Sound Appraisal v. Wells Fargo Bank, N.A.

Decision Date14 June 2010
Docket NumberNo. C 09-01630 CW,C 09-01630 CW
Citation717 F.Supp.2d 940
CourtU.S. District Court — Northern District of California
PartiesSOUND APPRAISAL and Savage Appraisal Services, Inc., on behalf of themselves and all others similarly situated, Plaintiffs, v. WELLS FARGO BANK, N.A. and Valuation Information Technology, LLC, d/b/a Rels Valuation, Defendants.

Jeff D. Friedman, Hagens Berman Sobol Shapiro LLP, Berkeley, CA, Steve W. Berman, Hagens Berman Sobol Shapiro LLP, Seattle, WA, for Plaintiffs.

Brooks Russell Brown, Goodwin Procter LLP, Los Angeles, CA, Gayle M. Athanacio, Sonnenschein Nath & Rosenthal, San Francisco, CA, Charles A. Newman, Elizabeth Ferrick, Sonnenschein Nath & Rosenthal LLP, St. Louis, MO, for Defendants.

ORDER GRANTING DEFENDANTS' MOTIONS TO DISMISS

CLAUDIA WILKEN, District Judge.

Plaintiffs Sound Appraisal and Savage Appraisal Services, Inc., on behalf of themselves and all others similarly situated, charge Defendants Wells Fargo Bank, N.A. (Wells Fargo) and Valuation Information Technology, LLC, d/b/a Rels Valuation (Rels) with violating the California common law right to fair procedures. Defendants move separately to dismiss Plaintiffs' complaint. Plaintiffs oppose the motions. Having considered all of the papers filed by the parties, the Court grants Defendants' motions to dismiss.

BACKGROUND

The following allegations are taken from Plaintiffs' first amended complaint (FAC). Plaintiff Sound Appraisal is a sole proprietorship with its principal place of business in Puyallup, Washington. Plaintiff Savage Appraisal Services, Inc. is an S corporation with its principal place of business in Vail, Colorado. Sound Appraisal and Savage Appraisal provide residential real estate appraisals to mortgage brokers and mortgage lenders.

Defendant Wells Fargo is a national banking association chartered in Sioux Falls, South Dakota and headquartered in San Francisco, California. It is a diversified financial services company that provides retail and business banking, insurance, investments, mortgages and consumer finance across the United States. Wells Fargo provides residential mortgages through its division, Wells Fargo Home Mortgage.1 It is the nation's largest originator and second largest servicer of residential mortgages.

Defendant Rels is an Iowa limited liability company headquartered in Minnetonka, Minnesota. Rels is a "joint venture" between First American Solutions, a subsidiary of First American Corporation, and Wells Fargo Foothill, a subsidiary of Wells Fargo & Co. FAC ¶ 19. Rels provides "real estate settlement services including property appraisals." Id.

The work of an appraiser is to provide an unbiased assessment of a property's value. Appraisers are commonly retained by mortgage brokers and mortgage lenders in order to value the property that will be used as collateral for a loan. Appraisers either work "in house" within a broker's or lender's business, or as independent contractors. In this case, Plaintiffs were hired by Defendants as independent contractors.

The federal Financial Institutions and Reform Act of 1989 recognizes the Uniform Standards of Professional Appraisal Practice (USPAP) as the generally acceptedappraisal standards and requires USPAP compliance for appraisers in federally related transactions.2 State appraiser certification and licensing boards; federal, state, and local agencies; and appraisal trade associations require compliance with USPAP. According to USPAP, "[a]n appraiser must perform assignments with impartiality, objectivity, and independence, and without accommodation of personal interests." USPAP Ethics Rule (Conduct). An appraiser "must not perform as an advocate for any party or issue" or "accept an assignment that includes the reporting of predetermined opinions and conclusions." Id.

In 2004, Wells Fargo changed the way it hired appraisers. Whereas it used to contact appraisers directly, it began contacting appraisers through an affiliate appraiser management company, ValueIT. ValueIT was an appraisal clearing-house that contracted with independent appraisers to meet the needs of Wells Fargo and other lenders. ValueIT eventually changed its name to Rels Valuation, a Defendant in this case. Plaintiffs claim that "Rels is a 'captive' puppet of Wells Fargo, either by virtue of partial ownership by a common parent or economic power as its largest client." FAC ¶ 42.

Plaintiffs allege that Wells Fargo is more interested in having a property appraised for a certain amount than it is in obtaining an appraisal that is fair and accurate and prepared in accordance with USPAP standards. Id. ¶ 38. Plaintiffs allege, "If an appraiser does not 'play ball' and produce a report affirming the property value or the parameters that Wells Fargo expects or wants, Wells Fargo, through Rels Valuation, suspends the appraiser or removes the appraiser from the list of preferred appraisers and, in essence, 'blacklists' the appraiser." Id. ¶ 40.

In June, 2007, Sound Appraisal received a request from Wells Fargo through Rels to appraise a home in Enumclaw, Washington. After Sound Appraisal's sole proprietor, Don Pearsall, submitted a completed Uniform Residential Appraisal Report, Rels contacted Pearsall and asked that he alter the appraisal that he submitted. Id. ¶ 44. Specifically, Rels' area manager, Randall Pierzina, asked Pearsall to remove all indications that the home in question was currently being remodeled. Pearsall refused to alter the report, noting that doing so would be a violation of his ethical duty under USPAP. In response, Pierzina yelled, "[Y]ou appraisers take USPAP too seriously." Id. ¶ 52. Pierzina then threatened to remove Pearsall from his list of "eligible" appraisers if he "did not receive the requested, altered report immediately." Id.

Prior to this incident, approximately twenty-one to thirty-six percent of Sound Appraisal's business came from Defendants. After this incident, Sound Appraisal no longer received appraisal requests from them. When Pearsall inquired about the sudden decline in work, Pierzina stated that Pearsall "was on suspension because [he] refused to comply with an OPUS issue." Id. ¶ 54. Pierzina did not explain what an "OPUS issue" was and never provided any further explanation for the suspension or notified Pearsall of any procedure by which he could challenge his suspension. Id.

On April 8, 2009, Pearsall received a phone call from Rels offering an assignment. Pearsall responded, "I would loveto take the job, but aren't I on your blacklist?" Id. ¶ 55. The Rels employee put Pearsall on hold to check, and then the employee said, "I'm sorry, I wasn't supposed to contact you." Id. Sound Appraisal alleges that this confirmed the existence of the blacklist. Id. ¶ 49.

Savage Appraisals had been doing appraisals for Rels for twelve years. In January, 2009, Savage performed two such appraisal assignments for Rels. After Savage provided these appraisals to Rels, a "Collateral Compliance Reviewer" for Rels emailed Savage with information "to support an increased value" of the appraised property. Id. ¶ 61. Savage then reviewed its appraisal and determined that no such increased valuation was appropriate. The next month, Savage received a letter from Rels, which stated that he had been removed from its approved panel of appraisers. The letter did not provide an explanation for the removal. Savage alleges that, before being removed from Rels' list, it received approximately eleven to seventeen percent of its income from Rels.

The complaint also contains nine statements by confidential witnesses who are appraisers in Arizona, Nevada, Washington, Pennsylvania, Illinois, Virginia, Indiana and Oregon. These witnesses allege that Rels stopped hiring them because they refused to alter appraisals upon Rels' request.

On April 14, 2009, Plaintiffs filed the complaint in this case. Plaintiffs allege that, in an effort to increase market share in the home mortgage business, Defendant Wells Fargo has engaged in a pattern and practice of pressuring appraisers to write appraisals designed to justify the loan even if the appraisal violates USPAP. Id. ¶ 38. Plaintiffs also claim that Defendants "utilize a host of indirect methods to communicate to the appraiser the value needed to fund the loan, and the value the appraiser is expected to 'hit.' " Id. ¶ 39. For example, Rels' appraisal order form indicates the "Borrower Estimated Value." Plaintiffs claim that this reflects the value that the appraiser is expected to meet or exceed in the appraisal.

Plaintiffs' original complaint alleged three causes of action: (1) violation of the federal Racketeer Influenced and Corrupt Organizations (RICO) Act, (2) interfering with Plaintiffs' prospective economic advantage and (3) violation of the California Unfair Competition Law. Defendants moved to dismiss all three claims. Plaintiff did not oppose dismissal of Unfair Competition claim with prejudice and the Court dismissed the other two causes of action with leave to amend. Plaintiff now pleads the same facts but asserts only a claim for violation of the common law duty to provide fair procedures.

LEGAL STANDARD

A complaint must contain a "short and plain statement of the claim showing that the pleader is entitled to relief." Fed.R.Civ.P. 8(a). When considering a motion to dismiss under Rule 12(b)(6) for failure to state a claim, dismissal is appropriate only when the complaint does not give the defendant fair notice of a legally cognizable claim and the grounds on which it rests. Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). In considering whether the complaint is sufficient to state a claim, the court will take all material allegations as true and construe them in the light most favorable to the plaintiff. NL Indus., Inc. v. Kaplan, 792 F.2d 896, 898 (9th Cir.1986). However, this principle is inapplicable to legal conclusions; "threadbare recitals of the elements of a cause of action, supported by mere...

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