You are on page 1of 11

Case 2:09-cv-01450-JCC Document 117 Filed 05/03/11 Page 1 of 11

1 Honorable John C. Coughenour

m
2

co
4

d.
5

au
UNITED STATES DISTRICT COURT
7 WESTERN DISTRICT OF WASHINGTON
AT SEATTLE
8

Fr
9 MARCO VILLALOBOS & ANGELA

re
YBARRA, a marital community,
10
Plaintiffs, C09-1450-JCC
11 su
v. ORDER
12
DEUTSCHE BANK NATIONAL TRUST
clo
13 COMPANY, BARCLAYS CAPITAL REAL
ESTATE, INC., et al.,
14
Defendants.
15
re

16
Fo

17 This matter comes before the Court upon the motion to dismiss of Defendant Deutsche Bank
18 National Trust Company (Dkt. No. 50), and the motion to dismiss of Defendant Barclays Capital Real
op

19 Estate. (Dkt. No. 68). Both motions have been fully briefed.1 Having reviewed the relevant record and
20 concluded that oral argument is unnecessary, the Court hereby DENIES the motions for the reasons
St

21 explained below.
w.

22

23
1
ww

With respect to the motion to dismiss of Defendant Deutsche Bank, the Court has also considered Plaintiff’s
24 response (Dkt. No. 55), Defendant’s reply. (Dkt. No. 56), and the parties’ various supporting exhibits and declarations. With
respect to the motion to dismiss of Defendant Barclays Capital, the Court has also considered Plaintiffs’ response (Dkt. No.
25 72), Defendant’s reply (Dkt. No. 75), and the parties’ various supporting exhibits and declarations.

ORDER, C09-1450-JCC
26 Page 1
Case 2:09-cv-01450-JCC Document 117 Filed 05/03/11 Page 2 of 11

1 I. BACKGROUND

m
2 This case deals with a mortgage-loan dispute. Plaintiffs Marcos Villalobos and Angela Ybarra

3 are native Spanish speakers who speak and read limited English. In July 2006, they purchased a home

co
4 for approximately three-hundred thousand dollars. (Second Amended Complaint 8 (Dkt. No. 45)). They

d.
5 financed the purchase with two mortgage loans. The terms of each loan were onerous indeed: The first

6 loan was for a total of $235,200, and had a term of thirty years. For the first two years, the interest rate

au
7 on the first loan was 6.9 percent. It was scheduled to adjust twice per year, until reaching an interest rate

8 of 13.49 percent. (Id. 13). The second loan had a term of fifteen years and a fixed interest rate of 9.9

Fr
9 percent. At the end of the fifteen-year term, it also required a balloon payment of more than forty-eight

re
10 thousand dollars. (Id.). The original lender was Defendant WMC Mortgage.

11 Plaintiffs allege that they were induced to sign these loans only after a variety of individuals, some
su
12 of whom are named as defendants, fraudulently represented their terms or otherwise violated state and
clo
13 federal mortgage laws. According to Plaintiffs, Defendant Juan Peraza-Zamudio brokered their mortgage

14 loan while he was working as an employee for Defendant Loan Network, LLC. Among other alleged

15 irregularities, Defendant Juan Peraza allegedly prepared a loan application which misidentified Plaintiffs’
re

16 employers and overstated their monthly income by more than one thousand dollars. (Id. 9–10).
Fo

17 According to Plaintiffs, they received a telephone call in August 2006 from a representative of

18 Defendant WMC Mortgage, telling them that they must meet her that very day in order to sign the loan
op

19 documents. (Id. 11). They agreed to meet the representative at a local restaurant, where they signed a

20 variety of lending forms, including two promissory notes and two deeds of trust. (Id.). The documents
St

21 which they signed today bear the seal of a Washington State notary. In fact, Plaintiffs allege, no notary
w.

22 was present when they signed the documents. (Id. 12). Because they were unable to read the English-

23 language documents for themselves, Plaintiffs relied on the verbal representations of Defendant Juan
ww

24 Peraza-Zamudio. (Id.). According to Plaintiffs, these representations were generally false.

25
ORDER, C09-1450-JCC
26 Page 2
Case 2:09-cv-01450-JCC Document 117 Filed 05/03/11 Page 3 of 11

1 Plaintiffs also point to a series of irregularities in the loan documents. For example, the

m
2 disclosure forms required under the Truth in Lending Act list the “final settlement fee” as $2675. A

3 form required by the Department of Housing and Urban Development, on the other hand, lists the “final

co
4 settlement fee” as $930. According to Plaintiffs, “this discrepancy likely hides additional broker

d.
5 compensation[.]” (Id. 15). Documents also tend to indicate that Plaintiffs were charged for two separate

6 appraisals, each of which cost four hundred dollars. (Id.).

au
7 Finally, Plaintiffs allege that several named defendants benefitted financially from the fraudulent

8 dealings of other defendants. Specifically, Plaintiffs allege that Defendant Barclays Capital—acting

Fr
9 through an affiliate corporation named Sutton Funding, LLC—conspired with Defendant WMC

re
10 Mortgage to “contract with aggressive mortgage brokers to identify, recruit, and commit a high number

11 of subprime borrowers[.]” (Id. 7). According to Plaintiffs, documents that have been filed with the
su
12 Securities and Exchange Commission demonstrate that Defendant Barclays Capital purchased more than
clo
13 three billion dollars of mortgages originated by Defendant WMC Mortgage in the five months between

14 July and December 2006. (Id. 8). Plaintiffs allege that Defendant Barclays Capital was aware of lending

15 abuses in the nation’s mortgage market when it contracted with Defendant WMC Mortgages. To support
re

16 that allegation, Plaintiffs point to a letter which Defendant Barclays Capital received in 2003 from the
Fo

17 Office of the Comptroller of the Currency, warning the bank to avoid predatory lending practices in

18 brokered mortgage loans. (Id.).


op

19 Defendant Barclays Capital was also responsible for having securitized Plaintiffs’ mortgage

20 loan. In December 2006, Defendant Barclays Capital created a mortgage-backed security trust with
St

21 more than one billion dollars in assets. One of the principal beneficiaries of this trust was Defendant
w.

22 Deutsche Bank. (Id.). Plaintiffs describe the structure of the trust with some specificity. They point to a

23 pooling-and-service agreement between Defendant WMC Mortgage, Defendant Barclays Capital and
ww

24 Defendant Deutsche Bank. Under the terms of the agreement, it was the responsibility of Defendant

25
ORDER, C09-1450-JCC
26 Page 3
Case 2:09-cv-01450-JCC Document 117 Filed 05/03/11 Page 4 of 11

1 WMC Mortgage to initiate mortgage loans and to transfer those loans to the trust. The trust, in turn,

m
2 “transferred all right, title, and interest to the mortgages to Deutsche Bank for the purpose of holding the

3 mortgages in trust[.]” (Id. 17). Finally, the trust administrators sold securities in the loans to investors.

co
4 These securities remained in trust, held by Defendant Deutsche Bank. (Id.).

d.
5 II. LEGAL STANDARD

6 Rule 12(b)(6) of the Federal Rules of Civil Procedure allows a party to test the formal

au
7 sufficiency of an opponent’s claim to relief by bringing a motion to dismiss for failure to state a claim

8 upon which relief can be granted. A motion to dismiss under rule 12(b)(6) is not a forum in which to

Fr
9 litigate the merits of the underlying allegations. See WRIGHT & MILLER, FEDERAL RULES OF CIVIL

re
10 PROCEDURE § 1349 (3d ed. 2004). In fact, when a defendant moves to dismiss under Rule 12(b)(6), this

11 Court accepts all the allegations in the complaint as true, and construes them in the light most favorable
su
12 to the plaintiff. Swierkiewicz v. Sorema, N.A., 534 U.S. 506, 508 n.1 (2002).
clo
13 This Court analyzes the sufficiency of a complaint against the strictures of Rule 8, which requires

14 that a plaintiff offer only “a short and plain statement of the claim showing that the pleader is entitled to

15 relief[.]” FED. R. CIV. P. 8(a)(2); see also Swierkiewicz, 534 U.S. at 511–12 (discussing the relationship
re

16 between notice pleading under Rule 8 and the Rule 12(b)(6) motion to dismiss for failure to state a claim
Fo

17 upon which relief can be granted). In cases that involve allegations of fraud, this Court analyzes the

18 sufficiency of the complaint against the requirements of Rule 9, which states that “[i]n allegations
op

19 involving fraud or mistake, a party must state with particularity the circumstances constituting fraud or

20 mistake.” FED. R. CIV. P. 9(b). A plaintiff satisfies this heightened pleading requirement by adequately
St

21 identifying “the circumstances constituting fraud so that the defendant can prepare an adequate answer
w.

22 from the allegations.” Odom v. Microsoft Corp., 486 F.3d 541, 553 (9th Cir. 2007). A plaintiff may plead

23 the defendant’s allegedly fraudulent state of mind with general allegations: “Malice, intent, knowledge,
ww

24 and other conditions of mind of a person may be averred generally.” FED. R. CIV. P. 9(b).

25
ORDER, C09-1450-JCC
26 Page 4
Case 2:09-cv-01450-JCC Document 117 Filed 05/03/11 Page 5 of 11

1 Whether or not a plaintiff’s claim sounds in fraud and is therefore subject to the heightened

m
2 pleading requirements of Rule 9, the “complaint must contain sufficient factual matter, accepted as true,

3 to state a claim for relief that is plausible on its face.” Ashcroft v. Iqbal, -- U.S. --, --, 129 S.Ct. 1937,

co
4 1949 (2009) (internal markings omitted). When considering whether a plaintiff has stated a claim for

d.
5 relief that is plausible, this Court draws all reasonable inferences in the plaintiff’s favor: “A claim has

6 facial plausibility when the plaintiff pleads factual matter that allows the court to draw the reasonable

au
7 inference that the defendant is liable for the misconduct alleged.” Id.

8 III. RELEVANT LAW

Fr
9 Plaintiffs’ complaint contains twelve separate claims for relief, only the last three of which are

re
10 against those defendants which now move for dismissal: Defendant Deutsche Bank and Defendant

11 Barclays Capital. The first several claims are against Defendant Juan Peraza-Zamudio and Defendant
su
12 WMC Mortgage. Plaintiffs allege that these defendants fraudulently misrepresented the terms of their
clo
13 mortgage loans, and thereby violated a variety of state and federal lending laws, including the

14 Washington State Consumer Protection Act. (Second Amended Complaint 20–25 (Dkt. No. 45)).

15 Plaintiffs’ three claims against Defendant Deutsche Bank and Defendant Barclays Capital allege that
re

16 these bank defendants aided and abetted the fraudulent activities of the other defendants. Plaintiffs
Fo

17 therefore state three separate claims against Defendant Deutsche Bank and Defendant Barclays Capital:

18 aiding and abetting, civil conspiracy, and joint venture. (Id. 29–32).
op

19 A. Consumer Protection Act

20 The Washington State Consumer Protection Act broadly declares that “[u]nfair methods of
St

21 competition and unfair or deceptive acts or practices in the conduct of any trade or commerce are . . .
w.

22 unlawful.” WASH. REV. CODE § 19.86.020. In order to state a valid claim for relief under the Act, a

23 plaintiff must allege that a defendant has committed (1) an unfair deceptive act or practice, (2) which
ww

24 occurred in trade or commerce, (3) which impacts the public interest, (4) and which proximately caused

25
ORDER, C09-1450-JCC
26 Page 5
Case 2:09-cv-01450-JCC Document 117 Filed 05/03/11 Page 6 of 11

1 injury to the plaintiff’s business or property. Guijosa v. Wal-Mart Stores, Inc., 32 P.3d 250, 255 (Wash.

m
2 2001). When analyzing whether an allegedly unfair business practices has an adverse impact on the

3 public interest, courts consider the following factors: (1) whether the alleged acts were committed in the

co
4 course of the defendant’s business; (2) whether the acts are part of a pattern or generalized course of

d.
5 conduct; (3) whether repeated acts were committed prior to the act involving the plaintiff; (4) whether

6 there is a real and substantial potential for repetition of the defendant’s conduct; and (5) whether the

au
7 allegedly unfair act was likely to affect many different consumers. Hangman Ridge Training Stables,

8 Inc. v. Safeco Title Ins. Co., 719 P.2d 531, 537–38 (Wash. 1986).

Fr
9 B. Common Law of Fraud

re
10 In order to state a valid claim for relief sounding in the common law of fraud, a plaintiff must

11 allege (1) the representation of an existing fact; (2) its materiality; (3) its falsity; (4) the speaker’s
su
12 knowledge of its falsity; (5) the speaker’s intent that the false statement be acted upon by the person to
clo
13 whom it was made; (6) ignorance of the statement’s falsity by the person to whom it was made; (7) the

14 victim’s reliance on the truth of the representation; (8) the victim’s right to rely on the statement; and (9)

15 consequent damage, proximately caused by the false statement. Beckendorf v. Beckendorf, 457 P.2d 603,
re

16 606–07 (Wash. 1969).


Fo

17 C. Civil Conspiracy

18 Under the law of Washington State, an action for civil conspiracy lies “where there is an
op

19 agreement by two or more persons to accomplish some purpose, not in itself unlawful, by unlawful

20 means.” Sterling Business Forms, Inc. v. Thorpe, 918 P.2d 531, 533 (Wash. App. 1996). A plaintiff
St

21 need not prove that the allegedly conspiring defendants precisely coordinated their behavior: “To be
w.

22 liable, each participant in the conspiracy need not know the exact details of the plan, but each

23 participant must at least share the common objective of the conspiracy.” Gilbrook v. City of
ww

24 Westminster, 177 F.3d 839, 856 (9th Cir. 1999). A plaintiff may rely upon circumstantial evidence in

25
ORDER, C09-1450-JCC
26 Page 6
Case 2:09-cv-01450-JCC Document 117 Filed 05/03/11 Page 7 of 11

1 order to assert a claim of civil conspiracy: “A defendant’s knowledge of and participation in a

m
2 conspiracy may be inferred from circumstantial evidence and from evidence of the defendant’s

3 actions.” Id.

co
4 D. Aiding and Abetting

d.
5 Washington State courts follow the general rule “that a person who knowingly assists another in

6 the commission of a tort, or who knowingly assists another in violating his fiduciary duty or trust

au
7 obligation, is liable for losses proximately caused thereby.” Lahue v. Keystone Inv. Co., 496 P.2d 343,

8 353 (Wash. App. 1972). A bank that performs routine banking transactions for a customer can be held

Fr
9 liable for aiding and abetting that customer to commit a tort, if the bank knew that the routine

re
10 transactions were part of a scheme to injure a third party: “[The] ordinary business transactions that a

11 bank performs for a customer can satisfy the substantial-assistance element of an aiding-and-abetting
su
12 claim if the bank actually knew that those transactions were assisting the customer in committing a
clo
13 specific tort.” In re First Alliance Mortgage Co., 471 F.3d 977, 996 (9th Cir. 2006).

14 E. Joint-Venture Liability

15 Under the law of Washington State, an agreement creates a joint venture when two or more
re

16 parties enter into a (1) contract, (2) in which the parties share a common purpose, (3) which creates a
Fo

17 community of interest, and (4) in which each of the parties has an equal right to control the agencies

18 used to accomplish the common purpose of the contract. Knisely v. Burke Concrete Accessories, Inc.,
op

19 468 P.2d 717, 720–21 (Wash. App. 1970). A plaintiff need not offer into evidence a signed and written

20 contract in order to support an allegation of joint-venture liability: “The relationship or a joint venture
St

21 may be inferred from the facts of the case and contract may either be express or implied.” Refrigeration
w.

22 Engineering Co. v. McKay, 486 P.2d 304, 311 (Wash. App. 1971).

23 //
ww

24 //

25
ORDER, C09-1450-JCC
26 Page 7
Case 2:09-cv-01450-JCC Document 117 Filed 05/03/11 Page 8 of 11

1 IV. DISCUSSION

m
2 Because Plaintiffs have adequately identified “the circumstances constituting fraud so that the

3 defendant can prepare an adequate answer from the allegations,” see Odom, 486 F.3d at 553, and

co
4 because they have pled “sufficient factual matter, accepted as true, to state a claim for relief that is

d.
5 plausible on its face,” see Iqbal, 129 S.Ct. at 1949, Plaintiffs have successfully stated claims upon which

6 relief can be granted. The Court therefore denies Defendants’ motions to dismiss.

au
7 A. Pleading Requirements

8 Plaintiffs describe the allegedly fraudulent behavior of Defendant Juan Peraza-Zamudio and other

Fr
9 individuals involved in the loan-origination process with great particularity. According to Plaintiffs,

re
10 Defendant Juan Peraza-Zamudio misrepresented the terms of the mortgage loan they were securing,

11 submitted fraudulent loan-application documents in their names, and prepared fraudulent forms that were
su
12 required under the Truth in Lending Act and other federal lending laws. (Second Amended Complaint
clo
13 8–12 (Dkt. No. 45)). Plaintiffs provide specific examples of each category of fraudulent

14 misrepresentation. For example, Plaintiffs allege the “uniform residential loan application” which was

15 submitted in their name overstated their monthly income by more than one thousand dollars per month.
re

16 (Id. 10). Plaintiffs further allege that a disclosure form required under the Truth in Lending Act listed a
Fo

17 “final settlement fee” of $2675, while a disclosure form required by the Department of Housing and

18 Urban Development listed a “final settlement fee” of $930. (Id. 15). By pleading the allegedly fraudulent
op

19 behavior with such specificity, Plaintiffs have adequately identified “the circumstances constituting fraud

20 so that the defendants can prepare an adequate answer from the allegations.” See Odom, 486 F.3d at 553.
St

21 Plaintiffs also allege that Defendant Barclays Capital and Defendant Deutsche Bank were aware
w.

22 of these irregularities, and that they conspired to accomplish them. In support of these claims, Plaintiffs

23 argue that Defendant Barclays Capital contracted to purchase more than three billion dollars in mortgage
ww

24 loans from Defendant WMC Mortgage, a company with a reputation as a predatory lender. (Id. 8).

25
ORDER, C09-1450-JCC
26 Page 8
Case 2:09-cv-01450-JCC Document 117 Filed 05/03/11 Page 9 of 11

1 Plaintiffs point out that Defendant Barclays Capital reached such an agreement after having been

m
2 warned about irregularities in the mortgage-lending market by the Office of the Comptroller of the

3 Currency, which is an important federal banking regulatory agency. (Id. 7). Finally, Plaintiffs point out

co
4 that both banking defendants received notice of the fraudulent lending activities of earlier alleged

d.
5 conspirators when they received the lending documents themselves. As Plaintiffs allege, “[T]he

6 [disclosure] violations were apparent on the faces of the documents, putting . . . Deustsche Bank and

au
7 Barclays Capital on notice that the subject loan transactions involved deceptive and misleading practices

8 and fraud.” (Id. 16). Because Rule 9 of the Federal Rules of Civil Procedure allows a plaintiff to

Fr
9 overcome a motion to dismiss with only general averments of a defendant’s malice or knowledge, and

re
10 because Plaintiffs have provided detailed factual allegations to support the inference of Defendants’

11 knowledge, their claims survive the requirements of Rule 9.


su
12 B. Substantive Claims
clo
13 Plaintiffs’ claims which sound in the Washington State Consumer Protection Act survive.

14 Plaintiffs have successfully alleged that certain named defendants committed unfair deceptive acts and

15 that these acts have injured their property interest in their home. See Guijosa, 32 P.3d at 255 (listing
re

16 elements). It goes without saying that such acts have the potential to adversely affect the public interest:
Fo

17 The banking defendants allegedly securitized more than three billion dollars of mortgages initiated by

18 Defendant WMC Mortgage alone. The allegedly wrongful acts were therefore “part of a pattern or
op

19 generalized course of conduct,” and had the potential “to affect many different customers.” See

20 Hangman Ridge, 719 P.2d at 537–38.


St

21 Plaintiffs claims which sound in the common law of fraud also survive. Plaintiffs allege that
w.

22 certain named defendants misrepresented terms such as the interest rate and term of their mortgage

23 loans. (Second Amended Complaint 13–16 (Dkt. No. 45)). Plaintiffs further allege that defendants
ww

24 fraudulently charged them for brokerage fees to which they were unentitled, and that the defendants

25
ORDER, C09-1450-JCC
26 Page 9
Case 2:09-cv-01450-JCC Document 117 Filed 05/03/11 Page 10 of 11

1 listed these fees as “final settlement fees” on federal disclosure forms. (Id. 15). A reasonable person

m
2 would consider such key terms to be “material,” and a reasonable person would be entitled to rely on the

3 representations of individuals who hold themselves out as mortgage professionals. See Beckendorf, 457

co
4 P.2d at 606–07 (listing the elements of fraud).

d.
5 C. Theories of Liability

6 However one wishes to describe the allegedly wrongful participation of Defendant Barclays

au
7 Capital and Defendant Deutsche Bank—whether sounding in civil conspiracy, aiding and abetting, or

8 joint venture—the analysis is essentially the same: Plaintiffs have successfully alleged that the banking

Fr
9 defendants knowingly participated in a scheme to defraud borrowers. To support these allegations,

re
10 Plaintiffs rely on a letter from the Office of the Comptroller of the Currency and fraudulent

11 misstatements in the loan documents that the banking defendants received. Because a plaintiff may rely
su
12 upon circumstantial evidence to support each of the proffered theories of liability, see, e.g., Gilbrook,
clo
13 177 F.3d at 856 (civil conspiracy), Refrigeration Engineering, 486 P.2d at 311 (joint venture), and

14 because Plaintiffs have submitted circumstantial evidence tending to indicate that the banking

15 defendants knowingly participated in a scheme to defraud, their claims survive.


re

16 Defendants’ arguments to the contrary fail. Defendants argue, for example, that Plaintiffs cannot
Fo

17 demonstrate that they knew of the underlying wrongs, and point out that the trust agreement “expressly

18 requires compliance with all laws, including predatory-lending laws.” (Barclays Reply 8 (Dkt. No. 75)).
op

19 This argument is spurious indeed: Defendants cannot insulate themselves from liability merely by

20 stating in a governance document that they will follow the law. They must in fact follow the law.
St

21 Plaintiffs allege that Defendants have in fact broken the law. Plaintiffs shall have an opportunity
w.

22 to prove as much. Defendants’ motions to dismiss are denied.

23 //
ww

24 //

25
ORDER, C09-1450-JCC
26 Page 10
Case 2:09-cv-01450-JCC Document 117 Filed 05/03/11 Page 11 of 11

1 V. CONCLUSION

m
2 For the reasons explained above, the Court hereby DENIES the motion to dismiss of Defendant

3 Deutsche Bank (Dkt. No. 50) and the motion to dismiss of Defendant Barclays Capital Real Estate.

co
4 (Dkt. No. 68). The Court therefore STRIKES Defendants’ motion to stay discovery (Dkt. Nos. 78 & 82)

d.
5 as moot.

au
7 SO ORDERED this 3rd day of May, 2011.

A
Fr
9
JOHN C. COUGHENOUR

re
10 United States District Judge
11 su
12
clo
13

14

15
re

16
Fo

17

18
op

19

20
St

21
w.

22

23
ww

24

25
ORDER, C09-1450-JCC
26 Page 11