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Munoz v. International Home Capital Corporation

May 4, 2004




Plaintiffs Teresa Munoz, Gabriel Munoz, Marisol Enriquez, Magdaleno Enriquez, Martha Chavez ("Chavez"), Roberto Espinoza and Maria Gonzalez ("plaintiffs") filed a second amended complaint against Mario Andrade dba Alum Rock Real Estate, Jorge G. Ortiz, Adriana R. Sandoval ("the Andrade defendants"), Phuc Dinh Do dba Affordable Home Loans and Realty ("AHL"), Lien Ta, Aidee Armendariz, Adriana Sandoval ("the Do defendants"), International Home Capital Corporation ("IHCC") dba Apex Lending Services and United Capital Funding ("UCF"). Plaintiffs aver*fn1 the following claims: 1) violations of the Fair Housing Act, 42 U.S.C. §§ 3601 et seq., against all defendants; 2) violations of the Equal Credit Opportunity Act, 15 U.S.C. §§ 1691, et seq., against all defendants; 3) violations of the Real Estate and Settlement Procedures Act, 12 U.S.C. §§ 2601-17, against IHCC; 4) violations of the California Fair Employment and Housing Act, Cal. Gov't Code §§ 12955, et seq., against all defendants; 5) violations of the California Unruh Civil Rights Act, Cal. Gov't Code §§ 51 et seq., against all defendants; 6) violations of California Civil Code § 1632 against all defendants; 7) breach of fiduciary duty against the Andrade, Do, and UCF defendants; 8) fraud and misrepresentation against all defendants; 9) unconscionability against all defendants; 10) negligence against IHCC; and, 11) unfair business practices under Cal. Bus. & Prof. Code §§ 17200, et seq., and 7150, et seq., against all defendants. All defendants move to dismiss for failure to state a claim on which relief can be granted pursuant to Fed. R. Civ. P. 12(b)(6) and for lack of subject matter jurisdiction pursuant to Fed. R. Civ. P. 12 (b)(1) as to the first, second, fourth, fifth, sixth, eighth, and ninth claims for relief. Further, the Adrade, Do, and UCF defendants move under Rule 12(b)(6) as to the seventh claim for relief; IHCC moves under Rules 12(b)(6) and 12(b)(1) as to the third and tenth claims for relief; and, the Do, IHCC, and UCF defendants move under both subsections as to the eleventh claim for relief.

The motions were fully briefed and heard by the Court on April 14, 2004. At the hearing, UCF and plaintiffs obtained leave of Court to file supplemental briefs on the proper interpretation of plaintiffs' claim under the California's Spanish Language Contracts Act, Cal. Civ. Code § 1632. Based on all papers filed to date, as well as on the oral argument of all the parties, the Court denies defendants' motion to dismiss as to claims for relief 1-7, 10 and 11 and grants defendants' motion to dismiss as to claims for relief 8 and 9 for the reasons set forth below.


Plaintiffs, who are Hispanic, are predominantly Spanish speakers and generally do not read or write in English. Between June 2000 and March 2002, each of the respective plaintiffs engaged in the process of acquiring a house. During that process, plaintiffs allege that they interacted with 1) the Andrade defendants, who are all licenced real estate brokers or salespersons; 2) the Do defendants, who are agents of AHL and participated in the brokering of plaintiffs' loans; 3) UCF, a corporation doing business in the County of Santa Clara which participated in the brokering and origination of one or more of the plaintiffs' loans; and, 4) IHCC, the original beneficiary of all the deeds of trust for the real properties that are the subject of this action and the lender that originated all the purchase mortgage loan notes.

Plaintiffs aver that the Andrade and Do defendants represented to them, in Spanish, that based on their individual incomes, plaintiffs could afford to buy their respective homes and assured plaintiffs that their mortgage payments would not exceed a certain amount. According to plaintiffs, they were rushed into signing their loan documents and the loan transaction as a whole. As a result, plaintiffs aver that defendants "baited and switched" them into loans that contained higher principal loan amounts and interest rates than the plaintiff borrowers originally wanted or were able to repay. Specifically, plaintiffs aver that defendants 1) engaged in a practice of predatory and racially discriminatory lending by issuing "split loans"*fn2 to Hispanic borrowers; 2) misrepresented actual loan terms and engaged in unfair business practices; 3) failed to translate the necessary writings from English to Spanish; 4) failed to explain, until the time of closing escrow, that their loans had much higher repayment terms than was previously represented; and, 5) made little or no effort to ascertain or verify plaintiffs' ability to repay their loans. Consequently, plaintiffs aver that defendants' issuance of predatory loans were ultimately designed to fail and inevitably triggered foreclosure proceedings causing all but one of the plaintiffs to lose their homes.

In response, defendants contend that they are honest loan agents, real estate agents, and brokers who participated in the sale of one or more of the loans which are the subject of plaintiffs' second amended complaint and are not in violation of any statute or law. Defendants, accordingly, have filed the instant motion to dismiss claiming that plaintiffs fail to state claims on which relief can be granted, and that federal subject matter jurisdiction is absent with respect to the bulk of those claims.


To survive a motion to dismiss for failure to state a claim under Rule 12(b)(6), a complaint generally must satisfy only the minimal notice pleading requirements of Fed. R. Civ. P. 8(a)(2). That Rule requires only that the complaint include "a short and plain statement of the claim showing that the pleader is entitled to relief." Potter v. Jones, 319 F.3d 483, 494 (9th Cir. 2003). Unlike the practice in many states, the Federal Rules do not draw distinctions between pleading facts, ultimate facts, or conclusions of law as long as the conclusions provide defendant with at least minimal notice of the claim. Jackson v. Marion County, 66 F3d 151, 153 (7th Cir. 1995).

In ruling on a motion to dismiss, the court must accept as true all averments of material fact and must construe such averments in the light most favorable to the non-moving party. Western Reserve Oil & Gas Co. v. New, 765 F.2d 1428, 1430 (9th Cir. 1985). Any existing ambiguities must be resolved in favor of the pleading. Walling v. Beverly Enterprises, 476 F.2d 393, 396 (9th Cir. 1973).

A complaint may be dismissed as a matter of law for two reasons: (1) lack of a cognizable legal theory or (2) insufficient facts stated under a cognizable theory. Robertson v. Dean Witter Reynolds, Inc., 749 F.2d 530, 533-34 (9th Cir. 1984). Thus, in resolving a motion to dismiss, the court must (1) construe the complaint in the light most favorable to the plaintiff; (2) accept all well-pleaded factual averments as true; and (3) determine whether plaintiff can prove any set of facts to support a claim that would merit relief. Cahill v. Liberty Mut. Ins. Co., 80 F3d 336, 337-338 (9th Cir. 1996).


Generally, defendants aver that plaintiffs fail to state claims upon which relief can be granted, thus warranting a motion to dismiss.*fn3 Each of these claims will be addressed separately below.

As an initial matter, defendants generally argue that plaintiffs fail to separate out particular defendants or any specific wrongs committed by them. Plaintiffs respond that the separate defendants are indeed liable to the extent that they acted as agents, servants and/or employees of the remaining defendants and for each other. The Ninth Circuit has held that averments of agency are not required in a complaint. Greenberg v. Sala , 822 F.2d 882, 886 (9th Cir. 1987). "A person legally responsible for an act may be alleged to have committed it without going into the theories which support that ultimate fact." Id. Therefore, in this regard, plaintiffs' pleadings of agency are sufficient.

A. Plaintiffs Have Sufficiently Averred Their First Claim for Relief Under the Fair Housing Act, 42 U.S.C. § 3605 and § 3604.

The Andrade and Do defendants generally argue that because plaintiffs' first claim for relief, brought under 42 U.S.C. §§ 3605 and 3604, does not specifically refer to defendants or to any wrongs committed by them, plaintiffs' claim must be dismissed. In response, plaintiffs point out that defendants' argument ignores the language in the complaint wherein plaintiffs aver that both the Andrade and Do defendants individually took part in the sale of the properties and/or the brokering of the loans at issue. Given that the second amended complaint does specifically aver that the Andrade and Do defendants engaged in selling, brokering, or appraising residential real property associated with the complaint, plaintiffs have sufficiently pled their first claim for relief.

1. IHCC's Motion to Dismiss is Denied as to Plaintiffs' Claim for Relief Under § 3605.

More specifically, IHCC argues that plaintiffs' claim is not a violation of section 3605 given that 1) plaintiffs do not aver that IHCC refused to issue a loan, but instead only aver that they were provided loans that were allegedly "designed to ultimately fail;" 2) plaintiffs' claim is contradictory given that it inconsistently cites undisclosed terms in the loans while also alleging that terms were disclosed but were only accepted by the plaintiffs because of pressure from the realtor; and, 3) plaintiffs fail to aver that IHCC's actions were discriminatory because "someone, someplace, got better loans, but not that IHCC made better loans to people similarly situated." In response, plaintiff argues that 1) section 3605 of the FHA makes it clear that the Act prohibits not just the refusal of loans, but the making and purchasing of a loan; 2) IHCC has no authority for the proposition that plaintiffs' knowledge of the predatory nature of the loans is in any way legally relevant to a discrimination claim; and, 3) IHCC acted in a discriminatory manner and thus violated section 3605 when it participated in ""reverse redlining."*fn4

As to IHCC's first contention, section 3605 does prohibit the "making or purchasing of loans or providing other financial assistance." See 42 U.S.C. § 3605 (b)(1). As to IHCC's second contention, its argument that plaintiffs are inconsistent in grounding their claims on both "undisclosed" and "disclosed" terms does not render it defective under the expansive pleading standard embodied in Rule 8. The rules are designed specifically to minimize disputes over pleading technicalities. See Conley v. Gibson, 355 U.S. 41, 47-48 (1957).

As to IHCC's third contention, although this issue has not been directly addressed by the Ninth Circuit, other courts have held that "reverse redlining" claims are cognizable under the FHA. See Honorable v. Easy Life Real Estate System, 100 F. Supp. 2d 885, 892 (N.D. Ill. 2000). In order to establish a prima facie case of discrimination in violation of section 3605 based on reverse redlining, the plaintiff must show: (1) that she is a member of a protected class; (2) that she applied for and was qualified for loans; (3) that the loans were given on grossly unfavorable terms; and, (4) that the lender continues to provide loans to other applicants with similar qualifications, but on significantly more favorable terms. See Matthews v. New Century Mortg. Corp., 185 F.Supp.2d 874, 886-87 (S.D. Ohio 2002). "In the alternative, if the plaintiff presents direct evidence that the lender intentionally targeted her for unfair loans...the plaintiff need not also show that the lender makes loans on more favorable terms to others." Id.

Here, plaintiffs have averred sufficient facts to plead "reverse redlining" under section 3605 given that the Second Amended Complaint recites: 1) they are members of a protected class; 2) they applied for and were qualified for loans; and, 3) IHCC gave them loans on grossly unfavorable terms. The absence of an averment that similarly situated people obtained loans on more favorable terms does not defeat the claim in that plaintiffs may be able to show directly that IHCC intentionally targeted them for unfair loans on the basis of their racial status, thus eliminating the necessity of proving the fourth element of the prima facie case. See Matthews, 185 F. ...

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