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Nelson v. Guild Mortgage Co.

August 20, 2008


The opinion of the court was delivered by: Oliver W. Wanger United States District Judge

SCHEDULING CONFERENCE ORDER Discovery Conference: 9/17/08 8:15 Ctrm. 3 Motion for Class Deadline: 1/14/09 Certification Filing Opposition Filing Deadline: 2/13/09 Reply Filing Deadline: 3/6/09 Hearing on Motion for Class Certification: 3/30/09 10:00 Ctrm. 3

I. Date of Scheduling Conference. August 20, 2008.

II. Appearances Of Counsel.

Seeger Weiss LLP by Mary Schimmel, Esq., appeared on behalf of Plaintiff.

K&L Gates LLP by Irene C. Freidel, Esq., appeared on behalf of Defendant.

III. Summary of Pleadings. Plaintiff's Statement

1. This is a putative class action. Plaintiff filed his complaint on May 14, 2008. The complaint asserts six causes of action and seeks a variety of legal remedies. There are two contract causes of action: breach of contract (Count 5) and breach of the implied covenant (Count 6). The Unfair Competition Law, Business and Professions Code §§ 17200 et seq., is the basis for two causes of action (Counts 2 and 4). The Truth in Lending Act ("TILA"), 15 U.S.C. §§ 1601, et seq., is the basis for an additional cause of action (Count 1). Plaintiff also asserts a cause of action for fraudulent omissions (Count 3). By Joint Stipulation of the parties, Defendant's Answer to the Complaint was filed on August 8, 2008.

2. Plaintiff, individually and on behalf of class members, alleges Defendant failed to make adequate disclosures in violation of TILA in connection with the Option ARM home loan Defendant sold to Plaintiff and other California consumers. Plaintiff alleges that the Option ARM loans and the documents Defendant used to sell them violate TILA. Plaintiff contends that TILA requires all lenders, including Defendant, to make certain disclosures to borrowers concerning the terms and conditions of their home loans in a clear and conspicuous manner. Plaintiff alleges that Defendant failed to clearly and conspicuously disclose, in their loan documents and in the federally required TILA disclosure statements: (a) the actual interest rate Defendant charged Plaintiff and consumers on their loans; (b) the payments on the notes at the initial low interest rate absolutely would result in negative amortization and that the principal balance absolutely would increase as a result; and (c) that the initial interest rate provided was discounted and does not reflect the actual interest that Plaintiff, and others, were paying on the loans. Plaintiff seeks the right of rescission, individually and on behalf of the Class, under TILA, as well as damages.

3. Plaintiff further alleges that Defendant violated California's UCL. Plaintiff has alleged two separate causes of action for violations of the UCL (Cal. Bus. & Prof. Code §§ 17200, et seq.) One UCL cause of action is premised on the "unlawful" prong of the UCL and is predicated solely on Defendant's failure to comply with TILA. The other UCL cause of action is premised on the "unfair" and "fraudulent" prongs of Plaintiff's UCL; it is based on allegations that Defendant sold deceptive financial products to consumers. Plaintiff seeks restitution and equitable relief on these claims.

4. Last, Plaintiff alleges that Defendant breached the express terms of the written contract entered by and between Plaintiff and Defendant by failing to apply any portion of Plaintiff's loan payments, which were based on the initial low interest rate, to reduce the principal balance on the loan. Defendant also failed to provide the low interest rate to Plaintiff's loan in the manner agreed by the parties. Plaintiff seeks damages and/or other equitable relief on these causes of action.

Defendant's Statement.

1. Defendant Guild Mortgage Company denies that it is liable to Plaintiff Adam Nelson in any respect. This case turns on disclosures that were provided to Mr. Nelson and each putative class member by their mortgage broker and/or Guild Mortgage when their Option ARM loans were originated, processed and/or closed. An Option ARM loan has an adjustable interest rate and allows the borrower to make one of several possible payment amounts each month ranging from a minimum payment amount, which may cause negative amortization to occur, to a fully-amortized 30-year (or 15-year) payment. Plaintiff applied for and obtained his Option ARM loan and, in the process, received and signed several disclosures from Guild Mortgage, including a Note and Adjustable Rate Program Disclosure, that disclosed the terms and operation of his loan. The question raised by Plaintiff's claims on the merits is whether the disclosures Plaintiff received, prior to loan funding, regarding the terms and operation of his Option ARM loan were adequate and appropriate in light of applicable legal requirements. Guild Mortgage contends that Plaintiff's claims do not have a factual or legal basis. The written disclosures Plaintiff received and signed complied in all respects with TILA; the terms and operation of Plaintiff's loan were otherwise properly disclosed to him; and he knowingly and voluntarily agreed to those terms. Thus, there is no basis for Plaintiff's claims under federal or state law.

2. Further, Guild Mortgage contends that Plaintiff's claims are not appropriate for certification. For example, Plaintiff's claims are based on individualized disclosure issues, and as such, Plaintiff will not be able to satisfy the requirements for certification under Fed. R. Civ. P. 23.

Similarly, Plaintiff's claim that Guild Mortgage violated TILA entitling Plaintiff and the putative class to loan rescission cannot be certified as a matter of Ninth Circuit law.

IV. Orders Re Amendments To Pleadings.

1. Plaintiff may amend the pleadings to name other entities in the loan "chain." Plaintiff proposes that since the identity of these potential Defendants cannot be known until further discovery is conducted, that the court allow amendments to the pleadings to that effect until December 15, 2008. Defendant denies that Plaintiff is entitled to amend his complaint to the extent that any proposed amendment fails to satisfy the requirements of Fed. R. Civ. P. 15.

V. Factual Summary.

A. Admitted Facts Which Are Deemed Proven Without Further Proceedings

1. Plaintiff is an individual resident of the Eastern District of California

2. Defendant, Guild Mortgage Company, is a corporation incorporated in the State of California, with its principal place of business in the Southern District of California at San Diego.

3. Plaintiff, Adam Nelson, is a consumer who obtained an Option ARM mortgage ...

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