Source: http://ca.findacase.com/research/wfrmDocViewer.aspx/xq/fac.20091217_0016232.ECA.htm/qx
Timestamp: 2016-12-08 00:42:32
Document Index: 231359802

Matched Legal Cases: ['§ 1601', '§ 17200', '§ 17200', '§ 17204', '§ 1640', '§ 17208']

JOSEFINA QUEZADA, INDIVIDUALLY AND ON BEHALF OF ALL OTHERS SIMILARLY SITUATED, PLAINTIFF,v.LOAN CENTER OF CALIFORNIA, INC., EMC MORTGAGE CORPORATION, STRUCTURED ASSET MORTGAGE INVESTMENTS II, INC., THE BANK OF NEW YORK MELLON, AND DOES 1 THROUGH 10 INCLUSIVE, DEFENDANTS.
Plaintiff Josefina Quezada brings this putative class action against defendants Loan Center of California, Inc. ("LCC"), EMC Mortgage Corporation ("EMC"), Structured Asset Mortgage Investments II, Inc. ("SAMI"), and the Bank of New York Mellon ("Mellon") for violations of the Truth in Lending Act ("TILA"), 15 U.S.C. §§ 1601-1667f; violations of California's Unfair Competition Law ("UCL"), Cal. Bus. & Prof. Code §§ 17200-17210; fraudulent omissions; breach of contract; and breach of the covenant of good faith and fair dealing. Before the court is plaintiff's motion for class certification of her fraudulent omissions and UCL claims.*fn1
The facts of this action have already been recounted by this court in its previous orders, and do not all bear repeating here. See Quezada v. Loan Ctr. of Cal., Inc., No. Civ. 08-177 WBS KJM, 2008 WL 5100241, at *1-2 (E.D. Cal. Nov. 26, 2008). In brief, plaintiff alleges defendants violated California's UCL and committed fraud when they failed to disclose material risks posed by defendants' Option Adjustable Rate Mortgages ("OARMs"). Plaintiff obtained her loan from LCC. The TAC alleges that defendants' OARM loans were based on an artificially low "teaser" interest rate that was guaranteed to increase. Plaintiff alleges that her loan documents and disclosures did not disclose that her ORAM specified monthly payments that were based on this artificially low interest rate, that this rate would only remain in effect for thirty days, and that the ORAM would certainly result in negative amortization.
EMC is not a direct lender, but rather entered into an agreement with LLC, under which LLC could sell mortgage loans to EMC. (Defs.' Statement of Facts ("SOF") ¶ 73.) EMC purchased or is otherwise an assignee of plaintiff's loan. (Third Am. Compl. ("TAC") ¶ 4.) The TAC alleges that SAMI and Mellon presently own or owned the loans at issue. (Id. ¶¶ 5-6.) Plaintiff contends that EMC, SAMI, and Mellon are liable for the allegedly fraudulent omissions in LLC's loan documents because they aided and abetted LLC's wrongful conduct by participating in the purchase and sale of OARM loans. (Mem. I/S/O Pls.' Mot. Class Cert. 4:17-24.)
Plaintiff now seeks certification of a class for her fraud and UCL claims. Plaintiff defines the class as follows:
All individuals in the United States of America who, between January 24, 2004 and the date that notice is mailed to the Class, obtained an Option ARM loan originated by LOAN CENTER OF CALIFORNIA, INC. with the following characteristics:
(i) The numerical interest rate listed on page one of the Promissory Note is 3.0% or less;
(ii) The Note uses the term "may" instead of "will or shall" change when describing an increase of the listed numerical rate. E.g.: "The interest rate I pay may change";
(iv) The promissory note does not contain any statement that paying the amount listed as the "initial monthly payment" "will," as opposed to "may," result in negative amortization after the first interest rate change date.
(Id. 3:14-23.)
Implicit in Rule 23 is the requirement that the class must be adequately defined and clearly ascertainable. DeBremaecker v. Short, 433 F.2d 733, 734 (5th Cir. 1970); see also Lozano v. AT&T Wireless Servs., Inc., 504 F.3d 718, (9th Cir. 2007). A class definition must be "precise, objective, and presently ascertainable." O'Connor v. Boeing North Am., Inc., 197 F.R.D. 404, 416 (C.D. Cal. 2000) (quotation marks omitted). "An adequate class definition specifies 'a distinct group of plaintiffs whose members [can] be identified with particularity.'" Campbell v. PricewaterhouseCoopers, LLP, 253 F.R.D. 586, 593 (E.D. Cal. 2008) (quoting Lerwill v. In-flight Motion Pictures, Inc., 582 F.2d 507, 512 (9th Cir. 1978)).
Plaintiff's class definition consists of a defined group of individuals--those who purchased OARM loans from LCC whose loans contained four distinct terms. The members of the class can easily be determined by reference to their loan documents, which would allow precise and objective ascertainment of the members of the class. Plaintiff contends that she is aware of 181 such loans that were bought, serviced, and securitized by defendants. Plaintiff will be likely able to identify the remaining class members through the records of defendants. Although plaintiff may not be able to identify every potential class member at this time, this does not preclude the class definition from being ascertainable. See Mazur v. Ebay, Inc., 257 F.R.D. 563, 566 (N.D. Cal. 2009) ("[T]he class need not be so ascertainable that every potential member can be identified at the commencement of the action.")*fn2 Plaintiff has provided a precise, objective, and ascertainable class definition.
When evaluating the propriety of class certification, the court may not consider the sufficiency of a plaintiff's claims or whether the plaintiff will prevail on the merits. See Staton v. Boeing Co., 327 F.3d 938, 954 (9th Cir. 2003); Burkhalter Travel Agency v. MacFarms Int'l, Inc., 141 F.R.D. 144, 152 (N.D. Cal. 1991). Rather, the court must accept the substantive allegations made in the complaint as true even if the plaintiff may not be able to later prove the allegations. See In re Petroleum Prods. Antitrust Litig., 691 F.2d 1335, 1342 (9th Cir. 1982); see also Blackie v. Barrack, 524 F.2d 892, 901 (9th Cir. 1975). Nevertheless, the court need not accept conclusory allegations that echo the requirements of Rule 23 and may consider factual issues in the complaint relevant to class certification. Burkhalter, 141 F.R.D. at 152; see Moore v. Hughes Helicopters, Inc., 708 F.2d 475, 480 (9th Cir. 1983).*fn3
The court finds it unnecessary to evaluate whether plaintiff's claims satisfy the numerosity, commonality, or adequacy of representation requirements because they fail to meet the typicality requirement. Rule 23(a) requires that the "claims or defenses of the representative parties [be] typical of the claims or defenses of the class." Fed. R. Civ. P. 23(a)(3). Typicality requires that named plaintiffs have claims "reasonably coextensive with those of absent class members," but their claims do not have to be "substantially identical." Hanlon, 150 F.3d at 1020. The test for typicality "'is whether other members have the same or similar injury, whether the action is based on conduct which is not unique to the named plaintiffs, and whether other class members have been injured by the same course of conduct.'" Hanon v. Dataproducts Corp., 976 F.2d 497, 508 (9th Cir. 1992) (citation omitted).
Class certification is inappropriate "where a putative class representative is subject to unique defenses which threaten to become the focus of the litigation." Hanon, 976 F.2d at 508 (quoting Gary Plastic Packaging Corp. v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 903 F.2d 176, 180 (2d Cir. 1990), cert. denied, 498 U.S. 1025 (1991)). Plaintiff's complaint alleges that defendants failed to disclose material information about plaintiff's loan, including that the interest rate would vary and that negative amortization was certain to occur under the terms of the OARM. Defendants argue that plaintiff is not typical of class members because she does not speak English, had the loan documents explained to her via translation, and admitted at her deposition that she did not read the terms of the loan documents outside of recognizing several numbers on the pages of those documents. (See Meinertzhagen Decl. Ex. A (Quezada Depo.) 7:22-25, 30:14-24, 31:1-23; 34:19.) Defendants argue that this makes plaintiff susceptible to the unique defense that she did not rely on the allegedly fraudulent omissions and misrepresentations in the loan documents.
A cause of action for fraud requires proof that the plaintiff relied on the misrepresentations or fraudulent omissions of a defendant. See In re Estate of Young, 160 Cal. App. 4th 62, 79 (2008) (finding the essential elements of a claim for fraud are "(a) a misrepresentation (false representation, concealment, or nondisclosure); (b) knowledge of falsity (or 'scienter'); (c) intent to defraud, i.e., to induce reliance; (d) justifiable reliance; and (e) resulting damage"); Blickman Turkus, LP v. MF Downtown Sunnyvale, LLC, 162 Cal. App. 4th 858, 868 (2008) (stating that "the plaintiff must have been unaware of the fact and would not have acted as he did if he had known of the concealed or suppressed fact" in an action for fraud based on concealment).
In support of plaintiff's argument that she is not subject to a unique difficulty in proving reliance, she relies heavily on the district court's decision in Plascencia v. Lending 1st Mortgage, 259 F.R.D. 437 (N.D. Cal. 2009), which granted class certification of fraud and UCL claims that are almost identical to those alleged by plaintiff. In Plascencia, the court found that reliance was not at issue because plaintiff's claims were based solely on fraudulent omissions, and as such did not require positive proof of reliance. Id. at 447. The court based this finding on the Supreme Court's decision in Affiliated Ute Citizens of Utah v. United States, 406 U.S. 128 (1972), which held that "positive proof of reliance is not a prerequisite to recovery" in a Securities Exchange Commission Rule 10b-5 case "involving primarily a failure to disclose . . . ." Id. at 153. Plaintiff claims that the putative class is entitled to a presumption of reliance because her claims are entirely based on fraudulent omissions.
a. California Law Requires Plaintiff Show Actual Reliance to Prove a Fraud Claim
This court believes that Plascencia misinterpreted the applicability of Affiliated Ute to fraud claims. The California Supreme Court has expressly held that the presumption of reliance in Affiliated Ute does not apply to fraud claims under California law. Mirkin v. Wasserman, 5 Cal. 4th 1082, 1093-94 (1992) ("We see no reason to adopt the Ute presumption as California law . . . it is not logically impossible to prove reliance on an omission. One need only prove that, had the omitted information been disclosed, one would have been aware of it and behaved differently. Moreover, . . . the body of law that has developed under Rule 10b-5 is not sufficiently analogous to the law of fraud to justify its importation into the latter."). Rather, under California law a plaintiff must "show actual reliance on a defendant's misrepresentations or omissions as a prerequisite to establishing fraud." Gawara v. U.S. Brass Corp., 63 Cal. App. 4th 1341, 1351-52 (1998). Therefore, plaintiff is bound to encounter difficulties that other members of the class may not have on her fraudulent omissions claim. Specifically, defendants can argue that plaintiff would not have behaved any differently had the omitted information been disclosed in the loan documents because she never read the loan documents or relied on them when she decided to enter the loan. See id. at 1351.
b. Plaintiff's Fraud Claim is Based on Affirmative Misrepresentations, not Solely Fraudulent Omissions
Furthermore, plaintiff's fraud claim is not solely based on fraudulent omissions. Plaintiff alleges in her TAC that "the payment amount provided by Defendant was intended to and did deceive consumers into falsely believing they would, in fact, receive the low interest rate upon which the payment schedule is based." (TAC ¶ 71.) The TAC contends that defendants falsely represented an artificially low teaser rate and "aggressively marketed their product as a fixed, low interest home loan" despite knowing that class members' interest rates would increase under the terms of OARM loans. (Id. ¶ 29.) Plaintiff further alleges in her fraud claim that defendants made "partial, misleading representations" throughout their loan documents. (Id. ¶ 139.)
Although plaintiff tries to categorize her claims as solely based on fraudulent omissions for the purposes of class certification, at best plaintiff's claim is one of mixed misrepresentations and fraudulent omissions.*fn4 Even if the Ute presumption were applicable to fraud claims under California law, plaintiff's claims would not qualify for the presumption. See Poulous v. Caesars World, Inc., 279 F.3d 654, 666-67 (9th Cir. 2004). Plaintiff's contention that she is entitled to a presumption of reliance because the loan documents were uniform is based on cases where standardized oral presentations were given to each class member. See e.g., In re First Alliance Mortg. Co., 471 F.3d at 991; Vasquez v. Superior Court, 4 Cal. 800 (1971). Since the class members in these cases had to have listened to the same "sales pitch" verbatim to have done business with the defendants, the court could infer that all class members had in fact relied on defendants' misrepresentations. However, these cases are inapplicable in this case because there is no guarantee that plaintiff actually was aware of the fraudulent omissions in her loan documents, since she had the option of not reading the documents before she signed them.
Plaintiff's fraud claim is therefore subject to a unique defense of non-reliance that defeats her showing of typicality. See Jordan v. Paul Fin., LLC, No. C 07-04496 SI, 2009 WL 192888, at *5 (finding putative class representative's fraud claim not typical of the class because "the possibility that he did not read the loan documents establishes that the litigation will focus on a defense unique to plaintiff"); see also Deitz v. Comcast Corp., No. C 06-06353 WHA, 2007 WL 2015440, at *5 (N.D. Cal. Jul. 11, 2007) (finding plaintiff did not establish typicality because plaintiff did not read any of Comcast's communications and therefore would "be subject to a unique defense that he did not read, and thus could not have relied on, any of the misstatements").
c. Defendants have Rebutted any Presumption of Reliance
Even if plaintiff is entitled to a presumption of reliance, defendants have effectively rebutted any such presumption. Plascencia noted that while the plaintiff in that case was entitled to a presumption of reliance, defendants could "rebut this presumption . . . by introducing evidence that particular class members were either aware of the loan terms or would have purchased the loans even if the terms were clearly disclosed in the documents." Plascencia, 269 F.R.D. at 447. In this case, defendants have provided uncontroverted evidence that rebuts any presumption of reliance. In her deposition, plaintiff admitted that she did not read the terms of the loan and nobody explained the terms of the loan to her, rather all she could understand were the numbers on the page such as the date, interest rate, and numbers on the payment schedule.
(Meinertzhagen Decl. Ex. A (Quezada Depo.) 30:14-24, 31:1-23; 34:19.) Plaintiff also testified that she did not read or ask questions about the Truth in Lending Disclosure Statements she signed. (Id. 32:2-7.) Plaintiff contended that she did not ask questions about her loan documents during the signing because Teresa Ortega, her life insurance broker, explained to her that the loan was a thirty-year fixed-rate loan previously and plaintiff trusted Ortega because she spoke Spanish. (Id. 16:22-17:1, 7-12, 18:10-12, 23:11-16.) At her deposition, Ortega testified that she did not discuss the terms of plaintiff's loan with her, and that the notary at closing explained the loan documents to plaintiff. (Id. Ex. B. at 27:25-28:2, 31:1-10, 14-16, 35:6-8.) Furthermore, Jose Ornelas, plaintiff's mortgage broker, claimed at his deposition that he told plaintiff the consequences of an OARM loan, including that plaintiff's interest rate would increase and that there was a risk of negative amortization if she only made the minimum payment on the loan. (Id. Ex. C at 27:7-23, 28:18-29:5, 29:6-14, 21-25.)
2. UCL Claims
Plaintiff's UCL claim similarly fails to meet the requirements of Rule 23(a)(3) because plaintiff must also prove reliance in order to establish this claim. The UCL prohibits any "unlawful, unfair or fraudulent business act or practice." Cal. Bus. & Prof. Code § 17200. It incorporates other laws and treats violations of those laws as unlawful business practices independently actionable under state law. Chabner v. United Omaha Life Ins. Co., 225 F.3d 1042, 1048 (9th Cir. 2000). In addition, a business practice may be "unfair or fraudulent in violation of the UCL even if the practice does not violate any law." Olszewski v. Scripps Health, 30 Cal. 4th 798, 827 (2003). With respect to fraudulent conduct, the UCL prohibits any activity that is "likely to deceive" members of the public. Puentes v. Wells Fargo Home Mortg., Inc., 160 Cal. App. 4th 638, 645 (2008). Plaintiff argues that defendants' loan practices are unlawful, unfair, and fraudulent under the UCL.
Prior to 2004, anyone acting on behalf of the public could bring a suit under the UCL, regardless of whether they could show injury or damage by the challenged business practice. In 2004, California voters approved Proposition 64, which amended the UCL to permit suits by the Attorney General and certain government attorneys, or by individuals who have "suffered injury in fact and ha[ve] lost money or property as a result of unfair competition." Cal. Bus. & Prof. Code § 17204. The California Supreme Court has interpreted Proposition 64 as imposing an "actual reliance requirement on plaintiffs prosecuting a private enforcement action under the UCL's fraud prong."*fn5 In re Tobacco II Cases, 46 Cal. 4th 298, 326 (2009). To satisfy the reliance requirement "[i]t is not . . . necessary that the plaintiff's reliance upon the truth of the fraudulent misrepresentation be the sole or even the predominant or decisive factor influencing his conduct . . . . It is enough that the representation has played a substantial part, and so had been a substantial factor, in influencing his decision." Id. (citations, quotation marks, and alteration marks omitted).
Plaintiff will have unique difficulty in proving her "unfair" and "fraudulent" theories of liability on her UCL claim for the same reasons she will have difficulty on her common law fraud claim. Plaintiff's unfair and fraudulent business practices theories allege that defendant's business practices were unfair and fraudulent because they were based on "a pattern of deceptive conduct and concealment" aimed at misrepresenting the true terms of their OARM loans. (TAC ¶ 151.) Whether or not plaintiff actually relied on these fraudulent representations will become a major focus of this litigation. In fact, defendants have filed a motion for summary judgment that argues plaintiff's UCL claim should be dismissed because she cannot prove reliance on the fraudulent practices at issue. (See Docket No. 85.)
Defendants also contend that the "unlawful" component of plaintiff's UCL claim is not typical because plaintiff must address a statute of limitations defense to the claim that many class members would not. Defendants argue that plaintiff's TILA claim is time barred and cannot be the basis for her "unlawful" UCL claim. TILA has a one-year statute of limitations, while the UCL has a four-year statute of limitations. Compare 15 U.S.C. § 1640(e), with Cal. Bus. & Prof. Code § 17208. The Ninth Circuit has reasoned that a plaintiff cannot enforce a time-barred TILA claim through the UCL because such an action would constitute "an attempt to enforce a state regulation in an area expressly preempted by federal law." Silvas v. E*Trade Mortg. Corp., 514 F.3d 1001, 1007 n.3 (9th Cir. 2008). Plaintiff filed this action well past one year after the consummation of her loan, but argues that she is entitled to equitable tolling of the TILA statute of limitations.
Other district courts have found that a putative class representative's claims fail to meet the typicality requirement when they are subject to a statute of limitations defense that differs from other class members and would become a significant focus of the litigation. See Blackwell v. SkyWest Airlines, Inc., 245 F.R.D. 453, 462-63 (S.D. Cal. 2007); Arabian v. Sony Electronics, Inc., No. 05cv1741 WGH (NLS), 2007 WL 627977, at **5-6 (S.D. Cal. Feb. 22, 2007); Burton v. Mountain W. Farm Bureau Mut. Ins. Co., 214 F.R.D. 598, 609 (D. Mont. 2003). The class definition proposed by plaintiff is extremely broad, including anyone who received a loan from LCC beginning January 24, 2004. This guarantees that some class members will have statute of limitations issues that will need to be resolved, while others will not. While plaintiff will certainly be typical of part of the class in this regard, there may be a broad swath of the class that has no statute of limitations issues, but would be bound by an order of this court if the court finds plaintiff's UCL claim time-barred in defendants' upcoming summary judgment motion. Without any subdivisions in the proposed class definition, this court is skeptical that the statute of limitations defense is reasonably coextensive with the defenses that would be levied against many of the class members.
Plaintiff's UCL claim has therefore also failed to meet the typicality requirement.
As both of plaintiff's claims have failed to meet the requirements of Rule 23(a), the court must deny plaintiff's motion for class certification. However, even if plaintiff's claims were to meet the Rule 23(a) requirements, they also fail to meet the requirements of Rule 23(b).
Because Rule 23(a)(3) already considers commonality, the focus of the Rule 23(b)(3) predominance inquiry is on the balance between individual and common issues. Hanlon, 150 F.3d at 1022; see also Amchem Prod., Inc. v. Windsor, 521 U.S. 591, 623 (1997) ("The Rule 23(b)(3) predominance inquiry tests whether proposed classes are sufficiently cohesive to warrant adjudication by representation."). To determine whether common questions predominate on either of plaintiff's claims, the court must analyze the elements of those claims.
1. Predominance in Fraud Claim
Plaintiff's fraud claim will likely be predominated by individual issues rather than common questions of fact. Although the loan documents issued to class members were similar, as previously explained, whether class members relied upon the loan documents in question will be a critical issue in this action. The class members likely had different conversations with their mortgage brokers about OARM loans, had different levels of experience with mortgage products, were explained the terms of the loan differently by a notary at closing, and read the loan documents to different degrees. The extent of each class member's reliance on the representations in the loan documents will be critical to determine whether the reliance and causation elements of the fraud claim are satisfied. Therefore, the individual issues of what each class member understood about their loan terms and whether or not each class member relied on those terms will likely predominate this litigation, rather than common questions about the terms of the loan documents. See Endres v. Wells Fargo Bank, No. C 06-7019 PJH, 2008 WL 344204, at *12 (N.D. Cal. Feb. 6, 2008) (denying class certification where individual issues such as "whether and when a particular class member heard of read the alleged misrepresentations (or Bank disclosures)" predominated); Mahfood v. QVC, Inc., No. SACV 06-0659-AG, 2008 WL 5381088, at **4-5 (C.D. Cal. Sept. 22, 2008) (finding that individual issues predominated where class members heard and saw different misrepresentations by defendant); Cohen v. DIRECTV, Inc., 178 Cal. App. 4th 966, 979-80 (2009) (affirming denial of class certification because determination of reliance of causation depended on whether class members saw misleading advertisements and therefor individualized factual issues predominated). Accordingly, plaintiff's fraud claim is not appropriate for class certification under Rule 23(b).
2. Predominance in UCL Claims
The portion of plaintiff's UCL claim that is based on violations of TILA will also likely involve considerable individual issues. While plaintiff maintains that the alleged violations of TILA were uniform across the class, the statute of limitations issue will comprise a substantial portion of the litigation. If plaintiff's statute of limitations issues and demand for equitable tolling are in fact typical of other class members, then an individualized inquiry of when each class member became aware of the TILA violations that are the subject of this UCL claim would be necessary. See King v. California, 784 F.2d 910, 914-15 (9th Cir. 1986). While individualized inquiries do not foreclose the possibility of predominance, whether the statute of limitations may be equitably tolled for each class member will be a highly individualized inquiry that will be necessary before the court may even reach the merits of each plaintiff's claim. See, e.g., Block v. Major League Baseball, 65 Cal. App. 4th 538, 544-46 (1998). Given the possibility that this issue will predominate the proceedings, the court finds that common factual issues predominate on plaintiff's "unlawful" UCL claim.
IT IS THEREFORE ORDERED that plaintiff's motion for class certification be, and the same hereby is, DENIED.