Searching over 5,500,000 cases.

Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.

Christopher Nero; Maria Nero v. Nita Evans

July 8, 2011


The opinion of the court was delivered by: Louisa S Porter United States Magistrate Judge



On May 5, 2009, Plaintiffs Christopher and Maria Nero filed a Complaint alleging twenty-one claims against Defendants Nita Evans ("Evans"), individually and as trustee of the Evans Family Trust UDT Dated 3-10-86 ("the Evans Family Trust"), James Tondelli Sr. ("Tondelli"), Presidio Mortgage, Inc. ("Presidio"), CalPacific Mortgage Consultants ("CalPacific"), and Does 1 through 20.*fn1 (ECF No. 1.) Plaintiffs subsequently settled with Defendants CalPacific, Nita Evans and the Evans Family Trust. (ECF Nos. 9 and 29.)

On October 8, 2010, the Honorable Dana M. Sabraw held a Pretrial Conference, during which Plaintiffs were informed for the first time that their attorney, Kent Wilson, had resigned from the California State Bar so that they had no attorney to represent them at trial. (See ECF No. 33.)

The Court continued the trial for 30 days to allow Plaintiffs to obtain new counsel. (Id.) On November 5, 2010, Orlando Foote, Esq., the new counsel, filed his appearance as Plaintiffs' attorney of record. (ECF No. 38.) The parties consented to Magistrate Judge jurisdiction on March 1, 2011. (ECF No. 52.)

At the time of the original Pretrial Conference, Plaintiffs' allegations stemmed from the 2009 foreclosure proceedings against their home on Cahuilla Avenue in Imperial, California.*fn2 However, at the May 3, 2011 Pretrial Conference held before Magistrate Judge Louisa S Porter, Plaintiffs' new attorneys disclosed an intention to present evidence at trial on the theory that Defendants engaged in a pattern or practice of predatory lending. Counsel then indicated that both loans obtained by Plaintiffs from Evans and Presidio would be relevant to the issues of the case: the 2006 loan for the purchase of the Dennis Court Property ("the First Loan") and the 2007 loan for the purchase of the Cahuilla Property ("the Second Loan"). Plaintiffs also abandoned nine claims, leaving the following claims against Defendants Tondelli and Presidio: (1) intentional misrepresentation; (2) breach of fiduciary duty; (3) breach of covenant of good faith and fair dealing; (4) violation of California Financial Code § 4970, et seq.; (5) negligence; (6) accounting; (7) violation of the Real Estate Settlement Procedures Act, 12 U.S.C. §§ 2601, et seq.; (8) violation of California Business and Professions Code §§ 17200, et seq.; (9) violation of California Civil Code § 2923.5; (10) violation of California Civil Code § 1572; (11) conspiracy; and (12) breach of contract. (See ECF No. 66 at 21.)

The parties waived jury trial on April 19, 2011 (ECF No. 62) and a bench trial commenced before Judge Porter on May 9, 2011.

The Court provided Plaintiffs with considerable latitude in allowing them to (1) change their arguments after the pretrial conference before District Judge Sabraw, and (2) permitting Plaintiffs to subpoena documents directly to Court on the first day of trial. However, at the Pretrial Conference before Magistrate Judge Porter, Plaintiffs attempted to add an expert witness, Winston P. Ohrn. Upon objection by counsel for Defendants, the Court struck Mr. Ohrn as a potential witness. At no time did either party seek a continuance. Plaintiffs also attempted to supplement the record after the trial had ended, which was denied by the Court in an Order stating, "[the Court] will not accept additional evidence at this stage of the proceedings." (ECF No. 80).


Plaintiffs filed the instant action in federal court on May 5, 2009. (ECF No. 1.) In the Pretrial Order dated February 18, 2011, the Honorable Dana M. Sabraw found the Court had jurisdiction, including subject matter jurisdiction over the matter. (See ECF No. 49 at 3.) However, at the time of trial, Plaintiffs had abandoned all of their federal causes of action save the violation of the Real Estate Settlement Procedures Act ("RESPA"), 12 U.S.C. § 2601(b)(2). (See ECF No. 66 at 26.) As noted below, RESPA does not apply to the loans at issue. Though it is within the Court's discretion to remand the state law causes of action, the Court finds that Plaintiffs' claims arise from the same common nucleus of operative facts and are also so intertwined that the interests of efficiency and judicial economy prevail. The Court elects to exercise supplemental jurisdiction under 28 U.S.C § 1367 and decide Plaintiffs' state law causes of action as well.


Based upon stipulated facts, findings of fact in the Pretrial Order and the evidence presented at trial, this court makes the following Findings of Fact:

Plaintiff, Christopher Nero, was employed by the Imperial County Irrigation District for eleven years prior to the events that gave rise to the instant action. In 2003 he sustained a serious injury to his left shoulder while performing his job as a water patrol which resulted in significant pain and loss of work. Although he had every intent to return to work, Christopher Nero was off work on temporary disability and receiving workers compensation benefits until mid 2007. For the 2 1/2 years prior to 2005, Plaintiffs lived in a mobile home in Imperial, California. The Nero household consisted of Christopher, Maria, and their two children. Plaintiffs, Christopher and Maria Nero, had not previously owned real property or applied for a mortgage and were unfamiliar with those processes.

In 2005, Mr. Nero's grandmother deeded to him her home located on Demus Street in San Diego, California which was free and clear of any liens ("the San Diego Property"). Despite receiving title to the San Diego Property, Plaintiffs desired to purchase a home of their own in Imperial. They contacted Joe McCormick*fn3 , a real estate agent, and, with his assistance, located a home on Dennis Court in Imperial ("the Dennis Court Property"). Plaintiffs' credit rating was abysmal and therefore they could not qualify for any conventional loan to purchase the Dennis Court Property.*fn4 Because of this, McCormick referred Plaintiffs to Jim Potts and CalPacific to explore financing options. After reviewing their credit score and loan application with stated income, Potts advised Plaintiffs that they could not qualify for either a conforming loan or a sub-prime mortgage, but there was still hope for them to obtain a loan. He told them he would "put them in the system." Because Potts was not licensed to secure hard-money loans, he contacted Dale Huntley at Presidio, who specialized in originating private loans, to discuss possible hard-money lending.

On January 18, 2006, Plaintiffs signed an Agency Agreement with Presidio ("the 2006 Agency Agreement"). (Exhibit 34.) In it, Plaintiffs agreed to appoint Presidio as their exclusive agent to find and procure a lender and complete a loan agreement on their behalf for a stated commission. In return, Presidio agreed to use its best efforts to secure a lender for Plaintiffs. The agreement for the exclusive agency appointment was limited to one month and was irrevocable until February 18, 2006. The Agency Agreement expressly disclosed that a dual-agency relationship may exist as Presidio may also be an agent for the lender.

That same day, Plaintiffs completed and signed a Loan Purpose Statement (Exhibit 49) in which Plaintiffs represented the loan would be used for the purchase of real property and for business purposes, i.e., to purchase the Dennis Court Property and to renovate the San Diego Property for sale or rental.*fn5 In this transaction, all documents were sent to Potts and signed by the Plaintiffs at the same time, which included the agency agreement and the disclosure statement setting forth the commission, loan amount and terms. In particular, it proposed loan terms of 10.5% interest for 5 years, with interest only payments and a balloon payment at the end of the 5 year term.

These terms were approved by the Neros. Based on the testimony, it remains unclear who proposed the total loan amount. Potts testified that the Neros initial request was a "cash out" loan on the San Diego Property to enable them to purchase the Dennis Court Property for cash. However, the San Diego property did not appraise sufficiently for such a loan resulting in both properties being required for the loan collateral. Based on this change the Neros requested a loan sufficient to purchase the Dennis Court property, provide them with cash to fix up the San Diego Property and to pay off debt. Nita Evans, a 92 year old private hard-money lender, agreed to lend $350,000 to the Neros. Plaintiffs did not have any contact with Tondelli during the loan application process.

The Loan Escrow Instructions, signed by Tondelli and Christopher Nero, confirm that both the Dennis Court Property and the San Diego Property were encumbered as security for the loan. (Exhibit 43.) The two homes had a combined value of $686,000, which was a sufficient loan to value ratio to support the $350,000 loan. The Mortgage Loan Disclosure Statement, signed by both Plaintiffs, reflects the loan amount and lien on both properties. (Exhibit 35.) On February 3, 2006, both Plaintiffs signed and recorded a Short Form Deed of Trust and Assignment of Rent documents for the Dennis Court and San Diego Properties, which designate Evans and the Evans Family Trust as beneficiary of the properties. (Exhibits 2 and 3.) Despite this documentation, Plaintiffs testified it was their belief that the San Diego Property would be the only property encumbered by this loan. The Neros both testified that they were rushed into signing loan document papers. Conversely, Potts testified it was his practice to explain the terms and conditions of a loan to his clients. Despite the conflicting testimony, the Court finds that both the San Diego Property and the Dennis Court Property were encumbered as security for the first loan.

The Dennis Court Property was purchased for $268,500.*fn6 (Exhibit 1.) The February 3, 2006 Settlement Statement on the Dennis Court Property reveals a total settlement charge of $49,353.97, which included the following: $17,500 commission to Presidio; $955 processing fee to Presidio; and $7750 commission to CalPacific. (Id.) The statement further indicates that Plaintiffs received $32,929.11 in cash. (Id.) The Plaintiffs used these funds to pay off various debts, including Mrs. Nero's approximately $18,000 car loan. Plaintiffs also invested approximately $10,000 to renovate the San Diego Property. Plaintiffs then opted to sell the San Diego Property rather than rent it. An unnamed San Diego realtor advised the Neros that the property would show better if empty. Based on this advice, the Neros did NOT rent the San Diego property during the time the property was listed for sale but listed the home for its loan appraised value of $418,000. However, it was on the market for over a year with no offer. During that time period, the market for single family homes entered a downward cycle and Plaintiffs derived no revenue from the San Diego Property.

The monthly payment on the First Loan was $3,062.50. Plaintiffs made nine timely payments totaling approximately $27,000. During this time period, Plaintiffs paid interest on the loan and even attempted to pay additional amounts towards the principal. Evans rejected these excess payments, claiming it would be "too difficult" for her to do the book-keeping if the Neros on occasion paid varying amounts towards the principal. Evans applied the extra payments to the following month's interest payment.

After nine payments, based on the Neros then-stated combined incomes of $3,600 per month, Plaintiffs could no longer afford the $3000 monthly payments and became fearful of foreclosure on the property. Mr. Nero testified he contacted Evans to explain their inability to make the monthly payments and asked Evans to take the San Diego Property in forgiveness of the loan. According to Mr. Nero's testimony, Evans responded, "Why? I have both homes as security for the loan." Despite the fact that his signature appears on the Loan Escrow Instructions (Exhibit 43), Mortgage Loan Disclosure Statement (Exhibit 35) and Deed of Trust (Exhibit 2), Mr. Nero claimed this was the first time he was aware of the lien on the Dennis Court Property.

Mr. Nero testified that he feared an impending foreclosure and that Evans would take both properties. Even though the Neros were not making payments, Nita Evans never initiated foreclosure proceedings on the properties. Plaintiffs attempted unsuccessfully to sell the San Diego Property. The Dennis Court Property had insufficient value to cover the First Loan and property values in Imperial were significantly depressed by that time.

Mrs. Nero gave birth to their third child during this period. She testified that they needed a home with more room to accommodate the larger family. By December, 2006 and with the assistance of Joe McCormick, Plaintiffs located the Cahuilla home in Imperial ("the Cahuilla Property"). Plaintiffs located this home before they sold either the San Diego Property or the Dennis Court Property. They would be able to close on the Cahuilla Property as soon as they acquired the the money but that required that they sell both the San Diego and Dennis Court properties to proceed with the purchase. Their credit had not improved since the First Loan transaction, so once again they could not qualify for either a conforming or sub-prime mortgage. Faced with this circumstance, McCormick again referred Plaintiffs to Potts and CalPacific to assist in financing. Potts informed the Plaintiffs that their only option for financing would be a hard-money loan from Presidio and Evans.

On January 9, 2007, Plaintiffs signed a second Agency Agreement with Presidio ("the 2007 Agency Agreement"). (Exhibit 10.) In exchange for a $11,480 commission, Plaintiffs agreed to appoint Presidio as their exclusive agent to find a lender and complete a loan agreement. In return, Presidio again agreed to use its best efforts to secure a lender. The agreement provided the agency appointment was irrevocable until February 19, 2007. Identical to the 2006 Agency Agreement, this agreement notified Plaintiffs that a dual-agency relationship may exist. Plaintiffs had no contact with Tondelli during the second loan application process; all dealings were with Mr. Potts.

Surprisingly, Plaintiffs sold both the Dennis Court Property and the San Diego Property within weeks of one another. According to the January 10, 2007 Settlement Statement for the San Diego Property, Plaintiffs paid off the First Loan of $350,000, netting an additional $130,000 from the sale of the properties. (Exhibit 15.) They also paid $14,700 to Evans as a "prepayment penalty" on the First Loan. (Id.) Plaintiffs never requested forgiveness of the penalty. However, at trial, all of the witnesses testified that had Plaintiffs waited two weeks, the prepayment penalty provision of the First Loan would have expired and they would not have owed this amount to Evans. According to Potts' testimony, it was against his advice that the Neros insisted on closing on the Cahuilla Property as quickly as possible.

Approximately two weeks later, on January 24, 2007, Plaintiffs closed on the Cahuilla Property. (Exhibit 23.) The Neros purchased the home for $264,000, using $100,000 from the sale of the Dennis Court and San Diego Properties as a down payment. Evans financed the remainder with a new $164,000 loan.*fn7 (Id.) The Settlement Statement on the Cahuilla Property reveals a total settlement charge of $15,581.06, which included the following disbursements: $8200 commission to Presidio; $955 processing fee to Presidio; and $3280 commission to CalPacific. (Exhibit 23.)

The Second Loan issued under the same terms as the First Loan; except the interest rate increased by one point to 11.5%. The Loan Purpose Statement indicates the Second Loan was secured only for the purchase of residential property.*fn8 (See Exhibit 25.) The Second Loan obligated Plaintiffs for monthly interest-only payment to Evans reduced to $1571.67. At this time, Plaintiffs still had a combined income of $3600 a month and testified they were happy with the monthly payments on the loan. However, the parties presented conflicting evidence regarding a promise to refinance. The Plaintiffs testified to being promised the opportunity to refinance after one year and entered the Second Loan in reliance on that promise. Tondelli testified, however, that no such promise was made. The Plaintiffs' testimony at trial also conflicted with their earlier deposition testimony. Mr. Nero stated in his deposition that there was no promise to refinance the Second Loan after one year. Mrs. Nero's deposition testimony was identical to her husband's on this issue. The court finds that based on the lack of contact with Tondelli or Presidio, the only remaining Defendants in this case, the claimed promise was not made by either Tondelli or Presidio.

After making only four payments on the Second Loan, Plaintiffs' circumstances changed dramatically. When Christopher Nero received the loan on the Cahuilla Property, he believed he would be going back to work. While fully employed he earned a monthly salary of $4,186.00. Mr. Nero's medical condition rendered him unable to return to work and his worker's compensation benefits ceased after two years of payments. Plaintiffs then sought assistance from Mr. Nero's grandparents, who paid an additional two months payments on the Second Loan. Mr. Nero also contacted his employer for assistance where he was informed of his company-sponsored long-term disability insurance policy with Hartford Insurance. Mr. Nero started to collect $2400 per month from this policy, but the payments arrived late on numerous occasions. Moreover, Mr. Nero's growing medical problems required the Plaintiffs to make more visits to a doctor in San Diego, which increased the family's expenses. At the same time, the family's income decreased because Mrs. Nero often took time off of work to accompany her husband to these appointments. At some point, Plaintiffs relayed their situation to Evans, who told them to "hurry and make your payments."

Fourteen months after the Second Loan, Mr. Nero called Tondelli and asked for help refinancing the Second Loan under the Agency Agreement. According to Mr. Nero's testimony, Tondelli chuckled and said "I am Nita's agent, not yours." Mr. Nero then contacted Evans directly, who said she would get in touch with Tondelli. By October 2008, Plaintiffs had also contacted the Doan Law Firm for assistance in modifying their mortgage payments. (See Exhibits 44-45.) Plaintiffs' then attorneys negotiated with Evans on their behalf. (Id.) It is unclear when Evans presented Plaintiffs with loan modification options, but it is clear she made two oral offers to modify the Second Loan (as detailed below), both of which were rejected by Plaintiffs.*fn9

Shortly after this rejection, Tondelli served Plaintiffs with a Notice of Default. (See Exhibit 27.) A written declaration containing Evans' attempts to modify the loan, however, was not provided with the Notice of Default. The Default (Exhibit 27), recorded on November 5, 2008, lists Presidio as the duly appointed trustee on the Deed of Trust (Exhibit 18), executed by Plaintiffs on January 16, 2007. Plaintiffs then filed an Ex Parte Application for Temporary Restraining Order in Imperial County Superior Court to stop the foreclosure. However, they were unable to post the $10,000 bond required for that relief. (See Exhibits 46-47.) The Neros remained in the Cahuilla Property without making payments for a number of months. At some point, they moved in with Mrs. Nero's parents, where they currently reside.

On February 11, 2009, Presidio recorded the Notice of Trustee's sale of the Cahuilla Property setting the date and time of sale for March 5, 2009 at 3:00 p.m. (Exhibit 28.) Evans, who took ownership of the Cahuilla Property as the credit bidder, passed away while this action was pending.*fn10 The property is presently held in the Estate of Nita Evans.


A. Joint Venture

As a preliminary matter, Plaintiffs argue Defendants Tondelli and Presidio engaged in a joint venture with Potts to generate commissions by securing hard-money loans. Because Potts was not licensed to broker hard-money loans, Plaintiffs contend Potts had to cooperate with Defendants to secure the loan transactions in this case. Plaintiffs contend this created a joint venture such that, even though Plaintiffs settled with Potts, Defendants Tondelli and Presidio may be held liable for any of Potts' misrepresentations or predatory lending practices.

Defendants contend that no joint venture existed. At best, Potts and Defendants were cooperating brokers under California real estate law and the transaction at issue in this case was a simple referral by Potts to Defendants.

"A joint venture exists where there is an agreement between the parties under which they have a community of interest, that is, a joint interest, in a common business undertaking, an understanding as to the sharing of profits and losses, and a right of joint control." Bank of California v. Connolly, 36 Cal. App. 3d 350, 364 (1973) (internal quotations omitted); see also Kaligian v. Menezes, 36 Cal. App. 4th 573, 586 (1995); CA BAJI 13.40 (Spring 2011 Ed.). An essential element of a "joint venture is the right of joint participation in the management and control of the business. Absent such right, the mere fact that one party is to receive benefits in consideration of services rendered" does not, as a matter of law, make him a joint venturer. Bank of California, 36 Cal. App. 3d at 364 (internal citations omitted). "Whether a joint venture relationship exists is a question of fact, depending on the intention of the parties." Pellegrini v. Weiss, 165 Cal. App. 4th 515, 525 (2008) (citing April Enterprises, Inc. v. KTTV, 147 Cal. App. 3d 805, 820 (1983)); see also Preach v. Monter Rainbow, 12 Cal. App. 4th 1441, 1457 (1993).

Here, there is no evidence in the record that Defendants and Potts intended to form a joint venture. Although Potts had worked with Presidio on multiple occasions, he testified he referred Plaintiffs to Presidio in this case only because they would not qualify for conforming or sub-prime mortgages from any other lender. According to Potts, he "had no other option" to secure a lender for the Neros. Even assuming the loan transactions at issue constituted a "common business undertaking," there is no indication Potts and Presidio shared a right of joint control. In fact, the limited evidence presented suggests Potts and Presidio performed different roles during the loan application process. Potts prepared the loan applications and interacted with Plaintiffs, but he had no ability to locate or secure a loan. On the other hand, Tondelli and Presidio did not have a license to prepare loan applications or secure any loans other than hard-money loans. In fact, Presidio secured a lender for Plaintiffs without any participation from Potts, then sent a series of documents to Potts' office for Plaintiffs to sign. While Presidio and CalPacific, Potts' employer, both received commissions based on their individual roles in the loan process, commissions which were fully disclosed to Plaintiffs, each performed different functions in the process. (See Exhibits 1 and 23.)

At closing, Plaintiffs cited Gray v. Jannss Investment Co., 186 Cal. 634 (1921), for the premise that mere cooperation among real estate brokers is sufficient to form a joint venture. In Gray, plaintiffs, real estate brokers, brought action against defendants, also real estate brokers, to recover a portion of the commission paid for an exchange of property. In Gray, plaintiffs alleged that after a series of negotiations, the parties entered an oral agreement to cooperate in the transaction and share the commission. Based on the partnership between the parties, the Supreme Court of California held plaintiffs were entitled to real property received by defendants as commission from the exchange. 186 Cal. at 642-43.

While cooperating brokers may form a partnership or joint venture under some circumstances, Gray does not support the proposition that cooperation alone is sufficient to form a joint venture. Evidence that Potts cooperated with Presidio does not establish a joint venture absent the parties' intention and the essential element of a right to joint control. See Bank of California, 36 Cal. App. 3d at 364. Accordingly, the Court finds there is insufficient evidence of a joint venture and therefore Defendants cannot be held liable for Potts' alleged misconduct on that basis.

B. Conspiracy

Although not specifically argued at trial, in Count 20 of their Complaint, Plaintiffs argue Defendants may also be liable for Potts' actions on the basis of a conspiracy. "Conspiracy is not a cause of action, but a legal doctrine that imposes liability on persons who, although not actually committing a tort themselves, share with the immediate tortfeasors a common plan or design in its perpetration." Applied Equipment Corp. v. Litton Saudi Arabia Ltd., 7 Cal. 4th 503, 510-11 (1994). "By participation in a civil conspiracy, a coconspirator effectively adopts as his or her own the torts of other coconspirators within the ambit of the conspiracy. In this way, a coconspirator incurs tort liability co-equal with the immediate tortfeasors." Id. at 511.

To prove a claim for civil conspiracy, Plaintiffs must establish: "(1) the formation and operation of the conspiracy, (2) the wrongful conduct in furtherance of the conspiracy, and (3) damages arising from the wrongful conduct." Kidron v. Movie Acquisition Corp., 40 Cal. App. 4th 1571, 1581 (1995) (citing Applied Equipment Corp. v. Litton Saudi Arabia Ltd., 7 Cal. 4th 503, 511 (1994)); see also Doctor's Company v. Superior Court, 49 Cal. 3d 39, 44 (1989). "The sine qua non of a conspiratorial agreement is the knowledge on the part of the alleged conspirators of its unlawful objective and their intent to aid in achieving that objective." Kidron, 40 Cal. App. 4th at 1581 (internal quotations omitted.) "Mere association does not make a conspiracy." Id. at 1582.

Plaintiffs seem to suggest Potts and Defendants conspired to place them in situations where they were "bound to fail." It is unclear from the record what Plaintiffs contend was the object of the alleged conspiracy. The Court presumes, based on arguments presented at trial, that the object of the conspiracy was the generation of commissions and foreclosure of the properties. Yet, there is no evidence of any agreement between Defendants and Potts whatsoever, let alone a conspiratorial agreement, to generate commissions or prey upon Plaintiffs' poor credit history and coerce them into loans they could not afford.*fn11 The record demonstrates only that Potts referred Plaintiffs to Presidio because he was unable to secure any other lender. If Potts committed any wrongful acts during the loan application process, there is no evidence he did so in furtherance of a conspiratorial agreement, or that Defendants had any knowledge of Potts' ...

Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.