FYI: Idaho Supreme Court Rules in Favor of MERS

The Idaho Supreme Court recently upheld summary judgment in favor of MERS, ruling that, as the beneficiary under a deed of trust and as the lender's agent, MERS had the authority to appoint a successor trustee and direct the trustee to initiate foreclosure proceedings.  In so ruling, the Court reasoned that the borrower failed to meet her burden of proving that MERS could not legally act as the beneficiary under the deed of trust and thus failed to prove that MERS lacked standing to direct the foreclosure sale of her home.

 

A copy of the opinion is available at:  http://www.isc.idaho.gov/opinions/38604.pdf.

 

Plaintiff borrower ("Borrower") obtained a mortgage refinancing loan that was secured by a deed of trust on Borrower's property naming defendant Mortgage Electronic Registration Systems Inc. ("MERS") as the beneficiary, as nominee for the lender ("Lender").   Specifically, the deed of trust defined MERS as "a separate corporation that is acting solely as a nominee for Lender and Lender's successor's and assigns.  MERS is the beneficiary under this Security Instrument." 

 

Around four years after the refinancing transaction, Borrower defaulted on the loan, and MERS appointed a substitute trustee ("Substitute Trustee") under the deed of trust, recording the substitution of trustee shortly thereafter.  Substitute Trustee in turn recorded a notice of default and election to sell that stated among other things, that Borrower had failed to make her payments and that MERS, as beneficiary, had provided the Substitute Trustee with a written declaration of default and all documents evidencing obligations secured by the trust deed.  Substitute Trustee scheduled a trustee's sale.

 

Less than a week before the scheduled trustee's sale, Borrower filed a complaint against MERS, Substitute Trustee and others (collectively, the "Defendants") to stop the foreclosure sale, arguing that Defendants lacked legal standing, that they had no interest in the note or deed of trust and that MERS could not legally be the beneficiary under the deed of trust.  Defendants moved to dismiss, requesting the court to take judicial notice of various public records related to the loan.  

 

Treating Defendants' motion as a motion for summary judgment, the lower court stayed the foreclosure sale, in part to allow Borrower to conduct discovery, and subsequently granted Defendants' motion.   Roughly two months later, the court entered judgment dismissing Borrower's complaint with prejudice and vacated the order staying the foreclosure sale.  However, as Borrower's property was sold before the entry of judgment, MERS rescinded the sale and recorded a notice of the rescission. 

 

Borrower appealed.  The Idaho Supreme Court affirmed.

 

As you may recall, under Idaho law, a deed of trust refers to "a deed . . .  conveying real property to a trustee in trust to secure the performance of an obligation of the grantor . . . to a beneficiary."  I.C. § 45-1502(3).  In addition, the "beneficiary" of a deed of trust is "the person named or otherwise designated in a trust deed as the person for whose benefit a trust deed is given, or his successor in interest, and who shall not be the trustee."  I.C. § 45-1502(1).  Moreover, one of Idaho's requirements for foreclosure is that either the trustee or the beneficiary record a notice of default.  I.C. § 45-1505(3). 

 

The Idaho Supreme Court first determined that, contrary to Borrower's argument that the case was moot due to rescission of the foreclosure sale, the case was not moot, as Borrower was still in possession of the property, was still in default, and MERS still wanted to foreclose.     

 

Next, turning to Borrower's assertions that the Defendants (including MERS) lacked standing to foreclose, and that there were genuine issues of material fact related to ownership of the note and mortgage, the Idaho Supreme Court noted that Borrower failed to meet her burden of proving a legal ground to stop the foreclosure, and that "standing" was not a requirement for nonjudicial foreclosure of deeds of trust.   See Trotter v. Bank of New  York Mellon, 152 Idaho 842, 847, 275 P.3d 857, 861-62 (2012)("a trustee may initiate nonjudicial foreclosure proceedings on a deed of trust without first proving ownership of the underlying note or demonstrating that the deed of trust beneficiary has requested or authorized the trustee to initiate those proceedings.").  The Court thus concluded that Borrower was not entitled to stop the foreclosure based on MERS's alleged lack of standing

 

With respect to Borrower's argument that MERS lacked authority to appoint Substitute Trustee, declare a default, or demand initiation of foreclosure of the deed of trust because MERS did not have an interest in the note, the Court concluded that Lender's designation of MERS as the beneficiary in its representative capacity as nominee of Lender and its successor and assigns was legally no different than designating Lender itself and its successors and assigns as the beneficiary. 

 

In so ruling, the Idaho Supreme Court noted that a "nominee" is a particular form of agent that acts in place of another in a very limited way and that Lender had the authority to designate MERS as its agent to act on its behalf.   See Clements v. Jungert, 90 Idaho 143, 151, 408 P.2d 810, 814 (1965). 

 

The Court also observed that as Lender's agent, MERS had the authority to appoint Substitute Trustee as the successor trustee under the trust deed, to direct Substitute Trustee to record a notice of default, and that Substitute Trustee in turn had the authority to initiate foreclosure proceedings.   

 

Pointing out that Borrower failed to meet her burden of proof, the court rejected Borrower's various assertions, including her arguments that (1) the notice of default was untrue in that the payment obligation was not actually "in favor" of MERS; and (2) that the deed of trust made MERS both the beneficiary and the trustee in violation of Section 45-1502(1).  In noting that the deed of trust did not purport to grant the property to MERS but granted it to the original trustee named in the trust deed, the court stressed that the deed of trust specified that MERS held only legal title to the interests granted by Borrower to Lender, not that MERS held legal title to the real property Borrower granted.   The court thus concluded that the deed of trust did not make MERS both the beneficiary and the trustee in violation of Section 45-1502(1).

 

Finally, among other things, the Court also ruled that even though MERS was a prevailing party on appeal, it was not entitled to attorney fees under Idaho Rules 40 and 41, reasoning that neither rule provided the authority for awarding such fees.

 

Accordingly, finding that Borrower failed to show that there were any genuine issues as to material fact that would preclude summary judgment, the Idaho Supreme Court affirmed the judgment of the lower court.

 

 

 

Ralph T. Wutscher
McGinnis Wutscher Beiramee 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
Email: RWutscher@mwbllp.com

 

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FYI: Cal App Ct Holds Assignee's Claim for Origination Fraud Was FDCPA "Debt," and Fraud Claim Was Not Assigned with Loan

The California Court of Appeal, First District, recently ruled that:

 

(1) the assignment to a debt collector of a loan secured by a second deed of trust did not include assignment of a claim for origination fraud, because the contractual assignment did not expressly include tort claims and the assignment occurred after the foreclosure of the senior deed of trust when there no longer was any property interest under the second deed of trust;

 

(2) the assignee's claim for origination fraud was a "debt" under the federal Fair Debt Collection Practices Act, as the obligation on the part of the borrower to be truthful on her loan application derived from a consensual or contractual transaction; and

 

(3) the lower court's award of attorney fees and costs was reasonable in light of such factors as the market rate in the local community, time spent on litigation, and the fact that the borrower was "completely successful" in proving that the debt collector violated the FDCPA.

 

A copy of the opinion is available at:  http://www.courts.ca.gov/opinions/documents/A135274.PDF

 

A borrower ("Borrower") executed two promissory notes with a mortgage lender ("Lender") in order to purchase a home. The senior mortgage loan was for $340,000 and the junior loan was for $85,000 both of which were secured by deeds of trust on the property ("First Property").  On her loan application, Borrower indicated that she did not have a family or business relationship with the seller of the property, acknowledging that "any intentional or negligent misrepresentation of this information . . . may result in civil liability, including monetary damages."  However, the seller turned out to be Borrower's son.   Both promissory notes contained language providing that Lender had the right to transfer the notes.   At about the same time, another property ("Second Property") was purchased in Borrower's name, which Borrower claimed was purchased under her name as a result of identity theft. 

 

Borrower eventually defaulted on her mortgage payments on the First Property, which resulted in a foreclosure of the senior deed of trust.  About nine months after the foreclosure on the senior lien, a debt buyer ("Debt Collector") acquired Borrower's second promissory note as part of a pool of loans.  Debt Collector sent Borrower a number of notices informing her of the transfer of the note, including a notice asserting that Borrower was obligated to pay Debt Collector the unpaid balance on the second promissory note.   Debt Collector also concluded that Borrower had made misrepresentations on her loan application. 

 

Seeking actual and punitive damages, Debt Collector filed suit against Borrower, alleging intentional misrepresentation, fraudulent concealment, promise without intent to perform, and negligent misrepresentation.  Debt Collector further alleged that, because it was not seeking a deficiency judgment for the balance of a promissory note following the foreclosure of the senior deed of trust, it could pursue a judgment for Borrower's alleged fraud in connection with her loan application.

 

Around the time of the filing of its complaint, Debt Collector sent Borrower a letter, with the summons and complaint attached, stating among other things "If you notify us of your intent to voluntarily provide us with . . . documentation [related to Borrower's federal tax returns], we may suspend actions to provide you with an opportunity to provide use with copies of the same."  The letter also told Borrower to notify Debt Collector if she wanted to provide a copy of her promissory note as Debt Collector, "as assignee of the promissory note, has the right to reverify the information contained therein."  Finally, threatening litigation, the letter also informed Borrower that "any information or misrepresentations provided in the [loan] application are a violation of federal law and may result in 'civil liability, including monetary damages, to any person who may suffer any loss due to reliance upon any misrepresentation' for which [Debt Collector] . . . currently seeks."

 

The lower court ultimately concluded that Debt Collector failed to adequately allege an assignment of Lender's tort claims, as distinct from an assignment of the Lender's contractual rights under the second promissory note.  The lower court additionally found in part that, because Debt Collector's complaint stated that the promissory note was assigned after the foreclosure of the senior deed of trust, there was no underlying property interest to support "an incidental assignment of the original lender's fraud claims." 

 

Borrower also filed a cross-complaint alleging violations of California's Rosenthal Act and the federal Fair Debt Collection Practices Act ("FDCPA"), for alleged deceptive debt collections practices.  Borrower moved for summary judgment or summary adjudication on her cross-complaint, citing the letter Debt Collector sent her after it had filed its lawsuit.  Borrower sought $1,000 for the FDCPA violation and $1,000 for violation of California's Rosenthal Act.  In response, Debt Collector argued in part that the FDCPA did not apply because Borrower bought the property from her son and purchased the Second Property. 

 

The lower court granted in part and denied in party Borrower's motion for summary adjudication on the cross-complaint, ruling that Debt Collector's conduct threatening prosecution of meritless claims violated the FDCPA, and noting that Debt Collector had made a binding judicial admission that it received the second promissory note after the foreclosure of the first deed of trust, which extinguished the second deed of trust securing the second promissory note.   Partly concluding that the amount of Borrower's damages remained unresolved, the lower court awarded statutory damages in the nominal amount of one dollar. 

 

The lower court explained that if Borrower insisted on a greater amount, summary adjudication would be denied and the matter would proceed to trial.   The lower court entered judgment in Borrower's favor, indicating on the order that Borrower was the "prevailing party" and later awarding Borrower attorney fees and costs in the amount of almost $90,000.00.  The lower court, however, denied Borrower's summary adjudication motion with respect to her Rosenthal Act claim.

 

Debt Collector appealed.  The Appellate Court affirmed as to both Debt Collector's liability and attorney fees.

 

As you may recall, the FDCPA prohibits debt collectors from using "any false, deceptive, or misleading representation or means in connection with the collection of any debt," including "[t]he false representation of" "the character, amount or legal status of any debt[.]" 15 U.S.C. § 1692e. 

 

Violations under the FDCPA also include: (1) "[t]he threat to take action that cannot legally be taken . . . ." ; (2) the use of "any false representation or deceptive means to . . . obtain information concerning a consumer; and (3) "[t]he false representation or implication that accounts have been turned over to innocent purchasers for value."  15 U.S.C. § 1692e(5), (10), (12).

 

Finally, the FDCPA provides an affirmative defense for "any act done or omitted in good faith in conformity with any [Federal Trade Commission] advisory opinion."  15 U.S.C. § 1692k(e).

 

Rejecting Debt Collector's assertion that it had a right to pursue Borrower for the alleged misrepresentations on her loan application based on the purported assignment of Lender's tort claims against Borrower, the Appellate Court explained that "[a]n assignment agreement must describe the subject matter of the assignment with sufficient particularity to identify the rights assigned," and also that fraud causes of action must be pled specifically.  See Cockerell v. Title Ins. & Trust Co., 42 Cal.2d 284, 292 (1954); Mission Valley East, Inc. v. County of Kern, 120 Cal.App.3d 89, 97 (1981); Lazar v. Superior Court, 12 Cal.4th 631, 645 (1996); Committee on Children's Television, Inc. v. General Goods Corp., 35 Cal.3d 197, 216-17 (1983).

 

Pointing out that Debt Collector properly alleged assignment of the promissory note itself, the Court nevertheless noted Debt Collector's mere conclusory assertions that Lender assigned its tort claims to Debt Collector through various means, such as:  (1) the sale of the loan assigned all rights Lender had, including the fraud claim; (2) the assignment of tort claims was implied by the language in the assignment agreement providing that "all right, title and interest in the loan" was transferred to Debt Collector; (3) custom and practice in the mortgage industry; and (4) Borrower's acknowledgment in her application that Lender's assigns could rely on the information she provided therein. 

 

The Appellate Court concluded that the fraud claims were not "incidental to" the transfer of the promissory note to Debt Collector, and that the indorsed promissory note did not show a clear intent to assign the ancillary fraud claim, noting that the assignment agreement was completely silent regarding ancillary tort claims. See Cal. Civ. Code §1084; § 3201 et. seq; Guild Mortgage Co. v. Heller, 193 Cal. App.3d 1505, 1512 (1987); DC3 Entertainment, LLC v. John Galt Entertainment, Inc., 412 F. Supp.2d 1125, 1144 (W.D. Wash. 2006); National Reserve Co. v. Metropolitan Trust Co, 17 Cal.2d 827, 833 (1941).

 

With respect to the issue of liability under the FDCPA, the Appellate Court determined that Debt Collector's letter to Borrower violated the FDCPA by indicating, incorrectly, that Debt Collector had the right to sue Borrower for any misinformation submitted on the loan application and when it attempted to induce Borrower to settle, particularly in light of Debt Collector's judicial admission that it received assignment of Borrower's second note after the foreclosure of the first deed of trust.   

 

In so ruling, the Appellate Court rejected Debt Collector's argument that "debt" under the FDCPA never includes tort claims, noting that "debt" does not include tort obligations only when the tort obligations do not arise out of consensual or contractual transactions.  The Court rejected Debt Collector's arguments that Borrower's fraud liability did not arise out of a consensual transaction because the originating lender did not consent to mortgage fraud, and that the transaction was the same as the theft of goods or services, ruling that the Debt Collector's arguments were "contrary to the court decisions that have held that there is no automatic fraud exception to the FDCPA." 

 

Moreover, the Appellate Court also rejected Debt Collector's argument that, because it relied on an advisory opinion of the Federal Trade Commission, it had a defense to the application of the FDCPA, noting that the "advisory opinion" was only an informal staff opinion letter that disclaimed that it was binding on the FTC.

 

Turning to the issue of attorney fees, the Appellate Court concluded that even though Borrower was awarded only one dollar, she was nevertheless completely successful in establishing Debt Collector's unlawful conduct and that her success was thus not "partial." See Farrar v. Hobby, 506 U.S. 103 (1992); Thornton v. Wolpoff & Abramson, LLP, 312 Fed.Appx. 161, 164 (11th Cir. 2008).    Thus, taking into account the number of hours spent on the litigation, the prevailing market rates in the relevant community, and the interrelatedness of the FDCPA and Rosenthal Act claims and counterclaims, the Court determined that the lower court did not abuse its discretion in not reducing the attorney fees.

 

Accordingly, the Appellate Court affirmed the lower court's judgment and award of attorney fees and costs.

 

 

 

Ralph T. Wutscher
McGinnis Wutscher Beiramee 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
Email: RWutscher@mwbllp.com

 

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FYI: Cal App Ct Rules Servicer Could Be Liable in Premises Liability Action, Based on Alleged Notice to Listing Agent of Dangerous Condition

Reversing the lower court's grant of summary judgment, the California Court of Appeal, First District, recently ruled that evidence presented in a premises liability case against a loan servicer that owned foreclosed property and the listing agents hired to market the property raised a triable issue as to whether the servicer or the listing agents knew or should have known that a stairway ladder on the property was a concealed danger. 

 

In so ruling, the Court reasoned that liability to the injured third party hinged on whether the loan servicer or listing agents had actual or constructive knowledge of the concealed danger in light of a property inspection report that listed the stairway ladder as an item that should be removed and replaced.

 

A copy of the opinion is available at:  http://www.courts.ca.gov/opinions/documents/A133045.PDF.

 

Defendant loan servicer ("Servicer") owned a house that was foreclosed upon and listed the property for sale through defendants listing agents ("Listing Agents").   The house was equipped with a pull-down stairway ladder that allowed access to a room in the attic.  An inspection of the house was conducted shortly after the house was listed for sale, and the resulting inspection report listed more than 50 items needing repair under a heading entitled "Health and Safety Required Repairs – Group 1."  The list consisted of cosmetic and minor items, as well as items specifically related to health and safety.  One of the entries on the list was "Stair-Remove and replace attic stair."  Copies of the report were sent to individuals connected to the property, including the Listing Agents, one of whom reviewed it.   

 

After cautioning prospective home buyers about the ladder, a real estate salesperson climbed the stairway, but the ladder gave way, causing the salesperson to fall and fracture a leg and injure her knees.  She and her husband (collectively, "Plaintiffs") filed suit against Servicer and the Listing Agents for negligence, premises liability, and loss of consortium.  

 

Listing Agents and Servicer moved separately for summary judgment, arguing that the undisputed facts showed that they had no notice or knowledge of a defect in the stairway ladder.  The lower court granted the motions.   Plaintiffs appealed.

 

The Appellate Court began its analysis by examining the duties of property owners and their agents to notify people of known but concealed dangerous conditions.  Noting in part that property owners are required to maintain land in their possession and control in a reasonably safe condition, the Court explained that to establish liability on negligence and premises liability claims, a plaintiff-invitee must not only prove breach of a duty owed, causation, and damages, but also that the owner or occupier of the property "must have either actual or constructive knowledge of the dangerous condition or have been able by the exercise of ordinary care to discover the condition, which if known to him, he should realize as involving an unreasonable risk to invitees on his premises"  Ortega v. Kmart Corp., 26 Cal.4th 1200, 1206 (2001).  

 

The Appellate Court also explained that the listing agreement between Servicer and the Listing Agents hired to market the property, as well as principles of agency, defined the legal relationship between the parties.  Accordingly, the Court noted that under agency law, agents owe a duty of care to all persons, including third persons, within the area of foreseeable risk, the extent of that duty being determined according to whether a reasonable person would have foreseen an unreasonable risk of harm and whether the agents exercised ordinary care in light of that risk.

 

After reviewing relevant case law, the Appellate Court pointed out that notice or knowledge of a fact to a principal or an agent is deemed notice as to the other party, and determined that real estate agents, such as the Listing Agents here, have a duty to notify visitors of marketed property of concealed dangerous conditions of which they have actual or constructive knowledge. See Cal. Civ. Code § 2332; § 2338; § 2343. See also Merrill v. Buck, 58 Cal.2d 552 (1962).

 

Turning to the specific facts here, the Court examined whether evidence was presented to show that either Servicer or the Listing Agents knew or should have known that the stairway ladder was unsafe because it was in disrepair.  In so doing, the Court noted that the inspection report identified the stairway ladder as an item that should be replaced under the heading "Health and Safety Required Repairs-Group 1" despite some ambiguity as to whether the recommendation to replace the stairway was based on aesthetics.  Accordingly, the Appellate Court concluded that neither Servicer nor the Listing Agents could claim that they had no reason to believe the stairway ladder might be dangerous. 

 

In light of this evidence, the Appellate Court ruled that summary judgment was improper, because evidence had been presented that created a triable issue as to whether Servicer and Listing Agents knew or should have known that the stairway ladder was a concealed danger.

 

Accordingly, the Appellate Court reversed and remanded.

 

 

 

Ralph T. Wutscher
McGinnis Wutscher Beiramee 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
Email: RWutscher@mwbllp.com

 

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FYI: Cal App Ct Reverses Denial of Class Cert as to Alleged Violations of NOI Requirements in Rees-Levering Act

The California Court of Appeal, Fourth District, recently concluded in part that the lower court improperly denied class certification based on lack of commonality among class members who received "Notices of Intention" allowing them to reinstate their motor vehicle sale contracts, ruling that the lower court improperly relied on a specific statutory exception to reinstatement under California's Rees-Levering Act.

 

In so ruling, the Court explained that the lower court should have instead focused on the creditor's failure to give timely notice of the exception in its Notice of Intention, which was required to identify "all the conditions precedent" to reinstatement but which failed to do so. 

 

A copy of the opinion is available at: http://www.courts.ca.gov/opinions/documents/D060057.PDF.

 

Plaintiff ("Consumer") purchased an automobile from a car dealer under a conditional sale contract requiring monthly payments.  As part of the transaction, Consumer filled out a credit application.   Shortly after the sale, the car dealer sold and assigned the contract to defendant financial  institution ("Creditor").   After missing numerous payments, Consumer eventually stopped making any payments on the car and voluntarily surrendered the vehicle to Creditor.

 

Creditor later sent Consumer a "Notice of Intention to Dispose of Motor Vehicle" ("NOI"), notifying her that it intended to sell the vehicle.  The NOI stated that Consumer had the right either to redeem the vehicle by paying the total outstanding amount due, roughly $19,000, or to reinstate the installment contract and obtain possession of the vehicle.   Specifically referring to the reinstatement right, the NOI stated that Consumer had to pay over $1,000 within 15 days of the notice, or request an extension, and "You must also pay any payment, fees, or charges that comes due within the reinstatement period."   The NOI advised Consumer to contact Creditor for the exact amount she was required to pay.

 

When Consumer did not redeem the vehicle or reinstate the contract, Creditor sold the vehicle, notifying Consumer of the amount of the sale and the deficiency balance of over $5000, and informing her that "You are required to pay the remaining balance and demand is hereby made upon you to contact [Creditor] by: [date]. . . . If you do not respond to this legal demand as requested, we may be obligated to institute litigation to liquidate this balance, and you may be assessed all cost and fees."  Consumer sent Creditor $25 toward the deficiency balance.  Her credit report subsequently reflected the loan default and voluntary surrender of the vehicle, and that a deficiency of over $3,000 was written off.

 

Consumer filed a class-action lawsuit against Creditor, alleging among other things that Creditor violated California's Unfair Competition Law ("UCL") by failing to provide disclosures required by California's Rees-Levering Act ("RLA").  Specifically, Consumer alleged that Creditor failed to provide required details in its NOI as to:  (a) the amounts Consumer had to pay to cure the default, including amounts due after the date of the NOI but before the end of the notice period; and  (b) the names and addresses of the third parties that had to be paid in order to reinstate the contract.  Among other things, the complaint sought both a determination that Creditor lost the right to a deficiency as a result of its alleged noncompliance with the RLA and restitution to class members based on invalid deficiency claims. 

 

Filing a cross-complaint against Consumer for breach of the installment contract, Creditor moved for summary judgment and/or summary adjudication, arguing that Creditor had a valid legal basis under the RLA to have denied her reinstatement right based on supposedly false statements she made on her credit application.  The court denied Creditor's motion based on the existence of triable facts as to whether Consumer's statements on her credit application were truthful. 

 

Consumer then filed a motion to certify the proposed class, arguing in part that the class met the commonality requirement because Creditor failed to issue NOIs specifically identifying all conditions precedent to reinstatement.   Creditor in turn argued that individual issues predominated because eight different versions of the NOI were sent to the class members, some of which denied class members a reinstatement right, thus raising different legal and factual issues as to Creditor's compliance with the RLA. 

 

Concluding that individual issues of fact predominated, the lower court ultimately denied class certification, stating that it was unclear whether there were grounds to deny reinstatement as to each individual member under section 2983.3(b)(1) of the RLA.   In so doing, the lower court effectively rejected Consumer's assertion that the different versions of the NOI were all defective in the same way in that they failed to specify the amounts required to pay charges and other fees that came due after the notice period set forth in the NOI. 

 

As you may recall, a violation of the RLA is actionable under California's UCL as an unfair competitive practice.  See Cal. Bus. & Prof. Code § 17200 et seq. The RLA in turn allows for reinstatement of an automobile sale contract, unless certain exceptions apply, by providing in part:  "[i]f after default by the buyer, the seller or holder repossesses or voluntarily accepts surrender of the motor vehicle, any person liable on the contract shall have a right to reinstate the contract and the seller or holder shall not accelerate the maturity of any part or all of the contract prior to expiration of the right to reinstate, unless the seller or holder reasonably and in good faith determines that any of the following has occurred . . . . The buyer or any other person liable on the contract by omission or commission intentionally provided false or misleading information of material importance on his or her credit application."  Cal. Civ. Code § 2983.3; 2983.3(b)(1).  See also Cal. Civ. Code § 2983.3(b)(2)-(5).

 

In addition, the RLA sets forth strict deadlines and notice requirements if the seller intends to seek a deficiency.  Specifically, the RLA provides that "[buyers] shall be liable for any deficiency after disposition of the repossessed or surrendered motor vehicle only if the [NOI] is given within 60 days of repossession or surrender and does all of the following: . . .  (2) States either that there is a conditional right to reinstate the contract until the expiration of 15 days from the date of giving the [NOI] and all the conditions precedent thereto or that there is no right of reinstatement and provides a statement of reasons therefor."   Cal. Civ. Code § 2983.2(a)(2). 

 

As to whether common issues predominated in this case, the Appellate Court noted among other things that, generally, "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." The Appellate Court also stressed that its review of the denial of class certification was limited to the specific reasons given by the lower court for its ruling.  See Brinker Restaurant Corp. v. Superior Court, 53 Cal.4th 1004, 1021-22 (2012); Fireside Bank v. Superior Court, 40 Cal. 4th 1069 (2007); Kaldenbach v. Mutual of Omaha Life Ins. Co., 278 Cal.App.4th 830, 843-44 (2009). 

 

Noting that the proposed class included only individuals who received NOIs allowing reinstatement, the Appellate Court pointed out that the lower court relied on the exception in Section 2983.3(b)(1) in stating that individual issues predominated since it was "unclear whether there were grounds to deny reinstatement as to each individual class member."  In so doing, the Appellate Court concluded that the lower court's denial of class certification was improperly based on the assumption that Creditor could assert the statutory exception related to Consumer's credit application as an affirmative defense to the UCL claim alleged by class members who were in fact given the right to reinstate.  

 

Reading Section 2983.2 and 2983.3 together, the Appellate Court explained that there was no room for reading additional exceptions into the statutory scheme "to allow a creditor who failed to give timely notice of a statutory exception to the mandatory reinstatement right to later alter its position and retroactively deny reinstatement."  Juarez v. Arcadia Financial, Ltd., 152 Cal.App.4th 889, 899-912 (2007)(holding that the NOI must provide the buyer with all information as to how to cure the default, including all relevant information the creditor has the ability to discern but may not have in its possession).  In so ruling, the Appellate Court rejected Creditor's assertion that a denial of its right to a deficiency would violate its due process rights, explaining that the 60-day limitation on a seller's remedies did not amount to a constitutional violation.

 

Thus concluding that the lower court's stated reliance on the statutory exception in Section 2983.3(b)(1) was improper in this case, the Appellate Court reversed and remanded.

 

 

Ralph T. Wutscher
McGinnis Wutscher Beiramee 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
Email: RWutscher@mwbllp.com

 

NOTICE: We do not send unsolicited emails. If you received this email in error, or if you wish to be removed from our update distribution list, please simply reply to this email and state your intention. Thank you.

Our updates are available on the internet, in searchable format, at:
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FYI: 1st Cir Holds FDCPA Does Not Control Choice of Venue of Post-Judgment Enforcement Actions

The U.S. Court of Appeals for the First Circuit recently ruled that the federal Fair Debt Collection Practices Act did not control choice of venue in a post-judgment enforcement action to garnish a debtor's wages, as the wage-garnishment action was against the employer and not "against any consumer."  Smith v. Solomon & Solomon, P.C., No. 12-2169 (1st Cir. April 24, 2013).

 

A copy of the opinion is available at:  http://www.ca1.uscourts.gov/pdf.opinions/12-2169P-01A.pdf.

 

A default judgment was entered against a debtor ("Debtor") in a suit filed in New Bedford, Massachusetts by a debt collector law firm ("Law Firm") to recover on a consumer debt.  Debtor was an employee of a federal agency with its place of business in Attleboro, Massachusetts.  Law Firm filed a second law suit in Attleboro to enforce the default judgment by attaching Debtor's wages. 

 

Debtor then filed a lawsuit against Law Firm, alleging that Law Firm violated the federal Fair Debt Collection Practices Act's venue provision in bringing its second action in Attleboro rather than where Debtor resided or where she signed the underlying contract.

 

Law Firm moved to dismiss and requested fees and costs, arguing that Debtor's claim ignored Massachusetts trustee process law governing attachment of a debtor's wages.  The lower court granted the motion to dismiss but denied the request for fees and costs, Debtor appealed. The First Circuit affirmed.

 

As you may recall, the federal Fair Debt Collection Practices Act requires "[a]ny debt collector who brings any legal action on a debt against any consumer" to file the action "only in the judicial district . . . (A) in which such consumer signed the contract sued upon; or (B) in which such consumer resides at the commencement of the action."  15 U.S.C. § 1692i(a).

 

In addition, the trustee process in Massachusetts is "a legal action directed against the third-party trustee, not the consumer."  See Smith v. Solomon and Solomon, 887 F. Supp. 2d 334 (D. Mass. 2012); Mass. Gen.L. Ch. 246; Mass. R. Civ. Pro. 4.2.  Moreover, in order to attach a debtor's wages, the underlying claim must have been reduced to judgment or be otherwise enforceable by law.  Mass. R. Civ. Pro. 4.2(a).

 

The First Circuit noted that, although the Law Firm's trustee process suit was a "legal action on a debt" within the meaning of the FDCPA, the FDCPA applies only to legal actions brought "against any consumer."  Relying in part on an Eleventh Circuit opinion, and determining that the judgment-enforcement action was not "against any consumer," the Court concluded that Law Firm's wage garnishment suit was filed in the proper venue and that Law Firm was thus not liable for violating the FDCPA's venue provision.  See Pickens v. Collection Services of Athens Inc., 273 F.3d 1121(11th Cir. 2001). 

 

In so ruling, the First Circuit pointed out that a wage-garnishment proceeding is an action against the garnishee-employer, and that the Massachusetts trustee process scheme required the action to be filed in a county where the trustee, here the government agency, had its usual place of business.    

 

In support of this interpretation, the First Circuit pointed out that the Federal Trade Commission's commentary to the FDCPA provides that "[i]f a judgment is obtained in a forum that satisfies the requirements of [section 1692i], it may be enforced in another jurisdiction, because the consumer previously has had the opportunity to defend the original action in a convenient forum."  The Court also observed that Debtor already had a chance to defend against the underlying debt action in a forum that was convenient to her, and that once the action was filed against the trustee, Debtor could have moved for a change of venue.  

 

Pointing out in part that Debtor's interpretation of the FDCPA's venue provision would make it impossible for debt collectors to enforce a prior judgment unless the Debtor resided, or signed the contract, in the same county in which the trustee had its business, the First Circuit affirmed the judgment of the lower court.

 

 

 

Ralph T. Wutscher
McGinnis Wutscher Beiramee 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
Email: RWutscher@mwbllp.com

 

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FYI: Cal App Ct Rules Evidence of Title Insurance Improperly Excluded in Lender's Action Against Mortgage Broker on Forged Loan Docs

In an action by a lender against a mortgage broker involving forged loan documents, the California Court of Appeals, Fourth District, recently ruled that the lower court improperly excluded evidence of title insurance procured by the mortgage broker, concluding that the evidence was relevant to the issue of the broker's liability on the lender's breach of fiduciary duty and negligence allegations, and the application of the "collateral source rule" to exclude the title insurance evidence was prejudicial to the mortgage broker and thus required a new trial.

 

The Court also ruled that the trial court properly declined to instruct the jury on superseding cause, as the forgery of the loan documents was foreseeable and the broker's own acts ultimately contributed to the harm suffered by the lender.

 

A copy of the opinion is available at:  http://www.courts.ca.gov/opinions/documents/D059976.PDF.

 

A business jointly owned real property with a medical practice (collectively, "Property Owners").  The business's office manager, who was a notary public ("Notary") contacted a mortgage broker ("Broker") and requested a loan on behalf of Property Owners for over $160,000.  When Broker attempted to meet with Property Owners to obtain their signatures on the loan documents, Notary represented to Broker that one of the Property Owners was unavailable and proposed to have the loan documents signed by Property Owners and to notarize the signatures.    Broker agreed, and the loan documents, including a promissory note and a deed of trust, were returned to Broker bearing signatures personally notarized by Notary.   Notary obtained the loan by forging Property Owners' signatures.

 

About six months later, Notary essentially repeated the process in requesting a larger loan from Broker, this time for $480,000 but also secured by Property Owners' property.  Broker procured the second loan through a couple of individual lenders ("Lenders").   Again, Notary forged all the signatures necessary to obtain the loan. 

 

Upon learning of the fraud, Property Owners sued Broker, Lenders and others to cancel the fraudulently obtained trust deeds.  Lenders filed a cross-complaint against Property Owners for equitable subrogation, and against Broker, alleging negligence and breach of fiduciary duty.  The parties settled their claims, with the exception of Lenders' claims against Broker. 

 

Lenders filed a motion in limine to exclude evidence relating to title insurance based on the "collateral source rule," arguing that such evidence was irrelevant to any issue to be tried.  Broker opposed the motion, arguing that the evidence of title insurance it obtained on behalf of Lenders was relevant to defend itself against the breach of fiduciary duty allegations.  Broker subsequently filed its own motion in limine to admit evidence of title insurance coverage, but the lower court denied the motion, reasoning in part that the title insurance evidence was not relevant to the case.    

 

Moreover, as an affirmative defense, Broker alleged that any recovery against it was barred by Notary's superseding acts, requesting special jury instructions as to superseding cause.  After a trial in which the jury found that Broker had breached fiduciary duties owed to Lenders and had acted with malice, fraud, or oppression, Lenders were awarded almost $600,000 in compensatory damages and over $62,000 in punitive damages.   Broker appealed.

 

The Appellate Court reversed, concluding in part that the lower court improperly excluded evidence of title insurance. 

 

As you may recall, as a rule of damages, the "collateral source rule" provides that if an injured party receives some compensation for injuries from a collateral source, such as insurance, that payment is not deducted from the damages that the plaintiff can otherwise collect from the tortfeasor.  See, e.g., Helfend v. Southern Cal. Rapid Transit Dist., 2 Cal.3d 1, 6 (1970); Lund v. San Joaquin Valley Railroad, 31 Cal.4th 1, 8 (2003).

 

In addition, as a rule of evidence, the collateral source doctrine precludes the introduction of evidence of the plaintiff being compensated by a collateral source unless there is a "persuasive showing' that such evidence is of 'substantial probative value' for purposes other than reducing damages."  See Arambula v. Wells, 72 Cal. App.4th 1006, 1015 (1999).

 

Noting that the narrow issue before the lower court was whether the jury should have been allowed to hear that the Lenders' harm was potentially covered by title insurance, the Appellate Court explained that there was no need for the lower court to decide whether the collateral source rule applied in order to rule on the admissibility of the title insurance evidence.  In so doing, the Court pointed out that the existence of insurance may be introduced in a case if the evidence is otherwise admissible, in which case the court, under section 352 of the California Evidence Code, must determine whether the probative value of the other evidence outweighs the prejudicial effect of mentioning insurance. 

 

Stressing that evidence of title insurance was relevant to Broker's liability as proof that Broker followed industry standards in obtaining title insurance covering fraud and forgery for the loan transaction, the Appellate Court concluded that the probative value of the title insurance evidence outweighed its prejudicial effect, because the risk of prejudice could have been eliminated through proper jury instructions.   Applying this standard, the Court determined that the exclusion of the title insurance evidence was prejudicial to Broker in that it prevented Broker from proving in part that it took steps to mitigate the risk of fraud or forgery and from defending against the assertion that Broker acted with malice, fraud, or oppression.

 

With regard to Broker's affirmative defense of superseding cause, the Appellate Court, noting that in order to qualify as a superseding cause both the intervening act and the results of that act must not be foreseeable, pointed out that Notary's conduct overlapped with that of Broker and that forgery of the loan documents was foreseeable.  Accordingly, the Court concluded that there was no factual issue on superseding cause for the jury to consider.

 

Thus, reversing the lower court's ruling on the admissibility of evidence on title insurance, the Appellate Court remanded for a new trial.

 

 

 

Ralph T. Wutscher
McGinnis Wutscher Beiramee 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
Email: RWutscher@mwbllp.com

 

NOTICE: We do not send unsolicited emails. If you received this email in error, or if you wish to be removed from our update distribution list, please simply reply to this email and state your intention. Thank you.

Our updates are available on the internet, in searchable format, at:
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