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Bank of America Corporation et al v. Superior Court of Los Angeles County

August 24, 2011

BANK OF AMERICA CORPORATION ET AL., PETITIONERS,
v.
SUPERIOR COURT OF LOS ANGELES COUNTY, RESPONDENT; PAUL RONALD ET AL., REAL PARTIES IN INTEREST.



ORIGINAL PROCEEDINGS in mandate. William F. Highberger, Judge. (Los Angeles County Super. Ct. No. BC409444)

The opinion of the court was delivered by: Klein, P.J.

CERTIFIED FOR PUBLICATION

Petition granted.

Defendants and petitioners Bank of America Corporation, Countrywide Financial Corporation, Countrywide Home Loans, Inc., Recontrust Company, N.A., and CTC Real Estate Services (collectively, Countrywide or defendants)*fn1 seek a writ of mandate directing respondent superior court to vacate its order overruling Countrywide's demurrer to the first cause of the operative third amended complaint (TAC), and to enter a new and different order sustaining the demurrer to said cause of action without leave to amend.

Plaintiffs and real parties in interest Paul Ronald, Lisa Ronald and 246 others (collectively, plaintiffs), allege they are borrowers who obtained Countrywide-originated residential mortgage loans. In this litigation, which is currently pending in the trial court, plaintiffs are prosecuting a variety of claims against Countrywide. This writ petition relates solely to plaintiffs' cause of action for fraudulent concealment, which is the first cause of action of the TAC. The trial court overruled Countrywide's demurrer to said cause of action and certified its ruling for writ review pursuant to Code of Civil Procedure section 166.1 (section 166.1). Countrywide filed the instant petition for writ of mandate and we issued an order to show cause.

We grant Countrywide's petition. We conclude the plaintiffs/borrowers cannot state a cause of action against Countrywide for fraudulent concealment of an alleged scheme to bilk investors by selling them pooled mortgages at inflated values, the demise of which scheme led to devastated home values across California. Due to the generalized decline in home values which affects all homeowners (borrowers of Countrywide, borrowers who dealt with other lenders, and homeowners who owned their homes free and clear), there is no nexus between Countrywide's alleged fraudulent concealment of its scheme to bilk investors and the diminution in value of the instant borrowers' properties.

FACTUAL AND PROCEDURAL BACKGROUND

1. Pleadings.

Plaintiffs filed this action on March 12, 2009. The operative TAC, filed July 7, 2010, alleged in pertinent part:

By 2005, Countrywide was the largest mortgage lender in the United States, originating over $490 billion in loans in that year alone. Countrywide's founder and CEO, Angelo Mozilo determined that Countrywide could not sustain its business "unless it used its size and large market share in California to systematically create false and inflated property appraisals throughout California. Countrywide then used these false property valuations to induce Plaintiffs and other borrowers into ever-larger loans on increasingly risky terms." Mozilo knew "these loans were unsustainable for Countrywide and the borrowers and to a certainty would result in a crash that would destroy the equity invested by Plaintiffs and other Countrywide borrowers."

Mozilo and others at Countrywide "hatched a plan to 'pool' the foregoing mortgages and sell the pools for inflated value. Rapidly, these two intertwined schemes grew into a brazen plan to disregard underwriting standards and fraudulently inflate property values . . . in order to take business from legitimate mortgage providers, and moved on to massive securities fraud hand-in-hand with concealment from, and deception of, Plaintiffs and other mortgagees on an unprecedented scale."

Countrywide had a duty to "disclose to each borrower, including each Plaintiff herein, that the mortgage being offered to the Plaintiff was, in fact, part of a massive fraud that Countrywide knew would result in the loss of the equity invested by Plaintiff in his home and in severe impairment to Plaintiff's credit rating." Countrywide's fraudulent scheme "destroyed California home values county-by-county and then State-wide." (Italics added.)

At the time Countrywide "induced Plaintiffs to enter into mortgages, [it] knew [the] scheme would lead to a liquidity crisis and grave damage to each Plaintiff's property value and thereby result in each Plaintiff's loss of the equity such Plaintiff invested in his house." The "unraveling of the Defendants' fraudulent scheme has materially depressed the price of real estate throughout California, including the real estate owned by Plaintiffs, resulting in the losses to Plaintiffs[.]" (Italics added.)

The first cause of action for fraudulent concealment, which is the focus of this writ petition, incorporated by reference the above allegations and further pled:

Countrywide "was aware, but . . . failed to disclose, that [its] business model was unsustainable." Despite Countrywide's awareness of the risks it was undertaking, "Countrywide hid these risks from the borrowers, potential borrowers and investors." This concealment "was essential to [Countrywide's] overall plan to bilk investors, trade on inside information and otherwise pump [up] the value of Countrywide stock."

"As a proximate result of the foregoing concealment by Defendants, California property values have precipitously declined and continue to decline, gravely damaging Plaintiffs by materially reducing the value of their primary residences, depriving them of access to equity lines, second mortgages and other financings previously available based upon ownership of a primary residence in ...


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