Galindo et al v. Financo Financial Inc et al, No. 3:2007cv03991 - Document 116 (N.D. Cal. 2008)

Court Description: ORDER GRANTING IN PART AND DENYING IN PART PLAINTIFFS' MOTION FOR LEAVE TO FILE THIRD AMENDED COMPLAINT by Judge Alsup granting in part and denying in part 98 Motion for Leave to File (whalc1, COURT STAFF) (Filed on 12/9/2008)
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Galindo et al v. Financo Financial Inc et al Doc. 116 1 2 3 4 5 6 IN THE UNITED STATES DISTRICT COURT 7 FOR THE NORTHERN DISTRICT OF CALIFORNIA 8 For the Northern District of California United States District Court 9 10 ROSA GALINDO, MARIA GALINDO, 11 Plaintiffs, 12 13 No. C 07-03991 WHA v. 18 FINANCO FINANCIAL, INC.; PATRICK PATCHIN; AHMED YAMA ASEFI; AAROON SADAT; NAZIA NAWABZADA; COUNTRYWIDE BANK, N.A.; COUNTRYWIDE FINANCIAL CORP.; HOMECOMINGS FINANCIAL NETWORK; COMMONWEALTH LAND TITLE COMPANY; JOSEPH ESQUIVEL; PAMELA SPIKES; and DOES 1-100, 19 Defendants. 14 15 16 17 ORDER GRANTING IN PART AND DENYING IN PART PLAINTIFFS’ MOTION FOR LEAVE TO FILE THIRD AMENDED COMPLAINT / 20 21 INTRODUCTION 22 In this predatory lending action, plaintiffs move for leave to file a third amended 23 complaint. For the reasons stated below, plaintiffs’ motion is GRANTED IN PART AND DENIED 24 25 IN PART. STATEMENT 26 All well-pled allegations in the complaint are taken as true. Plaintiff Rosa Galindo had 27 no formal education and was unable to read. She owned a fourplex investment property and a 28 home in Hayward. In April or May of 2006, Galindo contacted her bank about refinancing the two properties to obtain additional funds to build a new home in Tracy. She then received For the Northern District of California United States District Court 1 several calls from various brokers and agents, including defendant Patrick Patchin who told her 2 that he worked for Financo and could obtain a loan with fixed rates between 1.5% to 2.0% for 3 the first five years. On May 16, Patchin came to Galindo’s house with defendant Joseph 4 Esquivel, a notary, and with the appropriate lending documents for the refinancing. Patchin told 5 Galindo that Esquivel had to leave soon and rushed her into signing the documents without 6 providing her with any copies. Patchin gave no explanation of the fees and charges being 7 assessed and did not inform Galindo that the loan papers stated that Galindo earned $18,000 a 8 month. The loan papers then went into escrow and were closed on May 23. In connection with 9 the refinance, Financo received $18,262 in loan origination fees, $2,630 in administrative and 10 processing fees, and $24,187.59 from the lender, Homecomings, as a “broker fee.” Contrary to 11 Patchin’s assertions, the new loans did not have an initial period of five years at a fixed rate, but 12 were adjustable balloon loans with an initial “teaser” rate of 1.75% which could be adjusted on 13 a monthly basis beginning July 1, 2006, up to a maximum rate of 9.95%. 14 Believing that she had received a favorable loan from Patchin, Galindo introduced 15 Patchin to her daughter, plaintiff Maria Galindo, who resided in a separate property in 16 Hayward. Galindo and her daughter then entered into a separate loan transaction to refinance 17 Maria’s Hayward home. Financo received $6,888 in loan origination fees and $1,300 in 18 administrative and processing fees. Galindo was also forced to pay a prepayment penalty fee 19 for her prior loan. Galindo was not given copies of the loan documents until three weeks after 20 the transaction. 21 In a separate incident, Galindo was directed by Patchin to a property for sale in 22 Petaluma. Galindo then transferred $150,000 to Patchin for the purchase. Patchin informed 23 Galindo, however, that the property was no longer available and instead had Galindo sign 24 papers to purchase an alleged forty-acre parcel in Colusa. That parcel never existed. 25 Defendants Aaroon Sadat and Shuieb “Sam” Fakiri are officers or agents of Financo. 26 They are alleged to have undercapitalized Financo and commingled its assets with their own. 27 Plaintiffs filed the instant action in state court on June 29, 2007, and it was removed on 28 August 2, 2007. A second amended complaint was filed on November 1, 2007. In an October 2 1 3, 2008 order, plaintiffs’ negligence claim and claims under TILA, RESPA, civil conspiracy, 2 and Civil Code Section 1632 were dismissed. The October 3 order stated that plaintiffs may 3 move for leave to amend by October 23, 2008 and the motion must explain why the problems 4 with the dismissed claims are overcome by the proposed pleading. The case management order 5 provided that leave to add any new parties or pleading amendments must be sought by October 6 30, 2008. Plaintiffs filed a motion for leave to amend on October 23, 2008. For the Northern District of California United States District Court 7 ANALYSIS 8 1. 9 Because the motion for leave to amend was filed prior to the deadline set in the case LEGAL STANDARD. 10 management order the Rule 15 standard applies. Leave to amend a complaint “shall be freely 11 given when justice so requires” under Rule 15(a). This standard is applied liberally. “In the 12 absence of any apparent or declared reason — such as undue delay, bad faith, or dilatory motive 13 on the part of the movant, repeated failures to cure deficiencies by amendments previously 14 allowed, undue prejudice to the opposing party by virtue of allowance of the amendment, etc. 15 — the leave sought should, as the rules require, be ‘freely given.’” Foman v. Davis, 371 U.S. 16 178, 182 (1962). “Leave to amend need not be granted when an amendment would be futile.” 17 In re Vantive Corp. Sec. Litig., 283 F.3d 1079, 1097 (9th Cir. 2002). 18 2. 19 “The Truth-in-Lending Act specifically exempts from its scope extensions of credit for TILA CLAIM. 20 business or commercial purposes.” Poe v. First Nat. Bank of DeKalb County, 597 F.2d 895, 21 896 (5th Cir 1979), citing 15 U.S.C. 1603(1) and 12 C.F.R. 226.3(a). A. Consumer vs. Personal Loan. 22 Homecomings argues that it would be futile to allow Galindo to amend her TILA and 23 24 RESPA claims. A district court does not abuse its discretion in denying leave to amend where 25 amendment would be “futile.” Flowers v. First Hawaiian Bank, 295 F.3d 966, 976 (9th Cir. 26 2002). 27 Homecomings contends that Galindo’s third amended complaint still does not 28 adequately allege the loan was for consumer purposes under TILA. Galindo’s TILA claim in 3 1 her second amended complaint was dismissed because she did not allege whether the loan was 2 for business or personal purposes. The October 3 order to dismiss concluded that “[w]ithout 3 any such allegations detailing the purposes of the loan, Galindo has stated no claim.” In 4 response to defendants’ motion to dismiss, Galindo conceded that there was no way to tell the 5 purpose of the loan. Thus, Galindo’s TILA claim was dismissed. Galindo has amended her 6 complaint in an effort to cure this defect and she has alleged: 7 8 The Lender Defendants made loans to Plaintiffs for consumer purposes. Plaintiff Rosa Galindo obtained mortgage refinancing loans on the Shepherd and Manon properties for the purpose of purchasing property on which she could build a home to live in. 9 Homecomings contends that these two sentences do not satisfy Galindo’s burden. 10 the loans for consumer purposes. Even if true, the lenders’ motivation is not relevant. The For the Northern District of California United States District Court The first sentence of Galindo’s third amended complaint alleges that the lenders made 11 12 relevant inquiry focuses on the borrower’s purpose rather than the lenders’ purpose. See Bloom 13 v. I.C. Sys., Inc., 972 F.2d 1067, 1068 (9th Cir. 1992) (“The fact that . . . the lender may have 14 loaned the money for personal reasons does not make it a personal loan”). 15 The second sentence of Galindo’s amendment alleges she obtained the loan “for the 16 purpose of purchasing property on which she could build a home to live in.” Homecomings 17 argues that Galindo merely alleges that she obtained the loan so she “could” build a home rather 18 than because she “actually did” build a home. Homecomings cites to summary judgment cases 19 to support its proposition that Galindo must allege and show that the overall purpose of the 20 transaction was for personal purposes. See Gombosi v. Carteret Mortg. Corp., 894 F. Supp. 176 21 (E.D. Penn. 1995) (granting summary judgment because TILA did not apply to loan for 22 business purposes); Quinn v. A.I. Credit Corp., 615 F. Supp. 151 (E.D. Penn. 1985) (granting 23 summary judgment because TILA did not apply to loan for business purposes). The cited 24 summary judgment cases, however, do not hold that a plaintiff must plead facts beyond those 25 required for notice pleading to allege a consumer purpose for a TILA claim. Galindo has 26 alleged that she obtained the loan to buy property to build a home, a purpose which is sufficient 27 to allege a consumer purpose. The parties may later establish a record that proves otherwise, 28 but Galindo’s allegation is sufficient for notice pleading under Rule 8(a). See In re Currency 4 1 Conversion Fee Antitrust Litig., 265 F. Supp. 2d 385, 423 (S.D.N.Y. 2003) (concluding that 2 “claims for a violation of TILA are not subject to a heightened pleading standard, and thus the 3 specificity that defendants argue is lacking is not required”). 4 For the Northern District of California United States District Court 5 B. Recission. TILA provides borrowers two remedies for disclosure violations: (1) rescission, 15 6 U.S.C. 1635; and (2) damages, 15 U.S.C. 1640. Defendants argue that Galindo’s TILA claim is 7 futile because Galindo is not entitled to rescission. Defendants assert that Galindo cannot 8 rescind because she has refinanced her loans. Defendants acknowledge that Galindo has not 9 pled these facts. In support, defendants cite two deeds of trust.1 Galindo does not dispute that 10 she refinanced. While the Ninth Circuit has held that a borrower cannot rescind a loan under 11 TILA when the borrower has refinanced the loan, Galindo is not foreclosed from obtaining a 12 remedy. King v. California, 784 F.2d 910, 913 (9th Cir. 1986) (finding that a refinanced loan 13 “cannot be rescinded, because there is nothing to rescind”). Galindo may still possibly recover 14 statutory and actual damages. 15 U.S.C. 1640. Thus, a remedy is still available for Galindo 15 under her TILA claim. Accordingly, denial of plaintiff’s motion to amend her TILA claim is 16 unwarranted on this basis. Plaintiff’s motion for leave to amend her TILA claim is GRANTED. 17 3. 18 Like TILA, RESPA “does not apply to credit transactions involving extensions of 19 credit . . . primarily for business, commercial, or agricultural purposes . . . .” 12 U.S.C. 2606(a). 20 The same standard used under TILA to determine whether a loan was primarily for business 21 purposes is used for the inquiry under RESPA. See 12 U.S.C. 2606(b). Accordingly, for the 22 same reasons set forth above, plaintiff’s motion for leave to amend her RESPA claim is 23 GRANTED. RESPA CLAIM. 24 25 26 27 28 1 Homecomings requests judicial notice of two deeds of trust obtained from the Alameda County Recorder’s Office. Galindo does not dispute the content of the deeds of trust. While materials outside the complaint are generally not considered, a court may take judicial notice of matters of public record. Lee v. City of Los Angeles, 250 F.3d 668, 689 (9th Cir. 2001) (citation omitted). 5 For the Northern District of California United States District Court 1 4. CIVIL CODE SECTION 1632 CLAIM. 2 Homecomings also alleges that the addition of Homecomings as a defendant in her Civil 3 Code Section 1632 claim is prejudicial and rescission is not allowed. As noted in the October 3 4 order, Galindo admitted that she had not adequately alleged a violation of Section 1632 in her 5 second amended complaint. In her second amended complaint, Galindo alleged that the 6 “Broker Defendants failed to provide any disclosures in the Spanish language” and that “said 7 Defendants must allow plaintiffs to rescind such loans.” Galindo has amended her allegation to 8 state that “the Lender Defendants [i.e., Homecomings] must allow Plaintiffs to rescind such 9 loans.” As discussed above, because Galindo has refinanced the loans, there is nothing to 10 rescind. Because this amendment would be futile, there is no need to address whether the 11 amendment would also be prejudicial. Plaintiff’s request for leave to amend her Civil Code 12 Section 1632 claim is DENIED, and thus her Section 1632 claim is DISMISSED. 13 5. SCOPE OF ORDER GRANTING DISMISSAL. 14 Defendants Financo contend that plaintiffs’ motion for leave to amend should be denied 15 because plaintiffs’ amendments are beyond the scope of the earlier order granting defendants’ 16 Rule 12(b)(6) motions. Plaintiffs were not limited to seeking leave to amend based on the scope 17 of the issues addressed in the motions to dismiss. The order granting defendants’ motion to 18 dismiss stated (Dkt 83): 19 20 21 Many of the cited troubles with the second amended complaint may be cured. Plaintiffs may move by October 23, 2008 for leave to amend. Any such motion should be accompanied by a proposed pleading and the motion should explain why the foregoing problems are overcome by the proposed pleading. Plaintiffs must plead her best case. Failing such a motion, all inadequately pled claims will be dismissed with prejudice. 22 The order did not preclude plaintiffs from seeking leave for amendments regarding issues not 23 subject to the motions to dismiss. While the order provided that plaintiffs must cure the 24 inadequately pled claims subject to dismissal by October 23, the case management order further 25 provided that plaintiffs may seek “leave to add any new parties or pleading amendments” by 26 October 30. Thus, the case management order more broadly permits the parties to seek leave to 27 amend. Plaintiffs moved for leave to amend on October 23, and therefore their motion falls 28 6 For the Northern District of California United States District Court 1 within the aforementioned deadlines. Accordingly, denial of plaintiffs’ motion for leave to 2 amend on this basis is unwarranted. DISMISSAL OF DEFENDANTS ASEFI AND SADAT. 3 6. 4 In their third amended complaint, plaintiffs deleted all allegations against defendants 5 Asefi and Sadat in the fifth, sixth, seventh causes of action for fraud, eighth cause of action for 6 breach of contract, and twelfth and thirteenth causes of action for discrimination. Plaintiffs 7 assert, however, that defendant Sadat may still be liable for these claims based on an alter-ego 8 theory, because these claims are asserted against Financo. Plaintiffs concede that where a 9 defendant is no longer charged with a cause of action defendant is effectively dismissed from 10 that cause of action. As Asefi is no longer charged, the fifth, sixth, seventh, eighth, twelfth and 11 thirteenth causes of action against defendant Asefi are DISMISSED. 12 7. AMENDMENT TO ADD DEFENDANT FAKIRI. 13 Plaintiffs seek to add Shuieb Fakiri as a defendant. Defendants do not oppose this 14 amendment. Accordingly, in the absence of any apparent or declared reason for denial, 15 plaintiffs’ motion for leave to amend to add Fakiri as a defendant is GRANTED. 16 17 CONCLUSION For the foregoing reasons, plaintiffs’ motion for leave to amend is GRANTED IN PART 18 AND DENIED IN PART. 19 pleading. An answer to the surviving claims must be filed by December 31, 2008. There will 20 be no further Rule 12 practice directed at the pleading. As modified above, the pleading is allowed and shall be the operative 21 22 IT IS SO ORDERED. 23 Dated: December 9, 2008. WILLIAM ALSUP UNITED STATES DISTRICT JUDGE 24 25 26 27 28 7