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Federal Deposit Insurance Corporation v. Freestand Financial Holding Corporation

January 12, 2011

FEDERAL DEPOSIT INSURANCE CORPORATION
v.
FREESTAND FINANCIAL HOLDING CORPORATION, ET AL



The opinion of the court was delivered by: The Honorable David O. Carter, Judge

CIVIL MINUTES - GENERAL

Title:

Kathy Peterson Not Present

Courtroom Clerk Court Reporter

ATTORNEYS PRESENT FOR PLAINTIFFS: ATTORNEYS PRESENT FOR DEFENDANTS:

NONE PRESENT NONE PRESENT

PROCEEDING (IN CHAMBERS): ORDER GRANTING IN PART AND DENYING IN PART

MOTION TO DISMISS SECOND AMENDED COMPLAINT

Before the Court is Defendants Jesse Allen Gee and Martha Gee (collectively "Defendants") Motion to Dismiss (the "Motion"). The Court finds the matter appropriate for decision without oral argument. Fed. R. Civ. P. 78; Local R. 7-15. After considering the moving, opposing, and replying papers, the Court GRANTS IN PART and DENIES IN PART the Motion.

I. Background

The Federal Deposit Insurance Corporation ("FDIC") brings this action in its capacity as Receiver for Downey Savings and Loan Association, F.A. ("Downey"). FDIC's Second Amended Complaint ("SAC") alleges that Freestand Financial Holding Corporation ("Freestand") referred certain mortgage loan applications to Downey pursuant to a "Wholesale Loan Brokerage Agreement" (the "Agreement"). SAC ¶ 21. The Agreement was signed by Freestand's Secretary and majority shareholder, Martha Gee ("Martha"). Martha's husband, Jesse Allen Gee ("Jesse"), served as Freestand's President, and is also alleged to have been a majority shareholder of Freestand. Id. at ¶ 7. FDIC alleges that the Freestand entity was, in effect, an alter ego of Martha and Jesse Gee. Id. at ¶¶ 9-

Freestand submitted two loan applications to Downey that are the subject of the instant lawsuit. First, Downey approved a mortgage loan to Phu Vinh Tieu ("Tieu") in the amount of $460,000 that was secured by a first lien deed of trust recorded against real property in St. Gilbert, Arizona.Tieu's loan application, whose veracity was allegedly certified by Freestand, Martha, Jesse, and one of Freestand's salespersons, overstated Tieu's income by about $11,500, which allegedly induced Downey to approve the loan. Id. at ¶¶ 29-31. Tieu defaulted on the loan and Downey lost $261,541 on a subsequent short sale of the real property. Id. at ¶ 33. Second, Downey approved a mortgage loan to Deborah Gaxiola ("Gaxiola") in the amount of $325,000 that was secured by a first lien deed of trust on real property in Avondale, Arizona. SAC ¶ 37. Gaxiola's loan application and related documents, whose veracity were allegedly certified by Freestand, Martha, Jesse, one of Freestand's salespersons, and a property appraiser working with Downey, inflated Gaxiola's income by about $2000 per month and miscalculated the value of the real property used as security for the loan. Id. at ¶ 43. defaulted on the loan and Downey lost $163, 132 in a subsequent foreclosure sale of the real property.

FDIC brings claims for (1) breach of contract; (2) negligence; (3) negligent misrepresentation; (4) fraud; and (5) unjust enrichment against Freestand, Martha, Jesse, and two salespersons formerly employed by Freestand. The Court previously granted Defendants' Motion to Dismiss, finding that FDIC alleged its alter ego status-related claims and its unjust enrichment claim in a conclusory fashion, and that its claims for negligent misrepresentation and fraud failed to meet the heightened pleading requirements under ...


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