Attorneys for Plaintiffs ANTONIO AND INES OCEGUEDA, JORGE OREJEL AND GRICELDA GARCIA AND JUDY JONES, and all others similarly situated

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1 KYRA KAZANTZIS (STATE BAR NO. ) kyrak@lawfoundation.org JAMES F. ZAHRADKA II (STATE BAR NO. ) jamesz@lawfoundation.org ANNETTE D. KIRKHAM (STATE BAR NO. ) annettek@lawfoundation.org KATHERINE LEHE (STATE BAR NO. ) katherine.lehe@lawfoundation.org Fair Housing Law Project and Public Interest Law Firm, programs of LAW FOUNDATION OF SILICON VALLEY N. Third Street, rd Floor San Jose, CA Telephone: (0) 0-0 Facsimile: (0) -0 E-FILED Dec, : PM David H. Yamasaki Chief Executive Officer/Clerk Superior Court of CA, County of Santa Clara Case #--CV- Filing #G- By M. Huerta, Deputy Attorneys for Plaintiffs ANTONIO AND INES OCEGUEDA, JORGE OREJEL AND GRICELDA GARCIA AND JUDY JONES, and all others similarly situated Additional counsel on Page SUPERIOR COURT OF THE STATE OF CALIFORNIA ANTONIO OCEGUEDA, an individual, INES OCEGUEDA, an individual, JORGE OREJEL, an individual, GRICELDA GARCIA, an individual, and JUDY JONES, an individual, on behalf of themselves and all others similarly situated, Plaintiffs, v. KEN NATHANSON, an individual, NATHANSON LAW CENTER, a California Professional Corporation, SHERMAN & NATHANSON, P.C., a California Professional Corporation, ADEEL AMIN, an individual, AMERICAN BROTHER CORPORATION INC., a Delinquent Colorado Corporation d/b/a REWIREMYLOAN.COM, GALLANT GROUP LTD., a California corporation d/b/a REWIREMYLOAN.COM, ERIC DEBLASI, an individual, TROY HOLLAND, an individual, TMG FINANCIAL SERVICES, INC., a California Corporation, and DOES THROUGH 0, inclusive, Defendants. COUNTY OF SANTA CLARA CASE NO. --CV- PLAINTIFFS SUPPLEMENTAL APPLICATION FOR AND MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF DEFAULT JUDGMENT AGAINST DEFENDANTS AMERICAN BROTHER CORPORATION INC., GALLANT GROUP LTD., TROY HOLLAND, AND TMG FINANCIAL SERVICES, INC. Date: February, Time: :00 a.m. Dept.: (Complex Civil Litigation) Judge: Hon. James P. Kleinberg CASE NO.: --CV-

2 E-FILED: Dec, : PM, Superior Court of CA, County of Santa Clara, Case #--CV- Filing #G- ELIZABETH A. HOWARD (STATE BAR NO. ) ehoward@orrick.com SIDDHARTHA M. VENKATESAN (STATE BAR NO. 00) svenkatesan@orrick.com JACOB M. HEATH (STATE BAR NO. ) jheath@orrick.com CAM PHAN (STATE BAR NO. ) cphan@orrick.com JAMES FREEDMAN (STATE BAR NO. ) jfreedman@orrick.com ORRICK, HERRINGTON & SUTCLIFFE LLP 00 Marsh Road Menlo Park, CA 0 Telephone: (0) -00 Facsimile: (0) -0 LINDA H. MULLENBACH (admitted pro hac vice) lmullenbach@lawyerscommittee.org ALEJANDRO T. REYES (admitted pro hac vice) areyes@lawyerscommittee.org LAWYERS COMMITTEE FOR CIVIL RIGHTS UNDER LAW 0 New York Avenue NW, Suite 00 Washington D.C. 00 Telephone: () -00 Facsimile: () CASE NO.: --CV-

3 E-FILED: Dec, : PM, Superior Court of CA, County of Santa Clara, Case #--CV- Filing #G- TABLE OF CONTENTS Page No. APPLICATION... I. INTRODUCTION... II. PROCEDURAL HISTORY... A. Defendants Holland, TMG, ABC, And Gallant Group Are In Default... B. Default Judgment Is Proper... III. PLAINTIFFS EVIDENCE SUPPORTING DEFAULT JUDGMENT... A. Rewire Was The Public Face Of Gallant Group And ABC... B. The Rewire Defendants Marketing Of Their Loan Modification Services... C. Rewire Employed A Network Of Affiliates, Agents, And Brokers To Solicit Homeowners... D. Rewire s Intake Process.... The Attorney-Client Agreement.... The Rewire Corporate Guaranty.... Rewire Targeted Non-English-Speaking Victims... E. The Defendants Did Not Provide The Promised Loan Modification Services... F. Rewire Did Not And Never Intended To Provide The Guaranteed Refunds... G. The Rewire Defendants Profited From This Scheme... IV. LEGAL STANDARD FOR ENTRY OF DEFAULT JUDGMENT... V. THE COURT SHOULD ENTER DEFAULT JUDGMENT AND AWARD PLAINTIFFS THEIR REQUESTED RELIEF... A. Rewire Breached The Corporate Guaranty.... Rewire Entered Into Corporate Guarantees With Plaintiffs.... Plaintiffs Performed Under The Attorney-Client Agreements.... Rewire Breached Their Corporate Guaranty.... Rewire s Breach Damaged Plaintiffs... B. The Defaulting Defendants Engaged In Unfair Competition.... Failure To Provide Spanish-Speaking Homeowners With Spanish Translations Constitutes Unfair Competition.... The Rewire Defendants Deceptive Provision Of The Corporate Guarantees to Homeowners Constitutes Unfair Competition.... The Rewire Defendants False Advertising Constitutes Unfair Competition... C. The Defaulting Defendants Engaged In Fraud... VI. REMEDIES... A. Plaintiffs Are Entitled To Compensatory Damages... B. Plaintiffs Are Entitled To Punitive Damages... - i - PLAINTIFFS APPLICATION FOR DEFAULT JUDGMENT CASE NO.: --CV-

4 E-FILED: Dec, : PM, Superior Court of CA, County of Santa Clara, Case #--CV- Filing #G- C. Plaintiffs Are Entitled To Attorneys Fees and Costs... VII. CONCLUSION... - ii - CASE NO.: --CV-

5 E-FILED: Dec, : PM, Superior Court of CA, County of Santa Clara, Case #--CV- Filing #G- Cases TABLE OF AUTHORITIES Page(s) Adams Mfg. & Eng g Co. v. Coast Centerless Grinding Co., Cal. App. d (0)... Beckwith v. Dahl, Cal. App. th ()... Blakemore v. Super. Ct., Cal. App. th (0)... Davidov Co. v. Issod, Cal. Rptr. d (00)... Engalla v. Permanente Med. Grp., Inc., Cal. th ()... Folsom v. Butte County Ass n of Gov ts, Cal. d ()... Hewlett v. Squaw Valley Ski Corp., Cal. App. th ()... Jackson v. Bank of America, Cal. App. d ()... Johnson v. Stanhiser, Cal. App. th ()... Korea Supply Co. v. Lockheed Martin Corp., Cal. th (0)... Las Palmas Assocs. v. Las Palmas Center Assocs., Cal. App. d ()... Metro-Goldwyn-Mayer, Inc. v. Lee, Cal. App. d ()... Neal v. Farmers Ins. Exchange, Cal. d ()... Occidental Land v. Super. Ct., Cal. d ()... Plott v. York, Cal. App. d 0 ()... - i - PLAINTIFFS APPLICATION FOR DEFAULT JUDGMENT CASE NO.: --CV-

6 E-FILED: Dec, : PM, Superior Court of CA, County of Santa Clara, Case #--CV- Filing #G- Podolsky v. First Healthcare Corp, 0 Cal. App. th ()... Reichert v. Gen. Ins. Co., Cal. ()... State Farm Mut. Automobile Ins. Co. v. Campbell, U.S. 0 (0)... Tenzer v. Superscope, Cal. d ()... Wilner v. Sunset Life Ins., Cal. App. th (00)... Statutes Cal. Bus. & Prof. Code 0...,,,, Cal. Civ. Code (a)()-()... Cal. Civ. Code (b)()... Cal. Civ. Code 0... Cal. Civ. Code sections, et seq... Cal. Civ. Code..., Cal. Civ. Code Cal. Civil Code (b), (a)-(b)... Cal. Code of Civ. Proc. (b)... Cal. Code of Civ. Proc. (d)... California Civil Code section... California Code of Civ. Proc.... California Code of Civ. Proc.... Code of Civil Procedure Section... Code of Civil Procedure Section... Other Authorities Cal. Rule of Ct Local Civil Rule... - ii - CASE NO.: --CV-

7 E-FILED: Dec, : PM, Superior Court of CA, County of Santa Clara, Case #--CV- Filing #G- APPLICATION Plaintiffs Antonio and Ines Ocegueda, Jorge Orejel, Gricelda Garcia, Judy Jones, and all others similarly situated ( Plaintiffs or Class Members ) respectfully seek entry of default judgment and an award of compensatory and punitive damages, attorneys fees, and costs against Defendants American Brother Corporation, Inc. ( ABC ), Gallant Group, Ltd. ( Gallant Group ), Troy Holland ( Holland ), and TMG Financial Services, Inc. ( TMG ) (collectively the Defaulting Defendants ). Plaintiffs have served the Defaulting Defendants, who failed to answer or otherwise respond to Plaintiffs First Amended Complaint ( FAC ). The Clerk of the Court entered default against all Defaulting Defendants as of October,. I. INTRODUCTION MEMORANDUM OF POINTS AND AUTHORITIES This lawsuit arises from the Rewire loan modification scheme Defendants Adeel Amin, Eric DeBlasi, and the Defaulting Defendants (collectively the Rewire Defendants ) developed and operated. The Rewire Defendants implemented this scheme by: () using Defendants Holland and TMG to solicit homeowners through a statewide network of real estate agents and brokers; () touting the litigation services of Defendant Ken Nathanson and affiliated firms (collectively the Nathanson Defendants ) to distinguish Rewire from other loan modification providers; () promising a money-back guarantee if Mr. Nathanson s services did not result in a loan modification; and () targeting non-english-speaking homeowners by providing contracts only in English. When Mr. Nathanson did not provide the promised loan modification services or obtain the promised results, the Rewire Defendants failed to honor their money-back guarantees, which they had never intended to honor. The Rewire Defendants defrauded 0 homeowners including Plaintiffs out of more than $00,000. As none of the Defaulting Defendants have appeared, the Court should enter default judgment against the Defaulting Defendants and grant Plaintiffs their requested relief. II. PROCEDURAL HISTORY Plaintiffs filed this lawsuit on June, alleging causes of action including breach of contract and unfair competition against among others Defendants Amin and ABC, d/b/a - - CASE NO.: --CV-

8 E-FILED: Dec, : PM, Superior Court of CA, County of Santa Clara, Case #--CV- Filing #G- Rewiremyloan.com, on behalf of a class of homeowners who entered contracts with Rewire for loan modification services, paid upfront fees for those services, and received neither the services nor the refunds promised, and also a subclass of non-english-speaking homeowners (the Subclass ). (Dkt. No. -, -, -; see also FAC -.) On April,, Plaintiffs filed their FAC adding a fraud claim and Defendants Gallant Group, DeBlasi, Holland, and TMG. A. Defendants Holland, TMG, ABC, And Gallant Group Are In Default On August,, Plaintiffs served the FAC and Statement of Damages on Defendants Holland and TMG. (Heath Decl., Exs. -.) The Court entered default against Holland and TMG on September, after they failed to respond. (Id., Ex..) On April 0 and August,, Plaintiffs served ABC with their FAC and Statement of Damages, respectively. (Id., Ex..) As a suspended corporation, ABC could not and did not answer the FAC. (Id., Ex..) On October,, the Court entered default against ABC. (Id., Ex. 0.) On October,, counsel for Defendant Amin sent a letter to the Court claiming that ABC was in good standing and enclosing a proposed answer. (Dkt. No..) In the two months since, ABC neither filed the answer nor moved to set aside default. (Heath Decl..) On August,, Plaintiffs served Gallant Group with the FAC and Statement of Damages. (Id., Ex..) As a suspended corporation, Gallant Group could not and did not file an answer. (Id., Ex..) On October,, the Court entered default against Gallant Group. (Id., Ex..) B. Default Judgment Is Proper The Court has jurisdiction over the Defaulting Defendants as they operated Rewire, solicited homeowners, and engaged in the unlawful conduct all in Santa Clara County. (FAC, -, -, -.) None of the Defaulting Defendants are active members of the armed forces. (Heath Decl..) To date, only Defendant Amin has answered the FAC. (Dkt. No. ( General Denial to FAC ).) Defendant Amin s answer only alleges that () the FAC is defective with respect to class certification and () [i]f anything wrong was done it was by someone other than Adeel Amin. Id. Defendant Amin s defenses, however, are personal and do not exonerate - - CASE NO.: --CV-

9 E-FILED: Dec, : PM, Superior Court of CA, County of Santa Clara, Case #--CV- Filing #G- the other Rewire Defendants even if true. Accordingly, default judgment against the Defaulting Defendants is proper. California Code of Civ. Proc. ; and Cal. Rule of Ct..00; Adams Mfg. & Eng g Co. v. Coast Centerless Grinding Co., Cal. App. d, - (0); Plott v. York, Cal. App. d 0, - (). III. PLAINTIFFS EVIDENCE SUPPORTING DEFAULT JUDGMENT A. Rewire Was The Public Face Of Gallant Group And ABC Defendants Amin and DeBlasi launched Rewire in January 0 as a cash on cash division of the Gallant Group business venture. (FAC ; Declaration of Jacob M. Heath in Support of Plaintiffs Application for Default Judgment ( Heath Decl. ), Ex. at RM-000.) Gallant Group is a California Corporation registered by Defendant Amin. (See Heath Decl., Exs. -.) In a business plan that Defendants Amin and DeBlasi provided to Randal Moos (an early participant in Gallant Group), they defined a cash on cash business as: [A] venture that largely deals with cash related services sold in exchange for cash. Such services can include debt negotiation; cash advance services on payday and merchant account as well as brokerage services for mortgages. (Id. at Ex. at RM-000 (emphasis added).) Rewire was the first of several cash on cash businesses Gallant Group launched, quickly turning a profit at the Plaintiff class expense. (Id.) Defendants Amin and DeBlasi operated Rewire as an extension of Gallant Group and ABC as: () Gallant Group advertised Rewire as its business division on its websites (id., Ex., ); () Defendant Amin registered ABC as doing business in California as Rewire (id., Exs., ); () the Rewire websites were registered to Gallant Group (id., Ex. ; Ex. at REWIRE000) () Rewire used the same business address as Gallant Group (compare id., Ex. with Ex. ); () Rewire managed its finances using Gallant Group s and ABC s bank accounts (Heath Decl., Ex., Deposition of Inga Rymal ( Rymal Depo. Tr. ) at :-:); () Rewire deposited more than $00,000 in fees into Gallant Group s and ABC s bank accounts between August and September of 0 (Heath Decl., Ex., Declaration of Ken Nathanson ( Nathanson Decl. ) and Exhibit A); and () Rewire paid its employees with funds from an ABC bank account (Rymal Depo. Tr. at :-:). In sum, Rewire was an alter ego of Gallant Group and ABC. - - CASE NO.: --CV-

10 E-FILED: Dec, : PM, Superior Court of CA, County of Santa Clara, Case #--CV- Filing #G- B. The Rewire Defendants Marketing Of Their Loan Modification Services Consistent with its cash on cash business model, Gallant Group advertised that Rewire would obtain loan modifications by () auditing loan documents to identify lender errors and then () suing the lenders for violating real estate laws, in exchange for an upfront fee: RewireMyLoan.com ( is a marketing firm for attorney services on loan modifications... [O]ur approach audits physical note structures to ensure that lenders are in compliance and did not violate any laws in offering the loan (in virtually % off [sic] the cases, the lenders are not in compliance). (Heath Decl., Ex. at RM-000.) Rewire partnered with attorneys who would purportedly litigate against lenders, forcing those lenders to provide loan modifications. (Id. at Exs. - ; FAC ; Declaration of Judy Jones in Support of Plaintiffs Motion for Default Judgment ( Jones Decl. ).) Indeed, Rewire highlighted its close relationship with the Nathanson Defendants by referencing them on its website and repeatedly stating that they were AAA rated by the Better Business Bureau and that their clients were 0-percent satisfied. (FAC ; Heath Decl., Exs., and ; Aldana Depo. Tr. :-.) Critically, Rewire advertised its services as free : We are not a loan modification company. We do not beg and plead for the lender to change your home loan and hope they oblige and we encourage that you don t either. This approach doesn t work. Instead we partner you with top real estate attorneys with successful track records and lengthy resumes. We monitor their progress, keep tabs on their customer service and ensure that they re getting the most aggressive deals. We let THEM audit your loan to find out how it may be 0% unenforceable. That means the lender can t collect payments, can t accept your payments, and not even foreclose on the home! Now that s a service I d pay for but you don t have to. We ll do it for free! [formatting and capitalization in original, bold added.] (FAC -; see e.g. Heath Decl., Ex..) Rewire also claimed that it could obtain 0-0% principal and interest rate reductions with a percent success rate. (Heath Decl., Ex. at ALDANA0000; see also id., Ex. at REWIRE000.) Rewire s marketing documents contained several purported testimonials and claimed that Rewire was featured on Fox News, CNBC, ABC, and Forbes. (Id. at Ex. at RM-00.) Plaintiffs have not discovered any evidence that these testimonials or features ever really occurred. (Heath Decl..) - - CASE NO.: --CV-

11 E-FILED: Dec, : PM, Superior Court of CA, County of Santa Clara, Case #--CV- Filing #G- Rewire made these false representations through a variety of media, including on television (e.g., on KSBY in Santa Barbara and San Luis Obispo), in a blog, and on the radio. (Rymal Depo. Tr. :-:; Heath Decl., Ex..) Rewire advertised in English, Spanish, and a variety of other languages. (Heath Decl., Exs. -.) Rewire also made such representations directly to certain individuals. (Id., Ex. at REWIRE000.) C. Rewire Employed A Network Of Affiliates, Agents, And Brokers To Solicit Homeowners Rewire developed a statewide referral network of Net Branches and local real estate agents and brokers ( referring agents ) to create a dominant position in the market by aggressively selling and promoting services offered by Gallant Group. (Heath Decl., Ex., RM-00 (emphasis added).) Rewire paid its Net Branches a referral fee from its gross profit from each homeowner s upfront fee. (Id. at RM-000.) Defendants Holland and TMG were the first to enter into a Net Branch Agreement with Gallant Group on January, 0, eventually soliciting more than 0 homeowners. (Heath Decl. ; Ex. ; Ex. 0 at REWIRE000.) Rewire also employed at least - referring agents to identify vulnerable homeowners and to advertise Rewire s services. (FAC 0; Heath Decl., Ex., Patricia Torres Lowe Deposition Transcript ( Lowe Depo. Tr. ) at :-; Heath Decl., Ex..) Robert Aldana, for example, a San Jose-based real estate agent, advertised Rewire s services on his Spanishlanguage radio show, targeting non-english speaking homeowners. (FAC ; Heath Decl., Ex. ; Robert Aldana Deposition Transcript ( Aldana Depo. Tr. ) at :-,:-.) Rewire paid its agents referral fees taken from each homeowner s upfront payment. (FAC,, - 0, ; Heath Decl., Ex. at REWIRE000.) Defendant Holland acted as Director of Training in recruiting Net Branches and referring agents, to make sure that Rewire s loan modification promises and money back guarantee were disseminated through them. (See Aldana Depo. Tr. :-:, :-, :-, Exs., ; Heath Decl., Ex. at REWIRE00000 and Ex. at REWIRE0000-.) Defendant Holland, for example, gave a presentation at Mr. Aldana s San Jose office to a group of - realtors, advertising Rewire s services, and touting Amin s business successes. (Aldana - - CASE NO.: --CV-

12 E-FILED: Dec, : PM, Superior Court of CA, County of Santa Clara, Case #--CV- Filing #G- Depo Tr. :-:; ::; :-:.) Amin himself made similar representations to Mr. Aldana, explaining how Rewire would process client files (id. at :-; :-, :-, :-). Relying on and reiterating Defendants Holland s and Amin s statements, Mr. Aldana and his group of referring agents directed more than 0 clients to Rewire. (Heath Decl..) In total, Rewire received more than homeowner referrals between January and October 0 and collected more than $. million in upfront fees. (Heath Decl. -). D. Rewire s Intake Process As part of its intake process, Rewire purportedly prequalified homeowners for its services. (Lowe Depo. Tr. :-:.) In reality, the prequalification process was a sham as no homeowners were ever declined. (Id.) Rewire had homeowners sign two form contracts for loan modification services.. The Attorney-Client Agreement Rewire had homeowners first sign an Attorney-Client Agreement with the Nathanson Defendants. (FAC Exs. A, C, E.) These Agreements were each pre-signed by Mr. Nathanson, and all versions of the Agreements promised that Mr. Nathanson would contact and negotiate with the homeowners lenders, provide [homeowners] with options on modifying [their] current loan and obtain the best possible rate and term reduction. (Id.) In some versions of the Attorney-Client Agreements, the Nathanson Defendants also explicitly agreed to provide homeowners with a refund of between $, and $,. (FAC, Ex. E).. The Rewire Corporate Guaranty Rewire also had homeowners sign a Corporate Guaranty with Rewire as a material inducement for homeowners to enter into the Attorney-Client Agreement with Sherman & Nathanson. (FAC, Exs. B, D, F-G) (emphasis added). Specifically, Rewire promised to irrevocably guarantee [] the refund if Sherman & Nathanson failed to provide services S&N promises to perform. (FAC Ex. B). Another version of the Corporate Guaranty used slightly different language but also guarantee[d] the refund if Sherman & Nathanson failed to obtain more favorable loan terms. (FAC Ex. F.) - - CASE NO.: --CV-

13 E-FILED: Dec, : PM, Superior Court of CA, County of Santa Clara, Case #--CV- Filing #G- Per the Corporate Guaranty, if Mr. Nathanson failed to contact and negotiate with lenders and provide homeowners with options on modifying [their] current loan, Rewire promised a refund. The Rewire Defendants also instructed their referring agents to tell homeowners that even Attorney-Client Agreements that did not contain an explicit money-back guarantee provision were supposed to be overwritten by the corporate guarantee. (Lowe Depo. Tr. ::; :- ( if [Nathanson] didn t get it done, then we would get the [homeowners ] money back [as promised] with a corporate guarantee. (Lowe Depo. Tr. :-; see also Heath Decl., Ex. at REWIRE00000.) Rewire s intake process was so deceptive that even Mr. Nathanson admitted that [t]he way things were set up when this guy was taken in was not good, with the false misrepresentations by the intake people, the corporate guaranty from Rewire, etc. (Heath Decl., Ex. at REWIRE000 (emphasis added).) When Defendant Holland asked Mr. Nathanson to enlighten him on what these misrepresentations were, Mr. Nathanson stated: I am aware of the statements made to borrowers about my services, principal reductions and interest rate deduction. Hopefully, this has now ceased. (Id.). Rewire Targeted Non-English-Speaking Victims The Rewire Defendants, on their websites and through their Net Branches and referring agents, targeted non-english speakers, including a large number of Spanish-speaking homeowners through Mr. Aldana s radio program. (FAC ; Aldana Depo. Tr. :-; Heath Decl., Ex..) Mr. Aldana and another referring agent, Patricia Torres Lowe, broadcast Rewire s promises to their Spanish-speaking audience nearly verbatim. (Aldana Depo. Tr. :-, :-, :-:; Declaration of Inez Ocegueda ( I. Ocegueda Decl. ) ; Declaration of Antonio Ocegueda ( A. Ocegueda Decl. ) ; Declaration of Jorge Orejel ( Orejel Decl. ) - ; Declaration of Gricelda Garcia ( G. Garcia Decl. ) -.) The Rewire message was also disseminated through Mr. Aldana s multiple Spanishlanguage workshops attended by 0-0 homeowners at a time. (Aldana Depo. Tr. :-, :-0:, :-.) Recognizing the large number of Spanish-speaking clients that would be entering into the Attorney-Client Agreements, Mr. Nathanson translated the Attorney-Client - - CASE NO.: --CV-

14 E-FILED: Dec, : PM, Superior Court of CA, County of Santa Clara, Case #--CV- Filing #G- Agreement into Spanish and sent it to Defendant Amin. (Heath Decl., Ex. at KN/NLC000; Ex. at REWIRE000.) The Rewire Defendants, however, never provided homeowners with this or any other non-english translation of the Attorney-Client Agreement or Rewire s Corporate Guarantees. (FAC ; Lowe Depo. Tr. :-, 0:-, :-, :-:; A. Ocegueda Decl. -; I. Ocegueda Decl. -; Orejel Decl. ; Garcia Decl.,.) Without translations of the contracts, Rewire s non-english speaking clients had to rely on Rewire s and its agents oral representations. These clients, moreover, were provided with only limited opportunities for review and no room for negotiation. (FAC and ; Lowe Depo. Tr. :- and :-; I. Ocegueda Decl. ; A. Ocegueda Decl. ; Orejel Decl..) E. The Defendants Did Not Provide The Promised Loan Modification Services Defendants did not provide the promised loan modification services. (FAC ; Heath Decl. Ex. at REWIRE000, Ex. at REWIRE00.) By August 0, over 0 [homeowners accounts] sat with little to no activity on them for months. (Heath Decl. Ex. at REWIRE000; Ex. at REWIRE000; Ex. at REWIRE000; Ex. at REWIRE; Ex. 0 at REWIRE0000.) The Rewire Defendants were inundated with complaints telephonically, over , and via calls to Mr. Aldana s radio show. (Lowe Depo. Tr. :-; Aldana Depo. Tr. :-.) Rewire did nothing with many homeowners files and generally ignored their requests for information. (A. Ocegueda Decl. -; Orejel Decl. -; Jones Decl. -; see also Heath Decl., Ex. at REWIRE000 and Ex. at REWIRE00.) Even when homeowners did hear back from Rewire, they were simply told to re-submit their loan modification documents. (Jones Decl. ). One elderly couple was told to resubmit the same documents at least four times. (Lowe Depo. Tr. :-.) At other times, Rewire would give homeowners the run around by giving them inconsistent stories about their loan modification. (Heath Decl., Ex. at REWIRE0000.) Rewire refused to give information even to clients who were on the verge of losing their homes. (Lowe Depo. Tr. at :-.) When some of these homeowners tried to contact their lenders directly, they discovered that Rewire had never even submitted loan modification documents to - - CASE NO.: --CV-

15 E-FILED: Dec, : PM, Superior Court of CA, County of Santa Clara, Case #--CV- Filing #G- the lenders. (See I. Ocegueda Decl..) At least 0 homeowners made upfront payments yet never received loan modification options or their money back (Heath Decl..) F. Rewire Did Not And Never Intended To Provide The Guaranteed Refunds Rewire did not provide the guaranteed refunds despite receiving a slew of refund requests. (FAC ; A. Ocegueda Decl. ; Garcia Decl. ; Jones Decl. ; Heath Decl., Ex. at REWIRE00; Ex. at REWIRE000; Ex. at REWIRE000.) In contrast to Mr. Nathanson, who gave refunds from his own accounts to some of the homeowners who made refund requests in writing, the Rewire Defendants did not give any refunds out of their own pockets. (Heath Decl., Ex..) Refunded homeowners have been removed from the Plaintiffs claims for purposes of this default judgment application. Instead, Rewire dealt with client complaints by simply stonewalling; for example, Defendant Amin told Mr. Aldana that we just don t have time right now to give these people their refunds because I deal with much bigger business projects, and Rewire... doesn t mean a whole lot to me. (Aldana Depo. Tr. :-; Heath Decl., Ex. at REWIRE000; Ex. at REWIRE000; Ex. at REWIRE 000.) On another occasion, Defendant Amin wrote that he was not in the mood to honor any refund requests. (FAC ; Heath Decl., Ex. at REWIRE000.) But even as the Rewire Defendants faced and ignored homeowners refund requests, the Rewire Defendants continued to represent to new clients the Rewire 0-percent guarantee if the homeowner did not receive the loan modification services promised. (Id.) This, coupled with the fact that Rewire never set up financial reserves to provide for refund payments, evidences the Rewire Defendants intent not to honor their guarantee. (FAC ; see Heath Decl. Ex. at REWIRE000; Ex. at REWIRE000; Ex. at REWIRE000.) G. The Rewire Defendants Profited From This Scheme Although the purported loan modification services were to be performed by Mr. Nathanson, the Rewire Defendants pocketed most of the proceeds from the scheme. (See e.g., Heath Decl., Ex. at REWIRE000.) Each homeowner typically paid upfront fees ranging from $, to $,. They paid these fees to Mr. Nathanson, who then transferred them to - - CASE NO.: --CV-

16 E-FILED: Dec, : PM, Superior Court of CA, County of Santa Clara, Case #--CV- Filing #G- bank accounts under Rewire s, ABC s, and Gallant Group s names. Mr. Nathanson transferred at least $00,000 to ABC and Gallant Group in 0. (Nathanson Decl., Ex. A.) Defendants ABC and Gallant Group paid Mr. Nathanson $0 to $0 for each homeowner. (Rymal Depo. Tr. :-; see also FAC, Ex. E.) Gallant Group and ABC then paid 0 to 0 percent of the remaining balance to Defendant TMG (or $00-$00 per file to Mr. Aldana), and kept the rest. (Aldana Depo. Tr. :-; Heath Decl., Exs. and.) As sworn by a Gallant Group employee who kept track of all of Rewire s income and expenses, Ms. Inga Rymal, Rewire was profitable. (Rymal Depo. Tr. :-:.) IV. LEGAL STANDARD FOR ENTRY OF DEFAULT JUDGMENT Where a defendant has been served and has not answered or otherwise responded, the Court, after hearing plaintiff s evidence, shall render judgment in the plaintiff s favor for that relief... Cal. Code of Civ. Proc. (b). The Court can permit the use of affidavits in lieu of personal testimony. See Cal. Code of Civ. Proc. (d). Evidence in support of the allegations in the complaint, including hearsay, is admissible. Jackson v. Bank of America, Cal. App. d, (). If a plaintiff presents a prima facie showing evidence sufficient to support the allegations in the complaint, the court must enter judgment for the plaintiff. Johnson v. Stanhiser, Cal. App. th, - (). V. THE COURT SHOULD ENTER DEFAULT JUDGMENT AND AWARD PLAINTIFFS THEIR REQUESTED RELIEF Default judgment is appropriate here as Plaintiffs have made a prima facie showing that the Defaulting Defendants () breached the Corporate Guaranty; () engaged in unfair competition in violation of Bus. & Prof. Code 0; and () committed fraud. Plaintiffs have also presented evidence substantiating their requested damages. A. Rewire Breached The Corporate Guaranty To establish a breach of contract, a plaintiff must prove: () the existence of a valid contract; () plaintiff s performance and/or excuse of performance; () defendant s breach of the contract; and () damages. Reichert v. Gen. Ins. Co., Cal., 0 (). Defendants ABC and Group, doing business as Rewire, breached their Corporate Guarantees to Plaintiffs. Plaintiffs - - CASE NO.: --CV-

17 E-FILED: Dec, : PM, Superior Court of CA, County of Santa Clara, Case #--CV- Filing #G- are not pursing a breach of contract claim against Defendants Holland and TMG in this default judgment motion, but reserve the right to do so at a later stage of this litigation.. Rewire Entered Into Corporate Guarantees With Plaintiffs As material inducement for Plaintiffs to enter into an Attorney-Client Agreement with the Nathanson Defendants, Rewire provided a Corporate Guaranty guaranteeing the entire amount charged. (FAC, Exs. B, D, F-G) (emphasis added). The Corporate Guarantees are enforceable suretyship obligations under Cal. Civ. Code sections, et seq., as each Corporate Guaranty was in writing and entered into at the same time as the Attorney-Client Agreement.. Plaintiffs Performed Under The Attorney-Client Agreements Under the Attorney-Client Agreements, homeowners agreed to pay an upfront fee and to provide Defendants with their loan documentation. (FAC, Ex. A, C, E.) Each homeowner Plaintiff complied. (See I. Ocegueda Decl. ; Jones Decl. ; Lowe Depo. Tr. :-.). Rewire Breached Their Corporate Guaranty Rewire breached the Corporate Guaranty by failing to provide refunds when the Nathanson Defendants did not provide the promised loan modification services. In both versions of the Attorney-Client Agreement, Mr. Nathanson agreed to: () review homeowners documents; () contact and negotiate with homeowners lenders; () provide homeowners with options on modifying their loans; and () do his utmost to obtain the best possible rate and term reductions. (FAC, Ex. A, C, E.) Mr. Nathanson did not provide those services, doing little to nothing for many files. (A. Ocegueda Decl. -; Orejel Decl. -; Jones Decl. -.) Defendant Amin himself admitted that there had been little to no activity on over 0 files for months. (Heath Decl., Ex..) Rewire, in many instances, failed to submit homeowners loan modification documents to their lenders. (A. Ocegueda Decl. -.) More often than not, Defendants did nothing to provide homeowners with loan modification options. The Corporate Guarantees obligated the Rewire Defendants to give homeowners a 0- percent refund of the entire amount charged when Mr. Nathanson did not obtain a more favorable [loan] modification or when Mr. Nathanson failed to provide the services specified under the Attorney-Client Agreement. (FAC Exs. B, D, F, G, emphasis added.) The Rewire - - CASE NO.: --CV-

18 E-FILED: Dec, : PM, Superior Court of CA, County of Santa Clara, Case #--CV- Filing #G- Defendants failed to provide refunds to at least 0 homeowners (i.e., all Plaintiffs here) who did not receive loan modification options and did not receive refunds from the Nathanson Defendants, in breach of the Corporate Guaranty. (Heath Decl..). Rewire s Breach Damaged Plaintiffs The Rewire Defendants breach of the Corporate Guaranty damaged Plaintiffs in the amount of upfront payments Plaintiffs paid for services and guaranties Defendants did not provide. The amount of damages is set forth below and in Plaintiffs Statement of Damages. B. The Defaulting Defendants Engaged In Unfair Competition California law prohibits unfair competition i.e., any unlawful, unfair or fraudulent business act or practice. Cal. Bus. & Prof. Code 0. There are three independent varieties of unfair competition. Under the unlawful prong, virtually any state, federal, or local law can serve as the predicate for an action, borrowing violations of other laws and treating them as unlawful. Podolsky v. First Healthcare Corp, 0 Cal. App. th, (). The unfairness prong involves an examination of that practice s impact on its alleged victim, balanced against the reasons, justifications and motives of the alleged wrongdoer. Hewlett v. Squaw Valley Ski Corp., Cal. App. th, (). Courts have broad discretion under this prong to prohibit new schemes to defraud. Id. A practice which is deceptive is necessarily unfair. Blakemore v. Super. Ct., Cal. App. th, (0). The fraudulent prong is unlike common law fraud or deception; rather [a] violation can be shown even if no one was actually deceived, relied upon the fraudulent practice, or sustained any damage. Podolsky, 0 Cal. App. th at.. Failure To Provide Spanish-Speaking Homeowners With Spanish Translations Constitutes Unfair Competition A subset of the default judgment class does not speak English as their first language and were harmed by the Defaulting Defendants failure to provide translated agreements. California law protects non-english-speaking consumers who negotiate certain contracts in their native language by requiring that every term and condition of English-language contracts be translated into their native language. See Cal. Civ. Code (a)()-(). Section is applicable to - - CASE NO.: --CV-

19 E-FILED: Dec, : PM, Superior Court of CA, County of Santa Clara, Case #--CV- Filing #G- contracts containing a statement of fees or charges, entered into for the purposes of obtaining legal services by a licensed attorney. Cal. Civ. Code (b)(). Failure to comply with Section constitutes a violation of the unlawful prong of Section 0. Podolsky, 0 Cal. App. th, (). The translation requirements of section apply to Rewire s intake of Spanishspeaking homeowners because: () intakers negotiated the Attorney-Client Agreements with these homeowners predominantly in Spanish (Lowe Depo. Tr. :-); and () the Attorney- Client Agreements were for legal services and contained a statement of fees. (FAC Exs. A, C, E.) The Rewire Defendants violated Section by not providing any translations of the Attorney-Client Agreements or Corporate Guarantees. (FAC ; Lowe Depo. Tr. :, 0:-, :-, :-:; A. Ocegueda Decl. ; I. Ocegueda Decl. ; Garcia Decl. ; Orejel Decl..) Moreover, the Rewire Defendants engaged in the type of conduct section was intended to prevent taking advantage of non-english-speaking consumers by making oral representations in Spanish contrary to the English-language written terms. (Section III.D., supra.). The Rewire Defendants Deceptive Provision Of The Corporate Guarantees to Homeowners Constitutes Unfair Competition Rewire s use of the Corporate Guaranty as a material inducement was a deceptive practice in violation of the fraudulent prong of Section 0. The Rewire Defendants knew that the 0-percent money-back guarantee was especially important for the homeowners it was dealing with because they were of limited means. The Rewire Defendants also knew that many of these homeowners had already lost money trying to adjust their lending rates. (Lowe Depo. Tr. :-.) The guarantee was the whole idea. (Id.) As Defendants had anticipated, homeowners relied on the money-back guaranty when deciding to sign up with Rewire. As Mr. Aldana s customer intake supervisor Patricia Lowe put it, the Corporate Guaranty had the desired effect of inducing these customers to go with Rewire, making them believe: Yes, I have something in writing, a contract that says if they can t do it, they will give me my money back. (Id.; see also Ocegueda Decl. ; Orejel Decl..) - - CASE NO.: --CV-

20 E-FILED: Dec, : PM, Superior Court of CA, County of Santa Clara, Case #--CV- Filing #G- The Rewire Defendants, however, had no intention of honoring the refund guarantee, as demonstrated by their failure to set up reserve funds for providing refunds. (FAC ; see also Heath Decl. Ex. at REWIRE000; Ex. at REWIRE000; Ex. at REWIRE000.) In addition, internal communications reveal that they had no intention of honoring refund requests. (Section III.F, supra.) Even after the Rewire Defendants were confronted with numerous such requests, they continued to instruct their customer in-takers to tell new clients that Rewire guaranteed a 0-percent refund if Rewire and Mr. Nathanson did not deliver the promised loan modification services. Mr. Nathanson himself admitted that this was a false misrepresentation. (Heath Decl., Ex... The Rewire Defendants False Advertising Constitutes Unfair Competition Section 0 further prohibits unfair, deceptive, untrue or misleading advertising. A likelihood or probability of public deception is sufficient to establish false advertising under Section 0; actual public deception or confusion arising from misleading advertisements need not be shown. Metro-Goldwyn-Mayer, Inc. v. Lee, Cal. App. d, (). As detailed at length above, the Rewire Defendants made numerous false and deceptive representations as to all default judgment class members regarding the supposedly guaranteed loan modification services through various advertising channels including oral representations directly and through the referral network; the Rewire website and blog; television advertisements on KSBY; Aldana s Spanish-language radio show; and Rewire s form contracts. (Supra at Section III.B.) The Rewire Defendants further bolstered these claims by citing to fake testimonials and features on their website. (Id.) Clients reliance on Rewire s misrepresentations was therefore reasonable. Because the Rewire Defendants false representations of their loan modification services and putative refunds were likely to deceive the public, such actions constitute false advertising within the meaning of Section 0. C. The Defaulting Defendants Engaged In Fraud To prove promissory fraud, Plaintiffs must show that: () Defendants made a promise to Plaintiffs (material misrepresentation); () at the time the promise was made, Defendants did not - - CASE NO.: --CV-

21 E-FILED: Dec, : PM, Superior Court of CA, County of Santa Clara, Case #--CV- Filing #G- intend to perform the promise; () Defendants intended to cause Plaintiffs to rely on the promise; () Plaintiffs reasonably relied on the promise; and () Plaintiffs were harmed as a result. Cal. Civ. Code 0. Beckwith v. Dahl, Cal. App. th, 0 (). As discussed above, the Rewire Defendants made multiple misrepresentations that they would () audit loan documents, () sue lenders, () reduce homeowners mortgage principal and interest, and () give a 0-percent refund. The Rewire Defendants knew those representations were false from the beginning as evidenced by their conduct throughout the scheme. (Section III.F., supra.) Rewire s continuing deception of new clients with respect to the Corporate Guarantees led Mr. Nathanson to admit that the Rewire Defendants made false misrepresentation. (Heath Decl., Ex..) This is evidence that Rewire intended to defraud its victims, as intent can be inferred from circumstances, such as, defendant s insolvency, his hasty repudiation of the promise, his failure even to attempt performance, or his continued assurances after it was clear he would not perform. See, e.g., Tenzer v. Superscope, Cal. d, 0 (); Las Palmas Assocs. v. Las Palmas Center Assocs., Cal. App. d, (). Further, Rewire intended to induce its victims to rely on its refund promise, as the Corporate Guaranty itself states that refund guarantees were provided [a]s a material inducement. (FAC, Exs. B, D, F-G). In class cases, justifiable reliance may be inferred from the materiality of uniformly misrepresented information (e.g., the importance it would have to a reasonable consumer) and the plaintiffs actions consistent therewith (e.g., purchase of services). Occidental Land v. Super. Ct., Cal. d, (); Wilner v. Sunset Life Ins., Cal. App. th, - (00); A misrepresentation is material if a reasonable man would attach importance to its existence or nonexistence in determining his choice of action. Engalla v. Permanente Med. Grp., Inc., Cal. th, (). The Rewire Defendants misrepresentations of their services and refund policy induced justified reliance by their victims, since Rewire s representations were delivered through trusted real estate agents and brokers, the media, and by reference to false testimonials, that were provided by individuals who, in turn, had been deceived by Rewire s principals. (FAC ; see also Ocegueda Decl. ; Orejel Decl CASE NO.: --CV-

22 E-FILED: Dec, : PM, Superior Court of CA, County of Santa Clara, Case #--CV- Filing #G- As a result of the fraudulent representations made by Rewire, Plaintiffs were harmed by at least the loss of the up-front payments. (FAC.) Plaintiffs reliance on the Rewire Defendants representation was a substantial factor in causing the harm. (FAC.) VI. REMEDIES Plaintiffs seek compensatory damages, punitive damages, and attorneys fees and costs from Defaulting Defendants for their unlawful conduct. A. Plaintiffs Are Entitled To Compensatory Damages Each of Plaintiffs causes of action independently entitles Plaintiffs to compensatory damages as set forth in the Statement of Damages. The Rewire Defendants breach of the Corporate Guaranty entitles Plaintiffs to compensatory damages. Cal. Civ. Code 00. Furthermore, the Rewire Defendants violation of Section 0 entitles Plaintiffs to equitable relief in the form of restitution. Korea Supply Co. v. Lockheed Martin Corp., Cal. th, 0 (0). Finally, restitution and rescission are appropriate remedies for fraud. Seeger, Cal. d at. In the present case, restitution is equivalent to compensatory damages since the default judgment class seeks return of its upfront fees. The aggregate compensatory damages the Rewire Defendants owe to Plaintiffs are at least $,.00. Plaintiffs arrived at this figure following extensive review and analysis of Defendant Nathanson s Master Spreadsheet, in which Sherman and Nathanson tabulated all payments and services the firm made in connection with the Rewire scheme. (See Heath Decl. -; see also Declaration of Christopher Clark, -.) B. Plaintiffs Are Entitled To Punitive Damages Punitive damages are available in California where clear and convincing evidence demonstrates that a defendant is guilty of oppression, fraud, or malice in relation to a cause of action involving breach of a non-contract duty. Cal. Civ. Code (a). Malice is conduct that the defendant intends to cause injury to the plaintiff or despicable conduct defendant carried out with a willful and conscious disregard of the rights or safety of others. Id. (c)(). Fraud is an intentional misrepresentation, deceit, or concealment of a material fact known to the defendant with the intention on the part of the defendant of thereby depriving a person of property - - CASE NO.: --CV-

23 E-FILED: Dec, : PM, Superior Court of CA, County of Santa Clara, Case #--CV- Filing #G- or legal rights or otherwise causing injury. Id. (c)(). [P]rofits wrongfully gained by the defendant is, in itself, adequate evidence upon which to base an award of punitive damages. Davidov Co. v. Issod, Cal. Rptr. d, 0 (00). The Rewire Defendants committed fraud as detailed above, satisfying the fraud prong of Cal. Civ. Code. The malice prong is also satisfied because defendants collected thousands of dollars from hundreds of distressed homeowners based on false promises. Plaintiffs request that the Court award punitive damages at its discretion up to, but not exceeding, $00,000 the amount specified in Plaintiffs Statement of Damages. This award is reasonable and proportionate to the harm to Plaintiffs, as it is less than half of the compensatory damages. See State Farm Mut. Automobile Ins. Co. v. Campbell, U.S. 0, - (0). This amount is necessary to deter the conduct at issue because, in the absence of such an award, the Rewire Defendants would only have to pay the amount they collected from Plaintiffs years later. The Court should dissuade Defendants and other individuals from perpetrating such schemes in the future. See Neal v. Farmers Ins. Exchange, Cal. d (). C. Plaintiffs Are Entitled To Attorneys Fees and Costs Plaintiffs are entitled to attorneys fees and costs both because of express agreements between the parties and because such fees and costs are provided for by California Code of Civ. Proc.. First, Rewire s Corporate Guaranty states: In the event of any dispute or litigation regarding the enforcement of validity of this Guaranty, the party prevailing in such dispute or litigation shall be entitle [sic] to recover from the non-prevailing party his/her/its costs and expenses, including, without limitation, reasonable attorney s fees. (FAC Ex. B, D, E). Second, under Code of Civil Procedure Section., a court may award attorneys fees to a successful party where the action results in the enforcement of an important right affecting the public interest if (a) a significant benefit, whether pecuniary or nonpecuniary, has been conferred on the general public or a large class of persons, (b) the necessity and financial burden of private enforcement, or of enforcement by one public entity against another public entity, are such as to make the award appropriate, and (c) such fees should not in the interest of justice be paid out of the recovery, if any. The instant case seeks to restore thousands of dollars to hundreds of needy - - CASE NO.: --CV-

24 E-FILED: Dec, : PM, Superior Court of CA, County of Santa Clara, Case #--CV- Filing #G-