Opinion
CASE NO. C12-1755MJP
10-30-2013
JOHN ROBINETT, et al., Plaintiff, v. OPUS BANK, et al., Defendant.
ORDER ON
1. MOTION TO DISMISS
2. MOTION TO COMPEL
3. MOTION FOR PROTECTIVE
ORDER
The Court has received and reviewed:
1. Defendants' Motion to Dismiss Consumer Protection Act Claim (Dkt. No. 48), Defendants' Request for Judicial Notice (Dkt. No. 49), Plaintiffs' Response to Motion to Dismiss Consumer Protection Act Claim (Dkt. No. 58), and Defendants' Reply in Support of Motion to Dismiss Consumer Protection Act Claim (Dkt. No. 59);and all attached declarations and exhibits. Finding that oral argument is not necessary, the Court makes the following rulings:
2. Plaintiffs' Motion to Compel (Dkt. No. 44), Defendants' Response to Motion to Compel (Dkt. No. 50), and Plaintiffs' Reply in Support of Motion to Compel (Dkt. No. 55);
3. Defendants' Motion for Protective Order (Dkt. No. 46), Plaintiffs' Response to Motion for Protective Order (Dkt. No. 53), and Defendants' Reply in Support of Motion for Protective Order (Dkt. No. 56)
IT IS ORDERED that the motion to dismiss the Consumer Protection Act claim is GRANTED; the Consumer Protection Act claims in the Lead and Related cases are DISMISSED.
IT IS FURTHER ORDERED that the request to take judicial notice of the Washington State Bar membership of Plaintiff Martin Robinett is GRANTED.
IT IS FURTHER ORDERED that the motion to compel is GRANTED IN PART and DENIED IN PART.
IT IS FURTHER ORDERED that the motion for protective order is GRANTED IN PART and DENIED IN PART.
Background
Plaintiffs are real estate developers in Snohomish County who had a longstanding financial relationship with Defendant Cascade Bank, a local bank which was ultimately sold to Defendant Opus Bank. Plaintiffs' amended complaint alleges that they had a history of written and oral agreements to extend their loans with Cascade, agreements Plaintiffs claim they were led to understand would continue after the sale to Opus. That is not what happened: rather than extend their loans, Opus declared Plaintiffs in default.
Thereafter, Plaintiffs filed suit in state court for wrongful foreclosure, slander of title, breach of contract, fraudulent/negligent misrepresentation, negligence, unjust enrichment and violations of the Washington Consumer Protection Act (CPA). Defendants removed the matter to federal court.
Discussion
Because the motion regarding the CPA claim is partially dispositive of the remaining motions, the order begins with an analysis of the motion to dismiss.
Motion to Dismiss the CPA Claim
This motion turns on a single issue: are the Plaintiffs eligible to sue under the Washington CPA? Or are they "sophisticated businesspeople... in a position to protect themselves from exploitation" (Mtn to Dismiss, p. 5) who should not be permitted to avail themselves of the protective mechanism of this statutory mechanism?
For resolution of this issue, the Court turns to the seminal case in this area, Hangman Ridge Training Stables v. Safeco Title Ins. Co., 105 Wn.2d 778 (1986). This case established the five-element test for eligibility to sue for CPA violations. In order to establish a CPA claim, a plaintiff must prove all five elements of the violation:
1. An unfair or deceptive act or practice;Id. at 784-85.
2. Occurring in trade or commerce;
3. That impacts the public interest;
4. Causing injury to business or property which was
5. Proximately caused by the unfair or deceptive act or practice.
And the court in Hangman Ridge anticipated the issue that Defendants have raised here: should persons engaged in private business transactions (as opposed to public consumer transactions) be able to utilize the mechanism created by the CPA to seek redress for their injuries? This question went to the heart of one of the factors created by Hangman Ridge for determining a CPA violation - the alleged wrong must be an unfair or deceptive act or practice occurring in trade or commerce that impacted the public interest. Did an essentially private contract dispute have the potential to affect the public interest?
Where the transaction was essentially a private dispute... it may be more difficult to show that the public has an interest in the subject matter. Ordinarily, a breach of a private contract affecting no one but the parties to the contract is not an act or practice affecting the public interest.Id. at 790 (citations omitted). But the Hangman Ridge court went on to say that the existence of a private contract dispute was not an insurmountable barrier to CPA relief: "However, it is the likelihood that additional plaintiffs have been or will be injured in exactly the same fashion that changes a factual pattern from a private dispute to one that affects the public interest." Id.
Hangman Ridge enunciates a further, four-part analysis to test this likelihood of additional, farther-reaching injury:
Factors indicating public interest in this context include: (1) Were the alleged acts committed in the course of defendant's business? (2) Did defendant advertise to the public in general? (3) Did defendant actively solicit this particular plaintiff, indicating potential solicitation of others? (4) Did plaintiff and defendant occupy unequal bargaining positions? As with the factors applied to essentially consumer transactions, not one of these factors is dispositive, nor is it necessary that all be present.Id. at 790-91.
The alleged acts were unquestionably committed in the course of Defendant's business. Neither Defendant nor Plaintiffs discuss the second and third factors in their briefing. The Court notes, however, that there are no allegations in the amended complaint to the effect that Opus either advertised to the general public or actively solicited this particular group of plaintiffs.
The Hangman Ridge court rejected the CPA claims of its plaintiffs partly because they
... had a history of business experience. They were sole shareholders in a closely held corporation, and they retained an attorney and an accountant on a regular basis. Plaintiffs in this case are not representative of bargainers subject to exploitation and unable to protect themselves.Id. at 794. Defendants attack Plaintiffs' CPA claims on precisely that basis - that Plaintiffs were a sophisticated group of real estate developers whose financial history with Cascade Bank spanned many years. Plaintiffs do not deny that they are professional real estate developers with a lengthy history of projects and financial dealings in the area. They argue that no amount of sophistication could have protected them against the misrepresentations by which they allege they were misled.
On the issue of the sophistication or business acumen of the various plaintiffs in this matter, the Court notes that (1) none of the parties have provided the Court with any information from which a legitimate inference about the business expertise of any of the Plaintiffs (or lack thereof) could be drawn, and (2) Plaintiffs' own complaint describes them (as a group) as persons "engaged in the business of developing real estate, including readying the underlying land for construction and the building of new homes for sale" who had a "longstanding and mutually beneficial business relationship with [Defendant] Cascade [Bank] dating back to the late 1990s." Am. Complaint, ¶ 4.1. From this allegation, an inference can be drawn that Plaintiffs are at least more sophisticated in the area of real estate development (and the financing thereof) than the average consumer.
Further, the Court is permitted to take judicial notice of any adjudicative fact that is "not subject to reasonable dispute" and which "can be accurately and readily determined from sources whose accuracy cannot reasonably be questioned." FRE 201(b). Accordingly, the Court grants Defendants' request and takes judicial notice of the fact that the website for the Washington State Bar Association lists Plaintiff Martin Robinett as an active lawyer in this state, admitted to practice on October 27, 1981. While the Court again draws no inferences from this fact regarding Martin Robinett's sophistication in the realm of real estate development (beyond that noted above), the Court is aware that one of the main features of Plaintiffs' financial history with Defendant Cascade Bank - a series of verbal loan extensions on various development and construction loans - appears to be a textbook example of a Statute of Frauds violation (see RCW 19.36.110) of which any law school graduate could reasonably be expected to be aware. At a minimum, Plaintiff Martin Robinett should have been aware that these verbal loan extensions upon which he and his co-plaintiffs were relying were at least arguably unenforceable.
In addition to finding some level of sophistication on the part of Plaintiffs beyond that of the average consumer, the Court's decision to dismiss the CPA claim is driven by the complete lack of any evidence that Defendants were advertising the services or practices described in the complaint to the general public. The inference which the Court draws from this absence of evidence is that these appear to be highly individualized circumstances in which Plaintiffs found themselves, circumstances which were unique to the singular financial history they had with Defendant Cascade Bank, and circumstances which were unlikely to be repeated elsewhere to which the public would be subjected.
Added to that is an absence of proof that Plaintiffs were solicited in any regard by Defendant Opus Bank. This means that two of the four "public interest" factors outlined in Hangman Ridge are completely absent here, while a third (unsophisticated consumers occupying an unequal bargaining position) tips at least slightly in favor of Defendant. The cumulative weight of all of this must result in a finding that this is not the sort of private business transaction that can be characterized as affecting the public interest in a way that the CPA was intended to address.
On that basis, the Court will grant Defendants' motion to dismiss the CPA claims in the Lead Case and all the Related Cases.
Plaintiffs' Motion to Compel This dispute centers around three objections Defendant has posed to Plaintiffs' discovery requests:
1. The production of documents and ESI regarding third party borrowers who have been similarly affected by Defendant's lending policies;Discovery re: Third Party Borrowers
2. The production of documents and Electronically Stored Information ("ESI") regarding Plaintiffs' loans which stretches back before January 1, 2011; and
3. The deposition of Opus Bank President and CEO Stephen Gordon.
Defendant argues that "[t]here are no requests for documents relating to other borrowers" in Plaintiffs' discovery materials, therefore Plaintiffs should not be permitted to compel their production. The evidence does not support that argument. Plaintiffs have produced proof of two interrogatories requesting (1) a list of every real estate development loan foreclosure (Interrogatory #3) and (2) every real estate development loan default notice issued after July 1, 2011 (Interrogatory # 4). See Reply, p. 3. Additionally, Plaintiffs cite to their omnibus interrogatory requesting "all documents which refer, evidence or relate to the subject matter of this lawsuit" (Interrogatory #65). Id.
As Plaintiffs themselves acknowledge, however, this discovery request must stand or fall on their CPA claims. In light of the dismissal of the CPA claims as decided supra, there is no longer any relevance to discovery concerning third party borrowers, and this portion of Plaintiffs' request is DENIED. Discovery re: Pre-January 2011 Material
Plaintiffs complain that Opus is refusing to produce all the evidence in its possession relating to the loans which are issue in this case. Plaintiffs claim (and Opus does not dispute) that Defendant has produced the "hard copy loan files" (Notes, Deeds of Trust) but limited its production to a cutoff date of January 1, 2010. Plaintiffs argue that their legal theory centers on a series of agreements with Opus's predecessor, Cascade Bank, which stretch back to the beginnings of their relationship in the 1990s - they believe that evidence of those agreements will be memorialized in the loan files in Defendant's possession.
There appears to be an inconsistency in Plaintiffs' briefing. Plaintiffs' opening brief describes the material they seek in this regard: "The production of documents and ESI relating to Plaintiffs' loans and which predate January 1, 2011." (Mtn, p. 5). Plaintiffs go on to complain the Defendants have refused to produce any evidence further back than the year prior to the merger between Cascade and Opus. They state "Defendant's refusal is arbitrary and unjustified, and Plaintiffs need the electronically stored information because it is directly relevant to their case, specifically as to if loans to Plaintiffs were previously informally renewed." Id., p. 7.
Defendant responds, arguing the expense of producing the requested ESI. But in its reply, Pltf contends that
Opus has already provided hard copies of loan files prior to the January 2010 date and therefore has essentially admitted the information sought is relevant and able to be produced. Finally, as Opus has argued, the bulk of the cost is the electronic search, not the copying and production of the existing loan files that Plaintiffs seek.Reply, pp. 6-7 (emphasis supplied). It is not clear to the Court whether Plaintiffs are now limiting their request to hard copy loan files predating the January 2010 cut-off date or are simply saying that the search of the ESI can be limited to material solely concerning "the existing loan files that Plaintiffs seek." Plaintiffs need to clarify this with Defendants immediately.
Given the centrality of their long history of loan extension agreements with Cascade to their legal theory (see Am.Complt ¶ 4.3), the information in the files for these loans is relevant and the expense of locating and copying them is not disproportional to their importance. Defendant is ordered to produce both the hard copy loan files in its possession and any ESI regarding loan file material for the loans at issue in this lawsuit without regard to the age of the information. Deposition of Gordon
"A strong showing is required before a party will be denied entirely the right to take a deposition." Blankenship v. Hearst Corp., 519 F.2d 418, 429 (9th Cir. 1975). That being said, "[v]irtually every court that has addressed deposition notices directed at an official at the highest level or 'apex' of corporate management has observed that such discovery creates a tremendous potential for abuse or harassment." Celerity, Inc. v. Ultra Clean Holding, Inc., 2007 WL 205067 *3 (N.D.Cal., Jan. 25, 2007).
In order to curb the potential for abuse, a party seeking an "apex deposition" must establish that the executive
[1] has unique, non-repetitive, firsthand knowledge of the facts at issue in the case, andSalter v. Upjohn Co., 593 F.2d 649, 651 (5th Cir. 1979).
[2] that other less intrusive means of discovery such as interrogatories and depositions of other employees, have been exhausted without success.
In their moving papers, Plaintiffs cited as their rationale for deposing Gordon an excerpt of a statement made by Gordon where he declared that
...Opus Bank will enable small and mid-sized businesses, real estate investors, entrepreneurs, and individuals who share our vision to build and expand, to have access to the capital to do so, thereby helping to turn around the region's economy.Mtn, p. 6 (from Amended Complaint, p. 2, § I). Plaintiffs argue that because he made this statement and "then implemented policies contrary" to this statement and because he "was one of the individuals ultimately responsible for the policies at issue," (Id.), they should be able to depose him.
The Court is not persuaded. Although the source of the Gordon quote above is not identified, the statement is the most generic kind of public relations puffery, more akin to an expression of sentiment than a declaration of policy. Case law abounds with opinions which stand for the proposition that the "mere fact that [a CEO] made public statements, even on issues that [the plaintiff] considers relevant to its claims, are (sic) insufficient to justify his deposition." Affinity Labs of Texas v. Apple, Inc., 2011 WL 1753982 at *16 (N.D.Cal. May 9, 2011). See also Mulvey v. Chrysler Corp., 106 F.R.D. 364, 366 (D.R.I 1985); Thomas v. IBM, 48 F.3d 478 (10th Cir. 1995); Celerity Inc., supra at *5.
In their reply brief, Plaintiffs produce more persuasive evidence - the complaint of a former executive of Opus who is currently suing the bank over his termination. See Brennan Complaint, Vail Decl., Dkt. No. 54, Ex. C. Brennan paints a picture of a chief executive who, tiring of the delays and haggling (and oversight) of group decision-making, took the bank's rate policies into his own hands and unilaterally lowered the offering rates on Opus's loans and deposits. Id. at 37-38. It lends some plausibility to Plaintiffs' argument that Gordon's hand was on the tiller of the decision to renege on the alleged commitments made by Cascade and Opus to Plaintiffs, but it is too little, too late.
"Too late" in the sense that Plaintiffs will not be permitted to present evidence in a reply brief that they clearly could have produced in their opening brief, and thus given Defendant a chance to rebut. "Too little" in the sense that, even with the Brennan evidence, Plaintiffs have not really satisfied the Salter test and come forward with any actual evidence that Gordon has "unique, non-repetitive, firsthand knowledge" of the circumstances surrounding their loans or any proof that "less intrusive means of discovery" had been tried without success.
In fact, the Brennan Complaint goes on to state that, although Gordon "said that senior management should start immediately to identify additional sources of cost reductions," he "did not mention reducing the loan volumes..." Id. at p. 38.
The Court is not satisfied that Plaintiffs have established the predicates for deposing the Opus CEO. That portion of their motion to compel will be denied.
Defendant's Motion for Protective Order
Defendant's motion for a protective order is basically a "second bite of the apple;" Defendant reiterates its reasons why it should not be compelled to produce the evidence Plaintiffs have requested; Plaintiffs reiterate their arguments why the evidence should be produced. The Court will partially grant and partially deny the motion for protective order on the same grounds as articulated for the motion to compel supra.
Conclusion
Plaintiffs have failed to establish that their Consumer Protection Act claims affect the public interest as required by Ninth Circuit precedent and Defendants' motion to dismiss those claims will be GRANTED. While Plaintiffs have proven that they are entitled to the evidence regarding the files of the loans at issue dating back to their inception, they have not proven that they are entitled to discovery concerning third party borrowers or that they should be allowed to depose Opus President and CEO Gordon. The motions to compel and for a protective order will be PARTIALLY GRANTED and PARTIALLY DENIED in accordance with those findings.
The clerk is ordered to provide copies of this order to all counsel.
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Marsha J. Pechman
United States District Judge