House v. Cal State Mortgage Company Inc et al, No. 1:2008cv01880 - Document 80 (E.D. Cal. 2010)
Court Description: MEMORANDUM DECISION AND ORDER RE: Plaintiff's Motion to Amend 64 , 67 , Signed by Judge Oliver W. Wanger on 2/26/2010. Within five (5) days following electronic service of this decision, the parties shall contact the courtroom deputy to set a scheduling conference. (Arellano, S.)
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1 UNITED STATES DISTRICT COURT 2 EASTERN DISTRICT OF CALIFORNIA 3 4 5 6 08-CV-01880-OWW-GSA JOSEPHINE HOUSE, by her guardian ad litem PUBLIC GUARDIAN OF STANISLAUS COUNTY, Plaintiff, v. 7 8 9 10 11 MEMORANDUM DECISION AND ORDER RE: PLAINTIFF S MOTION TO AMEND (Docs. 64 & 67) CAL STATE MORTGAGE CO., INC., a California Corporation; CAL STATE HOME LOANS INC., a California corporation; ALEXANDER GOMEZ; BENJAMIN CAPITAL INC., a California Corporation; MURPHY SABATINO; LARRY MENTON; and JOAN HOUSE, a necessary party, 12 Defendants. 13 I. 14 15 INTRODUCTION Before the court is Plaintiff s motion for leave to file a 16 Third 17 defendants, and to add and clarify alleged facts. 18 not seek to allege any new claims or theories of liability. 19 Amended Defendants Complaint. Cal State Plaintiff Mortgage seeks Co., to Inc. add four new Plaintiff does ( Cal State 20 Mortgage ), Cal State Home Loans Inc. ( Cal State Home Loans ), and 21 Alexander Gomez (collectively, the Cal State Defendants ) oppose 22 the motion. 23 counsel, has no general objection to Plaintiff s motion. 24 leave to amend is granted, all Defendants request a modification of 25 the Scheduling Order to extend the discovery deadlines, the pre- 26 trial motion deadlines, the pre-trial conference and trial date. 27 Plaintiff agrees that such an extension would be appropriate. 28 following background facts are taken from the parties submissions Defendant Murphy Sabatino, represented by separate 1 If The 1 in connection with the motion and other documents on file in this 2 case. 3 II. 4 5 6 A. BACKGROUND Procedural History This is a mortgage fraud case in which Plaintiff, a disabled 7 individual, claims 8 discriminatory 9 California. to loans be the secured victim by her of two residence predatory in and Turlock, On December 5, 2008, Plaintiff filed her initial 10 complaint against those allegedly involved in the illicit lending, 11 including Cal State Mortgage, Cal State Home Loans, Alexander 12 Gomez, Benjamin Capital, Inc. ( Benjamin Capital ), and Murphy 13 Sabatino. (Doc. 1.) 14 designated broker of Cal State Home Loans and Cal State Mortgage. 15 Murphy Sabatino is a licensed broker and officer of Benjamin 16 Capital. 17 Gomez is the president, owner, operator, and On February 9, 2009, Plaintiff filed a First Amended Complaint 18 ( FAC ) as a matter of right under Rule 15. (Doc. 12.) 19 retained all five original defendants and added two more: Larry 20 Menton and Joan House. 21 the predatory loans at issue. 22 owns, with Plaintiff, the Turlock residence. 23 dependent adult with mental limitations. 24 a necessary party against whom no relief is sought. 25 The FAC Menton allegedly participated in arranging Joan1 is Plaintiff s sister who coAllegedly Joan is a Plaintiff added Joan as On February 16, 2009, the Cal State Defendants filed a motion 26 27 28 1 For sake of clarity, Joan House is referred to by her first name. 2 1 to dismiss (Docs. 24 and 26) all claims in the FAC. On July 9, 2 2009, the motion was denied in part and granted in part with leave 3 to amend. (Doc. 49.) 4 motion to dismiss specified that Plaintiff shall file a Second 5 Amended Complaint . . . within twenty (20) days of the filing date 6 of the Memorandum Decision and Order. (Id. at 49.) The Memorandum Decision and Order on the A scheduling conference was held following the Memorandum 7 8 Decision and Order. On July 28, 2009, a Scheduling Order was 9 issued. (Doc. 53.) Under a section of the Scheduling Order 10 entitled Amendments 11 Plaintiffs plan to file a Second Amended Complaint on or before 12 July 29, 2009. (Id. at 3.) 13 a section entitled Pre-Trial Motion Schedule, dates were set for 14 the filing of non-dispositive and dispositive pre-trial motions. 15 (Id. at 7.) 16 On Orders July 29, re 2009, 17 Complaint. 18 B. Pleadings it states that Later in the Scheduling Order, under Plaintiff filed her Second Amended new defendants were added. 19 To 20 This pleading retained all the same defendants, and no The Second Amended Complaint The Second Amended Complaint, currently the operative 21 pleading, asserts claims for: (1) violation of the Truth In Lending 22 Act; (2) violation of the Home Ownership and Equity Protection Act; 23 (3) violation of the Real Estate Settlement Procedures Act; (4) 24 violation of the Fair Housing Act; (5) violation of the California 25 Fair Employment and Housing Act; (6) violation of the California 26 Covered Loans Law; (7) breach of fiduciary duty; (8) financial 27 abuse under the California Welfare and Institution Code; (9) fraud; 28 and (10) a violation of California s Unfair Competition Law, 3 1 California Business & Professions Code ยง 17200. 2 Plaintiff s claims relate to three mortgage loans, two of 3 which Plaintiff asserts were predatory and tainted with various 4 forms of illegality. 5 Residence, Plaintiff and her sister obtained a $10,000 mortgage in 6 order to renovate their kitchen. 7 inability to transact business and take care of their property, 8 Plaintiff and her sister were unable to keep up with the payments. 9 By 2005, they faced foreclosure. 10 As alleged, after inheriting the Turlock Due to their mental illness, and Judy Towns, a non-party to this action, learned of Plaintiff s 11 financial 12 foreclosure. 13 Benjamin Capital, could assist Plaintiff with refinancing into an 14 affordable loan. 15 take care of everything. 16 predicament and spoke with Menton regarding the Towns believed that Menton, an alleged agent with Allegedly, Menton allegedly informed Towns that he would Benjamin Capital set up, and the Cal State 17 Defendants 2 issued, a predatory loan to Plaintiff and her sister. 18 This predatory loan closed on July 1, 2005 (the July loan ). 19 July loan is a five-year, interest-only loan for $28,500 with a 20 20.995% APR. 21 the outstanding $10,000 mortgage. The Cal State Defendants charged 22 certain fees for the July loan, as did Benjamin Capital, Menton, 23 and Sabatino. The Of the loan amount, $11,182 was deducted to pay off 24 Less than six months later, on December 7, 2005, Defendants 25 arranged for and extended a larger and more expensive predatory 26 27 2 The Cal State Defendants include Gomez, Cal State Home Loans and Cal State Mortgage. 28 4 1 loan to Plaintiff and her sister. This loan closed on December 15, 2 2005 (the December loan ). 3 completed Plaintiff s loan application. 4 five-year, interest-only loan for $50,000 with an 18.941% APR. 5 Once again, the Cal State Defendants charged certain fees for the 6 December loan, as did Benjamin Capital, Menton, and Sabatino. Loan documents indicate that Sabatino The December loan is a The Second Amended Complaint alleges that the APR, fees, 7 8 commissions, 9 December charges, loans were and balloon excessive, payments for the July and unearned, and unaffordable. 10 Allegedly, each loan was arranged by Benjamin Capital, Menton, 11 Sabatino and their agents, and extended by the Cal State Defendants 12 and their agents, in an effort to collect excessive and unlawful 13 fees, charges, commissions and interest. 14 C. Plaintiff s Complaint Motion To Amend And Proposed Third Amended 15 After conducting depositions in September and November 2009, 16 and after receiving responses back to written discovery,3 Plaintiff 17 represents that she identified four additional parties who, along 18 with the currently named defendants, were involved in the two 19 predatory loans that at are issue in this action. Accordingly, on 20 December 14, 2009, Plaintiff filed this motion for leave to file a 21 Third Amended Complaint. The four defendants Plaintiff seeks to 22 add are: Cal State Growth Fund, a California Corporation, Roxanna 23 Seward, Leonette Belling, and Milton McLaurin. 24 As to how these Defendants were involved in the predatory 25 loans, through private investments by Leonette Belling, Cal State 26 27 28 3 See Wakily Decl. (Doc. 65). 5 1 Growth Fund allegedly provided the funding for the July and 2 December loans. 3 State Home Loans and Cal State Mortgage, allegedly served as the 4 loan officer for the July and December Loans. 5 Seward (as well as Defendant Gomez) allegedly reviewed and approved 6 of the July and December loans. 7 Benjamin Capital and Defendant Menton s half brother, allegedly 8 participated in extending the predatory loans. Seward, the co-owner and vice president of Cal Belling along with McLaurin, a co-owner of Defendant 9 As alleged in the proposed Third Amended Complaint, each loan 10 was arranged by Benjamin Capital, Menton, Sabatino, McLaurin, and 11 their agents, and extended by the Cal State Defendants. 12 Third Amended Complaint, the Cal State Defendants now include the 13 Cal State Growth Fund (as the fund supplier), Belling and Seward. 14 In essence, the proposed Third Amended Complaint adds one more 15 defendant to the Benjamin Capital side of the equation (McLaurin) 16 and three more defendants to the Cal State side of the equation 17 (Cal State Growth Fund, Belling and Seward). In the Aside from adding four defendants, the proposed Third Amended 18 19 Complaint also alleges a few additional background facts. 20 example, the proposed Third Amended Complaint alleges that Sabatino 21 brokered the July and December loans. 22 Third Amended Complaint clarifies certain facts pled in the Second 23 Amended 24 Complaint removes the allegations in the Second Amended Complaint 25 that the July and December loans were interest-only loans. 26 D. Complaint. For example, For In addition, the proposed the proposed Third Amended Amended Scheduling Conference Order 27 Before Plaintiff filed her motion for leave to amend, the 28 Scheduling Conference Order was modified by court order on December 6 1 2, 2009. (Doc. 63.) The Scheduling Conference Order, as modified, 2 designates 3 dispositive motions, March 26, 2010, as the deadline for filing 4 dispositive pre-trial motions, and March 12, 2010, as the discovery 5 cutoff. Plaintiff filed her motion for leave to file a Third 6 Amended Complaint on December 14, 2009, well before the motion 7 deadlines and discovery cutoff.4 March 19, 2010, as the deadline for filing non- 8 III. 9 STANDARD OF DECISION 10 When, as here, a party can longer amend its pleading as a 11 matter of right, under Rule 15(a)(2) a party may amend its pleading 12 only with the opposing party's written consent or the court's 13 leave. 14 requires. Rule 15(a) s liberal policy in favor of granting leave 15 to amend is not dependent on whether the amendment will add causes 16 of action or parties. DCD Programs, Ltd. v. Leighton, 833 F.2d 17 183, 186 (9th Cir. 1987). 18 The court should freely give leave when justice so Rule 15(a) s liberality is, however, tempered by consideration 19 of several factors. A district court need not grant leave to 20 amend where the amendment: (1) prejudices the opposing party; (2) 21 is sought in bad faith; (3) produces an undue delay in litigation; 22 or (4) is futile. AmerisourceBergen Corp. v. Dialysist West, Inc., 23 465 F.3d 946, 951 (9th Cir. 2006); see also Johnson v. Buckley, 356 24 F.3d 1067, 1077 (9th Cir. 2005) ( Five factors are taken into 25 account to assess the propriety of a motion for leave to amend: bad 26 faith, undue delay, prejudice to the opposing party, futility of 27 28 4 No summary judgment motion has been filed in this case. 7 1 amendment, and whether the plaintiff has previously amended the 2 complaint. ). 3 prejudice to the opposing party . . . carries the greatest weight. 4 Eminence Capital, LLC v. Aspeon, Inc., 316 F.3d 1048, 1052 (9th 5 Cir. 2003). 6 especially acute threat of prejudice to the entering party. 7 Leighton, 833 F.2d at 187. 8 the party to be added . . . becomes [a] major objective. Id. 9 (internal quotation marks omitted) (first alteration in original). Under a Rule 15(a) analysis, the consideration of Amending a complaint to add a party poses an Accordingly, [a]voiding prejudice to 10 IV. 11 12 A. DISCUSSION AND ANALYSIS Preliminary Matter The Timeliness of Plaintiff s Motion 13 Preliminarily, the Cal State Defendants argue that Rule 15(a) 14 is not the appropriate rule under which to analyze Plaintiff s 15 motion. Defendants argue that Plaintiff s motion for leave to file 16 a Third Amended Complaint was filed beyond the deadline established 17 by the Scheduling Order. 18 first show good cause to amend the Scheduling Order under Rule 19 16. According to Defendants, Plaintiff must 20 In support of their argument, the Cal State Defendants point 21 to the initial Scheduling Order dated July 28, 2009, where it 22 states that Plaintiffs plan to file a Second Amended Complaint on 23 or before July 29, 2009. (Id. at 3.) 24 language, Defendants contend that Plaintiff was required to file 25 her Second Amended Complaint and her Third Amended Complaint by 26 July 29, 2009. 27 initial 28 Complaint and did not establish, or in any way even suggest, a Based on this quoted This argument is patently absurd. Scheduling Order mentioned 8 only the On its face, the Second Amended 1 July 29, 2009, deadline for filing a Third Amended Complaint. 2 The Memorandum Decision and Order on the motion to dismiss 3 (not the Scheduling Order) granted Plaintiff leave to amend her FAC 4 and 5 Complaint, 6 Memorandum Decision and Order. 7 deadline. She filed her Second Amended Complaint on July 29, 2009. 8 After filing her Second Amended Complaint, the only way Plaintiff 9 could amend her complaint yet again was through a motion requesting 10 established the i.e., deadline within for twenty filing (20) days the Second Amended of filing of the Plaintiff complied with this leave to amend. 11 As to the motion deadline, the Scheduling Order, as amended, 12 designates March 19, 2010, as the deadline for non-dispositive 13 motions and March 26, 2010, as the deadline for dispositive pre- 14 trial motions. 15 December 14, 2009. 16 Order and Rule 16 does not apply. 17 amend is governed by Rule 15, not Rule 16. See AmerisourceBergen 18 Corp., 465 F.3d at 952 (concluding that because the plaintiff 19 filed its motion for leave to amend within the deadline set by the 20 district court Rule 15, not Rule 16, applied). 21 B. Plaintiff filed her motion for leave to amend on Her motion was timely under the Scheduling Plaintiff s motion for leave to Rule 15(a) Factors 22 Certain Rule 15(a) factors are not at issue in this motion. 23 No party suggests that the proposed amendment is sought in bad 24 faith, that Plaintiff unreasonably delayed in bringing this motion, 25 or that granting the proposed amendment would cause undue delay in 26 the proceedings. 27 28 As for prejudice, the most important factor, only Defendant Sabatino explicitly raises an argument about prejudice. 9 Sabatino 1 contends that Plaintiff s amendment would cause prejudice if the 2 discovery deadlines, the motion deadlines, the pretrial conference 3 and the trial date are not extended. 4 1. 5 Prejudice can arise when a proposed amendment contains new 6 allegations that would require additional discovery and cause delay 7 in the proceedings. See, e.g., Coleman v. Quaker Oats Co., 232 F.3d 8 1271, 1295 (9th Cir. 2000) (finding prejudice where granting the 9 request to amend the complaint would likely have required reopening 10 discovery so that [defendant] could develop its evidence to prepare 11 its defenses to this [additional] theory ); Zivkovic v. S. Cal. 12 Edison Co., 302 F.3d 1080, 1087 (9th Cir. 2002) (finding prejudice 13 where the amendment sought would have required further discovery 14 late 15 Solutions, Inc., 194 F.3d 980, 986 (9th Cir. 1999) ( A need to 16 reopen discovery and therefore delay the proceedings supports a 17 district court's finding of prejudice from a delayed motion to 18 amend the complaint. ). 19 in Here, Prejudice the no litigation); party Lockheed disputes that Martin the Corp. addition v. of Network four new 20 defendants would require additional discovery concerning their 21 involvement in this case and would also cause some delay in the 22 proceedings. 23 for leave were granted, the Scheduling Order should be re-opened 24 to allow parties sufficient time to prepare for trial. Plaintiff agrees with Defendants that if the motion 25 Normally, when a proposed pleading amendment would require 26 additional discovery and cause delay in the proceedings, a finding 27 of prejudice is warranted. 28 that the need for additional discovery and delay in the proceedings Here, however, Defendants do not argue 10 1 would cause them any prejudice. Instead, Defendant Sabatino argues 2 that the amendment would cause prejudice if the current discovery 3 deadlines, the deadlines on pre-trial motions, and the pre-trial 4 conference and trial date were not extended. 5 State Defendants suggest that if the motion to amend is granted, 6 these 7 prejudice. 8 faced 9 requesting, but not objecting to, additional discovery and trial deadlines with and dates should be Likewise, the Cal extended to avoid any This is a rare case in which the defendants, when a motion time. On to amend the facts the of complaint, this case, are the actually 10 preparation pleading 11 amendment would not cause prejudice to Defendants. 12 to the four new defendants can be obviated by modifying the current 13 Scheduling Order s deadlines and dates. Any prejudice 14 2. Futility 15 The Cal State Defendants argue that Plaintiff s proposed 16 addition of Belling and Seward as defendants is futile because 17 the entities for whom these individuals allegedly work, Cal State 18 Mortgage and/or Cal State Home Loans, are already named defendants. 19 In turn, these named entity defendants potentially face respondeat 20 superior liability for Belling and Seward s actions. 21 the Cal State Defendants, nothing in the proposed Third Amended 22 Complaint suggests that Belling and Seward were acting in their 23 individual capacities, i.e., in some capacity other than as an 24 employee within the scope of their employment with Cal State 25 Mortgage and/or Cal State Home Loan. 26 argue that there is nothing that Plaintiff can recover from 27 Belling and Seward that she cannot 28 11 According to The Cal State Defendants already recover from the 1 [currently named] Cal State Defendants. 5 2 This argument is not persuasive. Even assuming the currently 3 named Cal State entity defendants face liability, as employers, for 4 Belling and Seward s conduct, the Cal State Defendants fail to 5 explain why it is improper for Plaintiff to sue Belling and Seward 6 individually for their alleged illegal conduct. For example, there 7 is no argument that the federal and state statutes purportedly 8 violated in this case do not give rise to individual liability. 9 Nor could it be argued that Belling and Seward cannot be held 10 individually liable for fraud. 11 agent or employee is always liable for his own torts, whether his 12 employer is liable or not. Shafer v. Berger, Kahn, Shafton, 13 Figler, 14 (internal quotation marks omitted). 15 individual liability for any fraud they committed, even if, at the 16 time of the fraud, they were acting within the course and scope of 17 their employment with any currently named defendant. 18 entitled to seek recourse against each potentially responsible 19 individual party. Simon Gladstone, App. 4th 54, 68 (2003) Belling and Seward face proposed 22 defendant is futile. 23 Plaintiff fails to explain why or how Cal State Growth Fund s 24 purported funding of the predatory loans creates any additional 25 liability 26 additional allegations in the proposed Third Amended Complaint that in this of Cal further State argue Growth that Plaintiff is 21 addition Defendants Cal. The 28 State 107 20 27 Cal & Common law fraud is a tort, and an Fund as Plaintiff s a separate According to the Cal State Defendants, case. The 5 Cal State Defendants overlook The Cal State Defendants make the same argument with respect to McLaurin who allegedly worked for Benjamin Capital. 12 1 link Cal State Growth Fund to the claimed illegality. For example, 2 the Third Amendment Complaint explains that each loan was extended 3 by the Cal State Defendants, including Cal State Growth Fund, as 4 part of an effort to collect excessive and unlawful fees, charges, 5 commission, and interest. (Doc. 64-2 at 12 & n.1.) 6 the 7 defendant 8 commissions (Doc. 64-2 at 25 (emphasis added)) and that Cal State 9 Growth Third Amended Complaint, charged excessive Fund, among other Plaintiff fees, alleges interest, defendants, Elsewhere in that [e]ach charges committed fraud and by 10 misrepresenting . . . that the loans were open lines of credit 11 (Doc. 64-2 at 26). 12 implicating Cal State Growth Fund in the purported illegality. 13 is the Cal State Defendants (not Plaintiff) who have failed to 14 explain why or how Cal State Growth Fund cannot be held liable for 15 its participation in the asserted illegality. In 16 light of In others words, Plaintiff has alleged facts the record and arguments presented, It a 17 consideration of the relevant factors does not overcome Rule 18 15(a) s liberal policy in favor of permitting amendment to include 19 any potentially responsible party. Leave to amend is appropriate. 20 V. 21 For the reasons stated, Plaintiff s motion for leave to file 22 23 CONCLUSION a Third Amended Complaint is GRANTED. 24 Within five (5) days following electronic service of this 25 decision, the parties shall contact the courtroom deputy to set a 26 scheduling conference. 27 IT IS SO ORDERED. 28 Dated: February 26, 2010 /s/ Oliver W. Wanger 13 1 9i274f UNITED STATES DISTRICT JUDGE 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 14
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