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Thieme v. Cobb

United States District Court, N.D. California

July 8, 2016

STEVE THIEME, Plaintiff,
v.
DIANE M. COBB, et al., Defendants. CYNTHIA CHENAULT, Plaintiff,
v.
DIANE M. COBB, et al., Defendants. LEWIS HAYNES, Plaintiff,
v.
DIANE E. COBB, et al., Defendants.

          ORDER RE: MOTIONS FOR LEAVE TO FILE AMENDED COMPLAINTS

          MARIA-ELENA JAMES UNITED STATES MAGISTRATE JUDGE

         INTRODUCTION

         In each of these three related cases, Plaintiffs seek leave to amend the Complaints to add a single cause of action against Defendant VanDyk Mortgage Corporation's ("VanDyk") for alleged violations of California's Unfair Competition Law ("UCL"), Business and Professions Code section 17200, and False Advertising Law, Business and Professions Code section 17500, [1] as well as related corrections and clarifications to the Preliminary Facts and Allegations. See Mots. for Leave to Amend ("Mots.").[2] Plaintiffs also initially sought leave to add a cause of action "sounding in Deceit and Concealment pursuant to California Civil Code Sections 1709, 1710, and 1711[, ]" (Notices of Mots. at 2), but abandoned those claims according to their Replies. See Replies[3] at 16 ("Plaintiff[s] drop[] [their] earlier proposed cause of action for fraud by way of concealment as not necessary under the circumstances"). However, the Replies also indicate Plaintiffs seek to add prayers for relief for attorney's fees pursuant to California Civil Code section 1021.5. Id. As Plaintiffs did not request leave to amend on grounds related to section 1021.5, and VanDyk did not have an opportunity to respond, the Court shall not consider this request.[4] See Zamani v. Carnes, 491 F.3d 990, 997 (9th Cir. 2007) ("The district court need not consider arguments raised for the first time in a reply brief"). Accordingly, the Court only considers whether Plaintiffs may add a cause of action under the UCL.

         Having considered the parties' positions, the relevant legal authority, and the record in this case, the Court GRANTS Plaintiffs' Motions to add a UCL claim and related factual background for the reasons set forth below.

         Prof. Code § 17200. Thus, "‘[a]ny violation of the false advertising law' necessarily violates the UCL." Henderson v. Gruma Corp., 2011 WL 1362188, at *3 (C.D. Cal. Apr. 11, 2011) (quoting Williams v. Gerber Prods. Co., 552 F.3d 934, 928 (9th Cir. 2008)). As Plaintiffs assert only one cause of action for violations of California's Business and Professions Code, the Court shall refer to Plaintiffs' proposed cause of action as their "UCL claim" or "UCL cause of action."

         BACKGROUND

         A. Factual Background

         The following allegations are found in Plaintiff Steve Thieme and Cynthia Chenault's Second Amended Complaints and Plaintiff Lewis Haynes' initial Complaint. See Second Am. Compl., Thieme Action Dkt. No. 95; Second Am. Compl., Chenault Action Dkt. No. 67; Compl., Haynes Action Dkt. No. 1.

         From 2009 to 2012, Defendant Diane Cobb was a branch manager for VanDyk Mortgage in its Mill Valley and Larkspur, California, and in its Las Vegas, Nevada offices. Prior to the time she began working with VanDyk, Cobb and her business partner, Defendant Sloane Davis, originated and arranged residential "bridge" loans under the name DM Financial. Essentially, Cobb found investors willing to fund short-term loans to borrowers at high rates of interest, ostensibly secured by second deeds of trust and promissory notes. Cobb promised high interest yields of ten to eleven and a half percent, and the return of the monetary investment at the end of the short-term loan. As part of this arrangement, investors sent money to Cobb, who then breached her fiduciary duty "by failing to account for these funds, and/or by defrauding [them], and/or by converting the money entrusted to [Cobb and Davis]." Plaintiffs allege the deeds of trust and promissory notes were often forged, with the money diverted "to the use and benefit" of Cobb and Davis.

         While employed by VanDyk, Cobb continued doing business as a loan originator, arranger, and servicer for second mortgages under the DM Financial name. Plaintiffs allege Cobb disclosed her involvement with DM Financial to VanDyk during the hiring process, and allege that the terms of her employment agreement provided that Cobb "would be able to and was encouraged to continue the business of originating second mortgage bridge loans, underwritten by a Van[D]yk salary and/or commission arrangement, although not derive direct profits or points or fees from such origination or servicing activities, thus avoiding potential conflicts of interest with her investor or with Van[D]yk." Plaintiffs allege that arranging bridge financing was "part and parcel" of Cobb's job with VanDyk, but that she was expected to pursue those activities under the DM Financial name, with the idea that the bridge loans would lead to approved first mortgage applications with VanDyk. During that time, Cobb paid her staff to work in the VanDyk offices, commingled the offices, equipment, credit-checking references, and other services of her separate loan activity with those of VanDyk, and engaged in these activities at the same time she was working for VanDyk as branch manager.

         Plaintiffs allege that "Van[D]yk, as an integral part of its business model did in fact maintain, approve, condone, substantially encourage, aid, and abet, and ratify the establishment of a prohibited [] branch in the offices maintained by Van[D]yk and Cobb in Marin County, California and in Las Vegas, Nevada, commencing in 2008, and continuing thereafter." They contend VanDyk was required to vet Cobb's background and qualifications and exercise close oversight and supervision of all her loan origination activities. They also allege VanDyk owed them a "statutory duty of care" by virtue of mortgage and banking industry regulations:

Van[D]yk's duties of professional care as a mortgage banker/broker/loan originator in the field of mortgage banking were and remain defined by a plethora of Federal statutes including the Dodd-Frank Wall Street Reform and Consumer Protection Act (July 21, 2010); the Housing and Economic Recovery Act of 2008, including the Secure and fajr Enforcement of Mortgage Lending Act (SAFE) 12 USC Chapter 51, (July 30, 2008); Truth in Lending Act (TILA) (l5 USC 1602); Real Estate Settlement Procedures Act (RESPA) (12 USC 2607), by the NMLS [National Mortgage License System and Registry] policies, regulations, and rules, and by the written regulations, rules, handbooks, and policies of a number of Federal departments, including Housing and Urban Development (HUD (the Federal Housing Administration (FHA)) and the Veteran's Administration (VA), the Office of the Comptroller of the Currency, Fannie Mae, Freddie Mac, the Bureau of Consumer Finance Protection Bureau (CFPB), and the Federal Reserve System (including the independent CFPB) but not only limited to these agencies.

Sec. Am. Compl. ¶¶ 105-27, Thieme Action; Sec. Am. Compl. ¶¶ 105-27, Chenault Action; see also Compl. ¶¶ 105-27, Haynes Action (errors in original).

         B. Procedural Background

         VanDyk removed the Thieme and Chenault Actions from Marin County Superior Court on August 16, 2013. Not. of Removal, Thieme Action Dkt. No. 1; Not. of Removal, Chenault Action Dkt. No. 1. On March, 31, 2015, the Court denied VanDyk's Motions to Dismiss Plaintiff Thieme and Chenault's negligence claims against it. Order re: Mot. to Dismiss, Thieme Action Dkt. No. 101; Order re: Mot. to ...


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