Case4:13-cv SBA Document16 Filed08/23/13 Page1 of 10

Transcription

1 Case:-cv-00-SBA Document Filed0// Page of 0 0 David R. Medlin (SBN ) G. Bradley Hargrave (SBN ) Joshua A. Rosenthal (SBN 0) MEDLIN & HARGRAVE A Professional Corporation One Kaiser Plaza, Suite 0 Oakland, CA Telephone: (0) -00 Facsimile: (0) - jrosenthal@mhlawcorp.com Attorneys for Defendants UNITED STATES OF AMERICA, vs. Plaintiff, REUNION MORTGAGE, INC., DAVID THAYER and KENT HARVEY, UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF CALIFORNIA Case No.: CV 00 SBA DEFENDANTS DAVID THAYER AND REUNION MORTGAGE, INC. S NOTICE OF MOTION, MOTION AND SUPPORTING MEMORANDUM OF POINTS & AUTHORITIES IN SUPPORT OF FRCP (b)() MOTION TO DISMISS Defendants. / NOTICE OF MOTION Date: October, 0 Time: :00 p.m. th Dept: Courtroom, Floor, 0 Clay Street, Oakland, CA Judge: Saundra Brown Armstrong File date: May, 0 Trial date: None Set 0 TO ALL PARTIES AND THEIR ATTORNEYS OF RECORD: PLEASE TAKE NOTICE THAT on October, 0 at :00 p.m., or as soon thereafter as the th matter may be heard, in Courtroom, Floor, 0 Clay Street, Oakland, CA of the above-entitled court, Attorneys for Defendants will and hereby do move this court to dismiss plaintiffs first amended complaint pursuant to Federal Rules of Civil Procedure (b)() on the ground that complaint fails to state claim for which relief can be granted. This Motion to Dismiss is based on this Notice, the Memorandum of Points and Authorities,, the pleadings on file herein and on such oral and documentary evidence that may be presented at the hearing on this matter. M:\Reunion Mortgage -00-0\US v. Reunion\motions\Motion to Dismiss\P's & A's.wpd

2 Case:-cv-00-SBA Document Filed0// Page of 0 0 This motion is made following the conference of counsel pursuant to L.R. - which took place in or about July of 0 and August, 0. I. STATEMENT OF ISSUES PRESENTED The United State of America ( U.S. ) is suing the defendants related insurance claims it paid for loans insured by the department of Housing and Urban Development ( HUD ). Defendant Reunion Mortgage, Inc. ( Reunion ) originated loans insured by HUD. Defendant David Thayer ( Thayer ) was the officer and California Department of Real Estate sponsoring broker of Reunion at the times the loans were originated. The U.S. is suing Reunion and Thayer for making false claims and other torts related to the loans. The assertions made in the first amended complaint ( FAC ) address claims that the loans were not made according to HUD guidelines. The U.S. is claiming that Thayer, as an officer of Reunion and signatory on an annual certification to HUD regarding all loans submitted, is individually liable for the torts alleged against Reunion. Defendants do not address the False Claim Act assertions against Reunion in this motion to dismiss. However, defendant Thayer brings this motion because the U.S. has failed to allege how he had any personal involvement in the loan transactions at issue in this lawsuit. He was the employee and officer of a company that is alleged to have submitted loans to HUD that were not in compliance with its lending guidelines. There are no allegations that defendant Thayer had any personal involvement in the loans at issue or knowledge of the information submitted on the loans at issue in this matter.. 0 II. ARGUMENT A. FRCP (b)() Allows Dismissal Of Claims For Which No Relief Is Available. A FRCP (b)() motion for dismissal is proper where there is either a lack of cognizable legal theory or the absence of sufficient facts alleged under a cognizable legal theory. Balisteri v. Pacifica Police Dept. (th Cir. 0) 0 F.d,. Quite simply, the case of Walters v. Marler () Cal. App. d,, established that a designated officer of a corporation licensed by the DRE is not personally liable for the tortious act of employees of the corporation. This concept was recently affirmed by the California Courts in Sandler v Sanchez (0) 0 Cal. App. th. Finally, the th Circuit affirmed this decision in Holley v. Crank (th Cir. 00) 00 F.d. Additionally, where the M:\Reunion Mortgage -00-0\US v. Reunion\motions\Motion to Dismiss\P's & A's.wpd

3 Case:-cv-00-SBA Document Filed0// Page of facts and dates alleged in a complaint demonstrate that the complaint is barred by the statute of limitations, a Federal Rule of Civil Procedure (b)() motion should be granted. Ritchie v. United States, 0 F.Supp.d 0, (N.D.Cal.00). Thayer s capacity as the officer broker of Reunion appears to be the sole reason he was named to the tort causes of action. Without any alleged facts regarding his individual tortious acts, he cannot be named to these causes of action. Thus, this motion to dismiss should be granted as to Thayer. Additionally, the statute of limitations defenses and insufficiency of the unjust enrichment cause of action should be granted as to defendants Reunion and Thayer. B. The First Through Sixth Causes Of Action Do Not Plead A Claim Against Defendant Thayer. i. Facts Alleged Against Defendant Thayer. The U.S. s case against defendant Thayer is very clearly laid out in the FAC. The U.S. contends that Reunion was licensed with the California Department of Real Estate (now the Bureau of Real Estate but referred to herein as the DRE ). FAC, para. Under California law a corporate broker must designate an officer as the broker for the corporation. FAC, para. 0. California Business & Professions Code Section 0.(a) states that a corporation s designated officer/broker shall be responsible for the supervision and control of the activities conducted on behalf of the corporation by its officers and employees necessary to secure full compliance with the provisions of this division. FAC, para.. Defendant Thayer was that designated officer for Reunion. FAC, para.. Defendant Thayer also signed the annual certifications to HUD-FHA on behalf of Reunion mortgage, which provided that the party signing certified,...to the best of my knowledge, that the above-named mortgagee conforms to all HUD-FHA regulations necessary to maintain its HUD-FHA approval, and that the above-named mortgagee is fully responsible for all actions of its employees including those of its HUD-FHA approved branch offices. FAC, para.. In this case, Reunion is the mortgagee. The FAC goes on to assert that Reunion was a Direct Endorsement Lender ( DEL ), which allowed it to endorse mortgages that are qualified for HUD-FHA insurance. FAC, para.. The borrower, along with a DEL representative, helped the borrower complete a loan application. FAC, para. 0. A professional underwriter employed by the DEL performs a credit analysis. FAC, para. 0. M:\Reunion Mortgage -00-0\US v. Reunion\motions\Motion to Dismiss\P's & A's.wpd

4 Case:-cv-00-SBA Document Filed0// Page of The DEL s underwriter makes the underwriting decision as to whether the mortgage may be approved for HUD-FHA insurance or not. FAC, para. 0. Thereafter, the DEL certifies that the mortgage qualifies for HUD-FHA insurance and FHA endorses the loan on the basis of the DEL s certification. The FAC then addresses the underwriter s individual duties in the next few paragraphs. The U.S. claims that loans originated and endorsed by Reunion had loans in default as of May of 0 for the nearly five years it was a participant in the program. Presumably, it endorsed many more loans than that in those five years. The rest of the factual allegations of the FAC address the loan transactions that make up the U.S. s claims. The allegations in paragraphs 0- address things that the defendants did. However, the allegations do not differentiate, in most instances, which defendant did what. There is not one allegation in any of those paragraphs that defendant Thayer had any personal involvement in any of the individual loan transactions that make up this lawsuit. There is just a referral to the things that all of the defendants did. That is simply not sufficient to allege causes of action for fraud against an individual. ii. The Law Does Not Support Causes Of Action Against An Individual For The Acts of The Company For Which He Works. As the U.S. points out, California Business & Professions Code Section 0.(a) provides for the designated officer of a DRE licensed corporation to have responsibility for the supervision and control of the corporation s employees. However, this statute was not intended to alter principles of vicarious liability. This statute is a licensing statute and it provides the basis for the DRE to discipline brokers for the acts of its employees. Walters v Marler () Cal. App. d,, established that a designated officer of a corporation licensed by the DRE is not personally liable for the tortious act of employees of the It is assumed that defendant Harvey is not being referred to as defendant when it is used in paragraphs 0- of the FAC, as he was not named to the original complaint (which contained these same allegations) and he is not named to the first six causes of action, which incorporate these allegations. If defendant Harvey is an intended defendant to the first six causes of action and is a defendant as used in paragraphs 0-, the same arguments that apply to defendant Thayer apply to defendant Harvey. In fact, since defendant Harvey is not alleged to be anything other than a part owner of Reunion, there is even less of a connection between him and the tortious allegations. M:\Reunion Mortgage -00-0\US v. Reunion\motions\Motion to Dismiss\P's & A's.wpd

5 Case:-cv-00-SBA Document Filed0// Page of corporation. That principal was affirmed recently in Sandler v Sanchez (0) 0 Cal. App. th, which held that Business & Professions Code Section 0. codified the Marler decision, holding that there is no right of action against the designated officer of a licensed corporation for the torts of the corporation s employees. In Marler, the Court held that the non-contractual rights and liabilities of a real estate broker are governed by general laws of agency. That case dealt with a broker-salesperson s alleged misrepresentation to the plaintiff on a real estate transaction. The plaintiff sued the designated broker officer of the corporation for which the sales person worked. The Court found that while the designated broker-officer may owe a duty to the corporation for which he works to supervise the salesperson s work, he did not owe that duty to the plaintiffs. Thus, the designated officer-broker could not be held personally liable to the plaintiff for his employee s alleged misrepresentations. In Sanchez, the Court addressed the issue of who was owed the duty outlined in section 0. and concluded, after a lengthy analysis, that it was not owed to the plaintiffs. In Sanchez, the Court dealt with a claim by purchasers of property against a real estate salesman and the company he worked for. The plaintiffs alleged that the salesman misrepresented the cost of improvements necessary on a property they were purchasing. They sued Sanchez, the designated officer- broker for the salesman s employer for not properly supervising the salesman. The Sanchez Court concluded that corporate employers may be held vicariously liable for the tortious acts of their agents committed within the scope of the agency. Id., at. However, absent special circumstances, it is the corporation, not its owner or officer, that is the principal or employer and thus subject to vicarious liability for torts committed by its employees or agents. Id., at -. The case of Holley v. Crank (th Cir. 00) 00 F.d, also holds that the California real estate code does not alter general principals of vicarious liability such that a broker becomes personally responsible in civil litigation for the acts of employees. The case dealt with allegations that a sales person of a DRE licensed corporation discriminated against a buyer in a real estate transaction. The plaintiffs also brought the action against the designated officer-broker for the corporation. The decision by the Ninth Circuit was made after remand from the U.S. Supreme Court which held in Meyer v Holley (00) U.S. 0, that traditional agency roles apply to the dispute. In fact, M:\Reunion Mortgage -00-0\US v. Reunion\motions\Motion to Dismiss\P's & A's.wpd

6 Case:-cv-00-SBA Document Filed0// Page of it specifically rejected a holding of liability resting solely on the 0. argument. Id., at. The Supreme Court remanded it for the Court to consider facts, if any, that involved other facts that demonstrate an agency relationship between the designated broker-officer and the salesperson. Id., at. The U.S. has not alleged any general theories of vicarious liability or alter ego to bind defendant Thayer for the acts of other employees of a corporation for which he is an officer. Any such allegations would be based on guessing and speculation, since the U.S. has no reason to know, at this point in the litigation, the internal workings of Reunion at or around the time that the loans at issue in this lawsuit were originated. A U.S. District Court ruling in 00 from the Northern District ruled that Holley held that officer/brokers have been held vicariously liable for the acts of those they were required to supervise, but that was through traditional principal/agency relationship rules, not because of the real estate law. Nevis v. Wells Fargo Bank, 00 WL 0, at p. (N.D. Cal. May, 00). The Court declined to hold the designated broker-officer responsible for allegations related to employees of a loan brokerage company for which he was the designated broker - officer. The Nevis Court found no duty of the designated officer-broker to a borrower for a breach of fiduciary duty cause of action, recision, negligence A U.S. District Court ruling out of the Southern District of California holds similarly. It ruled that the Holley Court found that Business & Professions Code Section 0., on its own, does not create civil liability for the broker/officer for the acts of employees of the licensed corporation. There needs to be evidence of the typical kind of principal/agent delegation of authority that would bind a principal to the acts of the agent. Rose v. Seamless Fin. Corp. Inc., 0 WL 0, p. (S.D. Cal. Jan., 0). iii. The False Claims Act Causes Of Action Is Not Pleaded Per The Requirements of FRCP (b). Because the FCA is an anti-fraud statute and requires fraud allegations, complaints alleging a th FCA violation must fulfill the requirements of Rule (b). Bly-Magee v. California ( Cir. 00) F.d 0, 0. Federal Rule of Civil Procedure (b) states that an allegation of fraud or mistake M:\Reunion Mortgage -00-0\US v. Reunion\motions\Motion to Dismiss\P's & A's.wpd

7 Case:-cv-00-SBA Document Filed0// Page of must state with particularity the circumstances constituting the fraud. The circumstances required by Rule (b) are the who, what, when, where, and how of the fraudulent activity. Vess v. Ciba Geigy Corp. USA, F.d 0, 0 (th Cir.00). This heightened pleading standard ensures that allegations of fraud are specific enough to give defendants notice of the particular misconduct that is alleged to constitute the fraud charged so that they can defend against the charge and not just deny that they have done anything wrong. Semegen v. Weidner, 0 F.d, (th Cir.). As in any action sounding in fraud, the allegations of a federal False Claims Act complaint must be pleaded with particularity. The complaint must plead the time, place, and contents of the false representations, as well as the identity of the person making the misrepresentation and what he th obtained thereby. Harrison v. Westinghouse Savannah River Co., ( Cir. ) F.d,. The alleged false claims are the submission of loans to HUD-FHA that do not comply with the applicable guidelines. There is no allegation in the complaint that defendant Thayer did this. The allegations are that defendant Reunion made these submissions through other employees of Reunion. Thus, the identity of the person making the misrepresentation cannot be satisfied with respect to a FCA claim against defendant Thayer. In other words, defendant Thayer did not make the fraudulent misrepresentation. So, the FCA causes of action fail as to him. General principles of vicarious liability do not allow a plaintiff to sue a defendant for fraud that was committed by employees of a company for which he is an officer, in the absence of specific facts giving the authority to commit the specific fraudulent acts. No such facts are pleaded by the U.S. In fact, it appears as though the U.S. picked the employee of defendant Reunion that it thought had the most money and named him to the lawsuit, without any allegations as to his involvement or direction in the individual loans at issue. C. The Third Cause Of Action Fails. The third cause of action is for negligence. As stated in Nevis v. Wells Fargo Bank, 00 WL 0, at p. (N.D. Cal. May, 00), without an allegation that the designated broker officer, defendant Thayer, has an individual duty to the U.S., it cannot satisfy the duty requirement of this cause of action. There is simply no duty to the U.S. of a corporate officer who had no individual involvement in the alleged false claims in this lawsuit. The duty, if any existed, belonged to defendant Reunion. A corporate officer cannot be individually liable for the acts of other employees of the M:\Reunion Mortgage -00-0\US v. Reunion\motions\Motion to Dismiss\P's & A's.wpd

8 Case:-cv-00-SBA Document Filed0// Page of corporation. Additionally, this cause of action is partially, if not entirely, time barred. There is a three year statute of limitations for tort claims brought by the U.S. Government. U.S.C. (b). This action was filed on May, 0. Every claim paid prior to May, 00, is certainly time barred as a tort. The pleading provides no explanation as to why it would be reasonable for the U.S. to have discovered the alleged misrepresentations in the loan files at any point later than the time that it paid the claims. Additionally, it is likely that the U.S. was aware of the alleged misrepresentations on all of the claims prior to the payment of the claim because it was always in possession of the loan file and every one of the loans in question were originated prior to May, 00. D. The Fourth Cause Of Action Fails. The fourth cause of action is for unjust enrichment. The elements for such a cause of action are the receipt of benefit and the unjust retention of the benefit at the expense of another. In re ConAgra Foods Inc., 0 F. Supp. d 00, (C.D. Cal. 0). The U.S. uses the word defendants very loosely. So, it is difficult to determine which defendant is being referred to at different places in the FAC. However, the U.S. makes no allegation that it paid defendant Thayer directly. In fact, it refers to Reunion as the mortgage lender (FAC, para ) and defendant Thayer as the officer-broker for defendant Reunion. The FAC also states that the DEL program at issue herein grants participating lenders in the private sector the authority to endorse mortgages that are qualified for HUD-FHA insurance. FAC, para.. So, it is pretty clear that if any party received the benefit, it was defendant Reunion was the entity that received the benefit. (In fact, HUD-FHA did not pay Reunion any money for originating loans). Any benefit that defendant Thayer received would have been from defendant Reunion. If the U.S. is alleging that defendant Thayer directly received money from it - as opposed to from Reunion, it should allege that. It makes no sense for the business relationship to be with Reunion Claim at page, line of the FAC was paid in March of 00, Claim at page, line of the FAC was paid in October and December of 00, Claim at page, line of the FAC was paid in October and December of 00, Claim at page, line of the FAC was paid in May of 00, Claim 0 at page, line of the FAC was paid in May and July of 00 (and may be partially barred, depending on the date of the payments), Claim at page, line of the FAC was paid in April and June of 00 and is partially time barred as to the June payment), Claim at page, line of the FAC was paid in July and September of 00. M:\Reunion Mortgage -00-0\US v. Reunion\motions\Motion to Dismiss\P's & A's.wpd

9 Case:-cv-00-SBA Document Filed0// Page of but for Thayer to receive the money directly from the U.S. (although neither Thayer nor Reunion received money directly from HUD). Further, there is no allegation that defendant Thayer received money from Reunion for the loans at issue in this lawsuit. This cause of action is also not allowed. In California, unjust enrichment is not a cause of action if there are other causes of action that seek the same remedy. In In re ConAgra Foods, Inc., the Court acknowledged that under California law, unjust enrichment is just a theory that permits recovery on other recognized causes of action. In re ConAgra Foods Inc., 0 F. Supp. d at. Where other causes of action allow plaintiff to obtain restitutionary relief, unjust enrichment adds nothing to the lawsuit. Id.. The Fifth Cause of Action for Payment By Mistake seeks the same restitutionary relief as this cause of action. Unjust enrichment is a common law obligation implied by law based on the equities of a particular case and not on any contractual obligation. McBride v. Boughton (00) Cal.App.th,, 0 Cal.Rptr.d. So, to the extent that this not a contract related claim, which it does not appear to be, it is governed by a three year limitations period related to the torts alleged, not any contract. U.S.C. (b). So, as explained in the defense to the negligence cause of action, many, if not all, of the U.S. s claims as to the individual loans are time barred. E. The Fifth Cause Of Action Fails. The Fifth Cause of Action is for Payment By Mistake. This is an equitable theory based on a th non-existent contract. United States v. Systron-Donner Corp. ( Cir. ) F.d,. As with the unjust enrichment cause of action, the action and logic seem to dictate that any money paid by the U.S. in relation to the loans at issue were paid to defendant Reunion, not defendant Thayer (as stated above, HUD did not pay money to Reunion or Thayer for the origination of any loans). The U.S. does not allege that it paid money directly to defendant Thayer. The U.S. does not even allege that defendant Reunion gave the money that it received from the U.S. (although it didn t receive any money from the U.S.) for the loans at issue in this action. Thus, this action is not properly brought against defendant Thayer, regardless of the fact that HUD did not even pay money to Reunion in relation to the loans. Additionally, since this cause of action is an equitable remedy based on a claim of negligence M:\Reunion Mortgage -00-0\US v. Reunion\motions\Motion to Dismiss\P's & A's.wpd

10 Case:-cv-00-SBA Document Filed0// Page0 of and or false claims, it is seeking restitution based on a tort, not a contract. Thus, every claim paid prior to May, 0, is time barred as a tort for the same reason asserted in the section addressing the negligence cause of action. F. The Sixth Cause of Action Fails as to Defendant Thayer. This cause of action is essentially the same as the negligence cause of action and fails for the same reason as to defendant Thayer. Since defendant Thayer is only named to this cause of action in his capacity as a corporate officer of defendant Reunion and its designated broker-officer, he cannot be held individually liable for the acts of the corporation for which he had no personal involvement. Sanchez, 0 Cal. App. th at -, held that a designated broker officer or principal of the corporation could not be held vicariously liable for breach of fiduciary duty solely for the acts of the employees of the corporation. He has no individual duty to the U.S. on a breach of fiduciary duty claim for acts of the corporation for which he is an officer. This cause of action is also time barred on its face as to of the claims since this is an action based on a tort and was brought more than three years after the right of action accrued, which was the time that the insurance claims were paid. U.S.C.. III. CONCLUSION This motion to dismiss should be granted as to defendant Thayer. He was named to the first six causes of action solely because of his affiliation as a designated broker-officer of defendant Reunion. However, there are no specific allegations tying him to the specific loans at issue in this litigation. He is an officer of a corporation that lent on HUD-FHA insured loans. There are no provisions of the False Claims Act or the California Real Estate law that create a duty for a corporate officer or broker to third parties for civil liability. Additionally, the negligence, breach of fiduciary duty, payment by mistake and unjust enrichment causes of action fail in whole or in part because they are time barred. For all of the above reasons this motion to dismiss should be granted. Date: August, 0 MEDLIN& HARGRAVE A PROFESSIONAL CORPORATION /s/ Joshua A. Rosenthal Joshua A. Rosenthal, Attorneys for Defendants 0 M:\Reunion Mortgage -00-0\US v. Reunion\motions\Motion to Dismiss\P's & A's.wpd