Merritt v. Countrywide Fin. Corp.
| Decision Date | 17 September 2015 |
| Docket Number | Case No. 09-cv-01179-BLF |
| Court | U.S. District Court — Northern District of California |
| Parties | DAVID MERRITT, et al., Plaintiffs, v. COUNTRYWIDE FINANCIAL CORPORATION, et al., Defendants. |
[Re: ECF 159, 176, 177, 179]
In this case, pro se plaintiffs David and Salma Merritt ("Plaintiffs") seek to hold a number of defendants liable in connection with a subprime mortgage on their Sunnyvale, CA home. These defendants are: (1) Countrywide Financial Corp. ("CFC"); (2) Countrywide Home Loans, Inc. ("CHL"); (3) Bank of America Corporation ("BAC"); (4) Kenneth Lewis; (5) Michael Colyer; (6) David Sambol; (7) Angelo Mozilo; and (8) John Benson (collectively, "Defendants").1
Before the Court are four motions by Defendants: (1) defendant Benson's motion to dismiss on the grounds of res judicata and collateral estoppel, Benson Mot., ECF 177; (2) a motion to dismiss pursuant to Federal Rule of Civil Procedure 8(a) or, in the alternative to strike allegations pursuant to Rule 12(f) filed by defendants CFC, CHL, BAC, Lewis, Colyer, and Sambol (collectively, the "Countrywide Defendants"), Mot. to Dismiss or Strike, ECF 176; (3) the Countrywide Defendants' motion to dismiss pursuant to Rule 12(b)(6), Mot. to Dismiss, ECF 179;and (4) the Countrywide Defendants' motion to stay certain state law claims, Mot. to Stay, ECF 159.2 The Court heard argument on the motions on April 30, 2015 and thereafter took the matters under submission. For the reasons stated herein, Benson's motion to dismiss is GRANTED; the Countrywide Defendants' Rule 8(a) motion is DENIED, the 12(f) motion is GRANTED IN PART, and the 12(b)(6) motion is GRANTED IN PART with limited leave to amend and DEFERRED IN PART. The Countrywide Defendants' motion to stay is GRANTED IN PART with respect to those of Plaintiffs' state law claims that are based in fraud.
In February 2006, Plaintiffs—newlyweds at the time—sought to purchase a home located at 660 Pinnacles Terrace in a new Sunnyvale development named "Classics Fair Oaks."3 Third Am. Compl. ("TAC") ¶¶ 192-93, ECF 168. There, they met former defendant Johnny Chen, who represented himself as the selling agent for the property. Chen told Plaintiffs that the owners paid $729,000 for the property but were willing to sell it for $719,000.4 In actuality, Plaintiffs allege, Chen was one of the property's owners and had paid only $640,000 for the house "just months ago." Id. ¶¶ 193-95. Plaintiffs liked the house but preferred wooden floors to the existing carpet. Chen informed them that a loan broker could get them a loan in a greater amount so that $10,000 could be put into re-flooring. Liking that suggestion, Plaintiffs agreed to purchase the house, entered into a Residential Real Estate purchase agreement on February 27, 2006, and committed to secure a $729,000 loan that would allow them to pay a 5-10% down payment. Id. ¶¶ 197-98.
In or around this time, Chen contacted Plaintiffs' buying agent, Earl Taylor, and convinced him to engage defendant John Benson to appraise and confirm the property value. Plaintiffs allege that Chen concealed "that he had previously worked with Benson" and that "he had alreadyspoken with Benson and convinced him to produce a falsified appraisal report which valued the property for at least $729,000."5 Id. ¶ 199. In the meantime, Plaintiffs also contacted other mortgage loan brokers "who had previously qualified them for funding of other prospective property" seeking a loan with a prime interest rate. Plaintiffs' credit score at this time "was averaged at 685-690," which they allege was sufficient to qualify for a prime loan. Id. ¶ 22. The precise loan offers that the other brokers made is not clearly alleged, though it appears that one may have been willing to qualify Plaintiffs for a prime loan. Both brokers offered loans with monthly payments hovering around $4,000. Id. ¶ 201. However, Plaintiffs acknowledge that neither loan broker was willing to close a loan over selling price in order to perform home improvements. Id. Plaintiffs also sought out one of their bankers at Wells Fargo, who "told them that CHL would be a better fit."6 Id. ¶ 202.
On March 1, 2006, Plaintiffs contacted defendant Colyer, the branch manager for CHL in Menlo Park. Plaintiffs informed Colyer that they were seeking $719,000 in financing for 5-10% down, that Chen was "willing to give them $10,000 to re-do the floors," and that because Mrs. Merritt was disabled and going on social security, they were seeking a lower monthly payment that would still allow them to pay off the balance in 30 years. Id. ¶ 203. Colyer was friendly and helpful and in constant contact with Plaintiffs from March 1 to 10, 2006. Plaintiffs allege that in this time, Colyer was secretly convincing Chen and Benson to be "agents for CHL" to "falsely inflat[e] the value of the property in exchange for more compensation" and for future work, and communicating with "other loan staff about how much they could falsely inflate the property to maximize his commissions and revenue for CHL." Id. ¶¶ 205-07.
On March 10, 2006, "based on statements of Colyer," Colyer allegedly called defendant Sambol, the President of Marketing for CFC mortgage loan production, "for approval to falselytell Plaintiffs that CHL would be willing to produce a 30-year fixed rate prim loan for them with payments from $1,800 to $2,200 per month with 1-3% interest rate." Plaintiffs allege that this offer was not genuine and was only intended to "lure them from other brokers." Id. ¶ 209. When Plaintiffs stated concern about their income situation and the future reduction in Mrs. Merritt's disability payments, Colyer allegedly reassured them that "it is normal practice for brokers to exaggerate what borrowers earnings are in order to get qualified for the best possible loan." Id. ¶¶ 212, 249. On March 14, 2006, "several days before Plaintiffs['] deadline for removing contractual loan contingency," Colyer provided Plaintiffs with a good faith estimate for a 30-year fixed rate prime loan with $1,800 to $2,200 in monthly payments. Id. ¶ 225.
During this time, Benson appraised Plaintiffs' property at $740,000.7 Plaintiffs allege that Benson intentionally inflated this value by agreement with Chen and Colyer and through reliance on comparable listings that Chen faxed to him of "properties in Sunnyvale which were not similar to Plaintiffs." Id. ¶¶ 231-34. Plaintiffs allege that they received the appraisal on March 20, 2006. Id. ¶ 239.
Plaintiffs allege that between March 14 to 24, 2006, Colyer was informed by a CHL underwriter that Plaintiffs would not be able to repay a subprime loan and that they should be offered a prime loan with "5 to 20% down-payment" instead. Colyer rejected this suggestion and instead called Plaintiffs on March 25, 2006 to tell them that he "had produced a much better loan" that would have them pay about $5,200 per month. Plaintiffs were prepared the reject this offer, but Colyer "pleaded with them to forgive him for his mistake" in making the much better offer earlier and also "emphasized" that if Plaintiffs did not close escrow, they could lose their good faith money and be subjected to suit. This risk was confirmed by Plaintiffs' sales agent. Id. ¶¶ 253-56. The other loan brokers that Plaintiffs contacted at that time could not close the loan in time to meet their deadlines. Id. ¶ 256.
On March 26, 2006, Colyer and his staff produced for Plaintiffs two loans to finance theirhome: an interest only adjustable rate mortgage ("ARM") as the first loan and a home equity line of credit ("HELOC") as a second loan that, together, "totaled over $754,000."8 Id. ¶ 257. Plaintiffs allege that this amount comprised "over $15,000 in fees to Colyer, Mozilo, Sambol, [and] CHC-CHL." Id. The following day, Colyer, through Financial Title Co., sent Plaintiffs the paperwork for their loans. Given no time to read the documents, Plaintiffs signed the paperwork. Plaintiffs allege that the copies they retained disclosed only a single first mortgage payment of $3,200 per month and that they were unaware they had signed a HELOC note where the monthly payment was left blank. Id. ¶ 265. When they raised this issue with Colyer, he assured Plaintiffs that they would receive copies of "any documents that you do not have." Id. ¶¶ 266-68. At the time, Colyer also promised to help Plaintiffs refinance after one year. Id. ¶ 269. Though not alleged in the TAC, it appears that the HELOC ultimately demanded a monthly payment of $1,800 per month, bringing Plaintiffs' monthly payments to $4,400. Id. ¶ 412; see also Merritt, 759 F.3d at 1028. It also appears that Plaintiffs were not required to pay a down payment for their loans. TAC ¶ 273.
From March to August 2006, Plaintiffs allege that they were informed by Colyer and CHL staff that their monthly payments were being applied to both interest and the principal on the loan. They discovered this was not the case in August 2006. Id. ¶¶ 282-83. When Plaintiffs confronted Colyer, he could only apologize for yet another mistake but promised that faithful payment would allow him to help them refinance with better terms. Id. ¶ 284. Plaintiffs then began a letter-writing campaign, directing "communications" to CHL-CFC, Mozilo, Lewis, Wells Fargo's CEO, Kurland, Sambol, Colyer, and "Does 71-90" throughout 2006 to 2008 requesting, "inter alia, for defendants to supply Plaintiffs with the signed documents that [Financial Title Co.] and CHL refused to deliver to Plaintiffs on March 27, 2006" and "for defendants to rectify Plaintiffs loans by replacing the two they were coerced into buying under duress, with one FHA or other traditional loan that they could afford to buy." Id. ¶¶ 286-87 (emphasis in original).
Plaintiffs continued making payments on the first loan and HELOC from March 2006 toOctober 2008. They allege that they were "falsely charged" a higher...
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