Opinion
CASE NO. 01-1420-IEG (LSP), [Doc. Nos. 116, 132, 138.]
August 22, 2003
ORDER GRANTING IN PART AND DENYING IN PART DEFENDANT AMERICAN PORTFOLIO MORTGAGE CORPORATION'S MOTION FOR SUMMARY JUDGMENT
Presently before the Court in the above-captioned matter is the motion of defendant American Portfolio Mortgage Corporation ("APM") for summary judgment or partial summary judgment against all plaintiffs. For the reasons discussed below, the Court grants in part and denies in part APM's motion for summary judgment.
Former defendant Paul Kessel ("Mr. Kessel"), President of APM, joined the motion. The parties, however, dismissed Mr. Kessel pursuant to a stipulation filed on June 9, 2003. (Doc. No. 127.).
I. Background
A. Factual Background
The Court incorporates by reference the factual background set forth in its order granting in part and denying in part the motion for summary judgment of Bayview Financial Trading Group, Inc., Bayview Financial Trading Group, L.P., and BFTG Holding Company, Inc.'s (collectively, "the Bayview defendants" or "Bayview") against all plaintiffs. (Doc. No. 149.)
B. Procedural Background
The Court incorporates by reference the procedural background set forth in its order granting in part and denying in part the motion for summary judgment of the Bayview defendants against all plaintiffs, (Doc. No. 149.).
APM filed the instant motion on June 4, 2003. (Doc. No. 116.) The Court took the motion under submission on July 10, 2003. (Doc. No. 128.)
II. DISCUSSION
A. Legal Standard
Summary judgment is proper where "there is no genuine issue as to any material fact and . . . the moving party is entitled to judgment as a matter of law." FED. R. Civ. P. 56(c). A material issue of fact is a question that a jury must answer to determine the rights of the parties under the applicable substantive law. Anderson v. Liberty Lobby. Inc., 477 U.S. 242, 248 (1986); Act Up!/Portland v. Bagley, 988 F.2d 868, 873 (9th Cir. 1993). A dispute is "genuine" only if "a jury applying [the substantive law's] evidentiary standard could reasonably find for either the plaintiff or the defendant," Anderson. 477 U.S. at 255.
In considering a motion for summary judgment, the Court must examine all the evidence in the light most favorable to, and make all references in favor of, the non-moving party. Id.; United States v. Diebold, Inc., 369 U.S. 654, 655 (1962). The moving party bears "the initial responsibility of informing the district court of the basis for its motion," Celotex Corp. v. Catrett. 477 U.S. 317, 323(1986).
To satisfy this burden, the moving party must demonstrate that no genuine issue of material fact exists for trial. Id. at 322. However, the moving party is not required to negate those portions of the non-moving party's claim on which the non-moving party bears the burden of proof.Id. at 323.
Once the moving party demonstrates that there is no genuine issue of material fact, the non-moving party must designate "specific facts showing that there is a genuine issue for trial." Id. at 324 (quoting Fed.R.Civ.P. 56(e)). The facts relied upon must be admissible under the rules governing the admission of evidence generally, including those concerning authentication, relevance, and hearsay. Hal Roach Studios, Inc. v. Richard Feiner Co., 896 F.2d 1542, 1550-52 (9th Cir. 1990). Conclusory allegations as to ultimate facts are not adequate to defeat summary judgment. Hansen v. United States. 7 F.3d 137, 138 (9th Cir. 1993).
B. Analysis
APM sets forth nine different arguments in its motion for summary judgment. Because four arguments address all of plaintiffs' claims, the Court only discusses these four claims.
1. Timeliness of Counts II, V, VI, VII and VIII
APM contends that the relevant statutes of limitation prelude the plaintiffs' claims for negligence (Count II), conspiracy to commit fraud (Count V), aiding and abetting fraud (Count VI), conversion (Count VII), and violations of California Business and Professions Code § 17000 et seq. (Count VIII). For the reasons discussed below, the Court grants APM's motion.
The statute of limitations for claims for fraud, conspiracy to commit fraud, aiding and abetting fraud, conversion, and the Unfair Business Practices Act is three years. Cal. Civ. Proc. Code § 338(d) (West 2003) (stating that the statute of limitations for fraud and conspiracy to commit fraud is three years); Aaroe v. First American Title Ins. Co., 222 Cal.App.3d 124, 128 (Cal. Ct App. 1990) (applying § 338(d) to conspiracy to defraud cases); Cal. Code Civ. P. §§ 338(a), 312 (West 2003) (stating the statute of limitations for the Unfair Business Practices Act). The statute of limitations for negligence is two years. Cal. Civ. Proc. Code § 339 (West 2003).
A plaintiff must bring a cause of action within the limitations period after accrual of the cause of action. See, e.g., Norgart v. Upjohn Co., 21 Cal. 4th 383, 384 (Cal. 1999). Courts generally define accrual to occur when the cause of action is complete with all of its elements. Id.
An exception is the discovery rule; under the discovery rule, courts postpone accrual of a cause of action until the plaintiff discovers, or has reason to discover the cause of action. Id. A plaintiff discovers the cause of action when the plaintiff at least suspects a factual basis — as opposed to a legal theory — for its elements even if the plaintiff lacks knowledge thereof. Id. at 397, In other words, a plaintiff discovers a cause of action when he or she at a minimum "suspects . . . that someone has done something wrong" to him or her, "wrong" being used in its lay understanding. Id. at 397-98 (quoting Jolly v. Eli Lilly Co., 44 Cal.3d 1103, 1110 n. 7 (Cal. 1988)). A plaintiff has reason to discover the cause of action when the plaintiff has reason to suspect a factual basis for its elements. Id. at 398 (citing Jolly. 44 Cal.3d at 1110). A plaintiff has reason to suspect when a plaintiff has notice or information of circumstances to put a reasonable person on inquiry. Id. (citing Jolly. 44 Cal.3d at 1110-11). A plaintiff need not know the specific facts necessary to establish the cause of action; instead, plaintiff can seek to learn these facts through pretrial discovery. Id. However, a plaintiff must attempt to learn the facts needed to bring the cause of action; a plaintiff cannot wait for the facts to find the plaintiff while the plaintiff sits on his or her rights. Id. If a plaintiff finds the relevant facts, the plaintiff must file suit within the limitations period. Id.
APM contends that the plaintiffs' claims are stale based on plaintiffs' alleged admission that they were aware of the circumstances which form the basis of all of their claims as early as July 1997, as evidenced by their FAC which states: "[o]n or after July 1997, plaintiffs discovered the circumstances under which the loan documents were executed and the consequences of the changes in terms and conditions." (FAC ¶ 22.) Accordingly, APM argues that by the time plaintiffs filed suit on February 21, 2001, their claims were already stale.
Plaintiffs respond, and the Court agrees, that this admission is not dispositive since by its terms it leaves open the possibility that the plaintiffs did not discover the relevant circumstances until after July 1997. There is other evidence, however, that by July 1997 plaintiffs were aware of facts that would put a reasonable person on notice that someone had done something wrong to him or her. By July 1997, plaintiffs knew that the interest rate on the first mortgage was 9.0%, not 6.9% as set forth in the COM. (See,e.g., Bayview App. 5, Faucher Depo. at 277; Bayview App. 24 at 555:25-556:6 (Response to Interrogatory No. 10 stating that Mr. Turris received the 5/31/97 amendment on July 4, 1997.)) Plaintiffs knew, moreover, that APM and Bayview were involved in the transaction. (See,e.g., Opp. 15.) Thus, the Court finds that under California law, the cause of actions in this case had accrued by mid-July 1997, even if plaintiff did not know the specific facts necessary to establish the cause of action. Accordingly, the Court finds that plaintiff's claims are now time-barred.
Although plaintiffs admit that they knew of the changed terms and the entities involved in the loan by mid-July 1997, plaintiffs argue that they were unaware of Bayview's involvement in the alleged fraudulent concealment until June 2000 and that the Court, accordingly, should toll the statute of limitations under the doctrine of fraudulent concealment. This argument fails for the reasons discussed below.
Courts toll the statute of limitations in cases in which a plaintiff demonstrates that a defendant fraudulently concealed facts which would have led the plaintiff to discover his or her potential cause of action.Snow v. A.H. Robbins Co., Inc., 165 Cal.App.3d 120, 127-28 (Cal.Ct.App. 1985) (citing Pashley v. Pacific Electric Railway Co., 25 Cal.2d 226, 231-32 (Cal. 1944)). To establish fraudulent concealment a complaint must show: (1) when the fraud was discovered; (2) the circumstances under which it was discovered; and (3) that the plaintiff was not at fault for failing to discover it or had no actual or presumptive knowledge of fact sufficient to put him on inquiry notice. Conerly v. Westinghouse Electric Corp., 623 F.2d 117, 120 (9th Cir. 1980) (citing Baker v. Beech Aircraft Corp., 39 Cal.App.3d 315, 321 (Cal.Ct.App. 1974)). As with any fraud cause of action, a plaintiff must allege the specific facts constituting the fraud. Community Cause v. Boatwright, 124 Cal.App.3d 888, 901 (Cal.Ct.App. 1981).
Courts have extended the reach of the tolling the statute of limitations on causes of action beyond fraud-based claims; courts will toll the limitations period on other causes of action affected by the concealment. See, e.g., Snapp Associates Insurance Services. Inc. v. Robertson. 96 Cal.App.4th 884, 890 (Cal.Ct.App. 2002). Moreover, in Bernson v. Browning-Ferris Industries of California, 7 Cal.4th 926 (Cal. 1994), the California Supreme Court held that a defendant maybe equitably estopped from asserting the statute of limitations when, as a result of intentional concealment, the plaintiff cannot discover the identity of the defendant. Id. at 936.
In order for a court to apply the doctrine, however, a plaintiff must exercise reasonable diligence in identifying the defendant; under the holding in Bernson. the statute will toll only until the plaintiff knows, or through the use of reasonable diligence should have discovered, the defendant's identity. Id. at 936. In determining whether a plaintiff acted with reasonable diligence, courts must consider whether the filing of a timely "Doe" complaint would have facilitated the discovery of the defendant's identity. Id. at 937. If one defendant is known, the plaintiff must file a timely complaint naming Doe defendants and take discovery; however, if "the facts are such that even discovery cannot pierce a defendant's intentional efforts to conceal his identity, the plaintiff should not be penalized." Id. The Bernson court emphasized that its holding would affect only a tiny fraction of civil cases, noting that it will be the "rare and exceptional case in which the plaintiff could genuinely claim that [he or she] was aware of no defendants, and even more rare that, given the knowledge of at least one, [plaintiff] could not readily discover the remainder through the filing of a Doe complaint and the normal discovery processes." Id.
Under plaintiffs' theory, the Court should toll the statute of limitations due to APM's fraudulent concealment of its role to increase the interest rate and close the River Colony loans without the knowledge and consent of the investors. Plaintiffs claim that APM, in conjunction with Bayview, drafted the loan documents which changed the interest rate knowing that the investors were unaware of the change. Moreover, by participating in the drafting of the acknowledgment agreement, APM and Bayview allegedly misled investors by stating that they had no involvement in the preparation of the COM even though they drafted the May 31, 1997 amendment. Plaintiffs emphasize that they had never heard APM's or Bayview's name prior to the receipt of the acknowledgment agreement which only stated that they were lenders.
Furthermore, plaintiffs assert that they were diligent in filing suit against the defendants upon discovery of the concealment. Plaintiffs contend that they learned of Bayview and APM's involvement on July 6, 2000, when they allegedly received documents revealing Bayview and APM's involvement in drafting the May 31, 1997 amendment. (Plaintiffs' App. 15 (July 6, 2000 correspondence)). To support their contention, plaintiffs offer the July 6, 2000 letter from defendants' attorney but not the documents which were enclosed with the letter. Plaintiffs argue that after learning of Bayview and APM's involvement, they filed suit against these defendants less than one year later on February 26, 2001.
The letter states:
Enclosed are documents within the purview of the deposition duces tecum pursuant to which Mr. Tom Carr was deposed as Bayview Financial Trading Group's records custodian on June 30, 2000. Regrettably, these documents were inadvertently omitted from the production. I trust that the now comprehensive production of all documents elicited except for those falling within the ambit of the attorney-client privilege or work product doctrine has not caused any prejudice to the parties or Court.
As an initial matter, the Court grants APM's motion with respect to plaintiffs' claim of conversion (Count VII) against APM, since plaintiffs' opposition states that plaintiffs are willing to dismiss their conversion claim against APM. (Opp. at 21.)
The Court finds that in the instant case the facts do not justify tolling the statute of limitations. First, plaintiffs do not meet their burden of alleging facts to support fraudulent concealment. Plaintiffs' thirteen-page FAC does not set forth when the fraud was discovered, the circumstances under which it was discovered, nor that the plaintiffs were not at fault for failing to discover it. Thus, the complaint does not plead fraudulent concealment as required for the Court to apply the doctrine.
Second, the Court finds that even if plaintiffs' complaint meets the pleading requirements of fraudulent concealment, plaintiffs have failed to demonstrate that they exercised due diligence in identifying the appropriate defendants as required by Bernson. In this case, plaintiffs have not shown why the timely filing of a Doe complaint would not have facilitated identifying the defendants. Indeed, prior to filing suit against the Bayview defendants, plaintiffs filed suit against other parties related to the River Colony transaction, such as Chicago Title Insurance Company. As discussed above, by mid-July of 1997 plaintiffs knew that APM and Bayview were involved in the transaction and that the interest rate was higher than the plaintiffs had initially expected, even if plaintiffs were unaware of defendants' alleged fraudulent concealment of the higher interest rate. (See, e.g., Opp. at 15.) Given that the plaintiffs had identified other defendants and were aware that APM was involved in the transaction, it is likely that discovery could have revealed defendants' intentional efforts to conceal their identity. Plaintiffs have not shown that this is one of the "rare and exceptional" cases in which a plaintiff could not readily identify the defendants after filing a Doe complaint and conducting normal discovery. Indeed, it was through discovery in a related case, River Colony v. Hecht Solberg et al., that plaintiffs identified APM and Bayview as defendants. (Opp. at 15.)
Accordingly, the Court grants APM's motion for summary judgment as to plaintiffs' claims for negligence (Count II), conspiracy to commit fraud (Count V), aiding and abetting fraud (Count VI), conversion (Count VII), and violations of California Business and Professions Code § 17000et seq. (Count VIII) because these claims are time-barred. This leaves plaintiffs' claims for conspiracy to breach fiduciary duty (Count III) and aiding and abetting breach of fiduciary duty (Count IV).
2. Proof of Conspiracy Claim
APM contends that plaintiffs' conspiracy claim fails because, inter alia. APM did not owe plaintiffs a duty of care. For the reasons discussed below, the Court grants APM's motion for summary judgment on this ground.
Tort liability for conspiracy cannot exist unless the alleged co-conspirator is legally capable of committing the tort; in other words, the co-conspirator must owe a duty to the plaintiff. Everest Investors 8 v. Whitehall Real Estate Limited Partnership. 100 Cal.App. 4th 1102, 1106-1107 (Cal.Ct.App. 2002). A lender does not owe a borrower or third party any duties "beyond those expressed in the loan agreement, excepting those imposed due to special circumstance or a finding that a joint venture exists." See, e.g., Resolution Trust Corporation v. BVS Development. Inc., 42 F.3d 1206, 1214 (9th Cir. 1994) (citing Nymark v. Heart Federal Savings Loan Association. 231 Cal.App.3d 1089, 1096 (Cal.Ct.App. 1991).
A special relationship might exist where a bank, through a loan agreement, can control a borrower. See, e.g., Hashimoto v. Clark. 264 B.R. 585, 594 (D. Ariz. 2001) (applying California law and citing Kim v. Sumitomo Bank of California. 17 Cal.App. 4th 974, 979-80 (Cal.Ct.App. 1993); Neiderreuther v. Schifter, 1998 U.S. Dist. LEXIS 11079(July 14, 1998)). See also Resolution Trust Corporation. 42 F.3d at 1214 ("Only under extraordinary circumstances in which a lender plays an instigating or active role in a development project will a duty to subordinated sellers be imposed.") Alternatively, a special relationship might exist if a bank offers any provision of trust or fiduciary services, or otherwise agrees to serve as a financial advisor. Peterson Development Corp. v. Torrey Pines Bank, 233 Cal.App.3d 103, 119 (Cal.Ct.App. 1991).
Here, plaintiffs contend that a special relationship exists because APM in conjunction with Bayview participated in the enterprise beyond the usual domain of a money lender. Plaintiffs buttress this argument by asserting that APM (1) knew that the May 31, 1997 amendment materially altered the terms of the COM and that investors were unaware of the new terms; (2) knew about the DSPA and expressed concern about Mr. Dix's potential misuse of the DSP A; (3) drafted the loan documents which contained the new terms; (4) closed the loan on July 3, 1997, despite knowledge that the individual investors were not aware of the changed interest rate and other financial terms; (5) participated in the drafting of the acknowledgment to the individual investors to secure their after-the-fact agreement to the new interest rate and terms; and (6) misrepresented Bayview's involvement in the preparation of the May 31, 1997 amendment, and its own role in preparation of the loan documents, which contained the 9% interest rate and other new terms.
Even assuming that all of the above facts are true (and APM disputes several of them), these facts do not support the finding that a special relationship exists under California law. These facts do not in any way suggest that APM exercised control over plaintiffs, nor that APM offered trust or fiduciary services or agreed to serve as a financial advisor. Accordingly, the Court finds that APM owed no duty of care to plaintiffs as a matter of law and thus cannot be liable for conspiracy to breach fiduciary duty. The Court, therefore, grants APM summary judgment on Count II.
3. Damages
APM asserts that the individual plaintiff's cannot prove any damages proximately caused by the alleged conduct of APM and, thus, the Court must grant summary for APM as to all of plaintiffs's claims. For the reasons discussed below, the Court grants APM's motion for summary judgment as to the individual plaintiffs.
An element of a breach of fiduciary duty is damages proximately caused by the breach. See, e.g., Stanley v. Richmond. 35 Cal. App, 4th 1070, 1095 (Cal.Ct.App. 1995). Causation requires proof that a defendant's conduct was a substantial factor in bringing about the harm to the plaintiff. Williams v. Wraxall, 33 Cal.App. 4th 120, 132 (Cal.Ct.App. 1995).
Plaintiffs seek damages representing the difference in the amount of interest paid on the loans at 9%, versus the amount which would have been paid on loans at 6.9%. However, none of the individual plaintiffs paid any interest on the loans; only corporate plaintiffs paid interest on the loans.
Plaintiffs respond that the individual plaintiffs were potentially liable for interest on the loans. They do not, however, challenge APM's contention that they never became liable for any interest payments.
The individual plaintiffs' other possible claim for damages is that if the loans had been funded at 6.9%, they would have received dividends. Here, plaintiffs present evidence that loans were available at 6.9% to rebut the assertion of APM that there were no lenders who could have financed the loans on the terms set forth in the COM. (Plaintiffs' App. 25, Wicken Depo. at 239-40.) To avoid summary judgment on this claim, however, plaintiffs must present evidence that, at the very least, raises a triable issue of fact that the difference in interest rates was the probable cause for the non-payment of dividends as opposed to any other factors. Plaintiffs have not presented any evidence that supports this claim. Accordingly, the Court grants APM's motion for summary judgment on the grounds that the individual plaintiffs cannot demonstrate that they suffered any damages as a result of APM's behavior. 4. Evidence Supporting Aiding and Abetting Claims
APM contends that plaintiffs have no evidence supporting their claims for aiding and abetting liability and thus the Court must grant its motion for summary judgment on Count IV. For the reasons discussed below, the Court finds that plaintiffs have presented evidence that creates a triable issue of fact and therefore denies APM's motion for summary judgment on this ground.
A party can be liable for aiding and abetting an intentional tort if (1) an individual is aware that the other's conduct constitutes a breach of duty and provides substantial assistance or encouragement to the other to so act; or (2) if an individual gives substantial assistance to another in accomplishing a tortious result and the individual's own conduct, when separately considered, constitutes a breach of duty to a third person. See, e.g., Hashimoto. 264 B.R. at 598 (citing Saunders v. Superior Court, 27 Cal.App. 4th 832, 845-46 (Cal.Ct.App. 1994)). To establish liability for aiding and abetting, plaintiffs must prove: (1) the fact of perpetration of the overall improper scheme; (2) the aider and abettor's knowledge of such a scheme; and (3) the aider and abettor's substantial assistance furthered the scheme. Harmsen v. Smith. 693 F.2d 932, 943 (9th Cir. 1982).
Here, to buttress their claim that APM had knowledge of Mr. Dix's breach of duty and that APM provided substantial assistance to advance the scheme, plaintiffs have presented evidence that (1) Mr. Dix sent Mr. Kessel, President of APM, numerous documents relating to the River Colony transactions, including the loan closing documents (Plaintiffs' Supp. App., Kessel Depo. at 22); (2) Mr. Kessel spoke with Mr. Dix's attorneys, including Mr. Hee (id. at 35); (3) Mr. Kessel was aware that Mr. Dix would be executing loan documents using the DSPA (id. at 18-19, 23-24, 27); (4) Mr. Kessel knew that Mr. Dix was using the DSPA to sign loan documents containing terms materially different from those set forth in the COM (id.;) (5) APM drafted the loan documents containing the undisclosed 9% interest rate which it gave to Mr. Dix to execute for the individual plaintiffs; and (6) APM coordinated with attorneys for Bayview and Mr. Dix to finalize the acknowledgment agreement, allegedly to "cover their tracks." (Id. at 34.)
The Court finds that plaintiffs' evidence creates a triable issue of fact as to whether APM aided and abetted Mr. Dix's violation of his fiduciary duties to plaintiffs. Accordingly, the Court denies APM's motion for summary judgment on count IV as to the corporate plaintiffs.
CONCLUSION
For the reasons discussed above, the Court GRANTS IN PART and DENIES IN PART APM'S motion for summary judgment. The Court GRANTS summary judgment as to Counts n, m, V, VI, VII, and VIII. The Court GRANTS summary judgment on the individual plaintiffs' claims of breach of fiduciary duty (Counts III and IV) because these plaintiffs cannot show that they suffered any damages. Lastly, the Court DENIES APM's motion for summary judgment based on plaintiffs' alleged inability to prove their key allegations. The Court notes that plaintiffs' only remaining claim against APM is the corporate plaintiffs' claim for aiding and abetting breach of fiduciary duty (Count IV).
IT IS SO ORDERED.