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Chang Bee Yang, An Individual, and Lau Yang, An Individual v. Sun Trust Mortgage

December 22, 2011

CHANG BEE YANG, AN INDIVIDUAL, AND LAU YANG, AN INDIVIDUAL,
PLAINTIFFS,
v.
SUN TRUST MORTGAGE, INC., A VIRGINIA CORPORATION; AND DOES 1 THROUGH 25, INCLUSIVE
DEFENDANTS.



ORDER RE: MOTION TO DISMISS (Doc. 57)

I. INTRODUCTION

Defendant SunTrust Mortgage, Inc., has filed a motion to dismiss the third amended complaint pursuant to Federal Rules of Civil Procedure 12(b)(6) and 41(b). For reasons discussed below, the motion shall be granted in part and denied in part.

II. FACTS AND PROCEDURAL BACKGROUND*fn1

On September 21, 2011, plaintiffs Chang Bee Yang and Lau Yang ("Plaintiffs") filed their third amended complaint (TAC) against defendants SunTrust Mortgage, Inc. (erroneously sued as Sun Trust Mortgage, Inc.) and Does 1 through 25, inclusive, asserting five causes of action for fraud, negligent misrepresentation, unfair business practices in violation of California Business and Professions Code Section 17200, intentional infliction of emotional distress and breach of contract. In the general allegations section of the TAC, Plaintiffs allege as follows:

"7. On or about December 16, 2006, PLAINTIFFS and DEFENDANT SUN TRUST MORTGAGE, INC. and DOES 1 through 25, inclusive (hereinafter collectively referred to as 'DEFENDANTS') entered into a Residential Construction Loan Agreement (hereinafter 'Agreement') wherein DEFENDANTS agreed to loan and PLAINTIFFS agreed to borrow the sum of $742,450.00 . . . . [¶] 8. PLAINTIFFS acquired the loan from DEFENDANTS in order to purchase certain real property located at 10966 E. Promontory Way, Clovis CA, 93619, and to construct a residential home thereon (hereinafter referred to as the 'Project')[.] [¶] 9. PLAINTIFFS hired Sierra Custom Homes, Inc. (hereinafter referred to as 'Contractor') to construct the residential home on the property. [¶] 10. PLAINTIFFS used $200,000.00 of the loan monies to purchase the lot, and according to the Agreement, the remaining $542,450.00 was to pay for work by the Contractor." Plaintiffs further allege:

"11. Pursuant to the Agreement, the loan monies were to be deposited into an account with DEFENDANTS, and according to Paragraph 2 of the Agreement, the proceeds of the loan were to be advanced by DEFENDANTS at such times as Contractor reached stages of completed work. [¶] 12. However, Paragraph 7 of the Agreement required that PLAINTIFFS irrevocably appoint DEFENDANTS as PLAINTIFFS' Power of Attorney. It also stipulated that DEFENDANTS could make all payments directly to the contractor, in disregard of other provisions of the Agreement. [¶] 13. Additionally at DEFENDANTS' request, PLAINTIFFS executed a Disbursement Authorization whereby DEFENDANTS were authorized to distribute funds directly to Contractor . . . . [¶] 14. DEFENDANTS advised PLAINTIFFS by written correspondence that DEFENDANTS were responsible for coordinating inspections and disbursing funds throughout the construction phase."

Plaintiffs further allege:

"15. PLAINTIFFS are informed and believe, and thereon allege, that on or around January 31, 2007, MICHAEL J. CARTER ('CARTER'), a California licensed real estate appraiser, contracted with DEFENDANTS to inspect the Project on behalf of DEFENDANTS. [¶] 16. PLAINTIFFS are further informed and believe, that CARTER inspected the Project on or about January 31, 2007, February 13, 2007, February 26, 2007, June 26, 2007, July 9, 2007, August 3, 2007, September 7, 2007, October 15, 2007, December 27, 2007, January 18, 2008, February 8, 2008, March 14, 2008, April 21, 2008 and May 20, 2008, at the request of DEFENDANTS as DEFENDANTS' designated agent. [¶] 17. There were fifteen (15) total Draw Requests made by Contractor. DEFENDANTS paid each Draw Request before Plaintiffs had the opportunity to confirm that the Contractor had actually completed the work, which was the subject of each Draw Request. DEFENDANTS secretly made the first payment to Contractor on or around January 10, 2007, in the amount of approximately $27,756.00 without PLAINTIFFS' knowledge or authorization. DEFENDANTS paid the other fourteen (14) subsequent Draw Requests based upon concealed inspections of DEFENDANTS' agent, CARTER, without giving PLAINTIFFS the opportunity to control, monitor and/or verify whether Contractor had actually completed the work claimed to have been completed on the Project for which funds were requested. [¶] 18. Contractor failed to complete work paid for by DEFENDANTS."

On October 12, 2011, defendant SunTrust Mortgage, Inc. (hereinafter referred to as "Defendant") filed a motion to dismiss the TAC pursuant to Federal Rules of Civil Procedure 12(b)(6) and 41(b). On November 7, 2011, Plaintiffs filed their opposition to Defendant's motion to dismiss. On November 14, 2011, Defendant filed its reply to Plaintiffs' opposition.

III. LEGAL STANDARD

A complaint must contain "a short and plain statement of the claim showing that the pleader is entitled to relief." Fed. R. Civ. P. 8(a)(2). Where the plaintiff fails to allege "enough facts to state a claim to relief that is plausible on its face," the complaint may be dismissed for failure to allege facts sufficient to state a claim upon which relief may be granted. Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 1974, 167 L.Ed.2d 929 (2007); see Fed. R. Civ. P. 12(b)(6). "A claim has facial plausibility," and thus survives a motion to dismiss, "when the pleaded factual content allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Ashcroft v. Iqbal, 556 U.S. 662, 129 S.Ct. 1937, 1940, 173 L.Ed.2d 868 (2009). On a Rule 12(b)(6) motion to dismiss, the court accepts all material facts alleged in the complaint as true and construes them in the light most favorable to the plaintiff. Knievel v. ESPN, 393 F.3d 1068, 1072 (9th Cir. 2005). However, the court is not required to accept conclusory allegations, allegations contradicted by exhibits attached to the complaint or matters properly subject to judicial notice, unwarranted deductions of fact or unreasonable inferences. Daniels-Hall v. National Educ. Ass'n, 629 F.3d 992, 998 (9th Cir. 2010). "Dismissal with prejudice and without leave to amend is not appropriate unless it is clear . . . the complaint could not be saved by amendment." Eminence Capital, LLC v. Aspeon, Inc., 316 F.3d 1048, 1052 (9th Cir. 2003). The court may also dismiss an action or claim for failure to prosecute or comply with a court order. Fed. R. Civ. P. 41(b); see Pagtalunan v. Galaza, 291 F.3d 639, 642-43 (9th Cir. 2002).

IV. DISCUSSION

1. Plaintiffs' first cause of action (fraud) -- Plaintiff's first cause of action is for fraud. In California, " 'fraud is an intentional tort, the elements of which are (1) misrepresentation; (2) knowledge of falsity; (3) intent to defraud, i.e., to induce reliance; (4) justifiable reliance; and (5) resulting damage. [Citation.]' [Citation.]" Intrieri v. Superior Court, 117 Cal.App.4th 72, 85-86, 12 Cal.Rptr.3d 97 (2004). Having reviewed the TAC in its entirety, the Court finds Plaintiffs have adequately pled only some, but not all, of the elements for actionable fraud, and therefore fail to allege facts sufficient to state a claim upon which relief may be granted.

The threshold element of fraud by intentional misrepresentation is, of course, a misrepresentation. The TAC alleges Defendant made misrepresentations to Plaintiffs on several occasions between February 2008 and June 2008. For example, Plaintiffs allege:

"20. On February 4, 2008, Contractor issued a Draw Request to DEFENDANTS based upon work Contractor claimed to have completed on the Project ('February 2008 Draw Request')[.] [¶] 21. On or around February 8, 2008, CARTER, as DEFENDANTS' agent, at the request of DEFENDANTS, evaluated and inspected the work completed on the Project to date and subsequently completed an Inspection Report ('February 2008 Inspection Report')[.] The February 2008 Inspection Report contained the following representations as to the progress of the work completed on the project: [¶] a. Insulation: 75% complete; [¶] b. Exterior Windows and Doors: 100% complete; [¶] c. Permanent Roof: 85% complete; [¶] d. Drywall/Plaster: 100% complete; [¶] e. Interior Trim/Panel: 40% complete; and [¶] f. Interior Doors: 100% complete. [¶] 22. On or around February 8, 2008, CARTER, as DEFENDANTS' agent[,] submitted the February 2008 Inspection Report to DEFENDANTS with full knowledge that he had misrepresented the amount of work completed on the Project with respect to the exterior windows and doors and the interior doors."

Plaintiffs further allege:

"23. On or around February 11, 2008, DEFENDANTS knew that the February 2008 Inspection Report contained misrepresentations as to the progress of the work completed on the Project to date with respect to the exterior windows and doors and the interior doors. [¶] 24. Notwithstanding this fact, on or around February 11, 2008, DEFENDANTS paid Contractor $27,158.35 in accordance with the misrepresentations contained within the February 2008 Inspection Report." Plaintiffs further allege:

"25. On or around February 11, 2008, DEFENDANTS knowingly and intentionally misrepresented to PLAINTIFFS the amount of work completed on the Project to date by submitting written correspondence to PLAINTIFFS via U.S. Mail . . . , wherein DEFENDANTS represented to PLAINTIFFS that DEFENDANTS had issued a payment to Contractor in the amount of $27,158.35 as a result of the progress of the work on the Project which had been completed, including: [¶] a. Insulation: 100% complete; [¶] b. Exterior Windows and Doors: 100% complete; [¶] c. Permanent Roof: 100% ...


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