Fed. Deposit Ins. Corp. v. Frankel

• Decision Date: 29 November 2011
• Docket Number: Case No.: 11-CV-03279-LHK
• Parties: FEDERAL DEPOSIT INSURANCE CORPORATION as Receiver for INDYMAC BANK, F.S.B., Plaintiff, v. BORIS FRANKEL, an individual and dba APPRAISAL CHOICE; and ALEXANDER FURMAN, an individual and dba REAL WORLD, Defendants.
• Court: U.S. District Court — Northern District of California

FEDERAL DEPOSIT INSURANCE CORPORATION as Receiver for INDYMAC BANK, F.S.B., Plaintiff,

v.BORIS FRANKEL, an individual and dba APPRAISAL CHOICE; and ALEXANDER FURMAN,an individual and dba REAL WORLD, Defendants.

Case No.: 11-CV-03279-LHK

UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF CALIFORNIA SAN JOSE DIVISION

Dated: November 29, 2011

ORDER DENYING FRENKEL'S MOTION TO DISMISS; AND

GRANTING FURMAN'S MOTION TO DISMISS

Plaintiff Federal Deposit Insurance Corporation ("FDIC"), as Receiver for IndyMac Bank, F.S.B. ("IndyMac") pursuant to 12 U.S.C. § 1821(d)(2)(B), brings this action for (1) breach of contract intended to benefit a third party beneficiary, and (2) negligent misrepresentation against Boris Frenkel,¹ individually and d/b/a Appraisal Choice ("Frenkel" or "Appraisal Choice"), and against Alexander Furman, individually and d/b/a Real World ("Furman") (collectively "Defendants"), in connection with a residential property appraisal.² Before the Court are Frenkel's and Furman's separate Motions to Dismiss Plaintiff's claim for breach of contract pursuant to Federal Rule of Civil Procedure 12(b)(6) for failure to state a claim upon which relief may begranted. See ECF Nos. 8, 13. Pursuant to Civil Local Rule 7-1(b), the Court finds this matter appropriate for resolution without oral argument and hereby VACATES the hearing scheduled for December 1, 2011. Having considered the submissions of the parties and the relevant law, and for good cause shown, the Court hereby DENIES Defendant Frenkel's motion to dismiss, and GRANTS Defendant Furman's motion to dismiss with prejudice.

I. BACKGROUND

Unless otherwise indicated, the following facts are taken from Plaintiff's Complaint and are presumed to be true for purposes of ruling on Defendants' motions to dismiss. See Zimmerman v. City of Oakland, 255 F.3d 734, 737 (9th Cir. 2001). Documents to which a complaint refers, even when not attached, are considered to be part of the pleadings and may be considered in ruling on a Rule 12(b)(6) motion to dismiss. Branch v. Tunnell, 14 F.3d 449, 454 (9th Cir. 1994), overruled on other grounds by Galbraith v. Cnty. of Santa Clara, 307 F.3d 1119, 1127 (9th Cir. 2002). The Court may consider the full text of a document that the Complaint quotes only in part. In re Stac Electronics Sec. Litig., 89 F.3d 1399, 1405 n.4 (9th Cir. 2002).

Appraisal Choice is a real estate appraisal company doing business in Santa Clara County. Compl. ¶¶ 4. Alexander Furman is a California Certified Residential Appraiser who operates under the fictitious business name Real World but who at all relevant times was acting in his capacity as an employee and/or agent of Appraisal Choice. Id. ¶¶ 3-4. On or about August 30, 2006, Furman and Appraisal Choice contracted with Hilltop Financial Mortgage, Inc. ("Hilltop") to prepare a written Uniform Residential Appraisal Report (the "Appraisal") for the real property located at 231 Sirrah Way, Greenfield, California 93927 (the "Property"), with the knowledge and intent that the Appraisal be used in the secondary market to assist lenders in evaluating the Property for mortgage finance transactions. Id. ¶¶ 7-8. Defendants prepared the Appraisal on August 30, 2006, valuing the Property at $700,000, as of August 31, 2006. Id. ¶ 10; see Furman Decl. Ex. 1 at 2. Attached to the Appraisal is an appraiser's certification, which represents, inter alia, that Defendants (1) performed the Appraisal in accordance with the Uniform Standards of Professional Appraisal Practice ("USPAP") standards; (2) researched and analyzed prior sales for comparable sales; (3)selected and used comparable sales most similar to the Property; (4) reported adjustments for comparable sales; (5) noted any adverse conditions observed during the inspection of the Property or of which Defendants became aware during the normal research involved in performing the Appraisal; (6) considered the factors that impact value in developing the market value estimate; and (7) noted any apparent or known adverse conditions in the Property and commented about the effect of the adverse conditions on the marketability of the Property. The certification further notes that a lender (or its successors or assigns) may rely on the Appraisal as part of any mortgage finance transaction and that any intentional or negligent misrepresentation contained in the report may result in civil liability. Compl. ¶ 12; Furman Decl. Ex. 1 at 15-16. The certification is signed by Alexander Furman as the appraiser, with Appraisal Choice listed immediately below as the company name. Furman Decl. Ex. 1 at 16.

Hilltop subsequently submitted the Appraisal to Express Capital Lending ("Express Capital") for purposes of facilitating a mortgage refinance transaction. Compl. ¶ 10. On August 31, 2006, in reliance on the Appraisal prepared by Furman, Express Capital funded a mortgage loan in the principal amount of $560,000, secured by the Property. Id. ¶ 11. At some unspecified later date, IndyMac purchased the mortgage loan on the secondary market in reliance on the Appraisal. Id. After the Office of Thrift Supervision appointed the FDIC to act as Receiver for IndyMac pursuant to 12 U.S.C. § 1821(d)(2)(B) and to recover IndyMac's incurred losses, id. ¶ 1, the FDIC discovered that the Appraisal contained material misrepresentations, which resulted in significant overvaluation of the property, id. ¶ 13-14. Due to the inaccurate Appraisal, the market value of the property securing the loan IndyMac purchased was far less than the amount of the loan itself. Id. ¶ 14. Specifically, Plaintiff alleges that the appraisal was deficient because it: (1) used comparable properties that were superior (not similar) to the Property; (2) misrepresented the property type, size, bedroom count, and/or bathroom count for the comparable properties; (3) ignored more proximate sales for more distant comparables; (4) misrepresented the distance between the Property and the comparables; (5) misrepresented the value of the Property; and (6)did not comply with USPAP standards. Id. ¶ 13. As a result of Defendants' inaccurate Appraisal, Plaintiff sustained at least $453,166.21 in damages. Id. ¶ 13, 20.

II. LEGAL STANDARDS

Pursuant to Federal Rule of Civil Procedure 12(b)(6), a defendant may move to dismiss an action for failure to allege a claim upon which relief can be granted. Dismissal under Rule 12(b)(6) may be based on either the lack of a cognizable legal theory or the absence of facts that would support a valid theory. Balistreri v. Pacifica Police Dep't, 901 F.2d 696, 699 (9th Cir. 1990). While a complaint need not contain detailed factual allegations, it "must contain sufficient factual matter, accepted as true, to 'state a claim to relief that is plausible on its face.'" Ashcroft v. Iqbal, 556 U.S. 662, 129 S. Ct. 1937, 1949 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007)). "The plausibility standard is not akin to a 'probability requirement,' but it asks for more than a sheer possibility that a defendant has acted unlawfully." Id.

When ruling on a Rule 12(b)(6) motion, the Court must accept as true all allegations of material fact in the Complaint and construe them in the light most favorable to the non-moving party. Manzarek v. St. Paul Fire & Marine Ins. Co., 519 F.3d 1025, 1031 (9th Cir. 2008). However, the Court is not required to "assume the truth of legal conclusions merely because they are cast in the form of factual allegations.'" Fayer v. Vaughn, 649 F.3d 1061, 1064 (9th Cir. 2011) (quoting W. Mining Council v. Watt, 643 F.2d 618, 624 (9th Cir. 1981)). Mere "labels and conclusions" or "a formulaic recitation of the elements of a cause of action" are insufficient. Twombly, 550 U.S. at 555; accord Adams v. Johnson, 355 F.3d 1179, 1183 (9th Cir. 2004) (internal quotation marks and citations omitted). Furthermore, "'a plaintiff may plead [him]self out of court' . . . [i]f the pleadings establish facts compelling a decision one way." Weisbuch v. Cnty. of L.A., 119 F.3d 778, 783 n.1 (9th Cir. 1997) (quoting Warzon v. Drew, 60 F.3d 1234, 1239 (7th Cir. 1995)).

III. DISCUSSION

Both Frenkel and Furman move to dismiss Plaintiff's claim for breach of contract on the grounds that (1) Plaintiff fails to identify a valid contract whose terms were breached, and (2) to theextent a valid contract exists, IndyMac is not an intended third party beneficiary of such contract. Frenkel Mot. at 4-5; Furman Mot. at 9-10. Furman further moves to dismiss on the ground that the Complaint identifies him as an "employee and/or agent of Appraisal Choice" and that, as an agent of a disclosed principal, he cannot be held personally liable for any alleged breach of contract entered into on behalf of Appraisal Choice. Furman Mot. at 8-9.

A. Existence of a Valid Contract Whose Terms Were Breached

First, both Defendants argue that Plaintiff fails to identify a valid contract whose terms were breached and therefore cannot state a claim for breach of contract intended to benefit a third party beneficiary. The Complaint, however, alleges that "[o]n or about August 30, 2006, Defendants entered into an agreement to provide an appraisal for the Property," Compl. ¶ 16, and that "Defendants breached the contract for the appraisal of the Property by negligently preparing the Appraisal which misrepresented the value of the Property, and which used improperly and negligently selected comparable sales," id. ¶ 18. Because the Complaint clearly identifies the agreement to prepare a written Uniform Residential Appraisal Report as the contract at issue, this ground for dismissal fails.

Defendants further argue that Plaintiff fails to allege a claim for breach of the agreement to prepare the Appraisal because Defendants fully performed their obligations thereunder by preparing the Appraisal. Defendants' argument, however, ignores the nature of Plaintiff's allegations, which assert that Defendants failed to comply with the terms of the...