Sunday, August 28, 2011

FYI: Cal App Ct Upholds Dismissal of Fraud Claims, Despite Continuing Violation and Fraudulent Concealment Allegations

The Court of Appeal of the State of California, Fourth Appellate District,
recently held that a lawsuit against a mortgage lender alleging fraud and
related causes of action was time-barred, despite the plaintiff's
allegations of continuing violations and fraudulent concealment.

A copy of the opinion is available at:

The plaintiff, the mother of minor children, allegedly discovered that her
estranged husband carried out a fraudulent scheme in which he created
false credit histories for the couple's minor children and purchased
properties in the children's names. In connection with those purchases,
the husband obtained mortgage loans -- at allegedly artificially high
interest rates -- from Wachovia Mortgage Corporation's predecessor

The plaintiff allegedly discovered the fraud in 2004, and filed a fraud
action against the husband, in the name of her children, in 2005. That
case settled. In 2009, plaintiff as trustee for her minor children
brought the instant action against Wachovia, alleging fraud as well as
related causes of action. Wachovia demurred, arguing that the statute of
limitations barred the action. The lower court sustained the demurrer,
without leave to amend. The plaintiff appealed.

The plaintiff argued that the statute of limitations period was tolled
because Wachovia supposedly engaged in continuing wrongful conduct (in
that, among other things, Wachovia continued to assess her fees per the
terms of the mortgage), and that Wachovia was equitably estopped from
asserting the statute of limitations because its identity was fraudulently
concealed from her. The Court did not accept either argument. It noted
that the plaintiff's complaint "contains no allegations that [Wachovia]
did anything wrong after making the fraudulent mortgage loans," and
distinguished the allegations of continuous wrongs by noting that at most,
the behavior alleged "may show plaintiff still suffers from the fraudulent
loans made in 2000 and 2001."

Next, the Court examined the plaintiff's fraudulent concealment argument.
The Court noted that California recognizes the doctrine of fraudulent
concealment. See, e.g., Bernson v. Browning Ferris Industries ,7 Cal. 4th
926, 936 (1994) However, in order for a defendant to be equitably
stopped from asserting a statute of limitations defense, the Court also
noted that the plaintiff must be "directly prevented.from filing [a] suit
on time." Lantzy v. Centex Homes, 31 Cal. 4Th 363, 385 (2003).

Here, the plaintiff admitted that she learned of Wachovia's alleged role
in the purported fraud in 2007 - which, the Court noted, gave her time to
initiate an action prior to the expiration of the statute of limitations.
Because the plaintiff was not directly prevented from filing a timely
action, the Court held that her fraudulent concealment argument failed.

Therefore, the Court held that the complaint was time-barred on its face,
and affirmed the lower court's decision to sustain the demurrer without
leave to amend.

Ralph T. Wutscher
McGinnis Tessitore Wutscher LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
Direct: (312) 551-9320
Fax: (312) 284-4751
Mobile: (312) 493-0874

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