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Stephens v. Lennar Corp.

March 31, 2010

STELLA STEPHENS, AND TIMOTHY YOUNG, AS INDIVIDUALS AND ON BEHALF OF ALL OTHER SIMILARLY SITUATED, PLAINTIFFS,
v.
LENNAR CORPORATION; LENNAR HOMES OF CALIFORNIA, INC.; UNIVERSAL MORTGAGE COMPANY; EAGLE HOME MORTGAGE, INC.; AND DOES 1 THROUGH 10, INCLUSIVE, DEFENDANTS.



The opinion of the court was delivered by: VIRGINIA A. Phillips United States District Judge

[Motion filed on January 22, 2010]

ORDER GRANTING DEFENDANTS' MOTION TO DISMISS FOR LACK OF STANDING, WITH PREJUDICE, AND DENYING DEFENDANTS' MOTION TO STRIKE AS MOOT

Defendants' Motions to Dismiss and to Strike came before the Court for hearing on March 15, 2010. After reviewing and considering all papers filed in support of, and in opposition to, the Motions, as well as the arguments advanced by counsel at the hearing, the Court GRANTS the Motion to Dismiss and DENIES the Motion to Strike as moot.

I. BACKGROUND

A. Plaintiffs' Allegations

Plaintiff Stella Stephens ("Stephens") alleges she purchased a new residence in November 2005 in Riverside County, California from Lennar Homes, paid cash for the residence, and still owns and occupies the residence. (First Amended Complaint ("FAC") ¶ 36.) Stephens and Lennar Homes executed a purchase contract and related disclosure documents in May 2005. (Motion ("Mot."), Request for Judicial Notice ("RJN"), Exs. A & B.)

Plaintiff Timothy Young ("Young") alleges he purchased a new residence in December 2006 in Riverside County, California from Lennar Homes, made a down payment of 45% of the total purchase price, and financed the balance through Universal American Mortgage Company ("UAMC"). (FAC ¶ 37.) Young and Lennar Homes executed a purchase contract and related disclosure documents in July 2006. (Mot., RJN, Exs. C & D.)

Plaintiffs Stephens and Young (collectively, "Plaintiffs") bring this putative class action on behalf of themselves and a national class including "[a]ll Lennar customers who purchased a new Lennar house from January 1, 2004, through December 31, 2006, and put 20% or more down toward the purchase of the house[,]" or alternatively, "a class of new Lennar Corporation customers whose homes are located in California." (FAC ¶¶ 49-50.)

Plaintiffs allege "on information and belief" that before 2004, Defendants Lennar Corporation, Lennar Homes of California, and UAMC (collectively, "Defendants" or "Lennar Defendants") implemented a "scheme" to increase the number of houses sold and to increase the amount of profit per sale. (FAC ¶ 19.) The "scheme" was intended to "convince government entities, then the community, and finally buyers that Defendants were building a traditional neighborhood with stable owners who occupied their homes and who were vested in the community and the neighborhood." (FAC ¶ 20.) "Implicit in this marketing scheme was that Defendants were making a good-faith effort to sell homes to buyers who [Defendants] expected could afford to buy the houses and would be stable neighbors." (Id.)

Plaintiffs allege that they were provided "marketing materials that depicted the community as a stable, family[-]based neighborhood." (FAC ¶¶ 36, 37.) Plaintiffs also allege "on information and belief" that Defendants represented that Lennar Homes requires buyers to occupy the houses and discourages speculation. (FAC ¶ 41.)

Plaintiffs allege Defendants engaged in a scheme to market the houses to, and provide financing for, "unqualified buyers who posed an abnormally high risk of foreclosure . . . to increase both the number of sales and the prices of the houses in same neighborhoods in which Defendants were selling to traditionally qualified and low-foreclosure- risk buyers." (FAC ¶ 21.) Plaintiffs generally allege that Defendants assisted and encouraged the "unqualified" buyers to appear qualified. (FAC ¶ 24.)

Plaintiffs assert that Defendants "concealed and intentionally failed to disclose to prospective buyers . . . that numerous houses in the neighborhoods were being purchased by unqualified and high-foreclosure-risk buyers, despite Defendants' knowledge that this could, and likely would over time, have a material negative effect on the value and desirability of the house and the neighborhood." (FAC ¶ 30.) Plaintiffs allege Defendants also failed to disclose that "they had sold houses, and planned to sell houses in the future, to investors who would not occupy the houses." (FAC ¶ 45.)

Plaintiffs allege two theories of harm stemming from Defendants' conduct. First, Plaintiffs allege they "paid inflated prices for their houses" as a result of Defendants' failure to disclose that "Defendants had sold houses . . . to unqualified and high-foreclosure-risk buyers. . . [and] to investors who would not occupy the houses." (FAC ¶¶ 45, 48.) Secondly, Plaintiffs allege they suffered an injury years after purchasing their houses when the real estate market declined and the "unqualified" buyers defaulted on their loans and lost their houses in foreclosure proceedings, which led to a decline in the value of Plaintiffs' residences. (FAC ¶¶ 32, 48.)

B. Procedural History

On September 3, 2009, Plaintiff Stephens filed a putative class action against the Lennar Defendants and Eagle Home Mortgage, Inc. On the same day, Plaintiff's counsel filed seven other similar class actions*fn1 ("Homebuilder Actions") alleging that the homebuilder defendants and their mortgage lending affiliates engaged in conduct that "artificially inflated" the purchases prices of plaintiffs' residences and eventually reduced their value.

On October 23, 2009, the Lennar Defendants and Eagle Home Mortgage, Inc. joined in a "Motion to Consolidate," which sought to consolidate the eight Homebuilder Actions. The Court denied the Motion to Consolidate. On November 18, 2009, the Homebuilder Actions were transferred to this Court. On December 21, 2009, Plaintiff Stephens and a newly added plaintiff, Plaintiff Young, filed the FAC, which removed Defendant Eagle Home Mortgage, Inc. and added allegations regarding the remaining three defendants, Lennar Corporation, Lennar Home of California, Inc., and Universal American Mortgage Company. The substance of the claims remains unchanged.

Plaintiffs allege five claims: (1) fraud; (2) negligent misrepresentation; (3) violation of California's Unfair Business Practices Act, Cal. Bus. & Prof. Code §§ 17200, et seq.; (4) violation of Cal. Bus. & Prof. Code §§ 17500, et seq.; and (5) breach of the implied covenant of good faith and fair dealing.

On January 22, 2010, Defendants filed: (1) a Motion to Dismiss the First Amended Complaint ("Motion"), (2) a Motion to Strike Portions of the First Amended Complaint, (3) the Declaration of Richard S. Ruben ("Ruben Decl.") (4) a Request for Judicial Notice, and (5) a Compendium of Unpublished and Out-of-State Opinions. On February 22, 2010, Plaintiffs filed Opposition*fn2 to both Motions. On March 4, 2010, Defendants filed a Reply for both Motions and a Request for Judicial Notice.

Defendants argue the FAC should be dismissed for the following reasons: (1) Plaintiffs lack constitutional standing to bring this action; (2) Plaintiffs fail to allege their fraud-based claims with particularity as required by Rule 9(b); (3) Plaintiffs fail to state a claim as to each cause of action under 12(b)(6). (Mot. at 1-2.)

II. LEGAL STANDARD FOR MOTION TO DISMISS UNDER RULE 12(b)(6)

Rule 12(b)(6) allows a party to bring a motion to dismiss for failure to state a claim upon which relief can be granted. As a general matter, the Federal Rules require only that a plaintiff provide "'a short and plain statement of the claim' that will give the defendant fair notice of what the plaintiff's claim is and the grounds upon which it rests." Conley v. Gibson, 355 U.S. 41, 47 (1957) (quoting Fed. R. Civ. P. 8(a)(2)); Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007). In addition, the Court must accept all material allegations in the complaint -- as well as any reasonable inferences to be drawn from them -- as true. See Doe v. United States, 419 F.3d 1058, 1062 (9th Cir. 2005); ARC Ecology v. U.S. Dep't of Air Force, 411 F.3d 1092, 1096 (9th Cir. 2005).

"While a complaint attacked by a Rule 12(b)(6) motion to dismiss does not need detailed factual allegations, a plaintiff's obligation to provide the 'grounds' of his 'entitlement to relief' requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do." Bell Atlantic, 550 U.S. at 555 (citations omitted). Rather, the ...


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