Court Opinion

ID: 3051928
Source: CourtListenerOpinion
Date Created: 2015-10-13 23:38:10.69821+00
Date Added: 2024-06-11T08:58:14.366305
License: Public Domain

FOR PUBLICATION
  UNITED STATES COURT OF APPEALS
       FOR THE NINTH CIRCUIT

FAMILY HOME AND FINANCE                 
CENTER, INC., a California
Corporation doing business as
Park Place Funding; DAISY J.
PHILLIPS, also known as DJ
                                             No. 06-56521
Phillips doing business as All Star
Financial; MARK GALLAGHER,
               Plaintiffs-Appellants,
                                              D.C. No.
                                            CV-05-08752-PA
                 v.                           OPINION
FEDERAL HOME LOAN MORTGAGE
CORPORATION, a District of
Columbia Corporation,
                Defendant-Appellee.
                                        
        Appeal from the United States District Court
           for the Central District of California
         Percy Anderson, District Judge, Presiding

                   Argued and Submitted
            April 7, 2008—Pasadena, California

                      Filed May 7, 2008

    Before: Alfred T. Goodwin, Andrew J. Kleinfeld, and
                Jay S. Bybee, Circuit Judges.

                 Opinion by Judge Goodwin

                             5029
5032         FAMILY HOME v. FEDERAL HOME LOAN

                         COUNSEL

Julian B. Bellenghi, Michael J. Collins, Collins & Bellenghi,
Newport Beach, California, for the plaintiffs-appellants.

Kelli L. Sager, Davis Wright Tremaine, Los Angeles, Califor-
nia; Graciela M. Rodriguez, King & Spalding, Washington,
D.C., for the defendant-appellee.

                         OPINION

GOODWIN, Circuit Judge:

   Family Home and Finance Center, Inc., doing business as
Park Place Funding, along with Daisy J. Phillips and Mark
Gallagher (collectively “Park Place”) appeal the summary
judgment in favor of Federal Home Loan Mortgage Corpora-
tion (“Freddie Mac”) on claims against Freddie Mac for inten-
tional interference with contract, unfair competition under
California Business & Professions Code § 17200, and defa-
mation. Park Place also assigns error to the district court’s
denial of its Federal Rule of Civil Procedure 56(f) request to
defer ruling on Freddie Mac’s motion for summary judgment.
              FAMILY HOME v. FEDERAL HOME LOAN              5033
The district court had jurisdiction pursuant to 12 U.S.C.
§ 1452(f). We have jurisdiction pursuant to 28 U.S.C. § 1291,
and we affirm.

                    I.   BACKGROUND

   Park Place operates a mortgage broker business initiating
loan applications from prospective borrowers and presenting
the applications to lenders for processing and potential fund-
ing. National City Mortgage Company (“National City”), who
is not a party to this appeal, processed and funded many of
Park Place’s loan applications and sold the loans to Freddie
Mac. Freddie Mac in turn would sell Participation Certifi-
cates, or interests, in pools of loans to capital market inves-
tors, or keep the loans for its own investment.

   In December 2004, a capital market investor notified Fred-
die Mac that some loans included in its mortgage pools were
prepaying at a faster than normal rate, thus reducing the
investor’s anticipated rate of return. Freddie Mac contacted
National City to look into the pools with rapid prepayment
rates, and both National City and Freddie Mac investigated
the prepayment activity. Park Place had been encouraging its
borrowers to apply for initial loans at a high interest rate, and
then to engage in early refinancing, which resulted in a rising
curve of rapid prepayment. These prepayments violated no
law, and may have been in accordance with National City’s
lending policies.

   National City notified Park Place of its intent to terminate
their mortgage broker contract in March 2005, and terminated
the contract soon thereafter. Also in March 2005, Freddie
Mac began to investigate Park Place’s business practices. In
July 2005, Freddie Mac first notified Park Place of its intent
to put Park Place on the Exclusionary List, a list which identi-
fies entities with whom Freddie Mac will no longer transact
business. Freddie Mac had determined that Park Place’s loans
were not of investment quality.
5034          FAMILY HOME v. FEDERAL HOME LOAN
   Park Place appealed to Freddie Mac’s Exclusionary List
Appeal Committee. That committee denied the appeal, and on
January 31, 2006, Park Place was put on the Exclusionary
List. The List is published only to those lenders who sell or
service loans to Freddie Mac, and the effect of exclusion is to
prohibit excluded entities from participating in business trans-
actions with Freddie Mac. Park Place was effectively denied
access to the principal market for the loans it was writing
because it was placed on the List.

   In March 2006, Park Place filed an amended complaint in
the district court seeking damages for intentional interference
with contract, unfair competition, and defamation. Park Place
alleged that Freddie Mac intentionally interfered with its con-
tract to broker mortgage loans to National City. The district
court granted summary judgment in favor of Freddie Mac on
this claim because Park Place had no admissible evidence that
Freddie Mac influenced or caused National City to terminate
the contract with Park Place, or intended that result.

   Park Place also alleged that by placing it on the Exclusion-
ary List, Freddie Mac engaged in unfair competition and defa-
mation. The district court granted summary judgment against
these claims, for reasons that will be discussed below.

   Park Place attributes any deficit in its evidence to the denial
of its request under Fed. R. Civ. P. 56(f) to defer ruling on
summary judgment. Park Place’s request alleged that Freddie
Mac had engaged in dilatory tactics preventing it from obtain-
ing relevant evidence. The district court denied the request
because Park Place failed to articulate the specific facts it
hoped to elicit, and did not show how such facts would defeat
summary judgment. Also, the district court denied the request
because Park Place failed to file timely motions to compel
discovery or extend the discovery cutoff date.
              FAMILY HOME v. FEDERAL HOME LOAN              5035
                     II.   DISCUSSION

A.   Intentional Interference with Contract

   [1] Under California law, a claim for intentional interfer-
ence with contract requires: (1) a valid contract between
plaintiff and a third party; (2) defendant’s knowledge of the
contract; (3) defendant’s intentional acts designed to induce
breach or disruption of the contract; (4) actual breach or dis-
ruption; and (5) resulting damage. Pac. Gas & Elec. Co. v.
Bear Stearns & Co., 791 P.2d 587, 589-90 (Cal. 1990). We
agree with the district court that Park Place’s claim fails
because there was no admissible evidence that Freddie Mac
influenced or caused National City to terminate its mortgage
broker contract with Park Place, intentionally or otherwise.

   [2] Park Place contends that the testimony of its president,
Mark Gallagher, proved that Freddie Mac influenced National
City to terminate the contract. Gallagher testified only that a
National City employee had told him that Freddie Mac and
National City would shut Park Place down. That testimony,
which may have been admissible hearsay to show National
City’s state of mind, does not connect Freddie Mac in any
way to National City’s decision. The district court correctly
inferred that, at best, the testimony suggests that National City
may have colluded with Freddie Mac to stop handling Park
Place business. But the statement does not shed any light on
the intentions of Freddie Mac.

   [3] Park Place also contends that circumstantial evidence
precludes summary judgment. The circumstantial evidence
tended to prove that Park Place had been a profitable mort-
gage broker for National City, which no one denied, and that
National City may have been reluctant to terminate its con-
tract with Park Place. The evidence also showed that Freddie
Mac may have known about Park Place’s rapid refinancing
strategy before National City terminated the contract. Even if,
as Park Place seems to allege, Freddie Mac was negligent in
5036          FAMILY HOME v. FEDERAL HOME LOAN
its tardy discovery that it was dealing in problematic loans,
evidence of negligence is not proof of intentional interference
by Freddie Mac with Park Place’s contract. A necessary ele-
ment of Park Place’s claim is proof that Freddie Mac’s action
was designed to accomplish interference. This evidence
proved only that Freddie Mac would no longer buy a product
it could not sell to its customers. It proved nothing about
interference with the originators of those products.

B.     Unfair Competition

   [4] Whether a business practice constitutes unfair competi-
tion under Cal. Bus. & Prof. Code § 17200 “involves an
examination of [that practice’s] impact on its alleged victim,
balanced against the reasons, justifications and motives of the
alleged wrongdoer.” People v. Duz-Mor Diagnostic Lab.,
Inc., 68 Cal. App. 4th 654, 662 (Ct. App. 1998). The district
court concluded that Freddie Mac’s placement of Park Place
on its Exclusionary List did not constitute unfair competition
because Freddie Mac had a legitimate business reason for
placing Park Place on the List. Park Place failed to offer any
evidence to create a material question of fact about the mar-
ketability of its debt.

   Park Place argues that summary judgment was inappropri-
ate because disputes exist as to: (1) whether its repetitive refi-
nancing strategy caused the harm suffered by Freddie Mac;
(2) whether its loans were inappropriate for inclusion in Fred-
die Mac’s mortgage pools; and (3) whether Freddie Mac put
Park Place on the Exclusionary List in contravention of the
List’s purpose.

   [5] First, there is no dispute that Park Place’s repetitive
refinancing strategy caused Freddie Mac to lose money on
Park Place loans. In fact, Freddie Mac lost approximately $3
million as a result of the rapid prepayment of loans in its
mortgage pools and own investment portfolio. Even if Park
Place is correct in asserting that National City and Freddie
              FAMILY HOME v. FEDERAL HOME LOAN              5037
Mac are also to blame for losses suffered by capital market
investors, Park Place remains responsible for the non-
marketable quality of the loans it produced. Second, there is
no dispute that Park Place loans, which prepaid at a faster
than normal rate, were inappropriate for inclusion in Freddie
Mac’s mortgage pools. Loans with rapid prepayment rates
resulted in losses to capital market investors, and Freddie
Mac’s customers did not wish to invest in such loans. In the
debt market, packaged loans are a product offered for sale. If
potential buyers do not want to buy the product, Freddie Mac
is under no obligation to order more of it. Like dog food, if
dogs won’t eat it, the store won’t buy it.

    [6] Third, Park Place contends, conflating its unfair compe-
tition claim with its defamation claim, that the Exclusionary
List is a “fraud list,” it did not commit fraud, and thus listing
Park Place is defamatory. Freddie Mac, however, lists, after
notice and an opportunity to appeal, not only entities whose
business practices may be fraudulent, but also entities whose
practices are not necessarily fraudulent, but “may seriously
and adversely affect Freddie Mac’s programs or business
interests.” This evidence was uncontradicted. Furthermore,
the utility of the Exclusionary List to Freddie Mac signifi-
cantly outweighed the impact upon Park Place — that it was
denied access to a market that didn’t want to buy its loans.

C.   Defamation

   [7] California state law explains that defamation “involves
the intentional publication of a statement of fact that is false,
unprivileged, and has a natural tendency to injure or which
causes special damage.” Smith v. Maldonado, 72 Cal. App.
4th 637, 645 (Ct. App. 1999). The Common Interest Privilege
may protect the publication if, absent malice, “the communi-
cator and the recipient have a common interest and the com-
munication is of a kind reasonably calculated to protect or
further that interest.” Williams v. Taylor, 129 Cal. App. 3d
745, 751 (Ct. App. 1982).
5038          FAMILY HOME v. FEDERAL HOME LOAN
   [8] The district court granted summary judgment in favor
of Freddie Mac because Park Place could not prove malice to
defeat the Common Interest Privilege. We agree that there
was no showing of malice. The evidence shows that Freddie
Mac, after investigation, put Park Place on the Exclusionary
List to prevent its further purchase of loans that were not of
investment quality. There is no evidence that Freddie Mac
acted with hatred or ill will towards Park Place, or with reck-
less disregard for the publication’s truth. Evidence of any
such motive would have constituted malice. See Noel v. River
Hills Wilsons, Inc., 113 Cal. App. 4th 1363, 1370 (Ct. App.
2003) (defining the malice necessary to defeat the Common
Interest Privilege).

   [9] Park Place argues that the Common Interest Privilege
does not apply, but presents no evidence to show why it
should not apply here. Freddie Mac publishes the Exclusion-
ary List only to its lenders, with whom it shares a business
relationship and common interest in dealing with investment
quality loans. Moreover, Park Place offers no cogent reason
why truth is not a complete defense. Park Place simply
repeats its assertion that the publication by Freddie Mac was
false because the Exclusionary List is a “fraud list,” and it did
not commit any fraud. The evidence in the record as noted,
however, proves that the List was created with a legitimate
business purpose to exclude those who may have committed
fraud or who deal with loans not of investment quality. Thus,
placement of Park Place on the Exclusionary List for reasons
other than fraud was not a false statement of fact by Freddie
Mac.

D.     Fed. R. Civ. P. 56(f) Request

   [10] Under Fed. R. Civ. P. 56(f), a trial court may order a
continuance on a motion for summary judgment if the party
requesting a continuance submits affidavits showing that,
without Rule 56 assistance, it cannot present facts necessary
to justify its claims. The requesting party must show: (1) it
              FAMILY HOME v. FEDERAL HOME LOAN              5039
has set forth in affidavit form the specific facts it hopes to
elicit from further discovery; (2) the facts sought exist; and
(3) the sought-after facts are essential to oppose summary
judgment. Cal. on behalf of Cal. Dep’t of Toxic Substances
Control v. Campbell, 138 F.3d 772, 779 (9th Cir. 1998). Fail-
ure to comply with these requirements “is a proper ground for
denying discovery and proceeding to summary judgment.” Id.
(quoting Brae Transp., Inc. v. Coopers & Lybrand, 790 F.2d
1439, 1443 (9th Cir. 1986)).

   [11] Park Place sought evidence of the criteria used to place
entities on the Exclusionary List, as well as the entities placed
on the Exclusionary List and the reasons for exclusion. The
district court properly concluded that the evidence sought is
only “generically relevant,” and that Park Place failed to show
how the evidence is “essential” to oppose summary judgment.
Because Park Place did not satisfy the requirements of Fed.
R. Civ. P. 56(f), we cannot say that the district court abused
its discretion in denying Park Place’s request to defer ruling
on summary judgment.

   Park Place also contends that the district court abused its
discretion when it concluded that, even if Park Place had sat-
isfied the Rule 56(f) requirements, it was not entitled to addi-
tional discovery because it failed to file timely motions to
compel and extend discovery. See Mackey v. Pioneer Nat’l
Bank, 867 F.2d 520, 524 (9th Cir. 1989) (explaining that a
moving party is not entitled to additional discovery under Fed.
R. Civ. P. 56(f) “if it fails diligently to pursue discovery
before summary judgment”). We need not reach Park Place’s
alternative assignment of error because we agree that Park
Place failed to satisfy the requirements of Fed. R. Civ. P.
56(f).

  AFFIRMED.