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Alvaro C. Hernandez v. Michael A. Madrigal

December 29, 2011


The opinion of the court was delivered by: Gregory G. Hollows United States Magistrate Judge


Plaintiff's motions for entry of default judgment against defendants Michael Madrigal, Jr. and LIS Mortgage Corporation ("LIS Mortgage"), filed November 3, 2011, (dkt. #s 81, 82), were submitted on the record. Upon review of the motions and the supporting documents, and good cause appearing, the court issues the following findings and recommendations.


Plaintiff filed this action in state court, and on February 10, 2009, defendant FDIC (as receiver for Downey Savings) removed it to this court. The amended complaint concerns an alleged equity stripping scheme in which defendant Madrigal, plaintiff's son-in-law and employee of LIS Mortgage, was able to refinance the home owned by plaintiff without plaintiff's knowledge or consent. Madrigal lived at the subject property with plaintiff's daughter. Madrigal and plaintiff's daughter eventually ended their relationship, and Madrigal entered into a relationship with defendant Williams,*fn1 an employee of defendant Financial Title Company.*fn2 The allegations are that Madrigal acted as a loan broker and Williams as an escrow agent and notary, and that they worked as co-conspirators in order to strip the property of its equity by deceit and fraud. Plaintiff further alleges that Countrywide Home Loans, Inc., as loan servicer which held the fraudulently obtained note, conducted a deficient investigation. The amended complaint also alleges that Downey Savings and Loan Association underwrote and funded the first of the fraudulent loans taken by Madrigal, and was negligent in doing so. Most of the causes of action are against defendants Madrigal, Williams, LIS Mortgage, and Financial Title, and include intentional deceit and concealment, misappropriation of likeness, identity theft, invasion of privacy, conversion, constructive fraud, unlawful lending practices, notary misconduct, and civil conspiracy to defraud. The claim against FDIC as receiver for Downey Savings is for negligence. Claims against Countrywide are declaration of identity theft and defamation of credit.

According to affidavit, the complaint and first amended complaint were served on defendant Madrigal on August 18, 2008 and April 4, 2009. Fed. R. Civ. P. 4(e)(2). Haro Aff. ¶ 2b, d. (Dkt. # 18-1.) Defendant LIS Mortgage was served with the complaint on August 18, 2008 and with the first amended complaint on April 3, 2009. Haro Aff. ¶ 2b, d. (Dkt. # 19.) Pacific Atlantic Trading Co. v. M/V Main Express, 758 F.2d 1325, 1331 (9th Cir. 1985) (default judgment void without personal jurisdiction). Defendants Madrigal and LIS Mortgage have failed to file an answer or otherwise appear in this action. On May 28, 2009, the clerk entered default against defendant LIS Mortgage. On May 29, 2009, the clerk entered default against defendant Madrigal. On September 18, 2009, plaintiff filed motions for default judgment against defendants Madrigal and LIS Mortgage. On January 28, 2010, the undersigned recommended that the motions be denied as co-defendants FDIC and Countrywide remained in the case and there would be a risk of inconsistent damage determinations. The declarations submitted with those initial motions were also noted to be inadequate to support an award of $50,000 in emotional distress damages against each defendant. The findings and recommendations were adopted by the district judge on March 16, 2010. Since that time, defendants FDIC and Countrywide have been dismissed from the action with prejudice. The only remaining defendant other than Madrigal and LIS Mortgage is Financial Title, which, according to plaintiff's status report, filed June 2, 2009, is in bankruptcy proceedings.*fn3

The instant motions for default judgment and supporting papers were served by mail on defendants Madrigal and LIS Mortgage at their last known address. Defendants LIS Mortgage and Madrigal filed no opposition to the motions for entry of default judgment. Plaintiff seeks entries of default judgment in the amount of $191,763.93 against each of these defendants for lost equity, broker fees and emotional distress.


Entry of default effects an admission of all well-pleaded allegations of the complaint by the defaulted party. Geddes v. United Financial Group, 559 F.2d 557 (9th Cir. 1977). The court finds the well pleaded allegations of the amended complaint state a claim for which relief can be granted. Anderson v. Air West, 542 F.2d 1090, 1093 (9th Cir. 1976).

This court previously acknowledged that normally a final decree on the merits of an action may not be made against one of several defendants against whom a joint charge is pending. Frow v. De La Vega, 82 U.S. (15 Wall.) 552, 21 L.Ed. 60 (1872). Now that all defendants except the defaulting defendants have been dismissed, and defendant Financial Title will be dismissed without prejudice,*fn4 the present motions for default judgment will be considered.

Plaintiff seeks $112,241.57 in lost equity, $4,522.36 in broker fees, and $75,000 in emotional distress damages from each of the defaulting defendants. The court finds that the applications and declarations filed in support of the applications for default judgment support the finding that plaintiff is entitled to the damages requested.

A. Lost Equity

The initial falsified loan transaction, dated June 12, 2006, increased the encumbrance on the property at issue by $105,991.57, with $99,999.61 in cash back delivered to the property where defendant resided.*fn5 (Hernandez Decl., ¶ 4, Haro Decl., Exs. 3, 4 at lines 103 and 303.) The second falsified loan application, dated November 14, 2006, further encumbered the property at issue in the amount of $6,250.00. (Haro Decl., Exs. 6, 4 at line 202, 7 at line 202.) The total amount of encumbrance as a result of the two loans falsified by defendants was $112,241.57, and this amount is supported by documentary evidence.

B. Broker Fees

The June, 2006 transaction resulted in $3,425.63 in broker fees, including an appraisal fee, credit report fee, and a yield spread premium to Madrigal and LIS. (Haro Decl., Ex. 4 at lines 803, 804, and 825.)*fn6 The November 2006 transaction caused a loss of $1,096.73 in broker fees, including broker credit and a yield spread premium to Madrigal and LIS. (Haro Decl., Ex. 7 at lines 812, 813.) The total amount of broker fees ...

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