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Levy v. FCI Lender Services, Inc.

United States District Court, S.D. California

December 17, 2019

ANNA LEVY, an individual; ANNA LEVY in a Representative capacity for her late Husband, Steven Augusta, Plaintiff,
FCI LENDER SERVICES, INC., a California Corporation; KEVIN PRINCE, in his individual and corporate capacity; MILES FARQUHAR in his individual and corporate capacity; S.C. FINANCIAL SERVICES, a California Corporation; ROGER SOKOLOFF FAMILY TRUST dated 6/26/17; MCKENNA DUGGAN FAMILY LIVING TRUST DATED 2/5/2013; JAMES GARRY HEBERT; MICHELLE HEBERT; EDGEHILL INVESTMENTS, LLC; AND KS CAPITAL, INC. d/b/a PARSE MORTGAGE SERVICES; and DOES 1 to 100, inclusive, Defendants.



         Before the Court is Defendant Kevin Prince's motion to dismiss the first amended complaint pursuant to Federal Rule of Civil Procedure (“Rule”) 8, 12(b)(1), 12(b)(6), and 12(b)(7). (Dkt. No. 70.) Plaintiff Anna Levy filed an opposition and Defendant replied. (Dkt. Nos. 72, 77.) Defendant KS Capital, Inc. also filed a motion pursuant to Rule 12(b)(6), 9(b) and 12(e). (Dkt. No. 78.) An opposition and reply were filed, (Dkt. Nos. 95, 97). Based on the reasoning below, the Court GRANTS in part and DENIES in part Defendant Prince's motion to dismiss with leave to amend and GRANTS Defendant KS Capital, Inc.'s motion to dismiss, and motion for a more definite statement with leave to amend.

         Procedural Background

         On October 23, 2018, Anna Levy (“Plaintiff” or “Anna”), suing on behalf of herself as an individual and in a representative capacity as executor of the estate of her late husband, Steven Augusta (“Steven” or “decedent”), filed a complaint in the Superior Court of the State of California for the County of San Diego against Defendants for manipulating decedent into fraudulently obtaining a second mortgage loan in the amount of $450, 000 on the family home. (Dkt. No. 1-2, Compl.) Plaintiff alleges that Defendants knew of decedent's financial state, preyed on him and directed him to obtain a commercial loan, to avoid compliance with the protections afforded under Truth in Lending Act (“TILA”) and Real Estate Settlement Procedures Act (“RESPA”). (Id. ¶ 5.) Specifically, Defendants aided Steven with manufacturing a false loan application to obtain approval indicating a fraudulent “business purpose” and producing a fake lease showing that the family home was being used as a rental property to create the pretense that Steven generated additional income. (Id. ¶ 4.) As a result of Steven's inability to pay repay the loan and feeling the “crushing weight of his actions upon him”, he committed suicide on April 18, 2018. (Id. ¶¶ 59, 190, 193.)

         On November 30, 2018, the case was removed to this Court. (Id.) On August 5, 2019, pursuant to the Court's order on Defendants Sokoloff and Edgehill's motion to strike and quash service of summons and Defendant KS Capital's motion to dismiss, Plaintiff filed the operative first amended complaint (“FAC”) alleging sixteen causes of action against Defendants Miles Farquhar (“Farquhar”), Kevin Prince (“Prince”), FCI Lender Services, Inc. (“FCI Lender”), SC Financial Services (“SC Financial”), the Roger Sokoloff Family Trust dated 6/26/17, the McKenna Duggan Family Living Trust dated 2/5/2013, James Garry Hebert (“James Hebert”), Michelle Hebert (“Michelle Hebert”), Edgehill Investments, LLC (“Edgehill Investments”), and KS Capital Inc., dba Parse Mortgage Services (“KS Capital”). (Dkt. No. 64.)

         The sixteen causes of action are: 1) violation of Truth in Lending Act (“TILA”) and Regulation Z; 2) violation of Real Estate Settlement Procedures Act (“RESPA”); 3) concealment; 4) intentional misrepresentation; 5) negligent misrepresentation; 6) unlawful and unfair business practices, Cal. Bus. & Prof. Code sections 17200; 7) negligence; 8) breach of fiduciary duty; 9) breach of duty of loyalty; 10) breach of covenant of good faith and fair dealing; 11) declaratory relief; 12) injunctive relief; 13) negligent infliction of emotional distress; 14) conspiracy to violate TILA & Regulation Z; 15) wrongful death based on negligence; and 16) conspiracy to commit wrongful death. (Dkt. No. 64, FAC.)

         On August 19, 2019, Defendant Prince filed a motion to dismiss which is fully briefed. (Dkt. Nos. 70, 72, 77.) On September 9, 2019, Defendants FCI Lender Services, Inc., Miles Farquhar and S.C. Financial Service filed their First Amended Answers. (Dkt. Nos. 74-76.) Pursuant to a joint motion, the Lender Defendants, Roger Sokoloff, Trustee of the Roger Sokoloff Family Trust; Thomas McKenna and Bridgette Duggan, Trustees of the McKenna-Duggan Family Living Trust; and Edgehill Investments were granted an extension of time to file their response until November 22, 2019. (Dkt. Nos. 83, 84.) On September 16, 2019, Defendant KS Capital, Inc. filed a motion to dismiss or for a more definite statement which is also fully briefed. (Dkt. Nos. 78, 95, 97.)

         Factual Background

         Decedent Steven Augusta lived at 122 North Helix Avenue, Solana Beach, CA 92075, the Family Home, with his wife, Anna Levy and their two daughters, ages 9 and 11. (Dkt. No. 64, FAC ¶ 3.) The Family Home was never rented or leased from January 1, 2007 through the present. (Id. ¶ 35.) Anna was married to Steven from March 21, 2007 until his death on April 18, 2018. (Id. ¶ 36.) Anna and Steven separated on January 21, 2018. (Id. ¶¶ 36, 58.) During the marriage, the decedent handled all of his finances until his death on April 18, 2018. (Id. ¶ 36.) Anna had no knowledge about any of Steven's actions concerning the fraudulent loan. (Id. ¶ 38.)

         Steven and Defendant Prince were friends before engaging in the alleged fraudulent loan. (Id. ¶ 40.) Around September 2017, Steven consulted with Prince about taking out a second mortgage on the Family Home in the amount of $450, 000. (Id. ¶ 37) Because Steven was not able to obtain a conventional loan, with the help of Prince, he created fake information and documents to obtain a loan. (Id. ¶¶ 39, 40.) Prince advised Steven on the procedures he needed to take to obtain the loan. (Id. ¶ 40.) For example, Prince told Steven to falsely state he sought a business loan in order to “fund his municipal bond business.” (Id.) They created a fake lease agreement to represent that the Family Home was a rental property, when it was not, in order to create the appearance that Steven earned more income than he really made so he could qualify for the loan. (Id. ¶ 39, 40; id., Ex. 1.)

         With Prince's guidance and instruction, Steven completed and signed a Uniform Residential Loan Application where Steven wrote his monthly income was $30, 000 per month even though he was actually making a little over $100, 000 per year. (Id. ¶ 41.) In September 2017, Steven approached two lending companies and received conditional approval letters but those companies ultimately decided against providing the loan. (Id. ¶ 43.) Then Prince put Steven in touch with Defendant Farquhar and his own company, Defendant S.C. Financial. (Id. ¶ 45.) Despite apparent discrepancies in the loan, SC Financial extended a loan to Steven. (Id.) Farquhar knew or should have known the terms of the loan were fraudulent. (Id. ¶¶ 47, 48.) Defendant FCI Lender serviced the loan and collected the payments from Steven until his death on April 18, 2018. (Id. ¶ 45.) “The Promissory Note and Deed of Trust were subsequently entered into and signed by Defendants ROGER TRUST, MCKENNA TRUST, JAMES HEBERT, MICHELLE HEBERT, EDGEHILL, and KS CAPITAL, making each of them a party to the fraudulent lending transaction.” (Id. ¶ 46.)

         Throughout the entire process from applying for the fraudulent loan, obtaining approval of the fraudulent loan and receiving the actual funds, Prince acted as a liaison between Steven and FCI Lender, Farquhar and S.C. Financial. (Id. ¶ 55.) Defendants aided Steven to obtain a fraudulent second mortgage loan as a commercial non-owner occupied loan which Defendants purposely selected in order to avoid all protections afforded to borrowers on residential homes. (Id. ¶ 56.) The Family Home was acquired during the marriage so Anna has a community property interest in the Family Home. (Id.)

         On April 18, 2018, Steven committed suicide by hanging himself with an electrical cord in his RV. (Id. ¶ 59.) After his death, Anna began receiving Notices of Default from FCI Lender about delinquent mortgage payments in May 2018. (Id. ¶ 60.) She continues to receive the Notices and threats of foreclosure. (Id.) Plaintiff argues that Defendants knew or should have known Steven could not pay the loan due to his financial state and the loan was void from its inception as violative of TILA and RESPA. (Id. ¶ 61.) Plaintiff will suffer enormous detriment and a forfeiture of her long-time family home through no involvement or fault of her own but rather, the fraudulent acts of Steven and each Defendant. (Id. ¶ 62.) On March 15, 2019, Anna was appointed by the probate court as the executor of Steven's estate in Case No: 37-2018-00021266-PR-PL-CTL. (Id. ¶ 10.)

         I. Defendant Kevin Prince's Motion to Dismiss [1]

         A. Legal Standard on Federal Rule of Civil Procedure 12(b)(1)

         “Though lack of statutory standing requires dismissal for failure to state a claim under Rule 12(b)(6), lack of Article III standing requires dismissal for want of subject matter jurisdiction under Federal Rule of Civil Procedure 12(b)(1).” Maya v. Centex Corp., 658 F.3d 1060, 1067 (9th Cir. 2011). “A Rule 12(b)(1) jurisdictional attack may be facial or factual.” Safe Air for Everyone v. Meyer, 373 F.3d 1035, 1039 (9th Cir. 2004). “In a facial attack, the challenger asserts that the allegations contained in a complaint are insufficient on their face to invoke federal jurisdiction.” Id. The Court “resolves a facial attack as it would a motion to dismiss under Rule 12(b)(6): Accepting the plaintiff's allegations as true and drawing all reasonable inferences in the plaintiff's favor, the court determines whether the allegations are sufficient as a legal matter to invoke the court's jurisdiction.” Leite v. Crane Co., 749 F.3d 1117, 1121 (9th Cir. 2014) (citation omitted). “[I]n a factual attack, ” on the other hand, “the challenger disputes the truth of the allegations that, by themselves, would otherwise invoke federal jurisdiction.” Safe Air for Everyone, 373 F.3d at 1039. “In resolving a factual attack on jurisdiction, ” the Court “may review evidence beyond the complaint without converting the motion to dismiss into a motion for summary judgment.” Id. The Court “need not presume the truthfulness of the plaintiff's allegations” in deciding a factual attack. Id. Once the defendant has moved to dismiss for lack of subject matter jurisdiction under Rule 12(b)(1), the plaintiff bears the burden of establishing the Court's jurisdiction. See Chandler v. State Farm Mut. Auto Ins. Co., 598 F.3d 1115, 1122 (9th Cir. 2010).

         Article III standing requires a plaintiff to plead three elements. First, a plaintiff must plead an injury in fact, which must be “concrete and particularized” and “actual or imminent.” Lujan v. Defenders of Wildlife, 504 U.S. 555, 560-61 (1992). Second, there must be a “causal connection between the injury and the conduct complained of”-- that is the injury must be “fairly traceable” to the challenged conduct. Id. (internal quotations omitted). Third, it must be likely that plaintiff's injury will be “redressed by a favorable decision.” Id.

         In his motion, without analysis, Prince merely cites to Rules 12(b)(1) and 12(b)(6) to conclude that Plaintiff has no standing to pursue her claims individually. (Dkt. No. 70-2 at 11[2].) This indicates that he is moving under statutory standing and Article III standing yet as discussed below, fails to provide proper legal analysis on each cause of action in the FAC.

         B. Legal Standard on Federal Rule of Civil Procedure 12(b)(6)

         Federal Rule of Civil Procedure12(b)(6) permits dismissal for “failure to state a claim upon which relief can be granted.” Fed.R.Civ.P. 12(b)(6). Dismissal under Rule 12(b)(6) is appropriate where the complaint lacks a cognizable legal theory or sufficient facts to support a cognizable legal theory. See Balistreri v. Pacifica Police Dep't., 901 F.2d 696, 699 (9th Cir. 1990). Under Rule 8(a)(2), the plaintiff is required only to set forth a “short and plain statement of the claim showing that the pleader is entitled to relief, ” and “give the defendant fair notice of what the . . . claim is and the grounds upon which it rests.” Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007).

         A complaint may survive a motion to dismiss only if, taking all well pleaded factual allegations as true, it contains enough facts to “state a claim to relief that is plausible on its face.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Twombly, 550 U.S. at 570). “A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Id. “Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice.” Id. “In sum, for a complaint to survive a motion to dismiss, the non conclusory factual content, and reasonable inferences from that content, must be plausibly suggestive of a claim entitling the plaintiff to relief.” Moss v. U.S. Secret Serv., 572 F.3d 962, 969 (9th Cir. 2009) (quotations omitted). In reviewing a Rule 12(b)(6) motion, the Court accepts as true all facts alleged in the complaint, and draws all reasonable inferences in favor of the plaintiff. al Kidd v. Ashcroft, 580 F.3d 949, 956 (9th Cir. 2009).

         Where a motion to dismiss is granted, Aleave to amend should be granted >unless the court determines that the allegation of other facts consistent with the challenged pleading could not possibly cure the deficiency.'” DeSoto v. Yellow Freight Sys., Inc., 957 F.2d 655, 658 (9th Cir. 1992) (quoting Schreiber Distrib. Co. v. Serv-Well Furniture Co., 806 F.2d 1393, 1401 (9th Cir. 1986)). In other words, where leave to amend would be futile, the Court may deny leave to amend. See Desoto, 957 F.2d at 658; Schreiber, 806 F.2d at 1401.

         C. Legal Standard on Federal Rule of Civil Procedure 12(b)(7)

         A party may move to dismiss a case for “failure to join a party under Rule 19.” Fed.R.Civ.P. 12(b)(7). Rule 19 “imposes a three-step inquiry: (1) Is the absent party necessary (i.e., required to be joined if feasible) under Rule 19(a)? (2) If so, is it feasible to order that absent party to be joined? (3) If joinder is not feasible, can the case proceed without the absent party, or is the absent party indispensable such that the action must be dismissed?” Salt River Project Agric. Improvement & Power Dist. v. Lee, 672 F.3d 1176, 1179 (9th Cir. 2012) (citation omitted). “The Ninth Circuit has held that a court should grant a 12(b)(7) motion to dismiss only if the court determines that joinder would destroy jurisdiction and the nonjoined party is necessary and indispensable.” Biagro W. Sales Inc. v. Helena Chem. Co., 160 F.Supp.2d 1136, 1141 (E.D. Cal. 2001). “A motion to dismiss for failure to join an indispensable party requires the moving party to bear the ...

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