Levy v. FCI Lender Servs.
| Decision Date | 06 April 2020 |
| Docket Number | Case No.: 18cv2725-GPC(WVG) |
| Court | U.S. District Court — Southern District of California |
| Parties | ANNA LEVY, an individual; ANNA LEVY in a Representative capacity for her late Husband, Steven Augusta, Plaintiff, v. FCI LENDER SERVICES, INC., a California Corporation; KEVIN PRINCE, in his individual and corporate capacity; MILES FARQUHAR in his individual and corporate capacity; SC FINANCIAL SERVICES, a California Corporation; ROGER SOKOLOFF FAMILY TRUST dated 6/26/17; MCKENNA DUGGAN FAMILY LIVING TRUST DATED 2/5/2013; JAMES GARRY HEBERT; MICHELLE HEBERT; EDGEHILL INVESTMENTS, LLC; AND KS CAPITAL, INC. d/b/a PARSE MORTGAGE SERVICES; and DOES 1 to 100, inclusive, Defendants. |
1) GRANTING LENDER DEFENDANTS' MOTION TO DISMISS;
2) GRANTING KS CAPITAL INC.'S MOTION TO DISMISS; AND
3) GRANTING FCI LENDER SERVICES, INC.'S MOTION TO DISMISS
Before the Court is Defendants Roger Sokoloff, Trustee of the Roger Sokoloff Family Trust (erroneously sued as The Roger Sokoloff Family Trust Dtd 6/26/17); The McKenna Duggan Family Living Trust Dtd 2/5/2013; James Garry Hebert; Michelle Hebert; and Edgehill Investments, LLC's ("Lender Defendants"), motion to dismiss the second amended complaint pursuant to Federal Rule of Civil Procedure ("Rule") 12(b)(6) for failure to state a claim, or in the alternative, for a more definite statement under Rule 12(e). (Dkt. No. 105.) Plaintiff Anna Levy filed an opposition and Lender Defendants replied. (Dkt. Nos. 114, 120.) Defendant KS Capital, Inc. and FCI Lender Services also separately filed a motion to dismiss pursuant to Rule 12(b)(6), Rule 9(b), and alternatively, a motion for a more definite statement under Rule 12(e). (Dkt. Nos. 111, 112.) Oppositions1 and a joint reply were filed. (Dkt. Nos. 123, 124, 125.) Based on the reasoning below, the Court GRANTS Lender Defendants motion to dismiss; GRANTS KS Capital Inc.'s motion to dismiss; and GRANTS FCI Lender Services, Inc.'s motion to dismiss.
On October 23, 2018, Anna Levy ("Plaintiff" or "Anna"), suing on behalf of herself as an individual and in a representative capacity as executor of the estate of her late husband, Steven Augusta ("Steven" or "decedent"), filed a complaint in the Superior Court of the State of California for the County of San Diego against certain defendants for manipulating decedent into fraudulently obtaining a second mortgage loan in the amount of $450,000 on the family home causing Steven to commit suicide and causing the potential foreclosure on the family home. (Dkt. No. 1-2, Compl.)
On November 30, 2018, the case was removed to this Court. (Id.) On August 5,2019, pursuant to the Court's order on Defendants The Roger Sokoloff Family Trust and Edgehill Investments, LLC's motion to strike and quash service of summons and Defendant KS Capital Inc.'s motion to dismiss, Plaintiff filed a first amended complaint ("FAC"). (Dkt. No. 64.) On December 17, 2019, the Court granted in part and denied in part Defendant Kevin Prince's motion to dismiss the first amended complaint with leave to amend and granted KS Capital, Inc.'s motion to dismiss the first amended complaint and motion for more definite statement with leave to amend. (Dkt. No. 100.) On January 16, 2020, Plaintiff filed the operative second amended complaint ("SAC") against Defendants Miles Farquhar ("Farquhar"), Kevin Prince ("Prince"), FCI Lender Services, Inc. ("FCI Lender"), SC Financial Services ("SC Financial"), the Roger Sokoloff Family Trust dated 6/26/17 ("Roger Trust"), the McKenna Duggan Family Living Trust dated 2/5/2013 ("McKenna Trust"), James Garry Hebert ("James Hebert"), Michelle Hebert, Edgehill Investments, LLC ("Edgehill Investments"), and KS Capital Inc., dba Parse Mortgage Services ("KS Capital"). (Dkt. No. 101, SAC.) The SAC alleges the following thirteen causes of action: 1) violation of Truth in Lending Act ("TILA") and Regulation Z against all Defendants; 2) violation of Real Estate Settlement Procedures Act ("RESPA") against all Defendants; 3) concealment against all Defendants; 4) intentional misrepresentation as to Defendants FCI Lender, Prince, Farquhar, SC Financial and KS Capital; 5) negligent misrepresentation as to Defendants FCI Lender, Prince, Farquhar, SC Financial and KS Capital;; 6) unlawful and unfair business practices, Cal. Bus. & Prof. Code sections 17200 against Defendants FCI Lender, Prince, Farquhar, SC Financial and KS Capital;; 7) negligence as to all Defendants; 8) breach of fiduciary duty as to all Defendants; 9) breach of duty of loyalty as to all Defendants; 10) breach of covenant of good faith and fair dealing against all Defendants; 11) declaratory relief as to Defendants Roger Trust, McKenna Trust, James Hebert, Michelle Hebert, Edgehill, FCI Lender, Farquhar, SC Financial and KS Capital; 12) injunctive relief as to Defendants Roger Trust, McKenna Trust, James Hebert, Michelle Hebert, Edgehill, FCI Lender, Farquhar, SC Financial and KS Capital; and 13) conspiracy to violate TILA &Regulation Z against all Defendants. (Dkt. No. 101, SAC.)
On January 31, 2020, Lender Defendants filed a filed a motion to dismiss which is fully briefed. (Dkt. Nos. 105, 114, 120.) Defendants SC Financial and Farquhar filed their answers on February 21, 2020. (Dkt. Nos. 109, 110.) Defendant Prince was granted leave to file an answer fourteen days after the Court rules on the pending motions. (Dkt. Nos. 104, 107.) On February 21, 2020, Defendants FCI Lender and KS Capital filed their motions to dismiss which are fully briefed. (Dkt. Nos. 111, 112, 123, 124, 125.)
Decedent Steven Augusta and his wife, Anna Levy, owned and lived in a single family residence ("Family Home") located at 122 North Helix Avenue, Solana Beach, CA 92075 with their two daughters, ages 9 and 11. (Dkt. No. 101, SAC ¶¶ 3, 35.) The Family Home was never rented or leased from January 1, 2007 through the present. (Id. ¶ 35.) Anna was married to Steven from March 21, 2007 until his death on April 18, 2018. (Id. ¶ 36.) Anna and Steven separated on January 21, 2018. (Id.) During the marriage, the decedent handled all of his finances until his death on April 18, 2018. (Id.) Anna had no knowledge about any of Steven's actions concerning the fraudulent loan. (Id. ¶ 38.)
Steven and Defendant Prince were friends before engaging in the alleged fraudulent loan. (Id. ¶ 40.) Around September 2017, Steven consulted with Prince about taking out a second mortgage on the Family Home in the amount of $450,000. (Id. ¶ 37) Because Steven was not able to obtain a conventional loan, with the help of Prince, he created fake information and documents to qualify for a loan. (Id. ¶¶ 39, 40.) Prince advised Steven on the procedures he needed to take to obtain the loan. (Id. ¶ 40.) For example, Prince told Steven to falsely state he sought a business loan in order to "fund his municipal bond business." (Id.) They created a fake lease agreement to represent that the Family Home was a rental property, when it was not, in order to create the appearance that Steven earned more income than he really made so he could qualify for the loan. (Id. ¶¶ 39, 40; id., Ex. 1.)
With Prince's guidance and instruction, Steven completed and signed a Uniform Residential Loan Application where Steven wrote his monthly income was $30,000 per month even though he was actually making a little over $100,000 per year, or about $8,000 per month. (Id. ¶ 42; id., Ex. 2.) At the time, Steven did not provide recent paystubs from 2017 showing his income which was barely $6,000 per month. (Id. ¶ 42.) He also indicated that the Family Home was his primary residence. (Id.) In an email between Steven and Prince on September 23, 2017, Prince provided Steven with instructions on how to proceed further in obtaining the loan fraudulently. (Id. ¶ 43.)
In September 2017, Steven approached two lending companies and received conditional approval letters but those companies ultimately decided against providing the loan. (Id. ¶ 44.) As a result, Prince put Steven in touch with Defendant Farquhar, a mortgage broker or loan agent, and his own company, Defendant SC Financial. (Id. ¶¶ 44, 46.) Despite apparent discrepancies in the loan, SC Financial extended a loan to Steven. (Id. ¶ 46.) Farquhar knew or should have known the terms of the loan were fraudulent. (Id. ¶ 49.) Defendant FCI Lender serviced the loan and collected the payments from Steven until his death on April 18, 2018. (Id. ¶ 46.) "The Promissory Note and Deed of Trust were subsequently entered into and signed by Defendants ROGER TRUST, MCKENNA TRUST, JAMES HEBERT, MICHELLE HEBERT, EDGEHILL, and KS CAPITAL acting as the loan agent, making each of them a party to the fraudulent lending transaction." (Id. ¶ 48.)
Farquhar knew or should have known the terms of the loan were fraudulent because several emails were exchanged between Steven and Farquhar where Steven and/or Prince provided him paperwork which put him on notice of deficiencies and discrepancies surrounding the conditions of the loan. (Id. ¶ 49.) In an email dated October 18, 2017, Prince informed Farquhar that he would provide him with "anythinghe needed to facilitate a quick funding." (Id. ¶ 50; id., Ex. 52.) This statement shows that Prince was desperate for a loan and was willing to take any steps necessary, such as providing fraudulent information, in order to obtain he loan. (Id. ¶ 52.) On October 19, 2017, Steven submitted a Business Purpose Letter to Prince stating that the loan was for a business purpose yet Prince and Farquhar knew or should have known that the loan was not a business loan but a loan on the family home. (Id. ¶ 53; id., Ex. 7.) Another email on October 19, 2017 demonstrates Prince's explicit instruction to Steven on what a good Letter of Explanation should state which evidences influence to commit fraud. (Id. ¶ 54; id., Ex. 8.) On October 20, 2017, Prince sent an email to Steven stating he needed a Letter of Intent (LOI) "back...
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