that on remand the trial court will have to consider a variety of procedural tools with which to organize this case into appropriate and manageable subclaims and subclasses. (Cf. Brinker, supra, 53 Cal.4th at p. 1004 [existence of subclasses made ascertainment of viability of discrete types of wage and hours claims manageable].) While the irony of requiring the case to be divided into tranches has not escaped as, we are confident the trial court can handle the task.
The operative complaint here is the third amended one, filed June 2012. It is over 14 inches tall. The first page is found on page 5412 of volume 19 of the clerk’s transcript and continues on until the proof of service after the last exhibit on page 8554 of volume 29. Yes, the third amended complaint is 3, 142 pages long.
followed by an Appendix A that reads like a series of mini-complaints narrating the (rather similar) loan acquisition experiences of various plaintiffs. Most of those narratives are variations on the same theme: A couple went in for a loan; the amount needed was already an inflated figure because of Countrywide’s prior price-fixing of the relevant real estate market. The couple then relied on loan officers at Countrywide to place them in a loan they could afford, but the loan officers hid certain aspects of the loan from them, usually the existence of a balloon payment, sometimes negative amortization, sometimes a change in the terms or calculation of interest rates. And finally, when the Great Recession hit and the local real estate bubble burst decreasing everybody’s home values, these plaintiffs discovered they could not afford their loans, could not afford to refinance, and sustained various kinds of ensuing financial damage.
Appendix A extends 1771 pages from the end of volume 19 of the reporter’s transcript through the middle of volume 25. Then begin the exhibits. Exhibit A consists of a series of e-mails acquired by plaintiffs, the upshot of which seems to be that there were plenty of people in Countrywide who were expressing misgivings about the firm’s various loan “products” and loan strategies in the mid-2000’s. Exhibit B consists of a few pages of Countrywide’s own published description of its various loan products. (Exhibit B looks like a sales brochure.) Finally come Exhibits C through MMM, which take up the better part of about four volumes of clerk’s transcript, extending a total of 1, 106 pages. These appear to be a series of files consisting of form foreclosure documents pertaining to a subset of the plaintiffsnamely 90 or sowho are alleging wrongful foreclosure. These documents mostly include notices of default and notices of sale in individual cases.
While the third amended complaint lists six entities as defendants,  they are now, essentially, one defendant – Countrywide as absorbed by Bank of America Corporation. That is, all six entities are either directly controlled by Bank of America, which had earlier absorbed Countrywide, or are owned by or affiliated with either Countrywide or Bank of America.
any home mortgage lender from making a profitable loan that is paid back over time to a new game plan by which it would make its profits by originating loans, then tranching them (chopping them up into little bits and pieces) and selling them on the secondary market to unsuspecting investors who would themselves assume the risk the borrowers could not repay. At root, everything in the third amended complaint is an elaboration on that theme insofar as it directly affected these plaintiff-borrowers from Countrywide.
In order to make the new game plan work, Countrywide allegedly engaged in an interrelated series of transactions the net effect of which was to saddle plaintiffs with loans they could not afford. This series consisted of two identifiable phases: Phase 1 was to create an otherwise artificial upward spiral of appreciating property values. This upward spiral was allegedly accomplished by Countrywide using its own captive appraisal company, defendant Landsafe, to “falsely” inflate all valuations. The inflated values took on a life of their own which inflated all property values in California.
Phase 2 was to induce borrowers to take improvident loans. Normally a prudent lender would want to lend to a creditworthy borrower who could pay back the loan at the stated interest rate. But given Countrywide’s new model business plan in which the ultimate payees of the loans were going to be outside investors who would take the hindmost, Countrywide wanted to saddle borrowers with the maximum amount of debt possible – any risk of default would be borne by investors on the secondary market. Meanwhile, Countrywide would pocket loan fees, commissions and profits from the sale of loans after those loans were tranched and securitized. The key to the second prong, i.e., to inducing borrowers into financial improvidence, was to mislead them as to loan terms.
The specific misleading statements allegedly made to these plaintiffs are scattered throughout Appendix A, so isolating them all into manageable groups is a chore. Two broad themes, however, can be identified: First, Countrywide loan officers and sales people are alleged to have made broad assurances to each of the plaintiffs that they could “afford” their loans. Second, here and there in Appendix A are allegations that loan representatives from Countrywide did not disclose interest-rate adjustments or loan terms such as when an initial fixed-rate loan suddenly became an adjustable loan.
By the time of the third amended complaint, it had crystallized into four causes of action: intentional misrepresentation, negligent misrepresentation, unfair competition, and wrongful foreclosure. The first three apply to all plaintiffs, the foreclosure claim to only 90 of them. The wrongful foreclosure claim, interestingly enough, presents as pristine a common issue of law as it is possible to imagine: Its theory is that the various individual foreclosures were all unlawful because the eventual trustees who foreclosed on the loan were not the original agents designated in the loan papers. The claim thus presents a tidy, discrete question of law common to all 90 foreclosure plaintiffs.
In January 2013, a judgment of dismissal was entered in favor of defendants against all plaintiffs except for Wrighthence the title of the case before us derives from the second-named plaintiff in the caption, Christina Petersen. The dismissal was “without prejudice to the rights of the dismissed Plaintiffs to file their own complaints." Plaintiffs filed two notices of appeal. Theythat is, about 800 of the original 965filed a notice of appeal from the judgment of dismissal. It is this appeal with which our opinion is mainly concerned.
The affinity for economies of scale manifests itself in a number of other procedural contexts. These include the statutory preference in criminal law that favors consolidation of charges against multiple defendants where there is cross-admissibility and rules of court requiring designation of related cases to avoid “substantial duplication of judicial resources if heard by different judges.” It even shows up in the common law doctrine of res judicata and the appellate doctrine of the one final judgment rule.
It is also manifested by the statutory provision before us now – the one that allows for permissive joinder in section 378. An important aspect of the Legislature’s drafting of the statute should not go unremarked: While many procedural statutes commit discretion to the trial judge, this statute commits discretion to the plaintiffs... to the plaintiffs themselves. If there is a right to relief arising out of the same series of transactions, it is the plaintiffs who get to decide whether to join together in a common action. Consider the syntax of the opening to section 378 the way the Legislature wrote it: “All persons may join in one action as plaintiffs if: [¶] (1) They assert any right to relief jointly....” (Italics added.) It is the plaintiffs who make the initial decision to file jointly.
those claims, however, did not prevent joinder, even though they necessarily entailed individualized facts analogous to the individual loan transactions before us now.
In some ways State Farm applies a fortiori to certain of the allegations before us now. While there might be a plethora of ways to “low ball” property insurance claims, there are comparatively few ways to “high ball” appraisalsbasically, as the third amended complaint alleges, you can simply use non-comparable properties as comparables, or rely on previously-made dishonest appraisals of comparables. And, while bad faith insurance adjustment involves a variety of small tricks and subjective negotiating pressures, here the ways in which defendants allegedly misled borrowers constitute a discrete set of only a few items—mainly unexpected balloon payments and switches from fixed to adjustable rates. If the joinder of a wide variety of claims handling practices was appropriate under State Farm, the joinder of various forms of loan impropriety here seems equally correct.
A further manifestation of the broad construction required under section 378 is found in Moe v. Anderson (2012) 207 Cal.App.4th 826 [143 Cal.Rptr.3d 841]. In Moe, two patients alleged they were victims of separate sexual assaults allegedly committed by a physician. To be sure, joinder was not appropriate as to the physician, since the assaults involved “separate and distinct” events “during separate and distinct time periods.” (Id. at p. 833.) But the claims against the medical group for which the physician worked was a different story. Joinder was appropriate as to the single employer since the same basic issue of negligent supervision and hiring was common to both (otherwise disparate) plaintiffs, and would involve the same evidence against a single defendant. The court said: “Thus, as was the case in Anaya, plaintiffs have asserted a right to relief arising out of the same series of transactions. So too are there common issues of law or fact. The same evidence with respect to Healthworks’ hiring and supervision of Anderson will need to be adduced in separate lawsuits if joinder is not allowed.” (Id. at p. 836, italics added.) Needless to say, in the case before us there is much in the way of common evidence and theories of liability and much of the same evidence will have to be repeatedly produced if joinder is not allowed. Indeed, we shudder to think of the duplication of effort if even a dozen of the 800-or-so plaintiffs who have brought this appeal have individual trials on liability issues.
of transactions” language from section 378 and said it was enough that defendant was alleged to have engaged in a conspiracy to defraud the veterans by selling them substandard housing. As here, Adams is a case where the alleged “business plan” of the defendant was common to multiple defendants, even if their specific damages might vary.
In light of State Farm, Anaya, Moe and Adams, it would be a major departure from California case law construing section 378 for us to uphold the trial court’s demurrer for misjoinder in this case. This case is merely a quantitativelynot qualitativelylarger version of those four, particularly State Farm and Adams.
Here, we have already identified the two core aspects of the common plan alleged in the third amended complaint that necessarily will entail common evidence (1) whether Countrywide deliberately encouraged dishonest appraisals and (2) whether Countrywide encouraged its loan officers to conceal loan terms. These two aspects devolve into several questions of law or fact bearing on liability. Here are four that come readily to mind: (a) whether Countrywide had a conscious business plan to pressure or otherwise unduly influence appraisers to dishonestly inflate appraisals; (b) if it did, whether even such dishonest appraisals could have the cumulative effect of inflating real estate markets in a way that might have caused buyers and/or borrowers in those markets to pay more, or borrow more, than they otherwise might have; (c) even if they did, whether such marginally extra borrowed money constitutes cognizable damages under some theory of law; and (d) whether a failure to expressly warn buyers or borrowers about such key terms of a written loan agreement, such as changes from fixed to adjustable rates, or the need to make a balloon payment at the end are actionable under some theory of fraud or unfair business practice.
We emphasize again that this case involves essentially only one lender, Countrywide, operating in conjunction with its captive appraisal agents. While Countrywide cites a number of federal cases that concluded there had been misjoinder, these federal cases merely make the point that genuinely multiple defendants do not fall within the federal permissive joinder rule.
parallel here (again) to class actions. While the individual damages among these 965 plaintiffs of course vary widely, that’s not the salient point. (See Brinker, supra, 53 Cal.4th at p. 1022 [“‘As a general rule if the defendant’s liability can be determined by facts common to all members of the class, a class will be certified even if the members must individually prove their damages.’ [Citations.]”].) The salient point is that liability is amenable to mass action treatment.
Finally, we must observe that two overall policies of the law are served by joinder in this instance. One is access to justice. To require these plaintiffs to file separately not only clogs up the courts, but also deprives them of economies of scale otherwise available under section 378, particularly in regard to the clearly common proof bearing on Countrywide’s alleged two-pronged scheme to both fix prices and mislead borrowers as to loan terms. As far as we can tell, the same experts and whistleblowers will be common to all causes of action based on variations of misrepresentation or unfair competition.

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