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1
1 CASE NUMBER: BC 409 444
2 CASE NAME: PAUL RONALD VS. BANK OF AMERICA
3 LOS ANGELES, CA TUESDAY, JANUARY 11, 2011
4 DEPARTMENT 307 HON. WILLIAM F. HIGHBERGER, JUDGE
5 APPEARANCES: (AS NOTED ON TITLE PAGE.)
6 REPORTER: ELSA BANDA LARA, CSR NO. 3226
7 TIME: A.M. SESSION
8 —O—
9
10 THE COURT: ON THE RECORD BC 409444, RONALD AND
11 MANY OTHERS VERSUS BANK OF AMERICA AND OTHERS.
12 STATE YOUR APPEARANCES.
13 MR. SPIVAK: KENIN SPIVAK FROM THE PLAINTIFFS
14 YOUR HONOR.
15 MR. STEIN: GOOD MORNING, YOUR HONOR, MITCHELL
16 STEIN ON BEHALF OF PAUL AND LISA RONALD ET AL., ON
17 BEHALF OF ALL PLAINTIFFS.
18 MR. DAVIS: ERIKSON DAVIS, YOUR HONOR, FOR
19 PLAINTIFFS.
20 MR. TOMASZEWSKI: CHRIS TOMASZEWSKI, YOUR HONOR,
21 FOR PLAINTIFFS.
22 MS. JONES: BRIDGET JONES, YOUR HONOR, FOR
23 PLAINTIFFS.
24 MR. KLEIN: GOOD MORNING, YOUR HONOR. HAPPY NEW
25 YEAR, YOUR HONOR. KEITH KLEIN, BRYAN CAVE ON BEHALF OF
26 DEFENDANTS ACCEPT FOR JAMES AGATE.
27 MR. CEKIRGE: GOOD MORNING, YOUR HONOR, NAFIZ
28 CEKIRGE, FOR ALL DEFENDANTS, EXCEPT FOR AGATE.
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1 MR. SHAW: GOOD MORNING, YOUR HONOR, KAMAO SHAW,
2 ON BEHALF OF ALL DEFENDANTS EXCEPT AGATE.
3 THE COURT: I’M GOING TO GIVE YOU A LONG SPOKEN
4 TENTATIVE. I HAVE ANOTHER MATTER AT 11:30 AND HAVE TO
5 BE AT LUNCH MEETING DOWNTOWN. I THINK I’M GOING TO
6 INVITE YOU FOLKS TO COME BACK AT 1:30 TO ARGUE.
7 SINCE THE NEED TO DEAL WITH THE 11:30 AND
8 TO GET TO A LUNCH MEETING IN ANOTHER BUILDING, LIMIT THE
9 TIME PRESENTLY AVAILABLE.
10 THE ISSUES PRESENTED TODAY BY THIS FIRST
11 DEMURRER OR TEST OF THE PLEADING AND BY THEIR RELATED
12 MOTION TO STRIKE, PROVIDE THE FIRST PRACTICAL
13 OPPORTUNITY FOR THE PARTIES TO TRY TO CALIBRATE THE
14 STRENGTH OF THE CASE.
15 BUT, HAVING SAID THAT, BY THE NATURE OF THE
16 DEMURRER AND MOTION TO STRIKE, IT’S NOT A TERRIBLY
17 PRECISE CALIBRATION MECHANISM. AND SO, ONE SHOULD NOT
18 READ TOO MUCH INTO HOW THESE RULINGS TURN OUT.
19 I’M INCLINED TO THINK THAT AT LEAST AS TO
20 SOME CAUSES OF ACTION THE DEMURRER’S GOING TO BE
21 OVERRULED, WHICH IS TO SAY THAT THE PLEADING IS ALREADY
22 ADEQUATE. IT IS CONCEIVABLE THAT THERE WILL BE SOME
23 CAUSES OF ACTION WHERE REPLEADING IS NEEDED. THE ONLY
24 CAUSE OF ACTION THAT I BELIEVE IS GOING TO DIE TODAY, IS
25 ONE THAT BY IMPLICATION THE PLAINTIFFS ARE WILLING TO
26 LET GO, WHICH IS THE 5TH CAUSE OF ACTION. THERE WAS NO
27 WRITTEN OPPOSITION TO THE DEMURRER TO THE 5TH CAUSE OF
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28 ACTION.
3
1 SO, WE’LL LEAVE TODAY WITH AN AWARENESS
2 THAT SOME CAUSES OF ACTION ARE ALREADY GOOD TO GO AND
3 OTHERS ARE GOING TO GET A CHANCE FOR LITTLE REHAB.
4 I THINK THAT WE SHOULD ALLOW FURTHER
5 DISCOVERY TO GO FORWARD, ALTHOUGH I WANT TO REGULATE
6 DISCOVERY DISPUTES. SO I HOPE TO AVOID WORLD WAR III OF
7 DISCOVERY.
8 THE ISSUES PRESENTED BY THE MANY PLAINTIFFS
9 IN THIS CASE AS AGAINST THEIR CURRENT MORTGAGE LENDER
10 AND/OR LOAN SERVICER ARE PART OF A LARGER SOCIOECONOMIC
11 PROBLEM THAT CONFRONT OUR SOCIETY IN CALIFORNIA AND ALL
12 OF THE OTHER STATES IN THIS UNION AN ISSUE OF GREAT
13 CONCERN TO THE U.S. CONGRESS, STATE LEGISLATURE, AND THE
14 BANK REGULATORS, GIVEN THAT IN OUR BANKING SYSTEM THE
15 BANKS ARE INSURED BY THE FULL FAITH AND CREDIT OF THE
16 UNITED STATES GOVERNMENT FOR ALL INTENTS AND PURPOSES.
17 SO THE CONTINUED SOLVENCY OF THE BANKING INDUSTRY AS A
18 WHOLE IS A MATTER OF INTENSE INTEREST TO THE U.S.
19 CONGRESS AS WELL AS THE CENTRAL BANK
20 A PRACTICAL QUESTION THAT CONTINUES TO BE
21 IMPORTANT FOR CASE MANAGEMENT AND POSSIBLE CASE
22 RESOLUTION IS WHAT IS REALLY INTENDED BY PLAINTIFFS AND
23 THEIR COUNSEL IN THIS CASE? SOME OF THE CLAIMS AS
24 PRESSED, IF ACTUALLY SUCCESSFUL, AND TRIED TO A JURY
25 WITH A REQUEST FOR PUNITIVE DAMAGES COULD,
26 THEORETICALLY, IF THE PLAINTIFFS GET THINGS TO GO THE
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27 WAY THEY SAY THEY WANT THEM TO GO, TO LEAD TO SUCH —
28 CAN POTENTIALLY, I’M NOT BY ANY STRETCH OF THE
4
1 IMAGINATION GUARANTEEING THIS OR SAYING IT WILL BE THE
2 MORE LIKELY OR REASONABLE OUTCOME, BUT IF PLAINTIFFS GET
3 THIS CASE WHERE THEY THINK THEY WANT TO PUT THIS CASE
4 THEY ARE PRESUMABLY GOING TO GET A JUDGMENT FOR BILLIONS
5 OF DOLLARS AGAINST BANK OF AMERICA, POTENTIALLY CREATING
6 A PROBLEM OF SUCH GRAVITY THAT ACTION BY THE CENTRAL
7 BANK OR A STATE OR FEDERAL LEGISLATIVE BODY MIGHT
8 THEORETICALLY BE NEEDED.
9 BUT I HAVE A SNEAKY SUSPICION THAT THE REAL
10 AMBITIONS OF WHAT THE CASE IS TO ACCOMPLISH MAY NOT BE
11 TO PUT BANK OF AMERICA INTO RECEIVERSHIP, BUT RATHER, TO
12 ACCOMPLISH SOME MORE MODEST AND PRACTICAL SOLUTION FOR
13 MANY PLAINTIFFS, IN A WAY THAT’S COST EFFECTIVE TO THE
14 PLAINTIFFS, WHICH IS TO SAY SUCH THAT THEY CAN AFFORD
15 THEIR COUNSEL.
16 I HAVEN’T YET SEEN ACTUAL, PRACTICAL
17 FORECLOSURE RELIEF OR DEBT RESTRUCTURING COME THROUGH IN
18 ANY MEANINGFUL FLOW TO INDICATE THAT I CAN WATCH THE
19 PATTERN OF CASE RESOLUTION, BECAUSE WHAT’S BEEN RUMORED
20 ABOUT AS SUPPOSEDLY GOING TO HAPPEN IF ONLY THE
21 PLAINTIFFS WOULD SUBMIT RELEVANT INFORMATION ACCORDING
22 TO THE DESCRIPTION OF DEFENSE COUNSEL, AND IF, ACCORDING
23 TO PLAINTIFFS, THE DEFENDANT WOULD ONLY ACTUALLY RESPOND
24 FROM TIME TO TIME TO REQUESTS FOR ASSISTANCE AS COMPARED
25 TO JUST DANGLING FALSE HOPE.
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26 SO, I MAKE THAT COMMENT BECAUSE, NOT SO
27 MUCH IN CONNECTION WITH ARGUING THE DEMURRER, AS THE
28 LARGER QUESTION OF WHERE THE CASE IS REALLY GOING TO GO,
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1 IT’S USEFUL TO BEAR IN MIND SORT OF WHAT THEORETICALLY
2 ONE IS TRYING TO ACCOMPLISH WITH THE CASE, AS OPPOSED TO
3 WHAT PRACTICALLY ONE WANTS TO ACCOMPLISH WITH THE CASE.
4 I’M WILLING TO DEAL WITH THE CASE ON ITS
5 THEORETICAL BASIS, JUST AT THE NEAR TERM RIGHT NOW.
6 I’M GOING TO ASK DEFENDANT EVENTUALLY TO
7 GIVE NOTICE OF RULINGS, SO DEFENDANT SHOULD PROBABLY GET
8 A PAD AND PENCIL AND TRACK SOME OF WHAT’S OCCURRING OR
9 AT LEAST BUY A TRANSCRIPT WHEN WE’RE DONE.
10 I’VE NOTED ALREADY THAT THE FIRST RULING I
11 EXPECT TO MAKE IS TO SUSTAIN THE DEMURRER TO 5TH CAUSE
12 OF ACTION WITHOUT LEAVE TO AMEND FOR THE VERY REASON
13 THAT THE DEMURRER IS UNOPPOSED.
14 I MAKE THE FURTHER OBSERVATION TO THE
15 PLAINTIFFS THAT I BELIEVE THAT, HAVING FILED A WRITTEN
16 OPPOSITION TO THE USE OF A DECLARATION OF NON-MONETARY
17 STATUS BY TWO OF THE APPEARING DEFENDANTS, UNLESS THE
18 DEFENDANTS HAVE A DIFFERENT SUGGESTION OF WHAT OUGHT TO
19 HAPPEN NEXT, I WOULD RECOMMEND TO PLAINTIFFS THAT THEY
20 SERIOUSLY CONSIDER FILING A MOTION TO STRIKE THAT
21 RESPONSIVE PLEADING BECAUSE AS I UNDERSTAND THE
22 PLAINTIFF’S VIEW OF THINGS, THESE PARTIES NEED TO ANSWER
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23 OR OTHERWISE BE FULLY INVOLVED IN THE DEMURRER.
24 I WILL TAKE A MOMENT AND DOUBLE CHECK.
25 I’M LOOKING AT THE DEMURRER THAT I HAVE,
26 AND ALTHOUGH THE COUNSEL BRINGING IN THE DEMURRER ARE
27 COUNSEL FOR RECONTRUST AND C.T.C. WHEN I LOOK AT THE
28 DEMURRER AS SUCH, THE DEMURRER HAS NOT BEEN BROUGHT
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1 FORTH ON BEHALF OF RECONTRUST OR C.T.C..
2 SO THE ONLY RESPONSIVE PLEADING AT THE
3 MOMENT, AS I UNDERSTAND IT, IS THE DECLARATIONS OF
4 NON-MONETARY STATUS. SO IF THE PLAINTIFFS ARE CORRECT
5 THAT BASED ON THE ALLEGATIONS THAT IS NOT A SUFFICIENT
6 RESPONSIVE PLEADING, I WOULD THINK THE PLAINTIFFS WOULD
7 WANT TO MAKE A MOTION TO STRIKE THAT AND ESSENTIALLY
8 FORCE THE APPEARING DEFENDANT RECONTRUST AND C.T.C. REAL
9 ESTATE’S HAND TO EITHER JUSTIFY, IN THE FACE OF A
10 CONTESTED MOTION, THE USE OF THE DECLARATION ON
11 NON-MONETARY STATUS OR ALTERNATIVELY IF YOU PREVAIL AND
12 GET THE ONLY RESPONSIVE PLEADINGS FROM THOSE TWO
13 ENTITIES STRICKEN, THEY PRESUMABLY FIND IN THEIR SELF
14 INTEREST TO INTERPOSE SOME OTHER RESPONSIVE PLEADING
15 SUCH AS DEMURRER OR ANSWER OR MOTION FOR JUDGMENT. BUT
16 THINK AT THE MOMENT WE HAVE AN UNRESOLVED ISSUE
17 PRESENTED BY THAT.
18 I’VE GOT A LOT MORE TALKING, DON’T JUMP UP
19 AND EXPECT TO TALK TO ME YET. YOU ARE NOT DOING
20 YOURSELVES ANY FAVORS. JUST WRITE YOUR NOTES, BE
21 PATIENT AND THINK ABOUT THIS OVER LUNCH.
22 IF YOU HAVE AN AGREED POSITION AFTER LUNCH
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23 ABOUT WHAT’S TO HAPPEN TO THOSE PARTIES, I’D BE PLEASED
24 TO KNOW.
25 PLAINTIFF OBJECTS TO ITEM ONE IN
26 DEFENDANT’S REQUEST FOR JUDICIAL NOTICE.
27 THE BALANCE OF DEFENDANT’S REQUEST FOR
28 JUDICIAL NOTICE IS HELD FORTH AS RECORDED DOCUMENTS AND
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1 THERE’S NO FORMAL OBJECTION, AS SUCH, TO ITEMS TWO
2 THROUGH 57, BUT THERE IS OBJECTION TO ITEM ONE.
3 BECAUSE THE EVIDENCE CODE ALLOWS FOR THE
4 ADMISSION OF SUMMARIES AND RECAPITULATION OF EVIDENCE,
5 AND BECAUSE THERE’S NO ACTUAL OBJECTION TO THE
6 RECAPITULATIONS ACCURACY, BUT JUST TO THE FACT THAT SOME
7 POOR DRONE AT BANK OF AMERICA OR BRYAN CAVE HAD TO DO
8 IT, I’M INCLINED TO OVERRULE THE OBJECTION TO EXHIBIT 1
9 AND THE REQUEST FOR JUDICIAL NOTICE, BELIEVING THAT AS A
10 MERE RECAP OF OTHERWISE ADMISSIBLE EVIDENCE, HERE
11 ADMISSIBLE BECAUSE IT COMES WITHIN THE AMBIT OF A
12 REQUEST FOR JUDICIAL NOTICE, THAT EXHIBIT 1 IS JUST AS
13 GOOD AS THE REST.
14 BECAUSE I CAN SAY BRIEFLY, AND I WILL JUMP
15 TO THE MOTION TO STRIKE FOR A MOMENT, ALTHOUGH ON THE
16 THE MOTION FOR DEMURRER IS THE THING TO WHICH I’VE GIVEN
17 MORE ATTENTION. BUT, SIMPLY PUT — OH, A DIFFERENT
18 PRELIMINARY COMMENT, BECAUSE WE ARE DEALING IN THE
19 DEMURRER CONTEXT WITH THE ADEQUACY OF A PLEADING, AND
20 ARE GENERALLY SPEAKING NOT IN A POSITION TO LOOK AT
21 FACTS, PARTICULARLY FACTS THAT ARE SUPPLEMENTARY TO OR
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22 IN THE DEFENDANTS’ VIEW ANTITHETICAL TO THE ASSERTIONS
23 MADE IN THE PLEADING, THE FACT THAT CERTAIN CAUSES OF
24 ACTION OR THEORIES ADVANCED TODAY IS NOT INTENDED TO BE
25 MUCH OF A TEST MARKETING OF THE ACTUAL VIABILITY OF THE
26 DEFENDANTS’ ASSERTIONS AS TO CERTAIN CAUSES OF ACTION,
27 AS AND WHEN, BASED ON A MOTION FOR SUMMARY ADJUDICATION
28 OR OTHERWISE, THE DEFENDANT CAN ACTUALLY TEE UP THE
8
1 FACTUAL PREDICATE NEEDED TO FULLY ADVANCE THOSE
2 ARGUMENTS. I COMMENTED EARLIER THAT I DIDN’T THINK
3 TODAY’S PROCEEDINGS WERE NECESSARILY GOING TO BE A
4 TERRIBLY PRECISE CALIBRATION OF THE STRENGTHS AND
5 WEAKNESSES OF THE CASE AND THIS IS, BY WAY OF EXAMPLE,
6 ONE OF THE REASONS WHY TODAY’S EXERCISE WILL BE OF ONLY
7 LIMITED UTILITY IN TRYING TO UNDERSTAND WHAT THIS ALL
8 MEANS IN THE GRAND SCHEME OF THINGS FOR LONG TERM CASE
9 VALUE.
10 NOW, HAVING MADE THAT COMMENT IN PASSING,
11 WHICH IS EQUALLY GERMANE TO SOME OF THE QUESTIONS
12 PRESENTED BY THE MOTION TO STRIKE, I DON’T SEE ANY NEAR
13 TERM UTILITY IN GRANTING THE MOTION TO STRIKE AS TO ANY
14 OF THE POINTS RAISED, BUT THAT’S OBVIOUSLY WITHOUT
15 PREJUDICE TO THE DEFENDANT IN DUE COURSE, THROUGH A
16 MOTION FOR SUMMARY ADJUDICATION OR OTHERWISE, TRYING TO
17 WHITTLE A WAY AT SOME OF THE MANY ASSERTED COMPLEXITIES
18 TO THIS CASE TO TRY TO GET IT DOWN TO THE NUBBING OF
19 WHAT NEEDS TO BE RESOLVED, ASSUMING THAT IT DOES NOT
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20 COMPROMISE IN WHOLE OR IN PART.
21 LET ME TURN NOW TO THE STATUS OF THE 64 OR
22 SO BORROWERS WHICH THE DEMURRING DEFENDANTS ASSERT DID
23 NOT ORIGINATE THEIR LOAN THROUGH COUNTRYWIDE, OR AN
24 AFFILIATE IN THE MARKETPLACE ACKNOWLEDGED TO BE THEN AND
25 THERE AN AFFILIATE OF COUNTRYWIDE.
26 I WOULD HOPE IN MANY WAYS THAT AS A SHOW OF
27 THE WILLINGNESS TO PARE DOWN THE MULTITUDE OF CLAIMS OF
28 THE MULTITUDE OF PLAINTIFFS TO THE STRONGEST AND MOST
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1 VIABLE CLAIMS, FOR THE SAKE OF LITIGATION EFFICIENCY,
2 THAT PLAINTIFFS THROUGH THEIR COUNSEL WOULD BE WILLING,
3 WHEN THE CIRCUMSTANCES ARE AS OBVIOUS AS THEY SEEM TO BE
4 THROUGH REQUESTS FOR JUDICIAL NOTICE, TO ACCEPT REALITY
5 AND TRIM THEIR SAILS.
6 CALIFORNIA CODE OF CIVIL PROCEDURE SECTION
7 128.7 ATTEMPTS TO PUT ON COUNSEL AND STATE COURT A DUTY
8 AKIN TO RULE 11 IN THE FEDERAL COURTS TO BE SURE THAT AS
9 YOU PRESS FORWARD WITH VARIOUS CLAIMS, FACTUALLY AND
10 LEGALLY, THAT WHEN COUNSEL PUSH ON, THAT IF THEY ARE
11 INFORMED OF NEW FACTS OR CHANGED CIRCUMSTANCES, THAT
12 MAKE WHAT MAY HAVE BEEN IN GOOD FAITH AN APPARENTLY BONA
13 FIDE CLAIM AT THE INCEPTION OF A SUIT, NO LONGER
14 NECESSARILY IT IS SUCH A GOOD CLAIM, THAT COUNSEL
15 ACTUALLY ARE WILLING TO HAVE A FEEDBACK LOOP AND LEARN
16 FROM WHAT THEY READ AND THEY ARE TOLD, AND TO MODIFY
17 THEIR ALLEGATIONS.
18 AND WITH THAT THOUGHT IN MIND, ALTHOUGH IT
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19 DOES ESSENTIALLY REQUIRE RESORT TO THE REQUEST FOR
20 JUDICIAL NOTICE, AND IS NOMINALLY CONTRARY TO WHAT
21 PLAINTIFFS PURPORT TO ASSERT IN BOILERPLATE PLEADING IN
22 THEIR COMPLAINT WHICH IS THAT ALL OF THESE LOANS
23 ORIGINATED IN SOME FASHION WITH COUNTRYWIDE AND/OR ITS
24 CHIEF EXECUTIVE OFFICER MR. MOZILO CONSPIRING BEHIND THE
25 CURTAIN WITH ANYBODY AND EVERYBODY WHO MIGHT HAPPEN TO
26 HAVE BEEN INVOLVED AS TO ANY OF THESE LOANS.
27 THAT DOES NOT NECESSARILY SEEM TO BE A
28 CLAIM THAT CAN BE PRESSED FORWARD AT THIS TIME AS TO
10
1 THESE 64 BORROWERS IN BONA FIDE GOOD FAITH. AND I WOULD
2 HOPE THAT THE PLAINTIFFS WOULD BE PREPARED TO DISMISS
3 THE FRAUD ORIGINATION CLAIMS OR I GUESS ONE MIGHT CALL
4 THEM THE LOAN ORIGINATION CLAIMS, WHICH I UNDERSTAND TO
5 BE COLLECTIVELY THE FIRST THROUGH THIRD CAUSES OF ACTION
6 AS TO THESE 64 BORROWERS, WITHOUT PREJUDICE.
7 THE POINT OF WITHOUT PREJUDICE BEING IF
8 SOME POINT LATER IN THE SEQUENCE ONE WERE TO LEARN
9 HYPOTHETICALLY, THAT WHEN BORROWER HELIDORO,
10 H-E-L-I-O-D-O-R-O, BECERRA, B-E-C-E-R-R-A, ORIGINATED A
11 LOAN IN MARCH OF 2007, WITH AN OUTFIT CALLED ADVANTIX,
12 A-D-V-A-N-T-I-X, LENDING INC., WHICH AT PRESENT SEEMS TO
13 HAVE NOTHING TO DO WITH COUNTRYWIDE; THAT THEY LATER
14 LEARN THAT, INDEED, THEY DID HAVE A CONNECTION DOWN
15 THERE WITH COUNTRYWIDE THAT THEY COULD SEEK LEAVE TO
16 AMEND TO BRING THE CLAIM BACK BEFORE THE COURT.
17 BUT I’M CERTAINLY GIVEN TO INFER THAT IT’S
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18 NOTHING BUT A WILD GUESS AT THE MOMENT THAT COUNTRYWIDE
19 SOMEHOW WAS DOING BUSINESS WITH OR THROUGH ADVANTIX WHEN
20 THEY SEEMED QUITE CAPABLE OF DOING BUSINESS AS
21 COUNTRYWIDE AND RATHER FANCIED THAT THAT WAS A GOOD WAY
22 TO DO BUSINESS AT THE RELEVANT TIME.
23 SO, I GUESS IN THAT REGARD, I’M INCLINED TO
24 SUSTAIN THE DEMURRER OF THE APPEARING DEMURRING
25 DEFENDANTS AS TO THOSE APPROXIMATE 64 LOANS AS TO THE
26 FIRST THREE CAUSES OF ACTION OVER THE PLAINTIFF’S
27 APPARENT BUT UNFORTUNATE OBJECTION.
28 I SAY UNFORTUNATE BECAUSE TO GO BACK AND
11
1 REFER TO ONE’S PRIOR PLEADING AND SAY, WELL, WE WANT TO
2 SAY THAT COUNTRYWIDE MADE THE LOAN, WHEN THE LAND
3 RECORDS SHOW THAT COUNTRYWIDE DIDN’T MAKE THE LOAN,
4 MAKES ONE WONDER ABOUT THE PRACTICALITY OF PLAINTIFF’S
5 COUNSEL AND/OR THEIR AWARENESS OF CCP 128.7. BUT I
6 SUSPECT THAT’S REALLY NOT AN ISSUE.
7 THE SAME QUESTION IN MANY OF THE SAME WAYS
8 ARISES AS TO ANOTHER GROUP OF BORROWERS, NOT SO TIDILY
9 DEFINED BY THE DEMURRER DEFENDANTS, BUT THESE CAN BE
10 REFERRED TO AS THE PERSONS WHOSE LOANS WITH COUNTRYWIDE
11 OR OTHERWISE WERE MADE FOR SOME DATE IN 2005 OR PERHAPS
12 BEFORE JANUARY 1 OF 2005, GIVEN THAT SO FAR THE PLEADING
13 IS DEPICTING FRAUDULENT CONDUCT BY COUNTRYWIDE, ITS
14 OFFICERS, DIRECTORS AND AGENTS FROM SOME DATE IN 2005
15 AND THEREAFTER.
16 THIS IS NOT A VERY TIDILY BROUGHT FORWARD
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17 DEMURRER, TO MY UNDERSTANDING, BECAUSE WE DON’T TO THE
18 BEST OF MY UNDERSTANDING HAVE THE NAMES OF THE BORROWERS
19 WHO ARE SUPPOSED TO BE STRICKEN AT THIS TIME SO NEATLY
20 ARRAYED AS THE 64 BORROWERS WHO APPARENTLY DIDN’T GO
21 THROUGH COUNTRYWIDE FOR LOAN ORIGINATION. BUT THE
22 CONCEPT AGAIN SEEMS TO HAVE SOME VALIDITY.
23 THE SUSPENSION, WHICH IS AN INTERESTING
24 PROCEDURAL DEVICE, AS STYLED BY PLAINTIFF’S COUNSEL,
25 THROUGH THEIR “AMENDMENT TO THIRD AMENDED COMPLAINT”
26 FILED NOVEMBER 22, 2010, IS INTRIGUING AND IN SOME WAYS
27 I DON’T QUARREL WITH WHAT PLAINTIFF’S COUNSEL ARE TRYING
28 TO DO, BUT IN THE NICETIES OF IT, I WOULD BE INCLINED TO
12
1 THINK THAT THIS SHOULD BE AT THIS JUNCTURE, A DISMISSAL
2 OF THE CLAIMS AS TO SUCH PARTIES WITHOUT PREJUDICE.
3 IT CAME TO MY COMMENTS ABOUT MR. BECERRA
4 AND HIS LOAN WITH ADVANTIX, AND ITS APPARENT LACK OF
5 CONNECTION AT THE TIME OF ORIGINATION TO COUNTRYWIDE.
6 BUT THEN AS TO THESE BORROWERS WHO HAVE PRE-2005 LOANS,
7 THE POINT OF DISMISSING THESE CLAIMS WOULD BE WITHOUT
8 PREJUDICE, IS THAT IF LATER EVIDENCE SUPPORTING THAT THE
9 FRAUD WAS EARLIER IN TIME IN 2004 OR EARLIER, THAT A
10 DISMISSAL AT THIS JUNCTURE WITHOUT PREJUDICE WOULD NOT
11 ESTOP THE PLAINTIFFS FROM TRYING TO AMEND THOSE CLAIMS
12 BACK IN AS AND WHEN THE CLAIM CAME FORWARD, WHICH IN MY
13 VIEW IS TIDIER THAN SOMETHING I DON’T THINK I’VE READ
14 ABOUT IN WITKIN OR WEIL AND BROWN, OR THE CALIFORNIA
15 CASES WHICH IS THIS THING DESCRIBED IN THE AMENDMENT THE
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16 THIRD AMENDED COMPLAINT AS A “SUSPENSION” OF THE CLAIM.
17 THE THREE FRAUD CLAIMS ARE COMMON LAW
18 CLAIMS, AND BECAUSE THEY ARE FRAUD CLAIMS, ALBEIT ON
19 BEHALF OF, I GUESS SCORES GOING ON HUNDREDS OF PEOPLE,
20 INVOLVING SCORES OR HUNDREDS OF DIFFERENT LOANS, WE HAVE
21 THE UNAVOIDABLE BURDEN GIVEN THE DESIRE OF THE
22 PLAINTIFFS TO SUE IN CONJUNCTION WITH EACH OTHER AND/OR
23 OTHER COUNSEL TO HAVE AS MANY SEPARATE PLAINTIFFS BEFORE
24 THE COURT IN A SINGLE DOCKET AS HAPPEN TO BE IN THIS
25 DOCKET AT THE MOMENT, NEVERTHELESS, PRESENT A MONUMENTAL
26 PROBLEM OF FULFILLING THE STILL-RESPECTED COMMON LAW
27 REQUIREMENT THAT FRAUD BE PLED WITH PARTICULARITY.
28 IN MY VIEW THAT’S A PROBLEM AS TO THE
13
1 SECOND AND THIRD CAUSES OF ACTION ONLY FOR REASONS I’LL
2 EXPLAIN FURTHER. AND FOR THAT REASON I’M INCLINED TO
3 SUSTAIN THE DEMURRER TO THE SECOND AND THIRD CAUSES OF
4 ACTION WITH LEAVE TO AMEND TO TRY TO BRING FORWARD WITH
5 PARTICULARITY.
6 BUT LET ME STAY WITH THE FIRST CAUSE OF
7 ACTION AT THE MOMENT, WHERE I’M INCLINED TO OVERRULE THE
8 DEMURRER. THE PERLAS, P-E-R-L-A-S, V. GMAC CASE CITED
9 BY THE DEFENDANTS IS VERY INTERESTING. I’M GOING TO
10 TAKE A SECOND TO GET MY HANDS ON THE PHYSICAL DECISION.
11
12 (PAUSE IN THE PROCEEDINGS.)
13
14 THE COURT: THIS IS A DECISION OUT OF DIVISION
15 FIVE OF OUR COURT OF APPEALS IN NORTHERN CALIFORNIA,
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16 JUSTICE SIMMONS, THAT BASICALLY SAID IT WASN’T THE
17 BORROWER’S PREROGATIVE TO BLAME THE LENDER IF THE
18 BORROWER, UNDER WHATEVER CIRCUMSTANCES THAT GAVE RISE TO
19 IT HAPPENING, FILLS OUT A LOAN APPLICATION OVERSTATING
20 THEIR INCOME AND THEREFORE GETS PUT INTO A LOAN THEY
21 CAN’T AFFORD BECAUSE, ESSENTIALLY, THE BORROWER IS
22 SUPPOSED TO PROTECT THE BORROWER ABOUT DISCLOSING THE
23 INCOME AND THE LOAN APPLICATION IS NOT FOR THE BENEFIT
24 OF THE BORROWER, BUT FOR THE BENEFIT OF THE LENDER, AND
25 SO AN OVERSTATEMENT OF THE INCOME IN THE LOAN
26 APPLICATION, MADE PURPORTEDLY BY THE BORROWER TO THE
27 LENDER IS NOT SOMETHING ON WHICH THE BORROWER CAN RELY
28 TO THEN TURN AROUND AND TRY TO BLAME THE LENDER FOR
14
1 BEING PUT IN THE LOAN IN QUESTION.
2 I PERSONALLY AGREE AS A MATTER OF
3 JURISPRUDENCE WITH THE PLAINTIFFS THAT THE PERLAS CASE
4 DOESN’T NECESSARILY SUPPORT THE APPLICATION TO WHICH THE
5 DEMURRING DEFENDANTS WANT TO PUT IT.
6 BUT I ALSO BELIEVE THAT IN ALL OF THE
7 THINGS THAT ARE IMPORTANT ABOUT THIS CASE, AND I
8 MENTIONED EARLIER THAT IN MANY WAYS THE PLAINTIFFS ARE
9 HOPING TO AT LEAST THEORETICALLY CREATE THE POSSIBILITY
10 OF TRULY ASTRONOMICAL EXPOSURE ON THE APPEARING
11 DEFENDANTS, INCLUDING THE FEDERALLY INSURED BANK, BANK
12 OF AMERICA, THAT THE QUESTION OF WHETHER OR NOT PERLAS
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13 SHOULD APPLY, AS ARGUED BY THE DEFENDANTS, PRESENTS A
14 VERY IMPORTANT QUESTION, WHICH SHOULD BE IF POSSIBLE,
15 ADDRESSED BY OUR OWN COURT OF APPEAL THROUGH A WRIT
16 PROCEEDING, CERTIFIED BY MYSEF PURSUANT TO CCP SECTION
17 166.1, AS AS SOON AS A RULING ON TODAY’S DEMURRER IS
18 FINALIZED, TO SEE WHETHER OR NOT, CONTRARY TO
19 JUDGE HIGHBERGER’S VIEW, THE RELEVANT APPELLATE PANEL
20 THAT GETS THIS CASE, MIGHT INDEED THINK THAT THE LARGER
21 LESSONS OF PERLAS IN SOME SENSE SHOULD BE APPLIED TO
22 THIS CASE.
23 PERLAS HAD TO DO WITH REPRESENTATIONS ABOUT
24 A BORROWERS EARNING STREAM. THE PRESENT CASE DOESN’T
25 INVOLVE THE EARNING STREAM OF THE BORROWERS, BUT IT DOES
26 INVOLVE THE VALUE OF THE ASSET TO BE FINANCED.
27 NOW NORMALLY THE BORROWER HAS HIS, HER OR
28 ITS OWN RESPONSIBILITY FOR DETERMINING WHETHER THEY WANT
15
1 TO PAY FOR A PIECE OF REAL ESTATE BEFORE THEY MAKE A
2 CONTRACT, AND/OR DETERMINING HOW MUCH DEBT THEY THINK
3 THEY SHOULD PUT UPON THEIR REAL ESTATE IF THEY ARE DOING
4 A REFINANCE, AND THE WILLINGNESS OF A LENDER TO OVER
5 LEND, IN ESSENCE, DOES NOT NECESSARILY OBVIATE THE
6 RESPONSIBILITY OF THE BORROWER TO MAKE HIS, HER OR ITS
7 OWN INFORMED JUDGMENT OF WHAT THE COLLATERAL IS ACTUALLY
8 WORTH BEFORE THE FINANCING TRANSACTION OCCURS.
9 TIME DIDN’T PERMIT, BUT I WAS GOING TO
10 TRY TO FIND THE LATIN EQUIVALENT OF CAVEAT EMPTOR,
11 CAVEAT EMPTOR IN THEORY IS AN ADMONITION THAT BUYERS
12 SHOULD BE CAREFUL BEFORE THEY BUY AND IF ONE IS BUYING
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13 THE REAL ESTATE IN THE FIRST INSTANCE AND THE FINANCING
14 IS A NEW PURCHASE FINANCING, THE PHRASE PERHAPS HAS
15 QUITE APPROPRIATE APPLICATION HERE.
16 BUT FOR THOSE WHO ARE REFINANCING, BY WAY
17 OF EXAMPLE, IT WOULD BE WHATEVER THE LATIN EQUIVALENT
18 IS, MAYBE IT’S CAVEAT DEBITOR; BUT I HAVEN’T HAD A
19 CHANCE TO CHECK MY LATIN FOR WHAT A BORROWER WOULD BE IN
20 THE LATIN.
21 BUT MY POINT BEING, THE GENERAL PHILOSOPHY
22 OF THE PERLAS CASE MIGHT LEAD AN APPELLATE COURT TO TAKE
23 THE VIEW THAT THE BASIC PREMISE OF THE PLAINTIFFS HERE
24 THAT THEY HAD SOME RIGHT TO RELY UPON DEFENDANT
25 COUNTRYWIDE’S STATEMENTS AND LACK OF STATEMENTS TO COME
26 TO THE CONCLUSION THAT THE PRICING OF RESIDENTIAL REAL
27 ESTATE IN THE UNITED STATES AND VARIOUS MARKETS,
28 PARTICULARLY HERE IN VARIOUS PORTIONS OF CALIFORNIA, WAS
16
1 REASONABLY AND ACCURATELY PRICED, WAS NOT TRUE BUT THEY
2 REASONABLY RELIED UPON IT, NOT REALIZING THAT ACCORDING
3 TO THE PLAINTIFF’S ALLEGATIONS, ROBUST AS THEY ARE,
4 THAT, ESSENTIALLY, COUNTRYWIDE AND ITS EXECUTIVES AND
5 VARIOUS OFFICERS, AGENTS, EMPLOYEES, ETCETERA, WERE
6 ACTUALLY CAPABLE OF KNOWINGLY INFLATING THE VALUES OF
7 RESIDENTIAL REAL ESTATE TO SUCH A DEGREE THAT THEY NO
8 LONGER WERE IN ANY WAY, SHAPE OR FORM FAIR OR ACCURATE
9 VALUATIONS, BUT BECAUSE THE SEVERAL PLAINTIFFS IN THIS
10 DOCKET WERE UNAWARE THAT THIS HAD BEEN UNDERTAKEN
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11 SUCCESSFULLY BY DEFENDANT COUNTRYWIDE, THEY WENT AHEAD
12 AND MADE THESE TRANSACTIONS IN REASONABLE RELIANCE UPON
13 THE ASSUMPTION THAT THE PRICING IN THE MARKET WAS
14 REASONABLE AND HAD NOT BEEN DISTORTED BY THE INTENTIONAL
15 ACTS OF DEFENDANT COUNTRYWIDE AND THE OTHER DEMURRING
16 DEFENDANTS. AND THAT THEY THEREFORE HAVE IN SUCH
17 RELIANCE MADE THESE TRANSACTIONS AND BEEN HARMED.
18 I REFERRED A MOMENT AGO TO THE ROBUSTNESS
19 OF PLAINTIFFS CLAIMS, AND THAT IS A WAY OF SAYING WHAT
20 PLAINTIFF HAS SET OUT TO TRY TO PROVE, PLAINTIFFS HAVE
21 SET OUT TO TRY TO PROVE IS AN AMBITIOUS PROJECT. BUT
22 THE FACT THAT IT’S AMBITIOUS DOES NOT NECESSARILY MEAN
23 IN MY VIEW THAT THE MERE FACT THAT WE HAVE THE PERLAS
24 CASE OUT THERE AUTOMATICALLY SAYS THAT THE PLAINTIFFS
25 AREN’T EVEN ALLOWED TO TRY TO ADVANCE THE PREMISE.
26 BUT, GIVEN THAT THE CURRENT STATE OF OUR
27 POLITICAL AND JURISPRUDENTIAL ECONOMY, I WOULDN’T
28 NECESSARILY DISMISS OUT OF HAND THE POSSIBILITY THAT AN
17
1 APPELLATE COURT EXTENDING THE BASIC SORT OF PHILOSOPHY
2 OF PERLAS VERSUS GMAC MIGHT NOT DETERMINE THAT AS A
3 LEGAL PROPOSITION THEY JUST SIMPLY AREN’T GOING TO
4 COUNTENANCE ONE TRYING TO MAKE A COMMON LAW CLAIM FOR
5 FRAUD AGAINST A DEFENDANT LENDER OR LOAN ORIGINATOR THAT
6 ONE WAS ESSENTIALLY ALL TOO WILLING TO LOAN YOU TOO MUCH
7 MONEY, WHEN YOU IN THEORY SHOULD HAVE BEEN A BIG BOY OR
8 BIG GIRL AND PROTECTED YOURSELF IN FIGURING OUT HOW MUCH
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9 MONEY YOU REALLY SHOULD BORROW, WHEN ACCORDING TO
10 PLAINTIFF’S ALLEGATIONS, ALL OF THE PRICING WAS
11 DISTORTED BY THE FRAUDULENT CONDUCT OF THE DEFENDANT
12 AND, THEREFORE, IN ESSENCE HOW COULD ONE KNOW?
13 THE FIRST CAUSE OF ACTION, I THINK,
14 NOTWITHSTANDING ITS GREAT AMBITION AND THE MULTITUDE OF
15 PLAINTIFFS ACTUALLY SURVIVES THE DEMURRER, BECAUSE ON
16 THE QUESTION OF RELIANCE, THIS IS A FRAUDULENT
17 CONCEALMENT CLAIM. AND THE GENERALIZED ALLEGATIONS
18 APPLICABLE TO EACH AND EVERY PLAINTIFF SUBJECT OBVIOUSLY
19 TO CROSS-EXAMINE AT DEPOSITION AND OTHER FACTUAL
20 TESTING, IS THAT THEY NEVER HEARD ANYTHING TELLING THEM
21 HOW WRONG AND INACCURATE REAL ESTATE PRICING HAD BECOME
22 AS A RESULT OF THE DEFENDANTS’ CONDUCT, WHICH WAS
23 ADVANCED BY THE ALLEGED FRAUDULENT CONCEALMENT. AND SO,
24 I DON’T BELIEVE THERE’S ANYTHING FURTHER ON WHICH
25 PARTICULARITY IS ACTUALLY REQUIRED, BECAUSE EACH OF THE
26 PLAINTIFFS HAVE, ALBEIT IN RELATIVELY SUCCINCT WAY OF
27 EXPRESSING IT THROUGH COUNSEL AND THE PLEADING, SAID,
28 IT’S ECHOING SILENCE.
18
1 SO WHAT ARE THE PARTICULARS OF ECHOING
2 SILENCE? IT WAS ECHOING SILENCE LIKE IN THEIR WHOLE
3 LIFE OR DURING THIS PERIOD OF TIME WHERE WE DON’T NEED A
4 DATE, TIME OR PLACE WHO SPOKE TO THEM. IT’S JUST
5 ECHOING SILENCE.
6 THE SECOND AND THIRD CAUSES OF ACTION
7 AREN’T SO EASY FOR PLAINTIFFS FROM A PLEADING POINT OF
8 VIEW BECAUSE THAT WORKS BACKWARDS FROM INTENTIONAL OR
9 NEGLIGENT MISREPRESENTATIONS.
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10 AND THERE I THINK THE DEFENDANTS ARE RIGHT
11 THAT BECAUSE THESE ARE COMMON LAW CLAIMS, AND BECAUSE WE
12 CONTINUE TO HAVE A HEIGHTENED PLEADING STANDARD, THE
13 DEFENDANT IS ENTITLED BEFORE THESE COMMON LAW CLAIMS GO
14 FORWARD TO HAVE MORE OF THE WHO, WHAT, WHERE, WHEN, THAT
15 PARTICULARIZED PLEADINGS SHOULD REQUIRE OF WHAT, BY WAY
16 OF EXAMPLE, NAMED PLAINTIFF HELIDORO BECERRA HEARD FROM
17 AGENTS OF COUNTRYWIDE, WHICH WAS FRAUDULENT WHEN SO
18 HEARD BY HIM.
19 IT’S INTERESTING AND I THINK SMART FROM A
20 PLEADING AND PROOF POINT OF VIEW FOR PLAINTIFF’S COUNSEL
21 TO MAKE SUBSTANTIAL RELIANCE ON THE MANDATORY FILINGS
22 WITH THE SECURITIES AND EXCHANGE COMMISSION, BY
23 COUNTRYWIDE DOCUMENTS WHICH WOULD HAVE HAD TO BE SIGNED
24 BY ITS OFFICERS AND DIRECTORS AND FILED AS AN OFFICIAL
25 ACT WITH THE GOVERNMENT, WHICH, FROM THE POINT OF VIEW
26 OF CHARGING THE CORPORATION OF THE RESPONSIBILITY FOR
27 THOSE STATEMENTS IS ABOUT AS CLEAR-CUT, SIMPLE AS YOU
28 ARE GOING TO COME TO. IT IS NOT SOME RANDOM ROOKIE
19
1 DRIVER OUT IN THE FIELD ON THE FIRST DAY OF WORK, MAKING
2 STATEMENTS THAT ONE IS TRYING TO ATTRIBUTE BACK TO THE
3 ENTITY FOR PUNITIVE DAMAGES LIABILITY OR OTHERWISE.
4 THESE ARE VERY MUCH THE ACTS OF THE CORPORATION.
5 BUT, I DON’T THINK YOU GET TO A COMMON LAW
6 CLAIM FOR NEGLIGENT OR INTENTIONAL MISREPRESENTATION
7 BASED ON SOME THEORY OF CONSTRUCTIVE NOTICE. YOU GET
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8 THERE BECAUSE FOR RELIANCE YOU HAVE TO, IN THEORY, HAVE
9 HEARD THE STATEMENT OR READ THE STATEMENT BEFORE ONE
10 REASONABLY RELIED UPON IT.
11 AND THERE’S NOT AN ASSERTION AS TO EACH OF
12 THE PLAINTIFFS THAT THEY SPENT THEIR NIGHTS GOING ON THE
13 EDGAR WEBSITE LOOKING FOR 10-K OR 10-Q FILINGS OF
14 COUNTRYWIDE, WHICH WOULD SEEM PASSING CURIOUS IF THAT’S
15 ACTUALLY WHAT HAPPENED. BUT, THEREFORE, THE STATEMENTS
16 MADE, HOWEVER OFFICIALLY THEY MAY BE MADE BY COUNTRYWIDE
17 TO THE SECURITIES AND EXCHANGE COMMISSION OF THE UNITED
18 STATES GOVERNMENT, DO NOT NECESSARILY CONNECT WITH
19 SOMETHING THAT ONE OR MORE OF THESE PLAINTIFFS READ OR
20 BECAME COGNIZANT OF ON WHICH THEY THEREFORE REASONABLY
21 RELIED.
22 SO THAT IS THE BIG GAP IN THE PLAINTIFF’S
23 CURRENT FACT OR ALLEGATIONS FROM MY POINT OF VIEW THAT
24 MEANS THE SECOND AND THIRD CAUSES OF ACTION HAVE TO GO
25 BACK TO THE DRAWING BOARD FOR ELABORATION, SO THAT THE
26 BURDENS OF THE COMMON LAW PLEADING STANDARD ARE MET.
27 AND THERE’S NO DENYING THAT THOSE BURDENS ARE DIFFICULT.
28 THEY ARE DIFFICULT IF THERE’S ONLY ONE PLAINTIFF, THEY
20
1 ARE MORE DIFFICULT IF THERE ARE SIX PLAINTIFFS. AND
2 HERE WHERE WE HAVE, I GUESS HUNDREDS OF PLAINTIFFS, IT’S
3 OBVIOUSLY MORE BURDEN THAN THAT. THERE’S NO DENYING
4 IT’S BURDENSOME, BUT I THINK IT’S STILL REQUIRED BY THE
5 COMMON LAW.
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6 I WOULD NOTE IN PASSING THAT AT THAT POINT
7 IN THE PLAINTIFF’S OPPOSITION BRIEF, THERE WAS VERY
8 MINIMAL, CLOSE TO NOT EXISTENT CITATION OF LEGAL
9 AUTHORITY, WHICH I THINK HELPS REINFORCE THEIR
10 PROPOSITION THAT WE REALLY NEED MORE.
11 SO THAT BRINGS ME TO THE FOURTH CAUSE OF
12 ACTION INVOLVING THE PRIVACY CLAIM. HERE THE DEFENDANT
13 IS BASICALLY TRYING TO PREVIEW A MOTION FOR SUMMARY
14 ADJUDICATION ABOUT THE ALLEGED ROGUE EMPLOYEE THAT GAVE
15 RISE TO THE CLASS ACTION SETTLEMENT IN KENTUCKY.
16 I DON’T THINK I CAN USE THE DEMURRER AS A
17 WAY TO DO AN ADVANCE TESTING OF THE VIABILITY OF ANY
18 SUCH MOTION FOR SUMMARY ADJUDICATION IT BROUGHT.
19 THE PLEADING ITSELF ON IT IS FACE I THINK IS SUFFICIENT.
20 WE DON’T HAVE A HEIGHTENED PLEADING STANDARD, AS I
21 UNDERSTAND IT, FOR THE CONSTITUTIONAL RIGHT OF PRIVACY.
22 AND I THINK IT IS A SUFFICIENT PLEADING AT THIS
23 JUNCTURE, WITHOUT PREJUDICE TO WHAT HAPPENS NEXT ON
24 MOTIONS FOR SUMMARY ADJUDICATION OR OTHERWISE.
25 ONE PASSING COMMENT TO COUNSEL, TO ME IT
26 WILL BE AN INTERESTING QUESTION, AND MAYBE IT’S A
27 QUESTION OF RESPONDEAT SUPERIOR OR RESPONSIBILITY OF AN
28 EMPLOYER FOR THE CONDUCT THEY HAVE GIVEN WORKER AND
21
1 WHETHER OR NOT THAT’S A FACT QUESTION. IT COULD BE
2 OBVIOUS IN SOME CIRCUMSTANCES, BUT WHETHER THE RECORD IN
3 THIS CASE WILL MAKE THAT A TRIABLE ISSUE OF MATERIAL
4 FACT AS TO WHETHER THE ROGUE EMPLOYEE WAS ACTING IN THE
5 COURSE AND SCOPE OF EMPLOYMENT.
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6 ANOTHER WAY OF LOOKING AT IT IS WHETHER OR
7 NOT ONE GETS TO AN INVASION OF RIGHT TO PRIVACY CLAIM
8 BASED ON NOTHING MORE THAN NEGLIGENCE BY THE DEFENDANT
9 TO BE CHARGED, WHETHER IT HAS TO BE INTENTIONAL ACT. I
10 DON’T PRETEND TO KNOW THE ANSWER TO THAT QUESTION
11 LEGALLY, BUT I POINT IT OUT TO YOU BECAUSE IT IS
12 PROBABLY WORTH BRIEFING WHEN THIS QUESTION COMES BACK
13 LATER.
14 THE 5TH CAUSE OF ACTION WE’VE ALREADY
15 REFERENCED. I THINK IT’S CONCEDED TO FAIL. THE CLAIM
16 FOR THE BENEFIT OF DELAY IN FORECLOSURE, THE RECORD IS
17 CRISP AS TO APPROXIMATELY FIVE PLAINTIFFS WHO HAVE
18 FORMAL NOTICES OF RESCISSION. PLAINTIFF PAUL RONALD AND
19 PLAINTIFF LISA RONALD; PLAINTIFF PRICILLA BOWIN,
20 B-O-W-I-N, PLAINTIFF TRACEY, T-R-A-C-E-Y, HAMPTON-
21 STEIN; AND PLAINTIFF RENE, R-E-N-E, MINNAAR,
22 M-I-N-N-A-A-R, TO MY UNDERSTANDING.
23 THE DEFENDANT WISHES TO ASSERT THAT AS TO
24 THE OTHER PLAINTIFFS WHO JOINED THIS CAUSE OF ACTION,
25 WHICH IS A RELATIVELY SMALL SUBSET OF ALL OF THE
26 PLAINTIFFS IN THIS CASE, THAT THE 6TH CAUSE OF ACTION
27 MUST FAIL. BUT I DON’T THINK AS A HYPER-TECHNICAL
28 MATTER THAT THE STATEMENTS MADE ON THE RECORD BY DEFENSE
22
1 COUNSEL, ATTEMPTING TO SHOW PATIENCE BY BANK OF AMERICA
2 AND A WILLINGNESS TO DELAY ANY FORECLOSURES ARE
3 NECESSARILY SOMETHING WITH ENOUGH OFFICIAL QUALITY AS TO
4 NEGATE THE CURRENT PLEADING AND, THEREFORE, WITHOUT
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5 INDICATING THAT THERE’S ANY FINAL VIEW THAT THERE’S BEEN
6 A VIOLATION OF THE STATUTE, I WOULD THINK AS A TECHNICAL
7 MATTER, THE 6TH CAUSE OF ACTION SHOULD BE OVERRULED AS
8 TO ALL PLAINTIFFS EXCEPT THE FIVE I’VE JUST MENTIONED.
9 THE 7TH CAUSE OF ACTION I THINK IS
10 ADEQUATELY MADE OUT, AS WELL AS THE 8TH CAUSE OF ACTION.
11 THE 8TH CAUSE OF ACTION MAY INCLUDE —
12 FIRST OFF, AS TO THE 8TH CAUSE OF ACTION, IF THE
13 PLAINTIFFS HAVE PLED A VALID CLAIM AT LEAST FOR
14 INJUNCTIVE RELIEF, UNDER THE 8TH CAUSE OF ACTION, IT
15 DOESN’T MATTER WHETHER OR NOT THEY WILL HAVE A RIGHT TO
16 MONETARY RESTITUTION. AND I THINK AS ARGUED BY THE
17 PLAINTIFFS IN THEIR OPPOSITION THERE IS SUCH A CLAIM FOR
18 INJUNCTIVE RELIEF, AND I THINK THAT’S MORE THAN ENOUGH
19 TO MAKE IT GO FORWARD.
20 IF THIS WAS A SMALLER, SIMPLER CASE, AND A
21 MOTION FOR STAY MIGHT REALLY HELP MOVE THE CASE TO
22 PROMPT CASE RESOLUTION, PERHAPS THE MOTION TO STRIKE IN
23 THIS REGARD WOULD HAVE SOME UTILITY, BUT AT THE MOMENT,
24 THERE IS SO MUCH BIGGER, MORE IMPORTANT STUFF IN THE
25 CASE, THAT I DON’T HAVE THE RESOURCES, FRANKLY, TO TRY
26 TO USE THE MOTION TO STRIKE AS A WAY TO START TRIMMING
27 AROUND SOME OF THE POSSIBLE SURPLUSAGE THAT AT THE
28 MOMENT IS SLATHERED ON THE 8TH CAUSE OF ACTION FOR
23
1 UNFAIR COMPETITION AND, THEREFORE, IN OVERRULING THE
2 DEMURRER TO THE 8TH CAUSE OF ACTION, NOT NECESSARILY
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3 INDICATING THAT IT ALL HAS MERIT.
4 I’LL MAKE ONE OTHER PASSING COMMENT AS AN
5 ASIDE, BEFORE I TURN TO THE UNRELATED SINGH V. WINDMILL
6 ESTATES MATTER, WHERE COUNSEL ARE WAITING IN
7 ANTICIPATION THAT I’LL TALK TO COUNSEL IN RONALD AFTER
8 LUNCH, AND THAT IS THAT AS I’M COMING TO UNDERSTAND THE
9 CASE, AND RECOGNIZING THAT IT IS AT MOST PLED IN PASSING
10 AND RAISED, PERHAPS BY THE PAPERS, MORE THAN IN THE
11 PLEADING, THE CONCERNS RAISED BY PLAINTIFF’S COUNSEL
12 UNDER THE PATRIOT ACT AND FROM THE NON-TRANSPARENT
13 NATURE OF THE M.E.R.S., THAT’S AN ACRONYM, M-E-R-S,
14 ENTITY IS THE PURPORTED NOMINEE OF THE HOLDER IN DUE
15 COURSE OF THE PAPER, MAY RAISE SOME SIGNIFICANT
16 QUESTIONS, PARTICULARLY SINCE THIS CASE ARISES IN THE
17 CONTEXT OF A DISPUTE ABOUT THE RIGHT OF THE DEFENDANTS
18 AS LOAN SERVICERS AT A MINIMUM, TO FORECLOSURE ON DEBT,
19 WHICH IS CLOSE TO BUT NOT THE SAME QUESTION AS THE RIGHT
20 OF A PURPORTED OWNER OF A LOAN TO FORECLOSE ON SUCH DEBT
21 AS A CREDITORS RIGHT FOR ALLEGED NONPAYMENT OF THE DEBT.
22 WHETHER IT’S THE SERVICER ACTING AS AGENT
23 FOR THE HOLDER OF THE DEBT OR THE PARTY PURPORTING TO
24 HOLD THE DEBT, IF IT’S NECESSARY TO KNOW THAT IT IS NOT
25 AN IMPERMISSIBLE HOLDER OF THE DEBT, THE INABILITY TO
26 KNOW WHO THE HOLDER OF THE DEBT IS — PRESENTS A HUGE
27 PROBLEM.
28 AND PERHAPS THAT GETS ME BACK TO WHERE I
24
1 STARTED AND THAT IS THAT IN MANY WAYS, THE PROBLEMS
2 PRESENTED HERE, INCLUDING THOSE OF A LENDING INDUSTRY
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3 THAT APPARENTLY ALLOWED THESE LOAN PACKAGES TO BECOME AS
4 COMPLICATED AS THEY DID, PARTICULARLY IN TERMS OF
5 CUTTING THEM INTO MULTIPLE PARTS AND TRANSFERRING THEM
6 IN VARIOUS WAYS PRESENTS MASSIVE SOCIOECONOMIC PROBLEMS
7 THAT ARE PRESENTLY IN PART IN THIS COURT IN THIS DOCKET,
8 BUT ARE ACTUALLY MUCH MORE AMENABLE TO A BROADER FIX.
9 I DON’T KNOW WHETHER THAT WILL BE THROUGH
10 LEGISLATIVE EFFORTS OR PERHAPS THROUGH THE ATTEMPTS OF
11 ONE OR SEVERAL ATTORNEYS GENERAL TO INDUCE
12 ACCOMMODATIONS WHICH ARE SUFFICIENT TO SATISFY THE
13 BORROWERS THAT THEY ARE WILLING TO FOREGO THEIR MAXIMUM
14 LEGAL REMEDIES IN COURT IN THE INTEREST OF OBTAINING A
15 SUITABLE HALF A LOAF SOONER, WITH MUCH LESS FUSS AND
16 BOTHER, AS COMPARED TO PRESSING FOR THE LAST OUNCE OF
17 FLESH THROUGH FORMAL LITIGATION.
18 BUT AT THE MOMENT WHAT I HAVE BEFORE ME, AT
19 LEAST FOR PURPOSES OF TESTING THE PLEADING, IS WITH NO
20 CRITICISM INTENDED AN UNDERSTANDABLE EFFORT OF LITIGANTS
21 TO PRESS FORWARD ALL BONA FIDE CLAIMS AT THIS POINT TO
22 THE MAXIMUM DEGREE BECAUSE WE ARE NOT HERE ABOUT TO
23 IMPLEMENT SOME KIND OF WORKOUT PURSUANT TO SOME SCHEME
24 SATISFACTORY TO THE FEDERAL RESERVE OR THE FEDERAL TRADE
25 COMMISSION, THE U.S. CONGRESS, OR OTHERS WHO FEEL THEY
26 HAVE AN INTEREST IN THE EFFORT.
27 I’LL SEE YOU AT 1:30. AND TIME MAY NOT
28 PERMIT — I HAVE A 2:00 IN AN UNRELATED MATTER. I KNOW
25
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1 SOME OF YOU HAVE TRAVELED THOUGH, SO PERHAPS AFTER THE
2 2:00 I CAN GIVE YOU SOME MORE TIME BUT BACK INTO THAT SO
3 I DON’T ASK YOU TO COME BACK TOMORROW, RECOGNIZING SOME
4 OF YOU HAVE TRAVELED FROM OTHER PARTS OF THE STATE, IN
5 THE HOPES OF GETTING IT DONE TODAY RATHER THAN MAKING
6 THIS A 2-DAY EXERCISE.
7 MR. STEIN: CAN WE LEAVE OUR STUFF HERE OR TAKE
8 IT?
9 THE COURT: NO BAILMENT IS CREATED, BUT YOU MAY
10 LEAVE IT IF YOU WISH.
11 COURT’S IN RECESS.
12
13
14 (A RECESS WAS TAKEN IN THIS MATTER UNTIL
15 1:30 P.M. OF THE SAME DAY.)
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1 THE COURT: THIS IS JUDGE HIGHBERGER ER WE ARE ON
2 THE RECORD N. KC 053084. ^ SING ^ SINK V. WINDMILL
3 ESTATES. I’LL TAKE APPEARANCES STARTING WITH
4 PLAINTIFF’S COUNSEL.
5 RIGHT 1: GOOD MORNING, YOUR HONOR, KIM ROBERTS ON
6 BEHALF OF PLAINTIFF.
7 THE COURT: COUNSEL FOR WINDMILL ESTATES AND
8 AFFILIATED PARTIES.
9 MR. KLEIN: DOUGLAS HARDY.
10 THE COURT: ANY OTHER COUNSEL MAKING AN APPEARANCE
11 THIS MORNING.
12 SPEAKER #: YES, YOUR HONOR.
13 SPEAKER #: /TKPWAORPBG YOUR HONOR BILL PENNY STON
14 FOR /SKWR-S CUSTOM PAINT I KNOW.
15 SPEAKER #: /TKPWOPBG YOUR HONOR, MONDAY TEE
16 RICHARDS FOR WIND SUPPLY.
17 SPEAKER #: GOOD MORNING, YOUR HONOR, KIRK OLSON
18 ON COURT CALL FOR R. AND R. SPECIALTIES.
19 SPEAKER #: JUST CONTINUE BOOB YAN FOCUS TOM
20 BUILDERS.
21 SPEAKER #: GOOD MORNING, YOUR HONOR, JASON HER
22 SHY FOR ^ BLANK ^ PLANNING ^ BLANK ^ PLANNING DRYWALL.
23 THE COURT: ANYBODY ELSE WISH TO MIKE APPEARANCE.
24 (NO RESPONSE.)
25 THE COURT: IT APPEARS THAT NOTICE IS GOOD BASED
26 ON FILING OF JANUARY THREE FOR MR. HARDY’S OFFICIALS AND
27 I ALSO /STPES AND I HAVE CASE MANAGEMENT ORDER NUMBER 3
28 PROPOSED LODGED ON JANUARY SICK FOR MR. HARDY (6TH?? (IN
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2
1 REVIEWING PAPERWORK BEFORE ME I DO NOT FIND ANY WRITTEN
2 OPPOSITION OR OBJECTIONS TIMELY FILED OR OTHERWISE. IF
3 ANY OBJECTIONS COME TO YOUR ATTENTION MR. HARDY.
4 MR. KLEIN: NO, YOUR HONOR. EVERYONE HAS SIGNED
5 IN EXCEPT FOR MR. PER ROSS WHO RENTS A ROOFER AND TURNS
6 OUT HE HAVE WAS OUT OF TOWN AND JUST UNTIL A DAY AGO HE
7 SENT E-MAIL TO BOTH ME AND PLAINTIFF’S COUNSEL
8 INDICATING HE HAD NO OBJECTION.
9 THE COURT: HAS ANYBODY ELSE JUST /SKWROEPBD US TO
10 THE ON THE PHONE FORLT SINGH VERSUS WINDMILL MATTER I
11 HEARD A CHIME.
12 (NO RESPONSE.)
13 THE COURT: APPARENTLY NOT.
14 IS THERE ANYBODY ON THE PHONE WHO WISHES TO
15 BE HEARD WHY I SHOULD NOT ADOPT CMO NUMBER FLEE? IF SO
16 SPEAK YOU HAVE GIVE ME YOUR NAME.
17 (NO RESPONSE.)
18 THE COURT: HEARING NO OBJECTION, THE ORDER TO
19 SHOW CAUSE IS DISCHARGED. CMO NUMBER 3 IS ADOPTED. THE
20 CLERK WILL FILE IT. AS WELL AS A CONFORMED COPY. WE
21 HAVE AN ENVELOPE TO MAIL A COPY TO MR. HARDY AS COUNSEL
22 FOR WINDMILL. H ESTATES. IF YOU’D BE KIND ENOUGH TO
23 GIVE NOTICE /PHRO HARDY /STPHAO*F YES, I WILL.
24 THE COURT: TO MY UNDERSTANDING NEXT DATE BEFORE
25 ME PREVIOUSLY SCHEDULED WAS FOR APRIL 15 AT 9:00 A.M..
26 /P UNLESS THERE’S OBJECTION, I’LL LEAVE THAT ON CALENDAR
27 AS OUR ONLY NEXT DATE IN THIS CASE. HEARING NO
28 OBJECTION THAT’S THE ORDER OF THE COURT ANYTHING IS I
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3
1 CAN DO TO HELP YOU THIS MORNING ^ MILLS ^ MILLIONS
2 ROBBED.
3 MS. BROWN: NO THAT’S EVERYTHING YOUR HONOR.
4 THE COURT: MR. HARDY.
5 ATTY 5: THANK YOU, YOUR HONOR.
6 THE COURT: ANY OTHER COUNSEL HAVE ANYTHING ELSE?
7 (NO RESPONSE.)
8 THE COURT: HEARING NOTHING COURT’S IN RECESS
9 DEFENDANT WINDMILL ESTATES GIVE NOTICE. END END
10
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1 CASE NUMBER: BC 409 444
2 CASE NAME: PAUL RONALD VS. BANK OF AMERICA
3 LOS ANGELES, CA TUESDAY, JANUARY 11, 2011
4 DEPARTMENT 307 HON. WILLIAM F. HIGHBERGER, JUDGE
5 APPEARANCES: (AS NOTED ON TITLE PAGE.)
6 REPORTER: ELSA BANDA LARA, CSR NO. 3226
7 TIME: P.M. SESSION
8 —O—
9
10 THE COURT: BACK ON THE RECORD IN REGARD TO RONALD
11 V. BANK OF AMERICA.
12 AS I INDICATED TO COUNSEL A MOMENT AGO OFF
13 THE RECORD, SINCE I HAVE TO JUMP TO A DIFFERENT CASE AT
14 2:00, I’D LIKE TO HEAR FROM EACH SIDE FOR 10 MINUTES.
15 I’M GOING TO RECESS YOUR CASE, DEAL WITH THE OTHER CASE
16 AT 2:00, THEN COME BACK AND DEVOTE SUCH TIME AS SEEMS
17 APPROPRIATE AFTER THAT.
18 SO LET’S START WITH PLAINTIFFS.
19 MR. SPIVAK: THANK YOU, YOUR HONOR.
20 YOUR HONOR, WHEN WE WERE OFF THE RECORD,
21 ASKED IF WE’D TALK A BIT ABOUT WHAT IT IS WE SEE DOING
22 WITH THE CASE. AND THE ANSWER IS THAT WE SEE — UNLESS
23 THINGS CHANGE — TAKING THIS CASE ALL THE WAY AND TRYING
24 IT IN FRONT OF A JURY AND, YES, TRYING TO GET THAT
25 BILLION DOLLAR VERDICT OR WHATEVER THE APPROPRIATE
26 VERDICT IS AT THE TIME, IN BEHALF OF OUR CURRENTLY NAMED
27 PLAINTIFFS AND THE ROES THAT WE ARE GOING TO BE ADDING,
28 AS WE SAID WE WOULD.
27
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1 AND WE SEE THE CASE GETTING LARGER AND,
2 WITH YOUR HONOR’S HELP, MORE FOCUSED.
3 IF YOU WILL, AND BEFORE TURNING — AND I DO
4 WANT TO TURN TO SOME OF THE COMMENTS YOUR HONOR MADE.
5 ONE OF THE MOST IMPORTANT COMMENTS
6 YOUR HONOR MADE IS THAT THIS CASE IS VIEWED IN A LARGER
7 SOCIAL ECONOMIC AND LEGISLATIVE CONTEXT. AND IT MAY BE
8 THAT THE LEGISLATURE OR CONGRESS WILL STEP IN AND TAKE
9 STEPS THAT EITHER IMPACT THIS CASE OR HELP TO RESOLVE
10 THESE ISSUES. AND WE ARE ALL AWARE OF STEPS BEING TAKEN
11 IN THAT DIRECTION.
12 BUT IT IS UP TO THE COURT, IN MY OPINION,
13 IN THE ABSENCE OF LEGISLATION THAT SOMEHOW RESOLVES
14 INDIVIDUAL CLAIMS, WHICH IS HARD TO DO, OR THE MACRO
15 ISSUES, TO ADDRESS THIS ISSUE AND SOME OF THE LARGER
16 SOCIETAL CHANGES, ROE V. WADE, OTHERS, ARE COURT-ORDERED
17 CHANGES OR COURT-ORDERED REMEDIES. AND THIS CASE MAY,
18 IN FACT, BECOME ONE OF THOSE CASES THAT BECOMES THAT
19 LARGE AND THAT SIGNIFICANT.
20 TWO RECENT EVENTS, ONE AS RECENT AS THIS
21 MORNING, EMPHASIZE THIS. IN THE FIRST, THE
22 MASSACHUSETTS SUPREME COURT THIS MORNING, IN THE CASE OF
23 U.S. BANK V. IBENEZ HELD THAT ONLY THE OWNER OF A
24 MORTGAGE CAN FORECLOSURE ON A MORTGAGE. AND THAT WAS IN
25 A CASE BROUGHT IN THAT STATE IN WHICH A SERVICING AGENT
26 AND OTHERS HAD PURPORTED TO FORECLOSURE ON MORTGAGES.
27 AND THE SUPREME COURT IN MASSACHUSETTS SAID “NO.”
28 A NUMBER OF FEDERAL COURTS IN THAT — IN
28
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1 MASSACHUSETTS, FEDERAL COURTS HAD STAYED CASES AWAITING
2 THE OUTCOME OF THIS CASE, AND EVEN THIS MORNING, A
3 NUMBER OF THOSE CASES WERE UNSTAYED.
4 AND ONE OF THOSE CASES MANSON V. GMAC
5 MORTGAGE, THE FEDERAL DISTRICT COURT IN BOSTON
6 PROHIBITED GMAC FROM FORECLOSING ON MORTGAGES BECAUSE HE
7 COULD NOT PROVE IT WAS THE OWNER.
8 WHEN WE TALK ABOUT M.E.R.S. WHEN WE TALK
9 ABOUT ISSUES IN DISCOVERY AS TO REALLY UNDERSTANDING WHO
10 OWNS THESE MORTGAGES, WHO IS THE ORIGINATING BANK, AN
11 ISSUE YOUR HONOR RAISED THAT WE’LL COME BACK TO. WHO IS
12 THE SERVICING BANK? WHO IS FORECLOSING ON THESE
13 MORTGAGES? THESE ISSUES ARE IMPORTANT.
14 YESTERDAY I WAS READING SOME CASES IN
15 NEW YORK, NOT AT THE SUPREME COURT LEVEL IN NEW YORK,
16 BECAUSE THEY ARE CALLED THE COURT OF APPEALS, BUT SOME
17 CASES IN NEW YORK COMING OUT THE EXACT SAME WAY.
18 THERE IS CLEARLY A TREND IN THIS COUNTRY
19 NOW REACHING STATE SUPREME COURTS AND FEDERAL COURTS,
20 FOR TRYING TO STOP WHAT HAS BEEN HAPPENING.
21 THE OTHER ITEM I WANTED TO CALL TO
22 YOUR HONOR’S ATTENTION IS THAT BANK OF AMERICA REPORTED
23 THIS WEEK THAT ON DECEMBER 31ST OF LAST YEAR, IT HAD
24 PAID 2.5 BILLION DOLLARS TO SETTLE CLAIMS MADE BY FANNY
25 MAY AND FREDDIE MAC, HAVING TO DO WITH REPURCHASING OF
26 MORTGAGES FROM THE COLLATERALIZED MORTGAGE POOLS THAT
27 ARE THE MIRROR PART OF THE SAME SCHEME, AND COMMITTING
28 TO PAY UP TO ANOTHER 500 MILLION DOLLARS, POTENTIALLY.
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29
1 POTENTIALLY BRINGING IT IS TO A 3 BILLION DOLLAR
2 SETTLEMENT. THERE ARE SOME CONTINGENCIES. BUT THEY
3 HAVE ALREADY PAID JUST SHORT OF 2. 6 BILLION AND — ON
4 DECEMBER 31ST.
5 SO, THERE’S A TRAIN ROLLING IN THIS NATION
6 JUDICIALLY, THROUGH COURT DECISIONS, THROUGH SETTLEMENTS
7 THAT DEAL DIRECTLY WITH WHAT’S AT ISSUE HERE.
8 AND THE LAST POINT I WANTED TO MAKE, BEFORE
9 I DEAL DIRECTLY WITH THESE ISSUES IS REALLY WHAT IS THIS
10 CASE ABOUT? AND IT’S NOT ABOUT LEGISLATION, AND IT’S
11 NOT ABOUT THE GOVERNMENT, IT’S ABOUT PEOPLE. AND
12 MR. KLEIN AND A LOT OF THE PAPERS RECENTLY SUBMITTED BY
13 THE DEFENDANTS HAVE GONE TO PAINS, ALMOST, TO SAY THAT
14 THEY SHARE THE PAIN OF THESE PEOPLE. THEY WANT TO WORK
15 WITH THEM AND US ON LOAN MODIFICATIONS AND ON PUTTING
16 ASIDE FORECLOSURES AND ALL SORTS OF THINGS.
17 WELL, IN AN UNCHARACTERISTICALLY DIRECT AND
18 ACERBIC PLEADING, MAYBE SOME DIFFERENT PEOPLE WROTE IT,
19 BUT, PLEADING THE REPLY BRIEF AND THE DEMURRER, THE
20 THIRD SENTENCE OF THE INTRODUCTION TAKES OFF THE MASK
21 AND TELLS US WHAT IS AT STAKE HERE. AND THIS IS NOT
22 ABOUT A SPECIFIC POINT TO THE DEMURRER, BUT IT SHOWS US,
23 THIS IS ABOUT PEOPLE.
24 AND THE THIRD SENTENCE OF THE INTRODUCTION
25 SAYS:
26 AT THIS POINT, THESE BORROWERS WHO
27 ALLEGEDLY ARE EXPERIENCING FINANCIAL
28 DIFFICULTIES WOULD BE BETTER SERVED
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30
1 EXPLORING LOAN MODIFICATIONS THAT MAY OFFER
2 THEM A WAY OUT OF THEIR TRYING
3 CIRCUMSTANCES —
4 NOW HERE’S THE KEY:
5 — RATHER THAN CONTINUING WITH THIS
6 LAWSUIT, WHICH AT BEST MERELY DELAYS THE
7 EVENTUAL FORECLOSURE OF THEIR PROPERTIES.
8
9 THAT’S WHAT THIS IS ABOUT. SHOULD THIS
10 CASE COME TO AN END, AND, OF COURSE, IF THE LAW IS IT
11 WILL COME TO END, THEN IT WILL. BUT SHOULD THIS CASE
12 COME TO END WITHOUT GIVING THE BENEFIT OF EVERY DOUBT TO
13 THESE PLAINTIFFS, THIS BANK INTENDS TO FORECLOSURE ON
14 AND TAKE THEIR PROPERTIES. AND IT’S REALLY A MINOR
15 POINT. I’LL OBSERVE THAT FEWER THAN HALF OF OUR CURRENT
16 PLAINTIFFS, NAMED PLAINTIFFS, ARE SITTING THERE WITH
17 NOTICES OF DEFAULTS, BUT APPARENTLY FOR THE BANK, THEIR
18 MAIN POINT IS THEY ARE STILL GOING TO FORECLOSURE ON ALL
19 THESE PROPERTIES.
20 SO THAT’S OUR SETTING, THAT’S THE CONTEXT.
21 NOW, IN THE FOUR MINUTES I HAVE REMAINING TO ME, I’M
22 GOING TO TRY TO BE SPECIFIC.
23 AND I’M GOING TO GO IN THE SAME ORDER
24 YOUR HONOR WENT, JUST BECAUSE THAT’S AS GOOD AN ORDER AS
25 ANY.
26 WE DIDN’T HAVE TIME TO CONVERSE OVER LUNCH
27 ON YOUR FIRST POINT AS TO THE 64 PLAINTIFFS FOR WHOM
28 THERE’S THE REQUEST FOR JUDICIAL NOTICE. I WANTED TO
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31
1 MAKE A COUPLE OF OBSERVATIONS.
2 FIRST, OUR ACTUAL CLAIM ON THOSE 64 IS
3 BROADER THAN THE CORPORATE AFFILIATION OR CORPORATE
4 OWNERSHIP. OUR CLAIM, AND IT’S MADE IN THE ATTACK AND
5 MORE BROADLY IN THE AMENDMENT IS THAT THOSE PLAINTIFFS
6 EITHER HAVE THEIR LOANS ORIGINATED BY BANKS THAT WERE IN
7 SOME WAY OWNED OR PART OF THE ENTERPRISE WITH
8 COUNTRYWIDE OR THAT ON AN AGENCY THEORY, INDUCING COMMON
9 CONSPIRACY THEORY, RESPONDEAT SUPERIOR, THAT COUNTRYWIDE
10 IS LIABLE FOR HAVING PARTICIPATED IN THE INITIATION OF
11 THOSE LOANS. FOR EXAMPLE, A LOAN INITIATED WITH THE
12 INTENT TO THEN ASSIGN TO COUNTRYWIDE FOR SERVICING AS
13 PART OF THIS OVERALL SCHEME.
14 AND I WANT TO HASTEN TO ADD THAT WE HAVE
15 SPECIFIC EVIDENCE OF THIS TYPE OF SCHEME, INCLUDING —
16 AND THIS IS A PARTICULARLY IMPORTANT POINT, AND IT WILL
17 COME BACK UP LATER. MR. SIERACI, WHO IS THE FORMER
18 C.F.O. OF COUNTRYWIDE, HIS NAME IS ALL OVER THE THIRD
19 AMENDED COMPLAINT, HE JUST RECENTLY SIGNED A SETTLEMENT
20 WITH THE GOVERNMENT ON THE INVESTOR FRAUD SIDE OF THIS
21 SAME SCHEME.
22 THE COURT: HE WAS THE COMPLIANCE OFFICER?
23 MR. SPIVAK: HE WAS CHIEF FINANCIAL OFFICER.
24 THE COURT: C.F.O.
25 MR. SPIVAK: HE WAS THE C.F.O. OF COUNTRYWIDE.
26 MAZILLO, SENDECKI AND SIECKI AND —
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27 THE COURT: MAZILLO I CAN DISTINGUISH.
28 MR. SPIVAK: SAMBOL IS THE C.O.O., S-A-M-B-O-L,
32
1 WAS THE C.O.O. AND SIEKI S-I-E-K-I —
2 MR. STEIN: S-I-E-R-A-C-K-I.
3 MR. SPIVAK: I DON’T THINK SO.
4 THE COURT: SAMBOL, C.O.O., SIERAKCI, C.F.O.. WHO
5 IS COMPLIANCE OFFICER?
6 MR. SPIVAK: I DON’T KNOW.
7 THE COURT: BECAUSE IF IT’S QUOTED SOME E-MAILS OF
8 THE COMPLIANCE OFFICER SAYING WHAT PROBLEMS WERE —
9 MR. SPIVAK: THAT’S ANOTHER PERSON. I’LL LOOK IT
10 UP BEFORE MY NEXT 10 MINUTES.
11 IN ANY EVENT, WE HAVE EVIDENCE THAT HE OWNS
12 AT LEAST — HAS FINANCIAL INTERESTS IN, THAT HE OWNS
13 PART OF THE GRANADA NETWORK WHICH IS IN OUR COMPLAINT.
14 AND WE HAVE EVIDENCE THAT HE OWNS PART OF THE MARINERS
15 BANK AND AT LEAST ONE OTHER BANK THAT OUR ORIGINATING
16 LENDERS HERE, THE — THAT PERTAIN TO TWO OF THE
17 PLAINTIFFS. AND THAT IS HIM DIRECTLY. HAS A FINANCIAL
18 INTEREST.
19 WE ALSO HAVE EVIDENCE OF OTHER HIGH RANKING
20 OFFICERS, THOUGH NOT NECESSARILY HIM, HAVING INTEREST IN
21 THESE BANKS. AND WE HAVE EVIDENCE OF THE GRANADA
22 NETWORK WORKING WITH SOME OF THESE BANKS ON THE LOAN
23 ORIGINATIONS FOR THE PURPOSE THAT WE’VE ALLEGED.
24 SO THE POINT I’M MAKING IS THAT THE ISSUE
25 IS BROADER THAN SIMPLY OWNERSHIP.
26 WHAT WE ARE PREPARED TO DO, AND WE CAN DO
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27 IT AFTER ALL OF THIS HALF HOUR IS SIT DOWN WITH THE
28 DEFENSE COUNSEL AND GO THROUGH THEIR EXHIBIT, AND THERE
33
1 ARE A COUPLE OF VERY LARGE SEPARATE BANKS, HSBC COMES TO
2 MIND. AND, YOUR HONOR, MINDFUL OF THE POINT YOU MADE,
3 WE ARE PREPARED TO DISMISS SOME OF THOSE WITHOUT
4 PREJUDICE.
5 AND IF THE EVIDENCE ESTABLISHES THAT THEY
6 WERE, IN FACT, PART OF A — I’M USING THE WORD
7 “CONSPIRACY” LOOSELY, BUT THEY WERE INDUCED PART OF THE
8 SCHEME, WE WILL BRING THEM BACK IN. BUT WE DO NOT SEE
9 THAT WE SHOULD BE DISMISSING WITH PREJUDICE OR OTHERWISE
10 THOSE WHOSE LOANS WERE ORIGINATED BY A SERIES OF
11 UNKNOWN, UNKNOWABLE ENTITIES, MANY OF WHICH WE HAVE
12 DIRECT EVIDENCE, HAD AFFILIATION WITH THE GRANADA
13 NETWORK OR THE BANK, MEANING COUNTRYWIDE, AND OTHERS OF
14 WHICH, BASED ON WHAT WE KNOW, WE BELIEVE THEM TO HAVE
15 HAD AFFILIATIONS.
16 IF IT TURNS OUT THERE’S NO AFFILIATION ONE
17 WAY OR ANOTHER, WE HAVE ALREADY SAID IN OUR PAPERS WE
18 WOULD DISMISS THE ORIGINATION CLAIMS AS TO THOSE
19 PLAINTIFFS.
20 THE COURT: OKAY. SAVE YOUR OTHER THOUGHTS FOR
21 AFTER WE GET BACK, BUT I DO APPRECIATE YOUR WILLINGNESS
22 TO AT LEAST VIEW HSBC AS PERHAPS MORE OF A COMPETITOR OF
23 COUNTRYWIDE THAN THE FELLOW FROM SPIRE WOULD.
24 LET ME HEAR FROM DEFENDANTS NOW.
25 MR. KLEIN: THANK YOU, YOUR HONOR, I WOULD LIKE
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26 TO QUICKLY ADDRESS THOSE TWO POINTS RAISED BY
27 MR. SPIVAK, THEN I’LL GO TO THE DEMURRER.
28 FIRST OF ALL, EVERY SINGLE CASE SINCE WE’VE
34
1 BEEN IN THIS COURTROOM, DISCUSSING M.E.R.S. AND COURT’S
2 ABILITY TO FORCLOSE HAS COME FROM ANOTHER STATE, FLORIDA
3 OR MASSACHUSETTS, AND STATE COURT OPINIONS THERE.
4 I HAVE NOT READ ALL THOSE DECISIONS, BUT I
5 CAN TELL YOU THAT THESE OPINIONS THAT THEY ARE TALKING
6 ABOUT, AS I UNDERSTAND IT ARE COMING FROM JUDICIAL
7 FORECLOSURE STATES, OR DIFFERENT STATUTORY SCHEMES, WITH
8 DIFFERENT REQUIREMENTS THAN WHAT’S HERE IN CALIFORNIA.
9 AND I’M NOT GOING TO TRY TO OPINE AS TO
10 WHAT’S GOING ON IN THOSE STATES, THAT’S NOT MY AREA
11 TODAY. TODAY IS TO FOCUS ON WHAT’S HAPPENING IN THIS
12 CASE.
13 AND IN THIS CASE, WE HAVE A NON-JUDICIAL
14 FORECLOSURE STATE, SO ALL THESE REFERENCES TO A TREND OR
15 TRAIN THAT MR. SPIVAK MAKES, HAVE NO BEARING ON WHAT’S
16 HAPPENING IN THE STATE OF CALIFORNIA AND WHAT’S
17 HAPPENING WITH THESE PLAINTIFFS.
18 THE SECOND POINT, I WOULD LIKE TO ADDRESS,
19 REALLY QUICKLY, IS WITH RESPECT TO THESE 64 PLAINTIFFS,
20 I ACTUALLY BELIEVE IT’S SIGNIFICANTLY MORE. WE WERE
21 LIMITED ON TIME, ABILITY OF PRIOR TO FILING THE
22 DEMURRER, TO ACTUALLY GATHER EVERYONE WHO’S NOT
23 ORIGINATED FROM THE BANK, BUT TAKING — LET’S TAKE FOR
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24 EXAMPLE A BORROWER WHO ORIGINATED A LOAN AT MARINERS
25 CAPITAL BANK, WHICH IS WHAT MR. SPIVAK RAISED.
26 HOW ARE REPRESENTATIONS BY THE BANK OR BY
27 COUNTRYWIDE FOR CONCEALMENTS, HOW CAN COUNTRYWIDE ENGAGE
28 IN SOME SORT OF CONCEALMENT WITH A BANK IT’S — WITHIN A
35
1 LENDER OR BORROWER HAS NO CONTACT WITH? THERE’S JUST —
2 THE CONCEPT OF EVERY THEORY IN THIS PLEADING, AS
3 CURRENTLY PLED, DOESN’T JIVE WITH THE CONCEPT THAT
4 SOMEHOW THERE’S SOME BANK OUT THERE IN ORIGINATING A
5 LOAN THAT’S ULTIMATELY SOLD SOMEHOW TO THE BANK, BUT
6 THERE’S ANOTHER LENDER OUT THERE THAT’S ORIGINATING A
7 LOAN, THAT WE HAVE SOME SORT OF DUTY OR MADE SOME SORT
8 OF REPRESENTATION TO IN CONNECTION WITH A LOAN
9 TRANSACTION.
10 THE COURT: WELL, YOUR ADVERSARY IS WILLING TO
11 TELL ME IN OPEN COURT, ON THE RECORD, THAT HE BELIEVES
12 IN GOOD FAITH AS AN ADVOCATE, THAT HE EXPECTS TO PROVE A
13 CIVIL CONSPIRACY AS BETWEEN COUNTRYWIDE AND MARINERS,
14 THROUGH VARIOUS HUMANS AND THAT THEREFORE IT MAKES
15 COUNTRYWIDE CHARGEABLE WITH THE BUSINESS OF MARINERS AND
16 PLACING LOANS, VIS-A-VIS ANY FRAUDULENT CONDUCT OR OTHER
17 TORTIOUS CONDUCT OF COUNTRYWIDE THAT’S PART OF THE
18 CONSPIRACY.
19 SO, THE PROOF IS A QUESTION FOR ANOTHER
20 DAY, BUT I BELIEVE THAT MR. SPIVAK IS PREPARED TO SET UP
21 THAT LARGE TASK AHEAD OF HIMSELF IN THE BELIEF HE CAN
22 PROVE THEM.
23 MR. KLEIN: WELL, YOUR HONOR, THAT DOVETAILS
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24 NICELY —
25 THE COURT: SO, I MEAN, YOU HAVE A KIND OF — I
26 DON’T MEAN IT PERJORATIVELY, BUT IT’S SORT OF, I GUESS
27 THERE’S PROBABLY NO MORE APT TERM FOR IT THAN WHAT’S
28 SOMETIMES CALLED THE LAUGHING DEFENSE, WHICH IS SORT OF
36
1 THIS IS JUST SO GRANDIOSE AND AMBITIOUS A CLAIM BROUGHT
2 AGAINST MY CLIENT THAT IT CAN’T POSSIBLY BE REAL.
3 BUT THAT’S A DIFFERENT QUESTION THAN WHEN
4 THEY ARE PUT TO THE PROOF, WHETHER IT HOLDS TOGETHER, AS
5 TO WHETHER OR NOT THIS KIND OF ATTACK ON THE PLEADING IS
6 BEING ESSENTIALLY JUST SO AMBITIOUS AS TO THEREFORE
7 SOMEHOW BE ABSURD AND THEREFORE BECAUSE IT’S ABSURD
8 FAILS, ISN’T NECESSARILY A WELL-TAKEN DEMURRER.
9 IT MAY PRESAVE SOME INTERESTING FACTUAL
10 DISPUTES AT LATER DATE, BUT I’M NOT SURE THAT THAT
11 NECESSARILY JUST KNOCKS IT — YOU KNOW, SHOOTS IT OUT
12 BELOW THE WATERLINE. BUT I DO RECOGNIZE IT’S A VERY
13 AMBITIOUS PROJECT MR. SPIVAK HAS SET OUT FOR HIMSELF.
14 MR. KLEIN: THAT DOVETAILS, YOUR HONOR, WITH
15 OTHER POINTS I’D LIKE TO MAKE WHICH DEAL WITH THE
16 DEMURRER. AND I’D LIKE TO FOCUS THE COURT ON TWO ISSUES
17 BASED ON THE COURT’S TENTATIVE THIS MORNING.
18 THE FIRST ONE IS DUTY IN CONNECTION WITH
19 THE CONCEALMENT CLAIM.
20 THE COURT: THAT’S WHY MY PROPOSED WRIT IN THE
21 PERLAS CASE IS SO INTERESTING, BECAUSE I THINK THAT’S
22 THE RIGHT QUESTION FOR THE COURT OF APPEALS EARLY.
23 MR. KLEIN: I APPRECIATE THAT, AND I’D LIKE TO
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24 ADDRESS THAT A LITTLE BIT WITH FULL RECOGNITION OF THE
25 COURT’S DEFERENCE TOWARDS THE COURT OF APPEAL AND
26 POSSIBLY THAT PROCESS.
27 THE SECOND PART DEALS WITH CAUSATION, WHICH
28 IS ALSO AN ELEMENT OF BOTH THE FRAUD CLAIM OR
37
1 CONCEALMENT CLAIM. AND ALSO IT’S AN ELEMENT OF THE
2 17200 CLAIM. AND I THINK BOTH OF THEM ARE LACKING HERE
3 WITH RESPECT TO DUTY, IT’S 30 YEARS OF CALIFORNIA CASE
4 LAW STARTING WITH WAGNER V. BENSON; GOING TO CRUZ V.
5 BANK OF AMERICA; TO PRICE VERSUS WELLS FARGO, ALL
6 ESTABLISH THAT EXCEPT FOR BORROWING STATUTORY EXPRESS —
7 STATUTORY PROVISIONS OR ESTABLISHED DUTIES, A LENDER
8 OWES NO DUTY TO THE BORROWER.
9 AND I GUESS WHAT I’M TRYING TO GET IS SOME
10 CLARITY FROM THE COURT IN TERMS OF WHAT EXACTLY THE
11 ISSUE IT’S PROPOSING TO BRING TO THE COURT OF APPEAL, IF
12 THERE’S NO — IF THE BASELINE IS THERE’S NO DUTY THERE
13 NEEDS TO BE AN ALLEGATION OF SOMETHING THAT ESTABLISHES
14 THAT DUTY.
15 THE COURT: WELL, IN MY ANALYSIS, IN PREPARING
16 MYSELF TO ISSUE THE SPOKEN TENTATIVE, I WAS RATHER
17 PERSUADED BY THAT PORTION OF YOUR ADVERSARY’S BRIEF THAT
18 SAID THAT THERE WAS NO AUTOMATIC IMMUNITY ON A BANK.
19 NOW, ARGUABLY, THE ABSENCE OF A DUTY IS
20 ANOTHER WAY OF SAYING IMMUNITY. BUT I SORT OF WENT BACK
21 TWO PACES TO THE MORE FUNDAMENTAL COMMON LAW PRINCIPLE
22 THAT ONE CAN’T ENGAGE IN INTENTIONAL FRAUD THROUGH
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23 CONCEALMENT WITH SOMEBODY WITH WHOM ONE IS DOING
24 BUSINESS, AND BE AUTOMATICALLY IMMUNIZED TO THE VIEW
25 THAT THAT IS THE CORRECT STARTING POINT FOR ANALYSIS,
26 RATHER THAN SAYING THAT THE CASES ARE CLEAR THAT AS
27 BETWEEN BANKS AND THEIR CUSTOMERS, THERE IS SUCH A CLEAR
28 RECOGNITION OF NON-DUTY THAT EVEN KNOWING FRAUDULENT
38
1 CONCEALMENT IS IMMUNIZED.
2 BUT TO ME THAT’S THE INTERESTING QUESTION
3 FOR THE COURT OF APPEALS, BECAUSE YOUR ADVERSARY IN
4 THEIR OPPOSITION GO BACK TO SORT OF THE FIRST PRINCIPLES
5 ON PROSSER ON TORTS OR WITKIN ON TORTS, WHICH IS AS YOU
6 ENTER INTO A COMMERCIAL RELATIONSHIP YOU CAN’T ENGAGE IN
7 THIS INTENTIONAL TORT.
8 AND WHETHER IT IS A FRAUDULENT
9 MISREPRESENTATION, OR A FRAUDULENT CONCEALMENT, IT
10 STRUCK ME THAT ONCE YOU HAVE A BUSINESS RELATIONSHIP,
11 WHICH, KNOCKING ASIDE THE 64 PLAINTIFFS, HYPOTHETICALLY,
12 AND DEALING WITH SOMEBODY WHO REALLY HAD AN ORIGINATION
13 WITH COUNTRYWIDE, IF MOZILO AND HIS TROUPS ARE
14 INTENTIONALLY INFLATING THE VALUE OF ALL OR MUCH
15 AMERICAN RESIDENTIAL REAL ESTATE, IN ORDER TO GENERATE
16 MORE LOANS, IN ORDER TO GENERATE SHORT-TERM PROFITS AND
17 BONUSES, AND THEY KNOW THEY ARE DOING IT, BUT CHOOSE NOT
18 TO TELL THEIR CUSTOMERS AS THEY APPROACH, THAT THEY ARE
19 BEING SUCKED INTO THIS MAW; AND THE PLAINTIFF OR ANYONE
20 OF THEM ARE SUCKED INTO THE MAW, AS PART OF KNOWING
21 FRAUDULENT CONCEALMENT AND ENTERING INTO A CONTRACT WITH
22 COUNTRYWIDE TO ORIGINATE A LOAN, AT LEAST UNDER MY FIRST
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23 THEORY OF FIRST PRINCIPLES OF WHAT I WOULD THINK TO BE
24 THE LAW UNDER PROSSER ON TORTS OR WITKIN ON TORTS OR
25 WITKIN SUMMARY OF CALIFORNIA LAW THE SECTION RELATED TO
26 TORTS, AND THE APPELLATE CASES ON WHICH THEY WOULD OF
27 COURSE RELY, THAT THAT DUTY MIGHT BE RECOGNIZED.
28 BUT, YOU MAY BE RIGHT, THAT CASES LIKE
39
1 PERLAS AND/OR THE OTHER CASES YOU REFER TO ACTUALLY
2 ADOPT A JURISPRUDENTIAL VIEW THAT BANKS SHOULD BE
3 FUNCTIONALLY IMMUNIZED IN THIS ASPECT OF THE RELATION
4 WITH CUSTOMERS. AND IF THAT IS THE VIEW OF THE COURT OF
5 APPEALS OR I HAVE GOT IT WRONG, IT WOULD BE BETTER TO
6 KNOW THE ANSWER TO THAT EARLY, BECAUSE PROBABLY IN MANY
7 WAYS THE HIGH STAKES CLAIM IN THIS CASE, ARE THE COMMON
8 LAW TORTS FOR FRAUDULENT ORIGINATION, BECAUSE THEY
9 ATTACKED A PUNITIVE DAMAGES.
10 THE PRIVACY CLAIMS VERY DIFFERENT. THEY
11 HAVE A DIFFERENT FACTUAL UNDERPINNING. I DON’T THINK
12 YOU GET TO NEAR THE SAME ORDER OF MAGNITUDE OF DAMAGES
13 IF THEY ARE GOING TO WORK AT ALL. YOUR DEMURRER HAS
14 ALREADY PREVIEWED WHAT MAY BE SOME RATHER EFFECTIVE
15 DEFENSES TO EITHER WHITTLE DOWN EXPOSURE OR TOTALLY
16 ELIMINATE EXPOSURE. SO RELATIVE TO CASE VALUE, AND
17 MR. SPIVAK’S HOPE TO TRY THE CASE TO THE JURY AND HAVE A
18 LOT OF ZEROS UP ON THE BOARD, IT WOULD BE REALLY NICE TO
19 GET THE COURT OF APPEALS TO TELL US WHETHER YOUR NO DUTY
20 PREMISE AS TO THE COMMON LAW CLAIMS REALLY DOES HOLD
21 TIGHT NO MATTER HOW EGREGIOUS THE ALLEGED CONDUCT IS,
22 BECAUSE YOUR ADVERSARIES COMEBACK IS, WAIT A MINUTE,
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23 THIS IS EGREGIOUS INTENTIONAL TORT AND WE DON’T THINK
24 THE LAW ESTABLISHES IMMUNITY.
25 AND YOU ARE SAYING ESSENTIALLY, NO, A
26 COUPLE OF DECADES OF THE LAW SAY THAT BETWEEN BANK AND
27 ITS CUSTOMER IT HAS IMMUNITY IN THE FORM OF NO DUTY AS
28 TO THE POSSIBILITY OF ENGAGING IN FRAUD IN CONNECTION
40
1 WITH A LOAN TRANSACTION.
2 AND I GUESS I’M NOT YET PREPARED IN THE
3 FACE OF A DEMURRER THAT SAYS THIS IS AN INTENTIONAL
4 TORT, TO FIND THAT THE NO DUTY CASES GO THAT FAR. BUT
5 IT’S VERY MUCH A DEBATABLE POINT, WHICH IS WHY I WOULD
6 LIKE THE WRIT.
7 AND, CANDIDLY, IF I WERE TO RULE THE OTHER
8 WAY I’D WANT A WRIT JUST AS FAST, IF — ALTHOUGH I GUESS
9 FRANKLY IF I FOUND NO DUTY, THE PROBLEM THERE IS WE
10 WOULDN’T HAVE A FINAL JUDGMENT. WE’D NEED A WRIT TO GET
11 EARLY REVIEW OF IT ANYWAY, BECAUSE WE HAVE OTHER CLAIMS,
12 IMPEDING THE ENTRY OF FINAL JUDGMENT, SO IT WOULD STILL
13 TAKE A WRIT TO TEST THE MERITS OF THE CONTRARY RULING.
14 MR. KLEIN: WELL, I APPRECIATE —
15 THE COURT: BUT SO FAR I’M INCLIENT TO THINK THAT
16 YOUR ADVERSARY’S SORT OF HORNBOOK LAW AS TO THEIR
17 WILLINGNESS TO ESTABLISH THAT THIS IS A VERY INTENTIONAL
18 TORT COMMITTED BY COUNTRYWIDE AND ITS VARIOUS PEOPLE
19 DOESN’T GET TO IMMUNITY.
20 MR. KLEIN: WE CAN CERTAINLY TAKE THAT WRIT,
21 YOUR HONOR. AND AS I UNDERSTAND IT, THE QUESTION IS
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22 WHICH YOUR HONOR IS LOOKING TO CERTIFY FOR A WRIT, IS
23 WHETHER — UNDER THE CIRCUMSTANCES OF ALLEGATIONS OF
24 CONDUCT TO ENGAGE IN SOME SORT OF FRAUDULENT SCHEME,
25 WHETHER THERE’S A DUTY BY THE LENDER TO DISCLOSE THAT TO
26 THE PROSPECTIVE BORROWER OR EXISTING BORROWER.
27 IS THAT SAFE TO SAY?
28 THE COURT: YES.
41
1 MR. KLEIN: THANK YOU, YOUR HONOR. I APPRECIATE
2 THE CLARIFICATION ON THAT. I WOULD LIKE TO GO INTO
3 CAUSATION, I RECOGNIZE —
4 THE COURT: GOOD TIME TO TAKE A BREAK FOR THE
5 OTHER CASE.
6 MR. KLEIN: GREAT.
7 THE COURT: COURT’S IN RECESS.
8
9 (RECESS.)
10
11 THE COURT: BACK ON THE RECORD. WE HAVE ABOUT AN
12 HOUR AND 15 MINUTES.
13 BECAUSE IT IS A DEFENSE DEMURRER AND MY
14 TENTATIVE SO FAR IS TO, IN LARGE PART, OVERRULE, I THINK
15 AT THIS POINT, I’LL GIVE THE NEXT 40 MINUTES TO DEFENSE
16 COUNSEL, RESERVING SUCH TIME AS YOU WANT AND THEN 40
17 MINUTES TO PLAINTIFF’S COUNSEL. YOU CAN PICK UP WHERE
18 YOU WERE MIDSTREAM.
19 MR. KLEIN: THANK YOU, YOUR HONOR.
20 AS I MENTIONED IN OUR PRIOR SESSION, THERE
21 WERE TWO ISSUES I’D LIKE TO ADDRESS. THE FIRST ONE WAS
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22 DUTY WITH RESPECT TO CONCEALMENT, I THINK WE’VE HAD A
23 DISCUSSION ON THAT, I APPRECIATE THE COURT’S INPUT, WITH
24 RESPECT TO THAT ISSUE.
25 THE SECOND ISSUE I MENTIONED THAT WE’D LIKE
26 TO ADDRESS, IS CAUSATION. AND IT DEALS WITH BOTH ON THE
27 CONCEALMENT CLAIM AND ON THE 17200 CLAIM, BOTH WHICH
28 REQUIRE AN ALLEGATION OF CAUSATION BETWEEN THE ALLEGED
42
1 WRONGFUL ACT AND THE HARM THAT’S OCCURRED.
2 I CAN —
3 THE COURT: AS I UNDERSTAND IT, BASICALLY,
4 DEFENDANTS GOT REAL ESTATE PRICES GENERALLY AND SPECIFIC
5 TO EACH PLAINTIFF’S PURCHASE OR REFI ARTIFICIALLY HIGH.
6 THEY RELIED UPON THE APPARENT PRICING ON THE MARKET TO
7 THEIR DETRIMENT, EITHER BY SOMETHING TOO EXPENSIVE WITH
8 FINANCING OR SADDLING THEIR PROPERTY WITH MORE FINANCING
9 THAN IT JUSTIFIED. AND NOW THEY FIND THEMSELVES UNDER-
10 WATER, THAT’S THE HARM.
11 CORRECT, MR. SPIVAK?
12 MR. SPIVAK: YOUR HONOR, YES, IN PART. WE ARE
13 ALSO ASSERTING THAT BECAUSE OF THE SCHEME, PLAINTIFFS
14 ENTERED INTO MORTGAGES THAT THEY SHOULD NOT HAVE ENTERED
15 INTO WITH COUNTRYWIDE AT ALL. THAT WOULD HAVE PREVENTED
16 COUNTRYWIDE FROM EMBARKING ON THE OTHER HALF OF ITS
17 SCHEME WHICH LED TO THE REAL ESTATE COLLAPSE.
18 SO THAT THEIR PROPERTY VALUES DECLINED IN
19 PART BECAUSE TAKING THEM IN BULK, BECAUSE THEY ALL, NOT
20 KNOWING WHAT WAS OWING OCCURRING, TOOK A COUNTRYWIDE
21 MORTGAGE. HAD THEY TAKEN THEIR MORTGAGES ELSEWHERE
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22 COUNTRYWIDE WOULD NOT HAVE BEEN ABLE TO IMPLEMENT ITS
23 SCHEME WITH THE RESULTING LIQUIDITY CRISIS.
24 THE COURT: SO, TO SOME EXTENT, BY BEING FODDER
25 FOR COUNTRYWIDE MILL, THEY LET COUNTRYWIDE INFLATE THE
26 MARKET GENERALLY BY BEING A COUNTRYWIDE CUSTOMER, RATHER
27 THAN JUST BEING AN HSBC CUSTOMER.
28 MR. SPIVAK: YES, YOUR HONOR.
43
1 THE COURT: BUT, BASICALLY, THE MAIN HARM WAS THAT
2 THE MARKET GOT OVER INFLATED AND THEY GOT INTO THE
3 MARKET AT WRONG TIME AND/OR SADDLED THEIR PROPERTY EVEN
4 IF THEY BOUGHT IT EONS AGO OR INHERITED IT, WITH A
5 MORTGAGE BEYOND WHAT IT WOULD TOLERATE.
6 MR. KLEIN: I THINK THAT FAIRLY IDENTIFIES MY
7 UNDERSTANDING OF WHAT THE HARM IS, IS BASICALLY IF YOU
8 LOOK AT THE FACTORS OVERALL, SOMEHOW, SOME SORT OF
9 CONDUCT BY THE BANK WOULD IN TURN LED TO THE GLOBAL
10 DOWNTURN IN THE ECONOMY, WHICH LED TO THE CREDIT CRISIS,
11 WHICH LED TO THE COLLAPSE —
12 THE COURT: I THINK IT’S ENOUGH FROM THEIR POINT
13 OF VIEW THAT IT LED TO THE HOUSING BUBBLE, WHICH WAS
14 GOING TO BE INHERENTLY SELF-DESTRUCTIVE OF ITS OWN
15 ACCORD, WITHOUT REGARD OF THE NICETIES OF YEN, EXCHANGE
16 RATIOS OR THE INABILITY OF GENERAL MOTORS TO SUPPORT ITS
17 HIGH COST STRUCTURE DOING BUSINESS OR SPENDTHRIFT HABITS
18 OF CERTAIN GOVERNMENTS TO SPEND MORE THAN THEY TOOK IN
19 TAX REVENUE, WHICH HAVE BEEN COMPOUNDING FACTORS IN
20 ECONOMIC PROBLEMS, BUT BASICALLY THE HOUSING BUBBLE IN
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21 AND OF ITSELF WAS DOOMED TO FAIL.
22 MR. KLEIN: I WON’T TRY TO BE AN EXPERT ON THE
23 HOUSING BUBBLE TODAY, BUT I CAN TELL, I CAN IDENTIFY
24 THROUGH, YOU KNOW, A NUMBER OF FACTORS, COMPLEX, AND
25 SOPHISTICATED FACTORS, THAT ARE AT PLAY HERE, THAT DON’T
26 INVOLVE THE BANK THAT ALL CONTRIBUTED IN SOME WAY, IF
27 YOU LOOK AT, YOU KNOW, WHAT IS PUBLISHED OUT THERE, TO
28 THE HOUSING BUBBLE STARTING WITH THE FED AND AL
44
1 GREENSPAN’S DESIRE TO KEEP INTEREST RATES LOW FOLLOWING
2 911 AND THE DOTCOM BUBBLE THAT BURST.
3 THEN YOU CAN GO TO THE CLINTON
4 ADMINISTRATION WITH DEREGULATION, WITH ROBERT RUBIN AND
5 PHIL GRAHAM, WHICH ALLOWED BROKERAGE FIRMS TO USE BANK
6 DEPOSITOR FUNDS TO ENGAGE IN INVESTMENT ACTIVITIES FOR
7 THEIR OWN ACCOUNT.
8 YOU CAN LOOK AT OF GOVERNMENT POLICIES AND
9 EXPANSION OF G.S.E.’S.
10 THE COURT: WHAT’S A G.S.E?
11 MR. KLEIN: GOVERNMENT SUBSIDIZED ENTITIES SUCH
12 AT FREDDIE MAC AND FANNY MAY, AND THE 500 BILLION DOLLAR
13 COMMUNITY REDEVELOPMENT ACT.
14 YOU CAN LOOK AT EXCESSIVE LEVERAGE BY
15 INVESTMENT BANKS SUCH AS BEAR STEARNS AND LEHMAN
16 BROTHERS. THERE’S FINANCIAL ENGINEERING GOING ON WITH
17 A.I.G., AND THE EXPONENTIAL GROWTH OF CREDIT DEFAULT
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18 SWAPS.
19 THE COURT: BUT SEE NOW THE CHALLENGE AT THE
20 MEMENT IS I’VE GOT A PLEADING THAT SAYS THAT MR. MAZILO
21 AND HIS TEAM WERE WITHIN THE IDEA OF THE TORT LAW, IN
22 TERMS OF SUBSTANTIAL CAUSE, WHICH DOESN’T HAVE TO BE
23 SOLE CAUSE, BUT DOES HAVE TO BE SUBSTANTIAL CAUSE,
24 CAPABLE OF MAKING A HOUSING BUBBLE.
25 IS IT ARGUABLY IMPLAUSIBLE AT SOME POINT?
26 MAYBE, BUT THAT’S WHERE I REFER TO — AT THE MOMENT —
27 AND I DON’T MEAN THE PHRASE LAUGHING DEFENSE IN A
28 PERJORATIVE SENSE. IT IS REALLY IN A SENSE OF SAYING
45
1 THEY ARE REALLY JUST HEAPING TOO MUCH ON POOR LITTLE OLD
2 COUNTRYWIDE TO BE ABLE TO CAPABLE, SO DISTORTING HOUSING
3 PRICES ON THE ECONOMY.
4 BUT I DON’T THINK I’D TEST IT ON DEMURRER.
5 INTERESTINGLY, IT’S NOT CLEAR I’D TEST IT ON SUMMARY
6 JUDGMENT MUCH BETTER. BUT, YET A COURT OF APPEALS WILL
7 PROBABLY AT SOME POINT, FACTOR THIS ALL TOGETHER WITHOUT
8 GOING THROUGH TRIAL TRANSCRIPTS, LISTENING TO 28
9 WITNESSES AND WONDERING WHETHER THEY WERE CREDIBLE OR
10 NOT. BECAUSE THESE ARE THE LARGER ISSUES INVOLVED AS TO
11 EXACTLY HOW IT CAME TO BE IN THE PRICKED HOUSING BUBBLE
12 THAT WE HAPPEN TO BE IN NOW.
13 BUT, AGAIN, I’M TESTING ON DEMURRER, AT THE
14 MOMENT, WHICH IS WHY I STARTED THE DISCUSSION SAYING,
15 NEITHER SIDE SHOULD WALK OUT OF HERE THINKING THAT THIS
16 HAS BEEN A HUGELY VALUABLE EXERCISE IN CALIBRATING HOW
17 STRONG OR WEAK THE CASE IS, BECAUSE THE CONSTRAINTS OF
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18 WHAT I HAVE TO DO IN RULING ON DEMURRER, KEEP ME FROM
19 COMING IN HERE AND SORT OF REALLY WHACKING AWAY AT THE
20 CASE TO GET TO ITS ULTIMATE CASE VALUE. BECAUSE I DON’T
21 HAVE THE RIGHT PROCEDURAL TOOL. I DON’T HAVE THE FULL
22 RECORD. I CERTAINLY DON’T MEAN TO SUGGEST TO PLAINTIFFS
23 THAT FOR CERTAINTY THIS CASE IS GOING TO IMPLODE LIKE
24 ITS OWN HOUSING BUBBLE, BUT SIMPLY THAT WE ARE TOO EARLY
25 IN THE PROCESS TO BE DOING A VERY ACCURATE JOB OF
26 CALIBRATING HOW THE CASES ARE GOING TO COME OUT.
27 MR. KLEIN: MY CONCERN, YOUR HONOR, IS I
28 APPRECIATE THE STAGE IN THE LITIGATION WHERE WE’RE AT.
46
1 AND I APPRECIATE THE RESTRAINTS ON THE COURT IN TERMS OF
2 WHAT IT CAN ACTUALLY DECIDE AT THE PLEADING STAGE AS
3 OPPOSED TO SUMMARY JUDGMENT.
4 BUT EVEN IF WE LOOK AT THE PEOPLE IN THIS
5 COURTROOM, WE CAN — THE LAW WILL DEMONSTRATE AS A
6 MATTER OF LAW, THAT THEY CAN’T ALLEGE THAT THE BANK IS
7 THE CAUSE OF THEIR LOSS IN PROPERTY.
8 FOR EXAMPLE, THE COURT MAY HAVE A HOME, THE
9 COURT REPORTER MAY HAVE A HOME, THE COURT CLERK MAY HAVE
10 A HOME, SOME OF WHICH ARE NOT FINANCED BY THE BANK. AND
11 YET, WE’VE ALL SUFFERED A LOSS IN VALUE ON OUR HOMES.
12 AND I THINK THE CASE — LET ME READ FROM DARO VS.
13 SUPERIOR COURT, 151 CAL.APP.4TH, 1079, WHICH BASICALLY
14 SAYS — IT WILL BE ONE PARAGRAPH, SO —
15 THE COURT: JUST DON’T ACCELERATE YOUR PACE,
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16 BUT GO AHEAD.
17 MR. KLEIN: I WON’T.
18 WHEN A U.C.L. ACTION, IS BASED ON AN
19 UNLAWFUL BUSINESS PRACTICE, AS HERE, A
20 PARTY MAY NOT PREMISE ITS STANDING TO SUE
21 UPON INJURY CAUSED BY A DEFENDANT’S LAWFUL
22 ACTIVITY, SIMPLY BECAUSE THE LAWFUL
23 ACTIVITY HAS SOME CONNECTION TO AN UNLAWFUL
24 PRACTICE THAT DOES NOT OTHERWISE AFFECT THE
25 PARTY.
26 IN SHORT, THERE MUST BE A CAUSAL
27 CONNECTION BETWEEN THE HARM SUFFERED AND
28 THE UNLAWFUL BUSINESS ACTIVITY.
47
1 THAT CAUSAL CONNECTION IS BROKEN
2 WHEN COMPLAINING PARTY WOULD SUFFER THE
3 SAME HARM, WHETHER OR NOT A DEFENDANT
4 COMPLIED WITH THE LAW.
5
6 AND WHAT WE HAVE HERE, YOUR HONOR, IS
7 PEOPLE IN THE COURTROOM WHO HAVEN’T FINANCED THEIR HOME
8 THROUGH THE BANK HAVE SUFFERED A LOSS IN VALUE. AND THE
9 BORROWERS WHO ARE PLAINTIFFS IN THIS CASE, HAVE SUFFERED
10 A LOSS IN VALUE, MAKING — BREAKING THE CAUSAL
11 CONNECTION.
12 AND, IMPORTANTLY, WHAT THAT EXCERPT ALSO
13 IDENTIFIES FOR THE COURT IS THAT THIS ISN’T JUST A
14 CAUSATION ISSUE. THIS IS A PROP 64 STANDING ISSUE.
15 YOU HAVE TO BE ABLE TO ALLEGE A HARM CAUSED
16 BY THE CONDUCT OF THE BANK IN ORDER TO HAVE STANDING TO
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17 PURSUE A U.C.L. CLAIM. AND HERE THAT CAUSAL CONNECTION
18 IS BROKEN UNLESS THEY CAN ARTICULATE A CAUSAL
19 RELATIONSHIP THAT ESTABLISHES THAT SOMETHING THAT THE
20 BANK DID OR IS SOMEHOW CAUSALLY CONNECTED TO THE LOSS IN
21 VALUE OF THEIR HOME.
22 YOU KNOW, WHEN YOU LOOK AT — WE HAVE
23 SEVERAL DIFFERENT KINDS OF BORROWERS HERE AND WE WON’T
24 GO INTO THE DETAILS OF THEM, BUT SOME ARE NEW HOMEOWNERS
25 WHO USED PURCHASE MONEY LOAN. OTHERS ARE REFINANCERS
26 WHO ALREADY HAD THE HOME.
27 YOU KNOW. CERTAINLY WITH THE BORROWERS WHO
28 PURCHASE THE HOME, IF WE THINK ABOUT HOW THE PURCHASE
48
1 PROCESS TYPICALLY GOES, THE BORROWER DECIDES ON A
2 PURCHASE PRICE WELL BEFORE WE GET TO THE BANK FOR AN
3 APPRAISAL OR WHETHER THEY QUALIFY ULTIMATELY BASED ON
4 THE LOAN THEY ARE GOING TO TAKE OUT.
5 SO THAT’S A FREE MARKET THAT’S DECIDING THE
6 PURCHASE PRICES. NOT WHAT THE BANK’S DOING WITH RESPECT
7 TO WHETHER THEY DECIDE TO PURCHASE THE HOME AT THAT
8 PRICE.
9 THE COURT: BUT THEIR PLEADING ALLEGATIONS ARE
10 AMBITIOUS OR ROBUST ENOUGH TO SAY THAT THE FREE MARKET
11 WAS ESSENTIALLY IN A GENERAL SENSE DISTORTED BY THE
12 CONDUCT OF THESE DEFENDANTS, DISTORTING THE ENTIRETY OF
13 THE MARKET THROUGH INFLATING REAL ESTATE PRICES.
14 ESSENTIALLY, WHEN YOU WENT INTO THE STORE EVERYTHING WAS
15 MISS PRICED. SO PICKING BETWEEN SEVEN DIFFERENT ITEMS
16 TRYING TO FIND THE RIGHT LOAF OF BREAD, HYPOTHETICALLY,
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17 WHEN THEY ARE ALL MIS-PRICED, YOU ARE STILL GOING TO GET
18 THE WRONG PRICE ON A LOAF OF BREAD WHEN YOU PICK LOAF
19 SIX OUT OF SEVEN, INSTEAD OF LOAF THREE OUT OF SEVEN,
20 BECAUSE THE DEFENDANT’S CONDUCT HAS MIS-PRICED
21 EVERYTHING.
22 CORRECT, MR. SPIVAK?
23 MR. SPIVAK: YES, YOUR HONOR.
24 THE COURT: I MEAN, IT’S AN AMBITIOUS ASSERTION OF
25 ALMOST GLOBAL POWERS BY THE DEFENDANTS, BUT HAVING DARED
26 TO PLEAD THAT THIS IS WHAT HAPPENED, THEY SORT OF GET
27 PAST SOME OF THESE SMALL PROBLEMS THAT WOULD OTHERWISE
28 HAVE A CERTAIN LOGIC IF WE WERE DEALING WITH A SMALL
49
1 PART OF THE ORDINARY MARKET WITH ADAM SMITH’S INVISIBLE
2 HAND EFFECTIVELY AT WORK.
3 MR. KLEIN: YOUR HONOR, THE PROBLEM IS STILL IS
4 THAT THE CAUSAL CONNECTION IS BROKEN, BECAUSE WE ALL ARE
5 IN THE SAME — SOME OF US ARE ALL IN THE SAME BOAT.
6 HOMEOWNERS THAT TOOK OUT — THAT BOUGHT HOMES OR OWNED
7 HOMES AND DIDN’T BUY IT, DIDN’T TAKE OUT A LOAN, THEY
8 OWNED THEM SINCE 1985, WHATEVER IT MAY BE.
9 THE COURT: WELL, THEIR SERENDIPITY IS THEY
10 ENTERED INTO A COMMERCIAL RELATIONSHIP WITH COUNTRYWIDE,
11 WHICH GIVES THEM SOME KIND OF NEXUS IN WHICH TO LITIGATE
12 IS, CONCEDEDLY, WOULD BE HARDER TO FIGURE OUT WHY YOU
13 COULD SUE COUNTRYWIDE, APART FROM CONFLICT ISSUES, JUST
14 BECAUSE YOUR HOME HAS LOST VALUE COMPARED TO WHAT YOU
15 PAID FOR IT IN 2007, HYPOTHETICALLY.
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16 MR. KLEIN: BUT THE DARROW CASE ACTUALLY HITS
17 THAT HOME SAYING WHERE TWO PARTIES CAN SUFFER THE SAME
18 HARM — AND I CAN GIVE THE COURT THE PAGE NUMBER CITE.
19 THE COURT: PLEASE.
20 MR. KLEIN: 151 CAL.APP.4TH. THE CASE CITE IS
21 1079, THE PAGE NUMBER OF THAT EXCERPT IS 1099.
22 I THINK IT’S A PROBLEM, AND I’LL LEAVE THAT
23 PART OF IT AND GO ONTO THE NEXT ISSUE, WHICH IS EQUALLY
24 DIFFICULT.
25 THE COURT: I WILL ASK PLAINTIFFS TO RESPOND TO
26 THE SPECIFIC POINT, NOT JUST DARROW, BUT TO THE POINT
27 MR. KLEIN HAS BEEN MAKING. NOT NOW, BUT WHEN YOU GET
28 YOUR CHANCE TO SPEAK. MAKE NOTES TO YOURSELVES.
50
1 MR. KLEIN: THE NEXT ELEMENT OF THIS IS ALSO, AS
2 I UNDERSTAND IT, PART OF THE PLAINTIFF’S CLAIM IS THAT
3 THEY ARE ALLEGING THAT THE MORTGAGES WITH THE BANK AND
4 SOMEHOW THIS SECURITIZATION PROCESS, AND THIS GOES TO
5 17200 WITH THE M.E.R.S. ISSUE AND THE PATRIOT ACT ISSUE,
6 FIRST OF ALL, WHAT IS THE CONNECTION?
7 THERE IS NO CONNECTION, YOUR HONOR, BETWEEN
8 M.E.R.S. AND WHETHER THESE BORROWERS CAN PAY THEIR
9 MORTGAGES. THE FACT THAT M.E.R.S. IS ON A DEED OF TRUST
10 DOESN’T CHANGE WHETHER THESE BORROWERS CAN PAY THEIR
11 MORTGAGE OR NOT. AND THE SAME THING IS TRUE FOR THE
12 PATRIOT ACT. WHERE THESE FUNDS COME — THEY ALLEGE THEY
13 COME FROM SOME NEFARIOUS SOURCE, BUT WHERE THOSE FUNDS
14 COME DON’T AFFECT WHETHER THESE BORROWERS CAN PAY THEIR
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15 MORTGAGES OR GO INTO DEFAULT.
16 AND THAT, YOUR HONOR, IS PROVEN IN TWO
17 DIFFERENT WAYS. ONE, IN THE GENERAL BORROWING PUBLIC,
18 PARTICULARLY WITH RESPECT TO THE BANK, THERE’S OVER 85
19 PERCENT OF THE BORROWERS ARE CURRENT ON THEIR MORTGAGE.
20 IF EVERYONE — IF IT — IF EVERYONE HAS M.E.R.S. ON
21 THEIR MORTGAGE AND IT APPEARS A LARGE PART OF THEM DO,
22 BASED ON THE SLICE HERE BEFORE THE COURT, EVERYONE WOULD
23 HAVE TO HAVE BEEN AFFECTED SO THAT THEY COULDN’T PAY
24 THEIR MORTGAGE.
25 AND THE SAME THING IS TRUE, EVEN IN THIS
26 CASE, YOUR HONOR, WHERE I THINK COUNSEL HERE EVEN
27 EARLIER TODAY —
28 THE COURT: SAVE YOUR GESTURES FOR THE COURT, NOT
51
1 YOUR ADVERSARY.
2 MR. KLEIN: I’M SORRY.
3 THE COURT: THIS ISN’T JURY CLOSING ARGUMENT.
4 MR. KLEIN: I’LL GO LIKE THIS.
5 THE COURT: OR JUST STAY ON YOUR SIDE OF THE
6 COUNSEL TABLE.
7 MR. KLEIN: THE — WHERE YOU GET TO THE PARTIES
8 IN THIS CASE, COUNSEL THIS MORNING INDICATED THAT OVER
9 50 PERCENT OF THE BORROWERS IN THIS CASE ARE CURRENT ON
10 THEIR MORTGAGE.
11 AND SO, THERE’S A MAJOR BREAK IN THE CAUSAL
12 LINK TO ALLEGE THAT ANY OF THE HARM — ANY OF THE
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13 MISCONDUCT SET FORTH IN THE THIRD AMEND COMPLAINT IS
14 SOMEHOW RELATED TO EITHER THESE BORROWERS’ LOSS IN THE
15 VALUE OF THEIR HOME OR THEIR INABILITY TO PAY THEIR
16 MORTGAGE. IT’S JUST NOT THERE.
17 AND I THINK THE FACT THAT THERE ARE THESE
18 TWO TYPES OF PEOPLE, PEOPLE CURRENT ON THEIR MORTGAGE
19 AND PEOPLE WHO AREN’T CURRENT ON THEIR MORTGAGE AND
20 THERE’S PEOPLE WHO HAVE LOANS WITH THE BANK WHO HAVE
21 LOST THE VALUE ON THEIR HOME, AND THERE ARE PEOPLE
22 WITHOUT LOANS WITH THE BANK HAVE LOST VALUE ON THEIR
23 HOME, IT MAKES THE BANK NOT A SUBSTANTIAL FACTOR IN THE
24 HARM ALLEGED, WHICH IN OUR VIEW, YOUR HONOR, MAKES THE
25 17200 CLAIM AND THE CONCEALMENT CLAIM FAIL AS A MATTER
26 OF LAW AT THE PLEADING STAGE.
27 THE COURT: THE FACT THAT THE SAME ALLEGED HARM
28 HAS BEEN PERPETUATED ON ADDITIONAL PEOPLE THEN SAVE THE
52
1 BANK FROM EXPOSURE TO THE PEOPLE WITH WHOM IT HAD A
2 RELATIONSHIP?
3 MR. KLEIN: NO. THERE ARE PEOPLE HERE WHO HAVE A
4 RELATIONSHIP WITH THE BANK AND THERE ARE PEOPLE WHO
5 DON’T. I’M WILLING TO SUBMIT TO THE COURT THAT THERE
6 ARE SUBSTANTIALLY MORE PEOPLE WHO DON’T HAVE THE
7 MORTGAGE WITH THE BANK THAN THERE ARE THAT DO.
8 AND THOSE PEOPLE HAVE SUFFERED THE SAME
9 LOSS. WITHOUT HAVING ANY INTERACTION WITH THE BANK.
10 AND IF WE ARE BOTH PARTIES — AND I USE THAT DESCRIBING
11 THE TWO DIFFERENT KINDS OF PEOPLE, WITH THE BANK AND
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12 WITHOUT THE BANK, ARE SUFFERING THE SAME HARM, IT BREAKS
13 THE CAUSAL LINK. AND SO, AS A MATTER OF LAW —
14 THE COURT: IF I RULE AGAINST YOU THIS IS SOME OF
15 THE ARGUMENT YOU HAVE TO TRY OUT ON THE COURT OF APPEAL.
16 MR. KLEIN: I — AND, YOUR HONOR, WHICH I
17 APPRECIATE YOU MENTIONING THAT, IF THE COURT IS INCLINED
18 TO RULE AGAINST US, WE WOULD RESPECTFULLY REQUEST THE
19 COURT CERTIFY THIS PORTION OF THE DECISION FOR THE COURT
20 OF APPEAL AS WELL. I DON’T —
21 THE COURT: I PLAN TO DO SO. IT’S THAT IMPORTANT,
22 I MEAN, IN ALL CANDOR, WHETHER THESE MAKE GOOD COMMON
23 LAW TORT CLAIMS OR NOT, IT IS SOMETHING WE NEED TO KNOW
24 ABOUT BECAUSE IT’S SO IMPORTANT FOR CASE VALUATION.
25 MR. KLEIN: I WILL RESERVE THE REST OF MY TIME,
26 YOUR HONOR, UNLESS I’M MISSING THE POINT HERE, BUT I
27 THINK THEY ARE GOING TO KICK ME UNDER THE TABLE, I’LL
28 PROBABLY LOSE A TOE.
53
1 THE COURT: THAT’S WHY YOU WERE GOING TO THE OTHER
2 SIDE.
3 MR. KLEIN: IT’S SAFER OVER THERE.
4 I’LL RESERVE MY TIME AND THEN I’LL — I MAY
5 HAVE MORE TO ADD, BUT I’LL LET COUNSEL ADDRESS THE
6 ISSUES THAT WE’VE DISCUSSED AND COME BACK. AND I THINK
7 THERE MAY BE AN OPPORTUNITY FOR SOME ADMINISTRATIVE
8 ISSUES IF THERE ARE ISSUES TO BE RAISED, WE ARE HAPPY TO
9 ADDRESS THOSE AS WELL.
10 THE COURT: OKAY.
11 MR. SPIVAK: THANK YOU, YOUR HONOR. AND MR. KLEIN
12 CAN HAVE HIS RESERVE TIME AFTER I’M DONE WITH MY PART OF
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13 THE TIME.
14 THE COURT: DO YOU WISH TO SHARE YOUR TIME WITH
15 ANY OF YOUR COHORTS AMONGST THE PLAINTIFF’S COUNSEL,
16 JUST SO I KNOW IN ADVANCE?
17 MR. SPIVAK: NOT RIGHT NOW, BUT I MAY GIVE
18 MR. STEIN PART OF MY TIME. LIKE IN CONGRESS, IN FIVE OR
19 TEN MINUTE INCREMENTS.
20 THE COURT: BUT THE JUDGE IS NOT ALWAYS AS
21 COOPERATIVE AS THE SPEAKER OF THE HOUSE.
22 MR. SPIVAK: I WILL KEEP IT WITHIN MY 40 MINUTES,
23 AND I DIDN’T TAKE MR. KLEIN AS CEDING ANY OF HIS 40
24 MINUTES, I WAS JUST INTERRUPTING HIS 40 MINUTES.
25 OKAY. I DIDN’T FINISH GOING THROUGH SOME
26 OF YOUR HONOR’S DISCUSSION THIS MORNING AND I THINK I’M
27 GOING TO PERHAPS WORK THE TWO IN TOGETHER. BUT MAYBE
28 I’LL START WITH SOME OF THE THINGS MR. KLEIN HAS SAID.
54
1 INTERESTINGLY ENOUGH, MR. KLEIN HAS MADE
2 TWO SIGNIFICANT OBSERVATIONS TODAY THAT WERE NOWHERE IN
3 THEIR PAPERS. THEY WERE NOT IN THE DEMURRER, THEY WERE
4 NOT IN THEIR REPLY, THEY WERE NOT IN THEIR FEDERAL —
5 MOTION TO DISMISS, THEY ARE NEW.
6 THE FIRST BEING THAT THERE IS A BROAD BASED
7 IMMUNITY TO BANKS, THAT THEY ARE NOT LIABLE FOR FRAUD OR
8 DECEIT. THEIR PAPERS HAVE ACTUALLY HAD A MUCH NARROWER
9 VERSION. THEY CITED ONE CASE IN THEIR PAPERS, NOT THE
10 THREE OR FOUR THAT WERE MENTIONED TODAY, WHICH I WASN’T
11 ABLE TO WRITE DOWN BECAUSE THEY WERE SAID TOO QUICKLY.
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12 THEY HAVE CITED ONE CASE HAVING TO DO WITH
13 A LOAN APPLICATION, HAVING TO DO WITH THE DECISION THAT
14 ABSENT SPECIAL CIRCUMSTANCES, THE BANK WASN’T LIABLE FOR
15 THE AFFORDABILITY OF A LOAN.
16 THE COURT: THAT WAS PERLAS VERSUS GMAC.
17 MR. SPIVAK: YES. AND, INTERESTINGLY IN THEIR
18 FEDERAL COURT 12(B)6 MOTION, THEY CITED EXACTLY ONE
19 CASE, IT WAS A FEDERAL CASE, THAT MORE OR LESS SAID THE
20 SAME THING.
21 SO I JUST DON’T KNOW WHERE THIS 30-YEAR
22 HISTORY OF ASSERTING THAT BANKS ARE IMMUNIZED FROM
23 COMMON LAW OR STATUTORY LAW. I’VE CERTAINLY NOT SEEN
24 ANY CASE THAT SAYS THAT. I’VE SEEN CASES THAT SAY,
25 ABSENT SPECIAL CIRCUMSTANCES, OR NYMARK, WHICH IS A CASE
26 DEALING WITH THE LIABILITY OF A BANK FOR
27 MISREPRESENTATION AND FRAUD. I THINK ONE USES SPECIAL
28 CIRCUMSTANCES, THE OTHER ONE USES CONVENTIONAL
55
1 CIRCUMSTANCES, AND OTHER THAN CONVENTIONAL
2 CIRCUMSTANCES, THAT A BANK IS NOT LIABLE FOR COMPUTING
3 THE AFFORDABILITY OF ITS CUSTOMERS’ LOANS.
4 I MEAN, THERE’S CLEARLY CASES THAT SAY
5 THAT. THAT’S WHAT CASES SAY, THEY DON’T — IF YOU WILL,
6 IT’S A QUALIFIED, LIMITED — I DON’T EVEN KNOW IF IT’S
7 IMMUNITY. IT’S A QUALIFIED, LIMITED STATEMENT THAT A
8 BANK’S NOT LIABLE FOR ONE ACTIVITY, IN NORMAL
9 CIRCUMSTANCES.
10 WHAT WE HAVE HERE, NOT ONLY FALLS INTO THE
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11 EXCEPTION FOR NOT NORMAL CIRCUMSTANCES, BUT IT AT MOST
12 OVERLAPS THAT ONE LITTLE ISSUE WHERE MAYBE BANKS
13 SOMETIMES AREN’T LIABLE. AND, AS I SAID, THERE’S NEVER
14 BEEN AN ARGUMENT MADE IN ANY PAPER I’VE EVER SEEN IN
15 THIS CASE BEFORE OR AFTER I JOINED IT ABOUT A GLOBAL
16 30-YEAR IMMUNIZATION OF BANKS FROM LIABILITY FOR
17 DECEIVING PEOPLE OR DEFRAUDING PEOPLE.
18 LET’S TALK ABOUT WHAT WE HAVE, WHY WE ARE
19 IN THIS SPECIAL CIRCUMSTANCE EXCEPTION. WE ARE IN THIS
20 SPECIAL CIRCUMSTANCE EXCEPTION BECAUSE WHAT THEY ALL
21 TALK ABOUT, WHAT THE CASES TALK ABOUT IS A BANK ACTING
22 ONLY IN THE TRADITIONAL ROLE OF LENDER.
23 WHAT WE HAVE ALLEGED, AND AT DEMURRER
24 STAGE, WHAT WE HAVE ALLEGED IS TAKEN AS TRUE — WHAT WE
25 HAVE ALLEGED IS A SCHEME IN WHICH THE PLAINTIFFS WERE
26 THE PAWNS, THEY WERE THE FODDER, FOR THE SCHEME TO SELL
27 SECURITIZED MORTGAGE OBLIGATIONS AT HIGH VALUE.
28 THE BANKS WERE NOT ACTING AS BANKS IN THE
56
1 CONVENTIONAL ROLE OF BANKS GIVING MORTGAGES AND
2 RECEIVING INTEREST AND FEES FOR GIVING MORTGAGES. THEY
3 WERE USING THESE PLAINTIFFS AS PAWNS.
4 WE ALLEGE THAT THEY KNEW SINCE 2004 THAT
5 THIS WOULD LEAD TO THE DEMISE OF THEIR BANK AND TO THE
6 DECLINE IN MORTGAGE VALUES, WHICH WE HAD SEEN AS A
7 RESULT OF THE LIQUIDITY CRISIS CAUSED BY THEIR BANK.
8 THEY DIDN’T CARE. THE BANK’S C.E.O.; THE
9 BANK’S C.F.O.; THE BANK’S C.O.O., OTHER BANK OFFICERS
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10 WERE ENGAGED IN INSIDER TRADING, CHARGES THEY HAVE JUST
11 RECENTLY SETTLED WITH THE FCC ON THE CIVIL SIDE. THEY
12 WERE ENGAGED IN THE SALE OF SECURITIZED MORTGAGE
13 OBLIGATIONS AND DEFRAUDING INVESTORS FOR WHICH THEY HAVE
14 BEEN SUED REPEATEDLY BY STATES ATTORNEYS GENERAL, BY THE
15 FCC AND IN PRIVATE ACTIONS.
16 AND OUR CLIENTS WERE THEIR PAWNS. AND THAT
17 IS NOT A BANK ACTING IN THE CONVENTIONAL ROLE OF BANK.
18 BIZZARELY, IN THE REPLY TO THE OPPOSITION
19 ON THE DEMURRER, THE DEFENDANTS SAID THAT WE WERE
20 SOMEHOW ARGUING THIS EXCEPTION MEANT THAT THERE WAS A
21 FIDUCIARY RELATIONSHIP. THEY SAID THAT WE’D WRITTEN
22 THAT THIS HAD CREATED A FIDUCIARY RELATIONSHIP. WE
23 NEVER SAID ANYTHING OF THE KIND. WE KNOW THERE WAS NO
24 FIDUCIARY RELATIONSHIP.
25 WHAT WE HAVE SAID, WHAT LI MANDRI SAYS,
26 WHAT NYMARK SAYS, WHAT WARNER SAYS IS THAT THERE ARE
27 EXCEPTIONS UNDERSTAND 1572, 1709; 1710, THE DECEIT AND
28 FRAUD STATUTES.
57
1 THERE ARE EXCEPTIONS AS TO WHEN CONCEALMENT
2 OR FRAUD, WHEN THERE ARE DUTIES NOT TO CONCEAL, NOT TO
3 DEFRAUD. AND ONE OF THE TIMES THAT DUTY EXISTS IS IN A
4 FIDUCIARY RELATIONSHIP. ANOTHER TIME THAT DUTY EXISTS
5 IS WHEN ENTERING INTO A CONTRACT. ANOTHER TIME THAT
6 DUTY EXISTS IS WHEN MAKING A PARTIAL DISCLOSURE.
7 ANOTHER TIME THAT DUTY EXISTS IS WHEN
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8 MAKING AN INACCURATE DISCLOSURE TO SOMEONE WHO IS NOT IN
9 POSSESSION OF THE SAME FACTS YOU ARE IN POSSESSION OF.
10 LIKE THAT YOU ARE ENGAGED IN A SCHEME TO LIE ABOUT THE
11 QUALITY OF YOUR MORTGAGES, ASSEMBLE THEM INTO
12 COLLATERALIZED MORTGAGE OBLIGATIONS AND SELL THEM AT A
13 FRAUDULENT VALUE, KNOWING THAT IN THE PROCESS YOU ARE
14 GOING TO DESTROY THE MORTGAGE MARKET AND CREATE A
15 LIQUIDITY CRISIS.
16 THAT IS WHAT WE HAVE ALLEGED. NOT A
17 FIDUCIARY RELATIONSHIP, WHICH NOT ONCE APPEARS IN OUR
18 OPPOSITION. AND AS I SAY JUST APPEARED — THEY CREATED
19 A STRAWMAN AND ARGUED AGAINST IT. THEIR ARGUMENT
20 AGAINST THE STRAW WAS PROBABLY CORRECT, JUST NOT WHAT WE
21 ALLEGED.
22 THERE’S A DUTY. THE DUTY IS CREATED BY THE
23 INACCURATE DISCLOSURES, THE PARTIAL DISCLOSURES; BY
24 BEING IN POSSESSION OF INFORMATION THAT THE PLAINTIFFS
25 WERE NOT IN POSSESSION OF, AND BY ENTERING INTO A
26 CONTRACT UNDER 1572.
27 THERE IS NO CASE I HAVE SEEN, THERE IS NO
28 CASE CITED BY THE BANK, WHICH I THINK IS A SUM TOTAL OF
58
1 TWO CASES ONE IN THE FEDERAL CASE AND ONE IN THE STATE
2 CASE, BUT IF I’M MISTAKEN, NO OTHER CASES THAT THEY
3 CITED THAT I’VE LOOKED AT THAT SAYS THAT 1572 DOES NOT
4 APPLY TO BANKS.
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5 SO, I THINK WE SHOULD JUST TAKE THAT, IF
6 YOU WILL, OFF THE TABLE AND I FRANKLY THINK —
7 THE COURT: WHAT ABOUT HIS CAUSATION ARGUMENT?
8 MR. SPIVAK: I’M GOING TO TURN TO THAT.
9 THE SECOND ARGUMENT THAT NEVER APPEARS IN
10 THEIR DEMURRER OR REPLY, BRAND NEW ARGUMENT TODAY,
11 DOESN’T MAKE IT RIGHT OR WRONG, BUT IT’S CERTAINLY NOT
12 SOMETHING WE BRIEFED. BUT LET’S TALK ABOUT THE
13 CAUSATION ARGUMENT.
14 FIRST HE SAYS THESE ARE SOPHISTICATED,
15 COMPLICATED MATTERS OF CAUSATION. THAT’S NORMALLY WHAT
16 I’D BE SAYING TO ARGUE AS TO WHY THE DEMURRER IS THE
17 INAPPROPRIATE STAGE IN WHICH TO RESOLVE THE MATTER.
18 IT’S A SOPHISTICATED, COMPLICATED MATTER. WE AGREE IT’S
19 A SOPHISTICATED, COMPLICATED MATTER.
20 SECOND, HE MAKES THE ARGUMENT THAT
21 NON-COUNTRYWIDE CUSTOMERS MAY ALSO HAVE BEEN DAMAGED BY
22 COUNTRYWIDE’S IMPROPER ACTIVITIES AND THAT THEREFORE
23 THOSE WHO MAY HAVE A CAUSE OF ACTION BECAUSE THEY
24 ENTERED INTO A CONTRACT AND THEY CAN USE 1572 OR FOR
25 SOME OTHER REASON SHOULDN’T HAVE THEIR DAY IN COURT
26 BECAUSE THE PERSON WHO DIDN’T ENTER INTO THE CONTRACT
27 MIGHT NOT ALSO HAVE HIS DAY IN COURT.
28 NOW, I DON’T REPRESENT ANYONE AGAINST
59
1 COUNTRYWIDE WHO DIDN’T HAVE A CONTRACT WITH COUNTRYWIDE,
2 SO I’VE NEVER EVALUATED WHETHER THAT OTHER PERSON MIGHT
3 NONETHELESS HAVE A CAUSE OF ACTION UNDER 1709 OR 1710,
4 THOUGH NOT UNDER 1572 AND, PERHAPS HE DOES, AND PERHAPS
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5 HE DOESN’T.
6 IF THE COURT WANTS ME TO FIGURE OUT MY
7 ANSWER I WILL, BUT I DON’T REPRESENT THOSE PEOPLE.
8 THE COURT: LIFE’S TOO SHORT.
9 MR. SPIVAK: I DO KNOW THE FACT THAT COUNTRYWIDE
10 MAY HAVE HURT SOMEONE ELSE AND THAT OTHER PERSON CAN’T
11 SUE COUNTRYWIDE, IF THAT’S THE CASE, DOESN’T MEAN MY
12 CLIENT IS DEPRIVED OF HIS DAY IN COURT BECAUSE HE
13 FORTUITOUSLY WAS INDUCED INTO ENTERING INTO A CONTRACT
14 CLEARLY GIVING HIM CAUSES OF ACTION FOR CONCEALMENT;
15 SUBJECT TO YOUR HONOR’S POINT — WELL, CAUSES OF ACTION
16 FOR FRAUD IF PROPERLY ALLEGED AND PROVEN, YOUR POINT ON
17 THE SECOND AND THIRD CAUSES OF ACTION; AND CAUSES OF
18 ACTION UNDER THE U.C.L..
19 BREAK IN CAUSATION DOES NOT OCCUR BECAUSE
20 SOMEONE ELSE WAS ALSO HARMED WHO MAY NOT HAVE STANDING
21 TO BRING A CASE ALLEGING HIS HARM.
22 OUR CLIENTS ENTERED INTO CONTRACTS WITH
23 COUNTRYWIDE. UNDER THOSE CONTRACTS THEY PAID INTEREST
24 AND FEES TO COUNTRYWIDE. I DON’T EVEN UNDERSTAND, WHICH
25 MAY BE MY NAIVETE, WHY THERE’S ANY DOUBT THAT IN A
26 RESTITUTIONARY POOL AND A BASIS FOR RESTITUTIONARY
27 DAMAGES, THE BANK IN THEIR RESPONSE SAID, YEAH, BUT WE
28 GOT THOSE INTEREST PAYMENTS, THEY ARE OURS.
60
1 YEAH, BUT IF WE ARE RIGHT, THEY GOT THOSE
2 INTEREST PAYMENTS IN — BY VIOLATING A NUMBER OF LAWS
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3 AND STATUTES THEY SHOULD NOT HAVE VIOLATED. THEY STOLE
4 IT FAIR AND SQUARE, NOW GIVE IT BACK.
5 AND IF WE PROVE THEY STOLE IT FAIR AND
6 SQUARE, THEY SHOULD GIVE IT BACK. AND IF WE DON’T PROVE
7 IT, THEN THEY WILL KEEP IT. BUT THAT’S THE
8 RESTITUTIONARY POOL. THE INJUNCTIVE RELIEF WE HAVE
9 ALREADY TALKED ABOUT OR LOSS OF MONDAY OR PROPERTY.
10 THE COURT: WHAT ABOUT THE ONE TASK I PROPOSE TO
11 PUT UPON YOU, WHICH IS TO TRY TO GIVE ME THE WHO, WHAT,
12 WHERE, WHEN FOR THE SECOND AND THIRD CAUSE OF ACTION?
13 MR. SPIVAK: OKAY. TURNING TO THAT, YOUR HONOR, I
14 WANT TO COMBINE THAT WITH THE ISSUE OF THE PRE-2005 —
15 THAT THERE ARE SOME PLAINTIFFS, NO ONE SUPPLIED A LIST
16 SO WE DON’T HAVE OUR THEIR NAMES WITH US, THERE ARE SOME
17 PLAINTIFFS WHO, WE SUGGESTED WE SUSPEND PURSUING THE
18 SECOND AND THIRD CAUSES OF ACTION ON BEHALF OF, AND
19 YOUR HONOR —
20 THE COURT: AND THE FIRST.
21 MR. SPIVAK: NO, NO. BECAUSE OF CONCEALMENT,
22 MAYBE — NO, YOUR HONOR, NOT THE FIRST.
23 THE COURT: YOU DIDN’T PROPOSE TO SUSPEND THE
24 FIRST.
25 MR. SPIVAK: SECOND AND THIRD, BECAUSE CONCEALMENT
26 WAS OCCURRING IN 2004 — CONCEALMENT WAS THE
27 NON-STATEMENT. THE DIFFERENCE OR A DIFFERENCE BETWEEN
28 THE FIRST CAUSE OF ACTION, THE SECOND AND THIRD, IS THE
61
1 FIRST TALKED ABOUT WHAT SOMEONE DIDN’T SAY WHEN UNDER A
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2 DUTY TO SAY IT.
3 THE DUTY COMING —
4 THE COURT: WHEN THEY ALREADY, IN YOUR VIEW OF AS
5 AN ADVOCATE —
6 MR. SPIVAK: YES.
7 THE COURT: — KNEW THEY WERE COMMENCING TO ENGAGE
8 IN FRAUDULENT CONCEALMENT.
9 MR. SPIVAK: YES. THE TACK ALLEGES THAT THEY KNEW
10 AND ENGAGED IN THE CONCEALMENT FROM 2004. THE TACK DOES
11 NOT ALLEGE WITH PARTICULARITY ANY AFFIRMATIVE
12 MISREPRESENTATIONS MADE 2004. HENCE THE 2005 ISSUE
13 UNDER THE SECOND AND THIRD CAUSES OF ACTION RAISED BY
14 THE DEFENDANTS, AND WE ACKNOWLEDGE THAT THAT ISSUE DOES
15 EXIST UNDER THE SECOND AND THIRD CAUSES OF ACTION.
16 OUR PROPOSED RESOLUTION WAS SUSPENSION.
17 YOUR HONOR INSTEAD SAID, “INTERESTING, MAYBE IT DOESN’T
18 EXIST, DISMISS WITHOUT PREJUDICE, AND IF YOU FIND IT
19 COME BACK.”
20 YOUR HONOR, WE’D LIKE TO PROPOSE A THIRD
21 ALTERNATIVE. YOUR HONOR WANTS GREATER PARTICULARITY AS
22 TO THE PLAINTIFFS AND ROES TO BE ADDED AS TO WHERE THEY
23 RELY, EVEN POST 2005. THEY MAY HAVE RELIED BECAUSE THEY
24 DID, IN FACT, OWN COUNTRYWIDE STOCK AND DID READ THE
25 10-K OR 10-Q. YOUR HONOR SAID PROBABLY NOT TRUE OF 249,
26 IT’S TRUE WHATEVER IT’S TRUE OF. WE UNDERSTAND THE
27 ISSUE. OTHERS MAY HAVE HAD OTHER REPRESENTATIONS.
28 WE’D LIKE TO TAKE IT AS OUR JOB IN AMENDING
62
1 THE SECOND AND THIRD CAUSES OF ACTION TO DO TWO THINGS.
2 IT’S REALLY ONE THING: SHOW THE RELIANCE FOR THOSE WHO
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3 GOT THEIR LOANS BEFORE 2005, WE’D HAVE TO FIGURE OUT THE
4 LIST OURSELVES SO THAT DEFENDANTS DON’T HAVE TO.
5 FOR THOSE WHO GOT THEIR LOANS BEFORE 2005,
6 IF WE CANNOT FIND ADDITIONAL SECURITIES FILINGS TO SHOW
7 THEY READ IT, THEN WE BETTER SHOW SOMETHING ELSE THEY
8 RELIED ON OR WE WILL DISMISS THOSE PLAINTIFFS FROM THE
9 SECOND AND THIRD CAUSE OF ACTION.
10 SIMILARLY, FOR ANY OF THE PLAINTIFFS WHO
11 MAY HAVE GOTTEN THEIR LOAN IN 2005 OR ’06, EVEN THOUGH
12 THERE WERE A MILLION OF THESE SECURITIES FILINGS, IF WE
13 CANNOT BY INTERVIEWING THEM, GETTING THE FACTS, TIE IT
14 BACK, WE’LL DISMISS AS TO THOSE AS WELL.
15 SO WE’D LIKE TO TAKE THIS AS A SINGLE JOB
16 THAT SAYS TO US, TO DO OUR JOB PROPERLY WE HAVE TO ADD
17 AS MANY AS 249, PLUS WHEN WE ADD THE ROES, WHATEVER
18 NUMBER. 800 MORE PARAGRAPHS, YOU KNOW, ONE PARAGRAPH
19 PER PLAINTIFF SAYING — I THINK THIS IS WHAT YOUR HONOR
20 WANTS —
21 THE COURT: I SAT THERE FOR HOURS READING YOUR
22 PLEADING, FORTUNATELY, I WAS IN A PLEASANT CHAIR IN
23 FRONT OF THE FIRE, UP IN THE SNOWY MOUNTAINS, LAST
24 WEEKEND, BUT IT WAS TEDIOUS, BUT IT’S THE NATURE OF THE
25 BEAST, IF ALL THESE PLAINTIFFS HAVE THEIR OWN
26 INDIVIDUALIZED FRAUD CLAIM.
27 MR. SPIVAK: I THINK IT’S LIKE THE VERY LENGTHY
28 200 PARAGRAPHS AT THE BEGINNING, WE NEED A LENGTHY —
63
1 AND TO THE EXTENT WE CAN’T, BY INTERVIEWING OUR CLIENT,
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2 COME UP WITH A PROPER PARAGRAPH FOR EACH CLIENT, WE WILL
3 DISMISS, AT LEAST AT THIS POINT WITHOUT PREJUDICE.
4 THE COURT: WOULD THE SAME BE TRUE OF THE SUBSET
5 OF THE 64 WHO IN THE NEAR TERM SEEM TO HAVE ORIGINATED
6 WITH PEOPLE YOU ARE PREPARED TO CONCEDE DON’T SEEM TO BE
7 CO-CONSPIRATORS SUCH AS HSBC?
8 MR. SPIVAK: YES, YOUR HONOR. WE HAVE TRIED TO —
9 WE DIDN’T HAVE WITH US A COPY OF THE EXHIBIT 1, BECAUSE
10 OF THE SCHEDULE DIDN’T HAPPEN, WE WILL IN THE NEXT DAY
11 OR TWO WHEN — WE’VE HAD A CONVERSATION WITH COUNSEL —
12 WE WILL PROPOSE TO THEM A LIST OF THOSE WE ARE GOING TO
13 DISMISS WITHOUT PREJUDICE NOW.
14 THE COURT: YOUR REPLEADING CAN GET TO THE SAME
15 PARTIES. IT TAKES PRECISION, WHICH FOR WHATEVER LUCKY
16 PERSON AMONGST THE FOUR OF YOU, OR SOME OTHER SOUL YET
17 TO BE ROPED INTO THE EXERCISE —
18 MR. SPIVAK: IT WILL BE MR. TOMASZEWSKI AND
19 MISS JONES.
20 THE COURT: — HAVING TO BE EVER SO PRECISE ABOUT
21 IT, BUT, YOU KNOW, IT WILL ONLY BE 410 PAGES LONG AS A
22 PLEADING.
23 MR. SPIVAK: RIGHT. AND WHAT WE’RE GOING TO DO,
24 YOUR HONOR, IS THERE WILL BE SOME NUMBER, I DON’T KNOW
25 IF IT’S 5 OR 20, WE WILL DISMISS THOSE WITHOUT PREJUDICE
26 NOW.
27 MR. KLEIN DOESN’T AGREE WITH THE PROCESS AS
28 TO THE OTHER 44, BUT HE UNDERSTANDS AND HE KNOWS WE’LL
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64
1 GET AT LEAST SOME OF THEM OUT OF THE CASE NOW, WITHOUT
2 PREJUDICE.
3 WE MAY EVEN, ON THOSE WHO ARE NOT HSBC, WE
4 MAY EVALUATE SOME OF THE OTHERS WE HAVE —
5 THE COURT: BEFORE WE’RE DONE, I ALSO WANT TO HEAR
6 FROM BOTH YOU AND MR. KLEIN ON WHAT IF ANYTHING IS
7 HAPPENING ON THE ONE-OFF PERSON BY PERSON ATTEMPTS AT
8 LOAN MODIFICATIONS OR OTHERWISE.
9 YOU PROBABLY HAVE DIFFERENT VIEWS AS IN, WE
10 GAVE THEM ALL OF THE INFORMATION THEY WANT AND THEY
11 WON’T TALK TO US. OR, WE ARE WAITING TO HEAR FROM
12 PLAINTIFFS AND THEY WON’T GIVE US ANYTHING.
13 BUT I’LL TAKE EACH OF YOUR VERSIONS OF
14 WHAT’S HAPPENING, BECAUSE IF I WERE A BETTING MAN, WHICH
15 IS DANGEROUS AS A JUDGE, I’D STILL GUESS THAT THE ODDS
16 ARE BETTER THAN 50 PERCENT THAT MANY OF THE CLAIMS IN
17 THIS CASE WILL BE WORKED OUT BY INDIVIDUAL COMPROMISES
18 OR SMALL GROUP PACKAGE COMPROMISES, BUT I HAVEN’T SEEN
19 THAT PROCESS START FLOWING YET.
20 I KNOW AN ANTICIPATED MOTION FOR
21 PRELIMINARY INJUNCTION IS ANTICIPATED IN THE NOT TOO
22 DISTANT FUTURE AND PERHAPS THAT WILL FOCUS THE MIND OF
23 ONE OR BOTH SIDES. BUT I AM EVER SO HOPEFUL AS A CASE
24 MANAGEMENT TO TRY TO CREATE BEHAVIORS WHERE THIS BEGINS
25 TO BECOME, NOT JUST A MIRAGE ON THE HORIZON BUT AN
26 ACTUAL WELL FROM WHICH PEOPLE ARE DRINKING, AND ONCE
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27 THEY START DRINKING, PERHAPS THOSE ARE RESOLUTIONS
28 SUFFICIENT TO SOME, IF NOT ALL OF THE PLAINTIFFS. AND
65
1 IF IT’S SUFFICIENT TO THOSE PLAINTIFFS, THEN PRESUMABLY
2 WE MAY ACTUALLY PROVIDE PRACTICAL JUSTICE THAT SERVES
3 YOUR CLIENTS AND THEREFORE ACTUALLY MOVES THE CASE
4 FORWARD TO A PRACTICAL RESOLUTION WITHOUT MAKING IT A
5 HIGH STAKES POKER IN FRONT OF A JURY IN TWO OR THREE
6 YEARS.
7 MR. SPIVAK: YOUR HONOR, WHEN WE GET TO THAT
8 POINT, I’M GOING TO YIELD PART OF MY TIME TO
9 MR. MR. STEIN AND MISS JONES, WHO IN OUR GROUP HANDLE
10 THAT.
11 THE COURT: FOR THAT I’M HAPPY TO, AS THE SPEAKER,
12 CONDONE THAT.
13 MR. SPIVAK: OKAY. TO CONTINUE FOR A MOMENT —
14 THE COURT: ANY TIME YOU ARE TALKING COMPROMISE,
15 I’LL BE VERY COOPERATIVE.
16 MR. SPIVAK: GOOD. TO CONTINUE FOR A MOMENT —
17 THE COURT: SO YOU ARE PREPARED TO AMEND THE
18 SECOND AND THIRD CAUSES OF ACTION.
19 MR. SPIVAK: WE ARE PREPARED TO AMEND THE SECOND
20 AND THIRD CAUSES OF ACTION. WE’D LIKE TO INCLUDE WITH
21 THAT THE ISSUE OF THE PRE-2005, AND WE WILL DISMISS AT
22 THIS STAGE WITHOUT PREJUDICE, SHOULD DISCOVERY ASSIST US
23 LATER ON, WE’LL DISMISS WITHOUT PREJUDICE ANY OF THOSE
24 FOR WHOM WE CAN’T MAKE THE SPECIFIC ALLEGATION UNDER
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25 RELIANCE, WHICH WOULD THEREFORE MEAN ON THE PRE-2005
26 ORIGINATIONS, IT WOULD INCLUDE SHOWING WHAT THEY RELIED
27 ON. AND IF WE CAN’T FIND WHAT THEY RELIED ON THEN WE
28 WILL NOT BE ABLE TO ALLEGE RELIANCE.
66
1 THE COURT: I DEDUCE CORRECTLY THAT THERE’S NO
2 FIGHT ABOUT THE 5TH CAUSE OF ACTION?
3 MR. SPIVAK: THERE IS NOT.
4 THE COURT: SO FAR THE REST OF THE TENTATIVE IS IN
5 YOUR FAVOR, UNLESS I’M MISSING SOMETHING.
6 MR. SPIVAK: ONE POINT ON 2923.5, YOUR HONOR.
7 THE COURT: AS TO A FEW PEOPLE.
8 MR. SPIVAK: YES. AS TO THOSE FEW PEOPLE,
9 ALTHOUGH THEY MAY HAVE CURRENTLY, VOLUNTARILY RESCINDED
10 THE NOTICES OF DEFAULT, THEY DID VIOLATE, IN OUR VIEW,
11 THE STATUTE AND THE RELIEF OF THE VIOLATION OF THE
12 STATUTE IS AN INJUNCTION, NOT A VOLUNTARY RESCISSION
13 THAT THEY CAN AT ANY POINT CHOOSE TO UNRESCIND. AND IF
14 THEY WOULD ACCEPT THE VOLUNTARY ENTRY OF AN INJUNCTION,
15 WE WOULD BE HAPPY TO DISMISS AS TO THOSE FIVE OR SIX
16 PEOPLE.
17 BUT IF THEY ARE NOT GOING TO ACCEPT THAT,
18 WE DON’T WANT A SITUATION WHERE THEY JUST ISSUE ANOTHER
19 NOTICE AND WE ARE BACK IN THE SAME SITUATION, BECAUSE
20 THEY HAVE ONLY DONE SOMETHING VOLUNTARILY.
21 THE COURT: WELL, WHERE IS THE CURRENT VIOLATION?
22 IF THERE’S NO NOTICE OF FORECLOSURE IN THE ABSENCE OF
23 THE RIGHT OF THE MEET AND CONFER?
24 MR. SPIVAK: THE —
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25 THE COURT: MAYBE YOU HAVE THE THEORETICAL CLAIM
26 FOR A SUIT FOR DECLARATORY RELIEF AS TO THAT, BASED ON
27 THE RECENT EXPERIENCE AND THE FEAR THAT IT MIGHT OCCUR
28 AGAIN.
67
1 MR. SPIVAK: I THINK IT’S NOT JUST THEORETICAL,
2 YOUR HONOR, I THINK WE DO. AND I’M JUST AS HAPPY TO NOT
3 EXPAND THE LITIGATION. IF THEY ARE SAYING THEY ARE NOT
4 GOING TO PURSUE THESE FIVE — I THINK IT’S FIVE PEOPLE,
5 THEN THEY HAVE SHOULD ACCEPT, VOLUNTARILY ACCEPT THE
6 ENTRY OF AN INJUNCTION. IT CAN BE LIMITED IN NATURE,
7 NOT GO INTO ANYONE ELSE, AND WE MOVE ON FROM THOSE
8 PEOPLE.
9 THE COURT: I GUESS PRESUMPTIVELY IT’S NOT AN
10 INJUNCTION TO WITHHOLD FORECLOSURE, IT IS ONLY AN
11 INJUNCTION TO FORECLOSURE AFTER THE MEET AND CONFER
12 PROCESS HAS OCCURRED.
13 MR. SPIVAK: RIGHT. AND WE ARE THE COUNSEL FOR
14 THESE PEOPLE, SO WHAT 2923.5 REQUIRES IS THAT THEY FIRST
15 PROCEED TO CONSULT WITH THE CLIENT OR THEIR COUNSEL,
16 WE’RE THEIR COUNSEL, AND REALLY ALL THEY WOULD HAVE TO
17 DO IS CONSULT WITH US.
18 THE COURT: I’LL HEAR FROM YOUR ADVERSARY BEFORE
19 WE WRAP IT UP TODAY.
20 SO ON THAT, THE COURT’S TENTATIVE IS NOT
21 AGREEABLE TO YOU.
22 OKAY, YOU WANT TO DEFER TO THE PEACEMAKERS
23 AMONGST YOUR TEAM?
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24 MR. SPIVAK: NO, I JUST —
25 THE COURT: BLESSED ARE THE PEACEMAKERS.
26 MR. SPIVAK: THE ISSUE THAT THERE’S NO PROTECTION
27 IN M.E.R.S. IN THE PATRIOT ACTS AND WHETHER OF
28 PLAINTIFFS DO OR DON’T PAY THEIR MORTGAGES AS RELATES TO
68
1 THE U.C.L., IT’S NOT THE WAY THE U.C.L. WORKS.
2 THE WAY THE U.C.L. WORKS IS THAT YOU
3 ESTABLISH THERE’S A VIOLATION OF LAW THAT RELATES TO THE
4 INTERACTS BETWEEN THE PARTIES AND YOU CAN THEN EITHER
5 ENJOIN THE VIOLATION OR YOU OBTAIN RESTITUTIONARY
6 DAMAGES.
7 SO, IF BECAUSE OF THE PATRIOT ACT THEY MADE
8 MORTGAGE LOANS WITH MONEY THEY SHOULD NOT HAVE HAD, OR
9 IF IN VIOLATION OF M.E.R.S. THEY HAVE ASSIGNED OR
10 TRANSFERRED MORTGAGES OR ARE ATTEMPTING TO FORECLOSE
11 WITHOUT OWNERSHIP, THOSE ALONG WITH THE LIST OF — I
12 DON’T KNOW, 10 OR 15 OTHER VIOLATIONS THAT ARE IN THE
13 8TH CAUSE OF ACTION, ARE ALL APPROPRIATE, AND IT’S
14 SOMETHING TO DO WITH THIS CAUSATION CHAIN, WHICH DOESN’T
15 MAKE SENSE.
16 AND I HAVE ONE LAST COMMENT ONLY BEFORE I
17 DEFER.
18 THE COURT: THE ONE RESPONSE I’LL MAKE WHICH IS
19 MORE FOR MR. KLEIN’S EARS, THAN YOURS, BUT CONCEPTUALLY
20 SPRINGS FROM WHAT YOU JUST SAID.
21 AS I UNDERSTAND IT, GIVEN THAT AT LEAST AT
22 A THEORETICAL LEVEL, ALL OF THE LOANS ORIGINATED WITH
23 COUNTRYWIDE OR PERHAPS ON REPLEADING WE’LL DISCOVER THAT
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24 A SUBSTANTIAL SUBSET OF THE PLAINTIFF’S LOANS ORIGINATED
25 WITH COUNTRYWIDE. I DON’T UNDERSTAND COUNTRYWIDE, WHICH
26 IS A FICTITIOUS ENTITY WITH SHELL OIL OWNERSHIP TO THE
27 OPEN MARKET, S.E.C. REGISTRATION AND ALL THE REST, WAS
28 ITSELF A LENDER THEN AT THE TIME OF LOAN ORIGINATION
69
1 VIOLATING THE PATRIOT ACT.
2 BUT WHAT I POSIT MAY EXIST THROUGH THE LACK
3 OF TRANSPARENCY OF M.E.R.S. IS BY THE TIME THE LOANS
4 ORIGINATED BY COUNTRYWIDE GET COLLATERALIZED AND PUSHED
5 THROUGH M.E.R.S. TO MULTIPLE DIFFERENT FINGERS, THE
6 DAY-TO-DAY, HOUR-TO-HOUR, MINUTE-TO-MINUTE IDENTITY
7 WHICH IS NOT KNOWN BECAUSE OF THE LACK OF TRANSPARENCY,
8 THAT THERE IS THE THEORETICAL POSSIBILITY THAT
9 INAPPROPRIATE LENDERS HAVE BOUGHT THE PAPER AND
10 THEREFORE BECOME THE OWNERS OF THE PAPER; BUT, AS SUCH,
11 ARE NOT ALLOWED PURSUANT TO THE PATRIOT ACT, TO EXERCISE
12 CREDITORS RIGHTS, BECAUSE THEY ARE NOT PROPER HOLDERS OF
13 THE PAPER.
14 AND THAT DOESN’T GIVE EVERY BORROWER A
15 DEBTOR’S HOLIDAY, AS I UNDERSTAND IT, BUT IT PRESUMABLY
16 BURDENS THE CREDITOR WITH DEMONSTRATING THE NEGATIVE
17 PREGNANT PROPOSITION WHICH IS THAT THE CURRENT HOLDER,
18 AND PERHAPS EVERYBODY IN THE CHAIN OF OWNERSHIP, HAS
19 BEEN A PROPER OWNER, NON-VIOLATIVE OF THE PATRIOT ACT,
20 AND TO, ESSENTIALLY FORCE TRANSPARENCY WHERE M.E.R.S.
21 DOES NOT CONTEMPLATE IT, SO THAT AT THE TIME ONE DOES
22 EXERCISE CREDITOR’S RIGHTS, ONE CAN DEMONSTRATE THAT
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23 THERE’S NOT A PATRIOT ACT PROBLEM, WHICH IS A NICE HOOP
24 TO FORCE YOUR ADVERSARY THROUGH, BECAUSE THEY HAVEN’T
25 STRUCTURED THEIR ORGANIZATION TO DO THAT SO FAR.
26 AND, PRESUMABLY, IT MIGHT MAKE THEM A
27 LITTLE MORE MALLEABLE IN MANY REGARDS. BUT,
28 THEORETICALLY. IF AND WHEN THEY COULD DEMONSTRATE AS TO
70
1 A GIVEN LOAN, THAT IT WAS HELD BY A SWISS BANK — WELL,
2 THAT MAY BE A POOR EXAMPLE — WAS HELD BY J. P. MORGAN
3 CHASE OR THE INDIANA TEACHERS PENSION FUND, OR BILL AND
4 LINDA GATES FOUNDATION, THAT THAT WOULD DEMONSTRATE
5 THOSE ARE PERMISSIBLE CREDITORS WHO MAY FORECLOSURE.
6 BUT IF THEY WERE TO DEMONSTRATE THAT THIS
7 IS ACTUALLY OWNED BY OSAMA BIN LADEN FOR THE BENEFIT OF
8 AL-QAEDA, THAT THAT WOULD ACTUALLY THEN LET US TUMBLE TO
9 THE FACT THAT THAT LOAN ESSENTIALLY HAS BEEN LOST AND
10 THE BORROWER HAS GOT A BANK HOLIDAY THROUGH THEIR DUMB
11 LUCK OF HAVING THE WRONG PERSON BUY THEIR PAPER.
12 MR. SPIVAK: YOUR HONOR, WHAT YOU HAVE SAID IS
13 PROBABLY 97 PERCENT ALMOST WHAT I WOULD HAVE SAID IN
14 EXPLAINING THE ISSUE.
15 THE COURT: CORRECT ME OR EDUCATE ME.
16 MR. SPIVAK: THE OTHER THREE PERCENT IS — YOU
17 KNOW, WE ARE BEGINNING TO SEE WHAT WE’VE BEEN THROWING
18 AROUND IS ALMOST THE ENRONIZATION, THE ENRONIZATION OF
19 THE BANKING INDUSTRY IN THE COUNTRYWIDE PERIOD, THE
20 SELLING OF COLLATERALIZED LOANS; SOME PERHAPS TO
21 OFF-SHORE MONIES AND FUNDS; PERHAPS THE BUYING INTO AND
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22 THE SELLING OF INTEREST IN THOSE OFF-SHORE MONIES AND
23 FUNDS AND IT’S SOMETHING THAT DISCOVERY MAY HELP US
24 DEVELOP AND THAT I DON’T WANT TO SPEND A LOT OF TIME ON
25 BECAUSE WE’RE NOT YET AT THE POINT WHERE WE WOULD, YOU
26 KNOW, ASK TO AMEND AND PUT IT IN A COMPLAINT. BUT IT’S
27 SOMETHING THAT EVEN THE LIMITED DISCOVERY WE’VE BEEN
28 GIVEN HAS RAISED SOME CONCERNS.
71
1 THE ISSUE THAT’S A LITTLE BIT DIFFERENT IS
2 THAT EVEN COUNTRYWIDE FROM THE BEGINNING WAS SELLING THE
3 SECURITIZED MORTGAGE OBLIGATIONS AND TRANSACTIONS THAT
4 INVOLVED MONEY GOING BACK AND FORTH, AND THAT TOO IS
5 SUBJECT TO THE PATRIOT ACT.
6 THERE’S ALSO SOMETHING THAT DROPS OUT, IT
7 WAS IN THE AMENDED COMPLAINT, THE TRUTH IN LENDING ACT,
8 WHICH ALSO PERTAINS TO SOME OF THIS. SO EVERYTHING
9 YOUR HONOR SAID IS RIGHT, BUT I THINK WE MAY DISCOVER
10 THAT THE PATRIOT ACT PROBLEMS ACCELERATED IN CONNECTION
11 WITH THE BANK OF AMERICA MERGER, AND ACCELERATED LATER
12 INTO THE PERIOD, BUT THAT THEY BEGAN BACK IN THE
13 COUNTRYWIDE ERA. MAYBE NOT AS FAR AS BACK AS 2004, BUT
14 AS WE ENTER 2005, 2006.
15 THE COURT: BUT IF ALL THIS COLLATERALIZED DEBT OR
16 FROM A CREDITOR’S POINT OF VIEW, ASSET MOVES BACK AND
17 FORTH BETWEEN THE INDIANA TEACHERS PENSION FUND, J. P.
18 MORTGAGE CHASE, THE GATES FOUNDATION AND SOME FARMER IN
19 NEBRASKA, HYPOTHETICALLY, AND OTHER PEOPLE WHO ARE
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20 CREDITORS UNDER THE PATRIOT ACT, IS THERE ANY FURTHER
21 PROBLEM OR IS IT JUST THE FACT THAT M.E.R.S.’ LACK OF
22 TRANSPARENCY MEANS WE DON’T KNOW THAT THAT’S THE
23 UNIVERSE THAT OWNS THIS PAPER.
24 MR. SPIVAK: AS WE SIT HERE TODAY, YES, WE DON’T
25 KNOW. BUT YOU ASKED IS THERE ANY FURTHER PROBLEM? A
26 VIOLATION OF THE PATRIOT ACT, IT’S LIKE NOT FILING YOUR
27 TAXES. IF YOU DON’T FILE YOUR TAXES, BUT YOU DIDN’T OWE
28 ANY TAXES IS THERE ANY FURTHER PROBLEM?
72
1 THE ANSWER IS YES. THE MERE FACT YOU
2 DIDN’T FILE YOUR TAXES VIOLATES THE LAW. YOU ARE
3 SUBJECT TO A FINE, THOUGH NOWHERE NEAR AS HIGH AS IF YOU
4 OWED TAXES.
5 THE COURT: SO THE PATRIOT ACT IN YOUR VIEW
6 REQUIRES DISCLOSURE FROM TIME TO TIME, OF WHO THE REAL
7 OWNER OF THE DEBT IS?
8 MR. SPIVAK: IT REQUIRES DUE DILIGENCE AS TO WHO
9 MONEY IS COMING FROM AND WHO THE REAL OWNER OF THE DEBT
10 IS. IT REQUIRES CERTAIN REPORTS THOUGH NOT ALWAYS
11 PUBLIC REPORTS, THEY MAYBE REGULATORY REPORTS. IT
12 PROHIBITS TAKING MONEY FROM PEOPLE ON VARIOUS LISTS FROM
13 WHICH MONEY CANNOT BE TAKEN.
14 THE COURT: SO YOU START WITH THE PREMISE THAT YOU
15 LOOK AT THE NOMINEE AND NOT LOOK PAST THE NOMINEE, IN
16 YOUR VIEW, A VIOLATION IS MADE OUT BY THAT, IF NOTHING
17 MORE.
18 MR. SPIVAK: YES, YOUR HONOR.
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19 THE COURT: OKAY. I WANT TO HEAR FROM THE
20 PEACEMAKERS.
21 MR. SPIVAK: EXCUSE ME?
22 THE COURT: I WANT TO HEAR FROM THE PEACEMAKERS.
23 MR. SPIVAK: YES, I JUST WANTED TO MAKE SURE OF
24 ONE THING AND THEN I THINK THE PEACEMAKERS CAN GET UP.
25 THE COURT: NOW WE’VE ROLLED THE ARMAMENT THROUGH
26 RED SQUARE, AND I’D LIKE TO HEAR FROM THE PEACEMAKERS ON
27 THE PLAINTIFFS SIDE.
28 MR. STEIN: YOUR HONOR, THANK YOU FOR ALLOWING
73
1 THE UNUSUAL CIRCUMSTANCES OF TWO PLAINTIFFS LAWYERS
2 ARGUING. IT IS A COMPLEX CASE.
3 THE COURT: I GET CONFUSED AT TIMES, I CONFESS.
4 MR. STEIN: I EXPECT TO TALK FOR 5 TO 7 MINUTES.
5 AND ALTHOUGH WHAT I HAVE TO SAY AT THE BEGINNING WILL
6 APPEAR ADVOCATIVE, IT IS ABSOLUTE —
7 THE COURT: I WOULDN’T EXPECT LESS FROM YOU, SIR.
8 MR. STEIN: THANK YOU, YOUR HONOR.
9 IT IS ABSOLUTELY DESIGNED TO IDENTIFY THOSE
10 PLAINTIFFS AND ROE PLAINTIFFS, THAT WE KNOW, THAT WISH
11 TO MAKE PEACE AND THAT PEACE COULD BE MADE WITH.
12 BUT BEFORE WE MAKE PEACE, WE HAVE TO
13 IDENTIFY WHAT IS IN FRONT — WHAT THE PROBLEM IS OR WHAT
14 I THINK IS THE HURDLE TO MAKING PEACE. AND THEN I WILL
15 DESCRIBE THE ROAD THAT I THINK WE CAN GO ON TO STOP —
16 THE CASE STARTED WITH 20 PEOPLE AND NOW IT’S 300, AND
17 THERE ARE 150 MILLION PEOPLE IN THE UNITED STATES OUT OF
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18 A POPULATION OF 300 MILLION THAT ARE IN DEFAULT AND ARE
19 SCHEDULED FOR FORECLOSURE.
20 THE COURT: NOT 150 MILLION.
21 MR. STEIN: 150 MILLION. AND I WILL PROVIDE — I
22 WILL —
23 THE COURT: 150 MILLION RESIDENTIAL REAL ESTATE
24 PEOPLE —
25 MR. STEIN: NOT RESIDENTIAL REAL ESTATE.
26 THE COURT: YOU’VE GOT EVERY TOM, DICK AND HARRY
27 CREDIT CARD.
28 MR. STEIN: NO. THESE ARE ALL MORTGAGES, WHETHER
74
1 THEY BE RESIDENTIAL, MULTIPLE RESIDENTIAL PROPERTIES,
2 SECONDS ON PROPERTIES, ETCETERA.
3 THE COURT: I FIND THE NUMBER 150 MILLION
4 IMPLAUSIBLE, BUT SINCE WE’RE DEALING WITH THINGS NOT ON
5 THE RECORD, LET’S HAVE A WHIRL OF IT.
6 MR. STEIN: WE CAN CUT THE NUMBER IN HALF TO
7 75 MILLION, WHICH IS A NUMBER REPORTED BY BANKS, SO, AND
8 WE CAN LODGE THAT WITH THE COURT.
9 BECAUSE OF THAT NUMBER, SHEER NUMBER, IT
10 IS — THE ADVOCATIVE ARGUMENTS THAT THERE ARE OTHER
11 FINANCIAL INSTITUTIONS AND PEOPLE ARE IN DEFAULT OF
12 THEIR MORTGAGE AND ON THEIR FINANCIAL INSTITUTIONS,
13 WELL, IT’S HARD TO IMAGINE THAT IF COUNTRYWIDE IS
14 SECURITIZING AND GETTING MARKET SHARE IN 2004 AND MAKING
15 MONEY, THAT ANOTHER BANK SUCH AS WELLS FARGO IS NOT
16 GOING TO FIGURE OUT HOW TO DO IT, TOO.
17 THE BROKERS WORK FOR BOTH BANKS AND SO
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18 THERE ARE NATURALLY, BANKS ACROSS THE BOARD THAT ARE
19 DOING THIS.
20 WHEN, THIS MORNING, THE MASSACHUSETTS
21 FEDERAL COURT FOLLOWED THE MASSACHUSETTS SUPREME COURT
22 AND SAID THAT THE OWNER OF THE MORTGAGE IS THE ONE WHO
23 HAS TO FORECLOSE, AND I UNDERSTAND MR. KLEIN INDICATED
24 THAT’S MASSACHUSETTS, NOT CALIFORNIA. BUT WE ALSO HAVE
25 THE EASTERN DISTRICT BANKRUPTCY COURT IN CALIFORNIA,
26 NEITHER OF WHICH ARE BINDING ON THIS COURT, BUT
27 EVENTUALLY ENOUGH DOMINOES FALL AND IT IS WHAT IT IS.
28 I FIND THAT I, AT THIS POINT. AFTER THE
75
1 COURT HAS BEEN INVOLVED IN THE CASE FOR A SIGNIFICANT
2 PERIOD OF TIME, SOMETIMES I LEARN MORE FROM LISTENING TO
3 THE COURT FROM THE RESEARCH ITS DONE AND READING THE
4 PAPERS, THAN THINKING ALOUD TO MYSELF, PARTICULARLY THIS
5 MORNING.
6 YOUR HONOR, THE PROCESS OF THE ONE-OFF,
7 WHICH IS SPECIFICALLY WHAT THE COURT ASKED ME TO
8 ADDRESS, BECOMES MORE DIFFICULT. I THINK THERE IS A
9 SINGLE HURDLE, AND THAT HURDLE IS THAT IF, IN FACT, IT
10 ALWAYS SHOULD HAVE BEEN TRANSPARENT — AND I’M NOT GOING
11 TO ADVOCATE THAT, EITHER — EITHER IT WAS SUPPOSED TO BE
12 TRANSPARENT OR IT WASN’T. BUT IF IT WAS AND THESE
13 PEOPLE LITIGATED IN GOOD FAITH BECAUSE IT WASN’T,
14 BECAUSE THEY WENT TO MODIFY, AND IF YOU READ THE
15 LEGISLATIVE HISTORY OF 2923.5, THEY ARE SAYING TO BANKS,
16 GET TRANSPARENT NOW. THESE FORECLOSURES ARE GOING TO
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17 RUIN THE STATE OF CALIFORNIA.
18 AND THEY HAVE. AND THE COURT HAS SAID,
19 LEGISLATION MAY BE ISSUED. AND IT MIGHT. OKAY, BUT
20 RIGHT NOW WE ARE IN A COURT OF LAW.
21 IF TWO YEARS HAVE PASSED AND IF THESE
22 PEOPLE HAVE BEEN LITIGATING FOR TWO YEARS, WHICH THEY
23 HAVE, AND THEN WITH A LOT OF THEM, THERE ARE TWO YEARS
24 OF BACK DUE PAYMENTS; BACK DUE INTEREST; BACK DUE
25 PRINCIPL. IN THEORY, ON THE BANK’S SIDE, WHICH THE BANK
26 WILL BRING TO THE TABLE DAY ONE, THEY WILL SAY, THIS —
27 THE COURT: AND THE LATE CHARGES AND THE OTHER
28 NUISANCE CHARGES THAT RAMP IT UP QUICK.
76
1 MR. STEIN: CORRECT. THIS IS WHAT YOU OWE, HOW
2 ARE YOU GOING TO PAY IT? IF THAT’S THE DISCUSSION, I’M
3 SURE THE COURT CAN UNDERSTAND, IF A HUMAN BEING READS
4 THE MASSACHUSETTS SUPREME COURT OPINION AND THE FEDERAL
5 COURT OPINION THAT CAME OUT TODAY, AND THEY READ THIS
6 TRANSCRIPT, WHERE MR. KLEIN SAYS IT’S NOT BINDING IN
7 CALIFORNIA, WHICH IS CORRECT, BUT THOSE HUMAN BEINGS ARE
8 GOING TO SAY, WELL, IT’S STILL THE UNITED STATES OF
9 AMERICA. IT’S STILL A SUPREME COURT OPINION, IT’S NOT A
10 LOWER COURT OPINION.
11 AND THEY WOULD SAY, WHY AM I SITTING HERE
12 WITH THEM, BEING ASKED FOR A CHECK FOR $300,000,
13 400,000 — 2 MILLION FOR SOME OF THE PLAINTIFFS.
14 THAT’S A HURDLE. IT’S AN EASY HURDLE TO
15 JUMP OVER. WITH SOME OF THESE HOLDERS OF HOMES THAT
16 WISH TO STAY IN POSSESSION, TO THE EXTENT THE BANK CAME
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17 IN WITH SOMEONE WITH THE AUTHORITY THAT SAID, LOOK, WE
18 UNDERSTAND RIGHT NOW, WE SAY IT’S POTATO, YOU SAY IT’S
19 POTATO, NOW IT’S OBVIOUS THAT THIS IS A REAL DONNIE
20 BROOK ACROSS THE UNITED STATES.
21 IT’S NOT — NO FRIVOLOUS ARGUMENTS ARE
22 BEING MADE. I’M SURE THE MASSACHUSETTS SUPREME COURT,
23 MR. KLEIN WOULD SAY IS NOT A FRIVOLOUS THING. OKAY?
24 SO, IT’S A DONNIE BROOK.
25 SO GIVEN THAT, WE WISH TO COMPROMISE. SO,
26 ACCORDINGLY, IF YOU TAKE THOSE PAYMENTS OWED, YOU PUT
27 THEM ON THE BACK END OF THE MORTGAGE; WE REAMORTIZE THE
28 MORTGAGE; SOME PEOPLE MAY NEED TO GO THROUGH A
77
1 FORECLOSURE; IF THERE’S A REASONABLE, RATIONAL PERSON ON
2 THE BANK’S END, AND THE COURT SAYS, “ARE THERE
3 PLAINTIFFS THAT WOULD SIT AT THE TABLE AND SAY, YES,
4 YES, THAT’S WHAT I’M WAITING FOR.”
5 AND NOW THERE’S A NEW MORTGAGE, IT’S A NEW
6 FRESH MORTGAGE, IN WHAT TYPE OF INITIAL PAYMENT DO YOU
7 WANT?
8 COULD THAT HAPPEN ON A ONE-OFF BASIS? THE
9 ANSWER IS, YOUR HONOR, ABSOLUTELY. AND I THINK — WE
10 HAD MEETINGS REGARDING THIS. THEY ARE CONFIDENTIAL,
11 THERE WAS A CONFIDENTIALITY AGREEMENT WITH MR. KLEIN,
12 AND WE APPROACHED THIS AT THE BEGINNING OF THE CASE.
13 AT THE BEGINNING OF THE CASE, THE LAW
14 HADN’T DEVELOPED. IN FACT, AT THE BEGINNING OF THE
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15 CASE, AS THE COURT MAY RECALL, 2923.5 THERE WAS NO LAW
16 WHETHER THAT COULD BE A DAMAGES LAWSUIT OR NOT.
17 THE MABRY CASE MADE IT CLEAR THAT WAS ONLY
18 AN INJUNCTION STATUTE, ALTHOUGH THAT STATUTE BEFORE THE
19 NEXT HEARING MAY BE AMENDED, MAYBE IT WILL SAY SOMETHING
20 ELSE. I DON’T KNOW WHAT’S GOING TO HAPPEN.
21 BUT CERTAINLY, THERE ARE ONE-OFF PEOPLE,
22 THAT GIVEN A ROBUST DISCUSSION, UNDERSTANDING THERE’S A
23 DONNIE BROOK, WOULD HAVE THEIR CHECKBOOKS THERE AND BE
24 READY TO HAVE A FRESH MORTGAGE SIGNED TO STAY IN THEIR
25 HOUSE.
26 THE COURT: SO, TO CUT IT TO THE CHASE, IF THE
27 BANK GOT THE LATE CHARGES OFF THE TABLE, CROSSED THE
28 COLLECTION COSTS OFF THE TABLE, BANK ATTORNEY’S FEES OFF
78
1 THE TABLE, AND FOCUSED ON THE PRINCIPAL THAT REMAINS
2 UNPAID AND, AT LEAST FROM THE POINT OF VIEW OF THE
3 STARTING POINT FROM WHICH TO BARGAIN DOWN, THE ACCRUED
4 INTEREST ONLY WHICH WAS ON THE TABLE, THAT’S THE RIGHT
5 NUMBER TO START FROM AND THEN FIGURE OUT HOW TO TAKE A
6 SUBSTANTIAL BUT NOT ENTIRE PORTION OF THAT ACCUMULATED
7 DEBT AND REPACKAGE IT FOR PAYMENT IN AN ECONOMICALLY
8 VIABLE FASHION, OVER A LONGER PERIOD OF TIME, SO THAT
9 THE BORROWERS CAN ACTUALLY AFFORD TO DO THE DEBT
10 SERVICE.
11 MR. STEIN: WHICH IS A MUCH LESS VERBOSE
12 DESCRIPTION THAN I JUST GAVE AND MUCH MORE ACCURATE.
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13 THAT’S EXACTLY CORRECT.
14 THE COURT: YOUR LADY COLLEAGUE IS NODDING HER
15 HEAD AFFIRMATIVELY, SO PRESUMABLY SINCE SHE’S THE OTHER
16 PEACEMAKER, IT’S NOT TOO FAR OFF THE TARGET.
17 MR. STEIN: AND MISS JONES —
18 THE COURT: I’M TRYING TO QUANTIFY IT WITHOUT
19 ENDORSING IT FOR MR. KLEIN, BECAUSE IT WAS A LITTLE
20 PROLIX. AND SEEING IF I COULD CUT TO THE CHASE.
21 MR. STEIN: I APPRECIATE THAT, YOUR HONOR.
22 THE COURT: THAT’S NOT TO SAY THEY HAVE TO DO IT,
23 BUT IT’S ONLY TO TRY TO ENCAPSULATE WHAT IS ESSENTIAL
24 FROM YOUR SITUATION OF A PLAUSIBLE STARTING POINT.
25 MR. STEIN: THERE ARE CERTAINLY THOSE PLAINTIFFS
26 WHO WISH TO DO THAT. WE CAN — I REPRESENT TO THE COURT
27 AS AN OFFICER OF THE COURT —
28 THE COURT: ON MY WAY TO AND FROM THE SNOW, I
79
1 HEARD ONE OF YOUR COMPETITORS IN THE BAY AREA, “1800 ASK
2 STEVE” OR WHATEVER, RADIO ADS NON-STOP ON ONE RADIO IN
3 SACRAMENTO, JUST BEGGING YOU TO CALL FOR FREE LEGAL
4 ADVICE. AND THEN ON OCCASION, “UNITED LEGAL SERVICES” I
5 THINK WAS THE TRADE NAME, THEY HAD ANOTHER AD RUNNING
6 LOOKING TO HIRE LAWYERS, BUT BASICALLY WAS OFFERING
7 FORECLOSURE AVOIDANCE SERVICES.
8 MR. STEIN: WELL, IT’S LIKE A PLAGUE. IT’S TAKEN
9 OVER THE COUNTRY, SO IT’S HARD TO STOP.
10 BUT, YOUR HONOR —
11 THE COURT: BUT IT WASN’T YOUR OFFICE OR
12 MR. TOMASZEWSKI’S OFFICE OR MISS JONES, WHICH I TOOK AS
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13 A SIGN THAT AT LEAST YOU ARE SORT OF TRADITIONAL, LESS
14 STOREFRONT LAWYERS THAN “1800 ASK STEVE” OR WHATEVER
15 THAT WAS.
16 MR. STEIN: I’VE BEEN IN A COURTROOM BEFORE,
17 YOUR HONOR. YOUR HONOR, THERE ARE THOSE —
18 THE COURT: YOU HAD TO HAVE TWO YEARS LITIGATION
19 EXPERIENCE TO GET HIRED, ACCORDING TO THE RADIO AD.
20 MR. STEIN: I PRESUME THAT IS STANDARD, IF THE
21 COURT SAYS IT.
22 THE COURT: THAT WAS UNITED LEGAL’S THOUGHT BEFORE
23 THEY HIRED YOU AT THE JOB FAIR.
24 MR. STEIN: YOUR HONOR, WITH REGARD TO ONE-OFF,
25 THE ONE-OFF CONCEPT, OUTSIDE OF THE LOAN MODIFICATION,
26 THERE ARE PRIVACY CLAIMS, ETCETERA. THOSE PLAINTIFFS,
27 ALSO SOME OF THEM ARE WORN OUT BY THE TWO YEARS. AND
28 THOSE PLAINTIFFS ALSO COULD COME — COULD HAVE EXPRESSED
80
1 AN INTEREST IN COMPROMISING THEIR CLAIM.
2 FOR EVERY FIVE OF THOSE, AS THE CASE
3 PROCEEDS AND LAW DEVELOPS AROUND US, AND THE BANK IS
4 DOING ACTIVITIES THAT THEY ARE REPORTING AROUND US THAT
5 ARE SUPPORTING THE ALLEGATIONS THAT I STARTED MAKING TWO
6 YEARS AGO, WHEN NOBODY WAS SUING THE BANK, BUT I HAVE
7 REPRESENTED THESE BANKS GOING BACK 25 YEARS.
8 SO, THOSE PEOPLE, AS THE LAW DEVELOPS
9 AROUND THEM AND AS TWO YEARS PASSES, THOSE PEOPLE ARE
10 TIRED. THEY SAY, I’M OUT OF BREATH, I’M TIRED. BUT
11 THIS LAW KEEPS DEVELOPING I’M GOING TO STAND HERE. CAN
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12 WE TALK TO THE BANK? I CAN BE REASONABLE.
13 THE COURT: I HAVE TO SORT OF CUT YOU OFF.
14 MISS JONES, ANYTHING TO ADD OR TO CORRECT
15 ABOUT WHAT YOUR COHORTS JUST SHARED WITH ME?
16 MS. JONES: NOTHING FURTHER, YOUR HONOR.
17 THE COURT: MR. KLEIN, YOU’VE BEEN WAITING
18 PATIENTLY, SO I AM INTERESTED ON THE PEACEMAKING SIDE OF
19 THINGS, BUT YOU CAN RESPOND MORE GENERALLY BECAUSE I’M
20 CURRENTLY INCLINED TO STAND ON THE TENTATIVE EXCEPT THAT
21 AS TO THE 64 AND THE PRE-2005 CROWD, BY SUSTAINING WITH
22 LEAVE TO AMEND AS TO THE ENTIRETY OF THE SECOND AND
23 THIRD CAUSES OF ACTION.
24 I THINK THAT’S A SUFFICIENT BASIS ON WHICH
25 THEY CAN COME BACK AND COME TO GRIPS WITH IT. I’M
26 TRUSTING THAT AS OFFICERS OF THE COURT AS TO THE FIRST
27 CAUSE OF ACTION, THEY WOULD BE PREPARED TO BACK OFF THE
28 PEOPLE WHO REALLY DON’T HAVE A LOAN ORIGINATION CLAIM AS
81
1 AGAINST COUNTRYWIDE, BECAUSE THEY WANT TO MAINTAIN THE
2 COURT’S RESPECT THAT THEY RECOGNIZE THEIR DUTIES UNDER
3 CCP 128.7.
4 MR. KLEIN: YOUR HONOR, I’D LIKE TO SPEAK FOR TWO
5 OR THREE MORE MINUTES ON DUTY, WHICH IS A SUBJECT OF THE
6 CONCEALMENT CLAIM.
7 THE COURT: THAT AND ANYTHING ELSE YOU WANT TO
8 TALK ABOUT FOR THE NEXT 20 MINUTES.
9 MR. KLEIN: THANK YOU, YOUR HONOR. I’LL TRY NOT
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10 TO USE ALL THAT TIME.
11 DURING — AT SOME POINT, AND I CAN’T REALLY
12 IDENTIFY THE SPECIFIC POINT TODAY, THE BANK’S ARGUMENT
13 REGARDING NO DUTY TO THE BORROWERS HAS SOMEHOW BEEN
14 TRANSLATED INTO SOME SORT OF A REFERENCE TO SOME SORT OF
15 IMMUNIZATION.
16 THE COURT: I USED THE WORD.
17 MR. KLEIN: I AM NOT LOOKING TO ATTRIBUTE IT. I
18 APPRECIATE THAT.
19 THE ARGUMENT WE’VE MADE, YOUR HONOR, IS
20 THAT THE BANK OWES NO DUTIES TO THE BORROWER IN A
21 LENDER/BORROWER RELATIONSHIP.
22 AND —
23 THE COURT: IN REGARD TO THEORETICAL CLAIMS OR
24 FRAUDULENT CONCEALMENT.
25 MR. KLEIN: THEY OWE NO DUTIES TO A LENDER — TO
26 A BORROWER IN A LENDER/BORROWER RELATIONSHIP.
27 AND THAT IS THE CASE OF PRICE VIEWS WELLS
28 FARGO. IT IS ON PAGE 6 OF OUR DEMURRER. IT’S
82
1 REFERENCED THERE.
2 AND FROM THERE, AND THE BIGGEST PROBLEM I
3 THINK WITH THE CLAIM IS THAT IF THERE’S NO DUTY AND
4 THERE’S A LOT OF TALK ABOUT SPECIAL CIRCUMSTANCES THAT
5 MAY CAUSE A DUTY TO ARISE, NONE OF THEM HAVE BEEN PLED
6 IN THIS CASE.
7 YOU KNOW, IT’S INTERESTING THEY MENTION
8 PARTIAL DISCLOSURES, BUT THERE ARE NO PARTIAL
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9 DISCLOSURES THAT THESE BORROWERS HAVE ALLEGED TO HAVE
10 HEARD.
11 THEY MENTION OMISSIONS, THERE ARE NO
12 OMISSIONS THAT THESE BORROWERS — THESE BORROWERS HAVE
13 ALLEGED TO HAVE OCCURRED AT THIS POINT, THAT SOMEHOW
14 THEY RELIED UPON IN — WITH DETRIMENTAL RELIANCE.
15 THE COURT: YOU SAY PRICE V. WELLS FARGO SIMPLY TO
16 NEGATE THE PREMISE THAT YOU SET UP AS A FIDUCIARY DUTY.
17 MR. KLEIN: THE FOOTNOTE INDICATES FIDUCIARY
18 DUTY. IT ACTUALLY — IF THE WAGNER VERSUS BENSON CASE,
19 THE CRUZ VERSUS BANK OF AMERICA CASE, AND THE PRICE
20 VERSUS WELLS FARGO CASE — THE WELLS FARGO CASE ACTUALLY
21 CONTAINS THE WAGNER VS. BENSON CASE, AND I BELIEVE IT
22 ALSO CONTAINS THE CRUZ VERSUS BANK OF AMERICA CASE.
23 THE COURT: SO ALTHOUGH CRUZ AND WAGNER ARE NOT
24 CITED YOU ARE NOW RELYING ON THEM BECAUSE THEY ARE CITED
25 WITHIN PRICE.
26 MR. KLEIN: THEY ARE IN PRICE. AND THEY ARE
27 DISCUSSED IN PRICE. THOSE DO ESTABLISH THERE’S NO DUTY
28 TO A BORROWER IN A LENDER/BORROWER RELATIONSHIP.
83
1 THE COURT: NOT LIMITED TO FIDUCIARY DUTY, BUT NO
2 DUTIES WHATEVER, NO DUTIES IN NEGLIGENCE, NO DUTIES
3 ABOUT FRAUDULENT CONCEALMENT, NO DUTIES WHATSOEVER.
4 MR. KLEIN: NO DUTIES. THERE’S ABSOLUTELY NO
5 DUTIES, UNLESS THERE’S A STATUTE THAT PROVIDES A DUTY,
6 LIKE PERHAPS TRUTH IN LENDING, OTHERWISE THERE’S NO
7 DUTY. THERE’S NO DUTY OF CARE, NO DUTY TO DISCLOSE,
8 THERE’S NO DUTY.
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9 AND THE SPECIAL CIRCUMSTANCES AREN’T THE
10 KIND OF CIRCUMSTANCES WHERE THERE’S AN ALLEGATION THAT
11 THE BANK IS ENGAGING IN SOME MASSIVE SCHEME FRAUDULENT
12 SCHEME. THE SPECIAL CIRCUMSTANCES ARE WHEN PERHAPS THE
13 LENDER IS PERHAPS AN INVESTOR IN A VENTURE FINANCED BY
14 THE LOAN; OR WHEN THE BANK IS A TRUSTEE OF SOME SORT OF
15 TRUST OF SOME SORT, WHERE THE TRUST IS THE BORROWER.
16 THOSE ARE CIRCUMSTANCES WHERE PERHAPS A
17 DUTY MAY ARISE. BUT IT’S BASED ON DIFFERENT
18 RELATIONSHIPS BETWEEN THE BANK AND THE BORROWER. IT’S
19 NOT THAT THERE’S SOME FRAUDULENT SCHEME OUT THERE THAT’S
20 BEING ALLEGED.
21 IN FACT, LI MANDRI WHICH IS CITED IN OUR
22 PAPERS, REPUDIATES THE CONCEPT THAT THERE’S A DUTY TO
23 DISCLOSE THAT YOUR ENGAGING IN SOME SORT OF FRAUDULENT
24 OR SCHEME OR WRONGFUL CONDUCT.
25 THE COURT: HELP ME OUT. IS LI MANDRI IN THE
26 REPLY BRIEF? I DON’T SEE IT.
27 MR. KLEIN: I BELIEVE IT’S IN BOTH. BUT I’LL GET
28 THE COURT THE CITE.
84
1 IT’S NOT IN THE DEMURRER, SO IT MUST BE IN
2 THE REPLY BRIEF.
3 THE COURT: IT’S IN THE REPLY. V. JUDKINS.
4 MR. KLEIN: RIGHT. PAGE 3.
5 SO LI MANDRI HOLDS THAT YOU DON’T HAVE A
6 DUTY TO — YOU HAVE A DUTY NOT TO ENGAGE IN WRONGFUL
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7 CONDUCT, ARGUABLY, OR THERE’S A TORT THAT’S THE CONCEPT
8 OF THE TORT NOT TO ENGAGE IN WRONGFUL CONDUCT. BUT THEN
9 YOU’VE GOT TO PLEAD THE WRONGFUL CONDUCT.
10 BUT THE FACT THAT THERE’S SOME SORT OF
11 CONCEALMENT OR DUTY TO DISCLOSE YOU’RE ENGAGING IN
12 WRONGFUL CONDUCT, THAT’S ANOTHER STORY AND THAT DOESN’T
13 EXIST HERE. THERE’S NO FACTS TO ESTABLISH THAT THERE’S
14 A DUTY — THERE’S NO LAW TO ESTABLISH THAT THERE’S A
15 DUTY TO DISCLOSE OR ENGAGING IN WRONGFUL CONDUCT. WE’RE
16 JUST — THAT’S A DIFFERENT KIND OF TORT.
17 THAT IS PARTICULARLY TROUBLESOME IN THE
18 CONTEXT OF WHAT THESE BORROWERS ARE SEEKING TO DO WITH
19 RESPECT TO THESE 64-PLUS NUMBER OF BORROWERS WHO DIDN’T
20 ORIGINATE THEIR LOANS WITH THE BANK.
21 THEY ARE ALLEGING, NOT ONLY FIRST IN A
22 STRAIGHTFORWARD RELATIONSHIP, WHERE THE BANK ORIGINATES
23 A MORTGAGE THERE’S NO DUTY. BUT NOW THESE BORROWERS
24 WANT TO TAKE THAT EVEN — TAKE IT EVEN FARTHER AND SAY:
25 NOT ONLY DO YOU HAVE A DUTY UNSUPPORTED BY LAW WITH
26 RESPECT TO BORROWERS WHO ORIGINATE LOANS WITH YOU, BUT
27 NOW YOU HAVE A DUTY TO ANY OTHER BORROWER OUT THERE WHO
28 ORIGINATES A LOAN TO DISCLOSE SOMETHING.
85
1 THE COURT: NO, THEY SAY WITHIN UNIVERSE OF PEOPLE
2 WHO TOOK A LOAN THROUGH A LARGER VERSION OF THE CIVIL
3 CONSPIRACY.
4 MR. KLEIN: AND WHAT TRIGGERED THAT DUTY? THERE’S
5 NOTHING THAT TRIGGERS THAT DUTY.
6 THE COURT: THE DUTY WOULD RISE AND FALL UNDER THE
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7 SAME STANDARD.
8 MR. KLEIN: RIGHT —
9 THE COURT: WITH OR WITHOUT A CIVIL CONSPIRACY.
10 MR. KLEIN: RIGHT. EVEN A CIVIL CONSPIRACY, A
11 CIVIL — A CO-CONSPIRATOR HAS TO HAVE A DUTY.
12 THE COURT: I AGREE.
13 MR. KLEIN: SO I DON’T KNOW HOW — THEY JUST
14 CAN’T GET PAST THIS ISSUE WITH RESPECT TO THE BORROWERS
15 THAT ORIGINATED BY OTHER BANKS. THEY CAN’T EVEN GET IT
16 PAST IT, FRANKLY, WITH RESPECT TO AS — THE COMPLAINT AS
17 CURRENTLY PLED WITH RESPECT TO THE BORROWERS WHO DID
18 ORIGINATE WITH THE BANK.
19 SO, THAT’S TROUBLING. IN A SENSE THAT WE
20 BELIEVE THAT THE LAW IS WELL-ESTABLISHED. THERE’S NO
21 DUTY BETWEEN A BORROWER AND LENDER. I DON’T WANT TO GO
22 ON ANYMORE THAN THAT. I THINK THE COURT HAS PROBABLY
23 HEARD ENOUGH ON THAT PARTICULAR ISSUE.
24 THE COURT: I’M GOING TO LOOK AT THE CASES BEFORE
25 I FINALIZE MY RULINGS, SO I WANT YOU TO BE A LITTLE MORE
26 SUCCINCT SO I HAVE TIME TO PULL THE CASES OFF THE SHELF.
27 MR. KLEIN: I APPRECIATE THAT. THE ONE ISSUE I
28 WANT TO CORRECT WITH RESPECT TO MABRY IS THAT THERE’S
86
1 JUST A FLAT-OUT MISSTATEMENT ABOUT WHAT MABRY PROVIDES.
2 I THINK IT’S VERY IMPORTANT TO CLEARLY
3 COMMUNICATE, AS SET FORTH IN OUR PAPERS, WHAT THE LAW IS
4 ON MABRY AND WHAT MABRY ALLOWS. AND I WILL QUOTE IT
5 REALLY QUICKLY SO WE’RE CLEAR. IT DOES NOT AUTHORIZE AN
6 INJUNCTION AS IS ALLEGED BY THE PLAINTIFFS HERE.
7 WHERE IS MABRY? MABRY SPECIFICALLY SAYS
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8 THAT:
9 THE RIGHT OF ACTION IS LIMITED TO
10 OBTAINING A POSTPONEMENT OF AN IMPENDING
11 FORECLOSURE TO PERMIT THE LENDER TO COMPLY
12 WITH 2923.5.
13
14 THAT’S NOT AN INJUNCTION, IT’S THE
15 POSTPONEMENT OF A TRUSTEE SALE AND THAT’S IT IS. SO,
16 THE SUGGESTION THAT SOMEHOW UNDER MABRY THEY ARE
17 ENTITLED TO INJUNCTION IS FLAT WRONG. AND I WANT TO
18 MAKE THAT CLEAR FOR THE COURT SO THERE’S NO ROOM FOR
19 CONFUSION.
20 LET ME MAKE SURE I COVERED THE LEGAL
21 ISSUES. THEN I WANT TO TALK ABOUT PEACEMAKING.
22 THE COURT: ONLY IF YOU WISH TO.
23 MR. KLEIN: NO, I’D LIKE TO ADDRESS IT BRIEFLY.
24 THE COURT: THE POINT BEING, I’M CURIOUS WHETHER
25 THERE IS AN INTEREST IN PEACEMAKING.
26 MR. KLEIN: WELL, YOUR HONOR, LET ME ADDRESS
27 PEACEMAKING FOR A MOMENT. AND I’LL LET MR. CEKIRGE
28 DOUBLE CHECK WHETHER I MISSED A LEGAL ISSUE.
87
1 MR. STEIN COMES HERE TODAY, EXPRESSING AN
2 INTEREST IN EXPLORING RESOLUTION. IT SOUNDS LIKE IT’S
3 LOAN MODIFICATION.
4 THE COURT: CORRECT. THAT’S TRUE.
5 MR. KLEIN: WE HAD OUR ARMS OPEN TO THAT FROM DAY
6 ONE. AND THAT ARM’S STILL REMAIN OPEN. THERE’S A LOAN
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7 MODIFICATION PROCESS THAT TAKES PLACE. YOU HAVE TO
8 QUALIFY AND DEMONSTRATE THAT YOU CAN PAY AND FUND YOUR
9 LOAN, OTHERWISE WE ARE GOING TO BE BACK IN CLAIMING
10 THERE ARE DUTIES TO FIGURE THAT OUT, TOO. SO THEY HAVE
11 GOT TO PARTICIPATE IN THE PROCESS.
12 THEY HAVE THE LOAN MODIFICATION
13 APPLICATIONS. WE HAVE PROVIDED THEM SEVERAL TIMES. WE
14 ONLY HAVE A CERTAIN NUMBER OF PEOPLE WHO HAVE COME
15 FORWARD. THERE ARE RECENTLY —
16 THE COURT: SOME HAVE COME FORWARD THOUGH.
17 MR. KLEIN: AND WE HAVE MODIFIED, IF I’M NOT
18 MISTAKEN IS IT 10, APPROXIMATELY 10 OF THE — ABOUT 34
19 BORROWERS WHO SUBMITTED LOAN MODIFICATION APPLICATIONS.
20 THE COURT: HAVE THEY AGREED TO DISMISS WITHOUT
21 PREJUDICE?
22 MR. KLEIN: WE HAVEN’T ASKED THEM TO, BUT THEY
23 HAVEN’T DONE SO. WE’VE JUST MODIFIED THE LOAN.
24 THE COURT: LET ME PAUSE.
25 MR. STEIN OR MISS JONES, IS IT TRUE THAT AT
26 LEAST 6 OR MORE OF THE PLAINTIFFS HAVE AT LEAST OBTAINED
27 A LOAN MODIFICATION SINCE THE FILING OF THE SUIT?
28 MR. STEIN: YOUR HONOR, THE COURT WOULD BE WELL
88
1 SERVED TO REVIEW THE LOAN MODIFICATION DOCUMENT. THESE
2 LOAN MODIFICATIONS IN THIS PROCESS, WHICH IS NOW BEING
3 INVESTIGATED BY 50 STATES ATTORNEY GENERAL, ARE TRIAL
4 MODIFICATIONS THAT ARE EITHER BINDING OR MOST OF THEM
5 ARE THEN, MONTHS LATER, THE RUG IS PULLED OUT FROM UNDER
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6 THE LOAN MODIFICATION.
7 WE’RE NOT INTERESTED IN LOAN MODIFICATIONS.
8 WE’RE — THESE CLIENTS ARE INTERESTED IN THE SETTLEMENT
9 AGREEMENT AND MUTUAL RELEASE, WHERE THEY WOULD NOT BE
10 ABLE TO COME BACK INTO COURT AND ALLEGE A DUTY, AS
11 MR. KLEIN SAID.
12 THEY ARE INTERESTED —
13 THE COURT: SO THEY WANT A LOAN MOD, PLUS MORE.
14 MR. STEIN: NO, THEY — NO, MR. KLEIN JUST
15 INDICATED THAT HE’S GIVEN A LOAN MODIFICATION, IF HE
16 SHOWED YOU THE CONTRACTS, THE COURT CAN READ THEM, AND
17 THOSE PEOPLE HAVEN’T DISMISSED THEIR LAWSUIT, BECAUSE
18 THEY HAVE A LAWSUITS FOR DAMAGES, ETCETERA.
19 I’M INDICATING THAT TO THE EXTENT THERE’S A
20 BINDING IRONCLAD CONTRACT OF SETTLEMENT, THAT IT IS A
21 LOAN MODIFICATION OR RESTRUCTURING OR SETTLEMENT
22 AGREEMENT, I DON’T KNOW HOW IT’S CHARACTERIZED, THESE
23 PEOPLE WOULD DISMISS THE COMPLAINT. SO THESE PEOPLE ARE
24 OFFERING MORE, BUT THE PROCESS THAT THE BANK HAS
25 INITIATED TO FOLLOW THAT PROCESS, WHEN SINCE — DURING
26 THIS CASE, DURING THIS COURT’S TENURE IN THE CASE, SINCE
27 OCTOBER 26TH, THERE’S BEEN 50 STATES ATTORNEY GENERAL
28 INVESTIGATING —
89
1 THE COURT: THAT’S A DIFFERENT ISSUE. YOU ARE
2 GOING ON AT GREATER LENGTH THAN I NEED. I DO WANT TO
3 HAVE A FEW MINUTES TO READ YOUR CASES.
4 BACK TO MR. KLEIN.
5 MR. KLEIN: THE ANSWER IS WE HAVE MODIFIED THEM.
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6 THERE IS NO TRIAL MODIFICATION. THE BORROWERS ARE
7 PERFORMING THERE’S BEEN NO DISMISSAL WITH RESPECT TO
8 THEM. IF THEY WANT TO DISMISS THE CASE, GREAT. IF THEY
9 WANT TO PURSUE THE CASE, GREAT. WE HAVE MODIFIED THE
10 LOAN WITHOUT CONDITION ON THAT ISSUE.
11 THE COURT: DO YOU HAVE THOUGHTS IN YOUR OWN MIND
12 YOU ARE PREPARED TO SHARE WITH THE COURT OF WHAT YOU SEE
13 HAPPENING NEXT, AS TO THOSE SPECIFIC PLAINTIFFS NOW
14 THAT THEY HAVE THE BENEFIT OF THE LOAN MOD?
15 DO YOU HOPE TO GO BACK AND SMOKE THE PEACE
16 PIPE WITH THEM LATER OR SEE IF FOR SOME MODEST AMOUNT OF
17 MONEY TO ESSENTIALLY OFFSET THE PRACTICAL EXPENSE OF
18 ATTORNEY’S FEES OR OTHERWISE THEY MIGHT THEN BE PREPARED
19 TO GO QUIETLY INTO THE NIGHT? OR YOU ANTICIPATE
20 SOMEBODY TO SET IT UP AS A KIND OF FACTUAL DEFENSE FOR A
21 CLAIM FOR DAMAGES AT A LATER TRIAL?
22 MR. KLEIN: YOUR HONOR, IF THESE PARTIES WANT TO
23 SIT DOWN AND TALK ABOUT — ANY OF THEM WANT TO SIT DOWN
24 TALK ABOUT SETTLEMENT, FOR A — WHAT YOU HAVE DESCRIBED
25 AS A MODEST AMOUNT, WHICH WE MAY HAVE OUR DIFFERENT
26 VERSIONS OF WHAT MODEST AMOUNTS MAY BE, BUT, I MEAN, SO
27 FAR, THE —
28 THE COURT: I THINK THEY BELIEVE THEY HAVE GOT A
90
1 TIGER BY THE TAIL. YOUR IDEA OF MODEST MAY NOT BE YOUR
2 IDEA OF MODEST.
3 MR. KLEIN: THERE’S A DISAGREEMENT. THEIR IDEA
4 OF MODEST MAY BE $150 MILLION 998 OFFER I GOT IN JUNE.
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5 THAT’S NOT MODEST BY ANY STRETCH, CERTAINLY — I MEAN,
6 ONE OF US COMMENTED UPON — I MAY BE CONFUSING, I THINK
7 IT WAS AT THE START, THAT’S WHAT JUDGE JONES INDICATED,
8 BUT THAT’S NOT AN AWARD WE’RE TALKING ABOUT. WE ARE NOT
9 EVEN IN THE — I CAN’T EVEN FIGURE OUT SOMETHING IN THE
10 UNIVERSE THAT WE’RE TALKING ABOUT HERE.
11 THE COURT: WHAT IS IT THAT MAKES YOUR LITIGATION
12 BUDGET TO JUSTIFY TO THE CLIENT?
13 MR. KLEIN: YOUR HONOR, THE BANK’S PRIORITY FROM
14 DAY ONE IN THIS CASE, HAS BEEN TO LOOK FOR WAYS TO KEEP
15 THESE BORROWERS IN THEIR HOMES, IF THERE’S AN
16 OPPORTUNITY. SO FAR 34 — THAT’S BARELY 10 PERCENT OF
17 THESE BORROWERS, HAVE SUBMITTED LOAN MODIFICATION
18 APPLICATIONS. SO IF THEY WANT TO SUBMIT LOAN
19 MODIFICATION APPLICATIONS LET’S TALK ABOUT IT. THAT’S
20 EASY. I HAVEN’T EVEN ASKED FOR A DISMISSAL ON THAT, I
21 WOULD THINK THERE WOULD BE INTEREST THERE.
22 THE COURT: YOU’VE ANSWERED MY QUESTION, SO UNLESS
23 THERE MR. CEKIRGE, AS YOUR AUXILIARY BRAIN OR HARD DRIVE
24 HAS SOMETHING TO ADD, I’D LIKE TO TAKE A MOMENT TO LOOK
25 AT THESE CASES.
26 MR. SPIVAK: YOUR HONOR —
27 THE COURT: NOT YET.
28 MR. KLEIN: I’M GETTING THE GREEN LIGHT FROM
91
1 MR. CEKIRGE, THAT I’VE DONE AN ADEQUATE JOB.
2 MR. CEKIRGE: THAT’S TRUE, YOUR HONOR.
3 THE COURT: MR. SPIVAK, I HEAR FROM YOU BRIEFLY.
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4 MR. SPIVAK: VERY BRIEFLY.
5 LI MANDRI SPECIFICALLY STATES THAT THE —
6 THIS LACK OF DUTY IS OTHER THAN IN CONNECTION WITH
7 ENTERING INTO A CONTRACT, UNDER 1572, WE’RE TALKING HERE
8 ABOUT THE EXCEPTION THAT MAKES ALL OF THEIR USE OF LI
9 MANDRI IRRELEVANT.
10 I’D ALSO LIKE TO COMMENT TO, YOUR HONOR, A
11 CASE THAT’S CITED BOTH IN SOME OF OUR BRIEFS AND IN
12 THEIR REPLY BRIEF, NYMARK V. HEART FEDERAL SAVINGS AND
13 LOAN ASSOCIATION 231 CAL.APP.3D 1089.
14 THEY CITE IT FOR THEIR PURPOSES, BUT REASON
15 I’M RAISING IT IS, IT MAKES CLEAR THAT THE BANK’S
16 IMMUNIZATION, IF ANY, IS LIMITED, IT USES THE RULE ABOUT
17 CONVENTIONAL RULE AS LENDER, AND LISTS ON PAGE 1098 A
18 FIVE POINT BALANCING TEST TO DETERMINE WHEN A BANK
19 SHOULD OR SHOULDN’T BE LIABLE TO A LENDER, SUGGESTING
20 THERE IS NOT SOME BLANKET IMMUNITY OR THERE WOULDN’T BE
21 A NEED FOR AFIVE POINT BALANCING TEST.
22 THE COURT: THANK YOU. COURT’S IN RECESS.
23 MR. SPIVAK: THANK YOU.
24
25 (THE FOLLOWING PROCEEDINGS RESUMED
26 IN OPEN COURT:)
27 THE COURT: BACK ON THE RECORD. AND HAVING
28 REVIEWED SOME OF THE CASES, HAVE DISCUSSED AT THE
92
1 ARGUMENT SUCH AS PRICE V. WELLS FARGO BANK, WHICH A
2 PETITIONERS APPEARS TO BE FAIRLY RUN-OF-THE-MILL CASE
3 DEALING WITH THE QUESTION OF WHETHER OR NOT THERE’S
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4 ESSENTIALLY LENDER LIABILITY FOR ENGAGING IN CREDITORS
5 RIGHTS, WITH A RESULTING ALLEGED DAMAGES TO THE
6 PLAINTIFF, WHICH IS NOT THE SAME FACT PATTERN AS ALLEGED
7 HERE. AND NYMARK, N-Y-M-A-R-K, V. HEART FEDERAL SAVINGS
8 AND LOAN, WHICH IS A MISAPPRAISAL CASE, BUT AGAIN
9 WITHOUT THE ALLEGATIONS THAT THE DEFENDANTS HAD TOTALLY
10 DISTORTED THE VALUATIONS AND REAL ESTATE MARKET THAT’S
11 DISTINGUISHABLE, ALTHOUGH CERTAINLY CITABLE BY THE
12 DEFENDANT, AND IF A WRIT IS SOUGHT AS RELEVANT AS PERLAS
13 IN RAISING THE MORE GENERAL QUESTION OF THE EXTENT TO
14 WHICH THE COMMON LAW DOES WISH TO VISIT THE RISK OF THIS
15 KIND OF LIABILITY ON SOMEBODY IN THE CIRCUMSTANCES OF
16 COUNTRYWIDE OR NOW ITS NEW OWNER BANK OF AMERICA.
17 AND, FINALLY, THE LI MANDRI V. JUDKINS
18 CASE, L-I, CAP, M-A-N-D-R-I, V. J-U-D-K-I-N-S, INVOLVING
19 RATHER DIFFERENT CIRCUMSTANCE WHERE THE DEFENDANT THERE
20 WAS ACTUALLY COUNSEL FOR THE CREDITOR. I DON’T FIND ANY
21 OF THEM SO CLEARLY ON POINT AS TO REFUTE THE GENERAL
22 APPLICATION OF THE COMMON LAW WHERE I THINK THE
23 PLAINTIFF’S ARGUMENT CONTINUES TO BE PLAUSIBLE AND
24 THEREFORE I DON’T CHANGE MY TENTATIVE, IN PARTICULAR, AS
25 TO THE FIRST CAUSE OF ACTION.
26 SO, TO RECAP, I’M ASKING DEFENDANT HOPING
27 THAT MR. CEKIRGE OR MR. SHAW WILL BE AN APPROPRIATE
28 SCRIVENER, WITH NO DISRESPECT MEANT TO PLAINTIFF’S
93
1 COUNSEL, BUT I’M GOING TO STILL HAVE DEFENDANT GIVE
2 NOTICE, ALTHOUGH THIS IS IN THE GRAND SCHEME OF THINGS A
3 RULING PROBABLY MORE FAVORABLE TO PLAINTIFFS.
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4 IF PLAINTIFFS WANT TO PREPARE ANY ORDERS
5 FOLLOWING HEREAFTER, I’LL ENTERTAIN THE REQUEST, BECAUSE
6 I THINK THERE OUGHT TO BE A WRITTEN ORDER AS TO THE
7 FIRST CAUSE OF ACTION, INCLUDING A LANGUAGE THEREIN
8 UNDER CCP 166.1, WHICH IS WHAT RINGS THE BELL FOR THE
9 COURT OF APPEALS THAT IT’S WORTH THEIR NEAR TERM
10 ATTENTION.
11 SO, DEMURRER OF BANK OF AMERICA, OVERRULED
12 AS TO FIRST CAUSE OF ACTION, THOUGH THE COURT
13 ANTICIPATES THAT PLAINTIFF’S COUNSEL WILL BE MINDFUL OF
14 THEIR ETHICAL OBLIGATIONS UNDER CCP 128.7 IN REGARDS AS
15 TO ANY BORROWERS WHO REALLY DON’T HAVE CONTACT WITH
16 COUNTRYWIDE OR ANYBODY BELIEVED TO BE A CO-CONSPIRATOR
17 WITH COUNTRYWIDE AT THE TIME THE LOAN WAS ORIGINATED.
18 AND I TRUST YOU’LL BE IN DUE COURSE
19 DISMISSING SUCH PARTIES WITHOUT PREJUDICE, MR. SPIVAK,
20 AND COMPANY. THIS ALL APPLIES, OF COURSE, TO ITEM
21 NUMBER 2-A ON THE DOCKET, THE JOINDER, WHICH I GUESS IS
22 THE ANSWER TO THE QUESTION.
23 I MISSED THE FACT IT WAS A JOINDER, BUT I
24 GUESS THAT’S HOW RECON AND C.T.C. DID COME BEFORE THE
25 COURT. SO MAYBE WE DON’T NEED A MOTION TO STRIKE THEIR
26 DECLARATION OF NON-MONETARY STATUS, BECAUSE THEY HAVE
27 BROUGHT FORWARD AN APPEARANCE MORE PLENARY IN NATURE.
28 SO YOU CAN DISREGARD MY EARLIER COMMENTS
94
1 FROM THIS MORNING ABOUT THE POSSIBLE NEED TO MOVE TO
2 STRIKE IT, BECAUSE ESSENTIALLY WHEN YOU GET A RESPONSIVE
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3 PLEADING FROM BANK OF AMERICA AND COUNTRYWIDE AND
4 COUNTRYWIDE HOME LOANS, THE SAME THING WILL APPLY WITH
5 EQUAL FORCE TO THE NEED TO GET A FURTHER RESPONSIVE
6 PLEADING FROM RECONTRUST N.A. FROM C.T.C. REAL ESTATE
7 SERVICES, ALTHOUGH WE HAVE AMENDMENT COMING FROM
8 PLAINTIFFS, AMENDING BY PLAINTIFFS IS GOING TO PRECEDE
9 THE RESPONDING BY THE DEFENDANTS.
10 SO, FIRST CAUSE OF ACTION OVERRULED.
11 SECOND CAUSE OF ACTION, THIRD CAUSE OF
12 ACTION SUSTAINED WITH LEAVE TO AMEND.
13 HOW MUCH TIME DO PLAINTIFFS WANT?
14 MR. SPIVAK: 60 DAYS, YOUR HONOR.
15 THE COURT: YOU HAVE A CHORE AHEAD OF YOU, I SEE
16 THE LOGIC OF THAT. NO QUARREL.
17 MR. SPIVAK: THANK YOU, YOUR HONOR.
18 THE COURT: 60 DAYS FROM TODAY’S CALENDAR DATE,
19 WHICH IS MARCH 11.
20 MR. SPIVAK: THANK YOU, YOUR HONOR.
21 THE COURT: FOURTH CAUSE OF ACTION, OVERRULED;
22 FIFTH CAUSE OF ACTION SUSTAINED WITHOUT LEAVE TO AMEND.
23 SIXTH CAUSE OF ACTION OVER PLAINTIFF’S
24 OBJECTION, SUSTAINED WITHOUT LEAVE TO AMEND, BUT WITHOUT
25 PREJUDICE TO A FUTURE CLAIM IF A NEW CAUSE OF ACTION
26 ACCRUES FOR PLAINTIFFS, PAUL RONALD; LISA RONALD;
27 PRICILLA BOWIN; TRACEY HAMPTON-STEIN AND RENE MINNAAR,
28 OTHERWISE OVERRULED.
95
1 FIFTH CAUSE OF ACTION I THINK — I ALREADY
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2 SAID, SUSTAINED WITHOUT LEAVE TO AMEND.
3 7TH AND 8TH CAUSE OF ACTION, OVERRULED.
4 MOTION TO STRIKE DENIED, ALL THIS IS
5 WITHOUT PREJUDICE TO RENEWING MANY OF THE ARGUMENTS MADE
6 AS TO THE DEMURRER AND MOTION TO STRIKE IN THE CONTEXT
7 OF FUTURE CHALLENGES TO THE MERITS OF THE CLAIM, SUCH AS
8 A MOTION FOR SUMMARY ADJUDICATION OR SUCHLIKE.
9 I WOULD — DO PLAINTIFFS WANT TO PREPARE
10 THE ORDER AS TO THE FIRST CAUSE OF ACTION OR DEFER TO
11 YOUR ADVERSARIES TO START, FROM WHICH THEY WISH TO TAKE
12 THE WRIT?
13 MR. SPIVAK: WELL, PREPARE THE ORDER, YOUR HONOR.
14 THE COURT: OKAY. BUT THEN YOU ARE DIRECTED TO
15 MEET AND CONFER WITH THE DEFENDANTS TO PREPARE AN
16 APPROPRIATE ORDER SPECIFIC TO THE FIRST CAUSE OF ACTION,
17 REFLECTING THE FACT THAT THE COURT HAS OVERRULED THE
18 DEMURRER, BUT CERTIFIED THE QUESTION FOR THE COURT OF
19 APPEALS, BECAUSE I THINK BASED ON AUTHORITIES SUCH AS
20 PERLAS AND NYMARK, THAT REASONABLE MINDS CAN DIFFER AS
21 TO WHETHER OR NOT THE DUTY DOES EXIST, EVEN BASED ON
22 PLEADINGS OF THE PLAINTIFF AND THE ATTEMPT TO TETHER IT
23 TO NORMAL COMMON LAW PRINCIPLES.
24 THERE ARE SOCIOECONOMIC AND JURISPRUDENTIAL
25 REASONS WHY ONE MAY NOT WANT TO SADDLE A BANK FOR THIS
26 DUTY. AND I THINK IT’S A FAIR QUESTION FOR OUR COURT OF
27 APPEALS TO ADDRESS SOONER, RATHER THAN LATER SO I
28 BELIEVE REASONABLE MINDS CAN DIFFER AND IT’S HUGELY
96
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1 IMPORTANT TO THE OUTCOME OF THE CASE.
2 MR. KLEIN: QUICKLY, YOUR HONOR, I THINK THAT
3 FROM MY UNDERSTANDING FROM THE COURT WAS ALSO CERTIFYING
4 WITH RESPECT TO CAUSATION IN THE CLAIM AND CAUSATION ON
5 THE U.C.L. CLAIM.
6 THE COURT: I’M ONLY INTERESTED IN THE CONCEALMENT
7 CLAIM, AND AS TO THAT I’M HAPPY TO HAVE YOU ARGUE ANY
8 REASON WHY YOU SHOULD HAVE HAD YOUR DEMURRER SUSTAINED
9 WITHOUT LEAVE TO AMEND.
10 AND IF YOU THINK CAUSATION IS A PERSUASIVE
11 ARGUMENT, FINE. I’M NOT AT THIS MOMENT CERTIFYING AS TO
12 THE U.C.L. CLAIM. I’M ONLY CERTIFYING AS TO THE FIRST
13 CAUSE OF ACTION.
14 MR. KLEIN: UNDERSTOOD.
15 THE COURT: THE U.C.L. CLAIM IS A TOTAL QUAGMIRE
16 LIKE A LAND WAR IN ASIA. AND IT IS NOT SUITABLE FOR
17 QUICK ATTENTION BY THE COURT OF APPEALS. BETTER IF YOU
18 HOPE TO GET THEM TO EVEN FOCUS ON THIS, TO GIVE THEM A
19 CLEAN PROJECT AND NOT SADDLE THEM WITH THAT.
20 IT IS LIKE A — THIS WHOLE CASE IS LIKE A
21 LAND WAR IN ASIA, AT LEAST FROM MY POINT OF VIEW.
22 SO, DEFENDANT’S GOING TO GIVE NOTICE OF
23 RULING; THE PLAINTIFF, HOWEVER, IS TO PREPARE THE ORDER
24 AS TO THE FIRST CAUSE OF ACTION AND THE CERTIFICATION.
25 IF YOU CAN’T REACH YOUR ADVERSARIES’ CONSENT AS TO THE
26 FORM OF THE ORDER, LODGE YOUR PROPOSED ORDER WITH PROOF
27 OF SERVICE BY NEXT TUESDAY, JANUARY 18. AND IF THERE’S
28 OBJECTION, PLAINTIFF CAN COME FORWARD WITH ITS OBJECTION
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97
1 AND ITS ALTERNATIVE PROPOSED ORDER.
2 I’M FRANKLY NOT PROPOSING THAT IT BE A
3 LONG, EXTENDED, WINDY OPINION ABOUT THE MERITS AS MUCH
4 AS THE STATEMENT THAT “THIS IS THE RULING AND DESERVES
5 ATTENTION INGS BY THE COURT OF APPEAL.”
6 BUT IF PLAINTIFFS WANT TO GET MORE
7 CREATIVE, THE MORE CREATIVE YOU GET THE MORE OBJECTING
8 YOU ARE GOING TO GET.
9 MR. KLEIN: YOUR HONOR, WE WILL PAY FOR EXPEDITED
10 TRANSCRIPT AND PROVIDE IT TO COUNSEL FOR THE PLAINTIFFS.
11 IF WE CAN DO THAT WITHIN 48 HOURS IT WOULD HELP PARTIES.
12 THE COURT: I’M NOT GOING TO ORDER MISS LARA AS TO
13 WHEN IT’S READY, BUT I’M SURE SHE’LL BE HAPPY TO
14 COOPERATE WITH YOU TO THE EXTENT POSSIBLE.
15 MR. KLEIN: SHE ALWAYS DOES.
16 THE COURT: ANY PRIOR STAYS ON DISCOVERY ARE
17 LIFTED, OBVIOUSLY, THE DEFENDANT’S TIME TO RESPOND,
18 INCLUDING RECONTRUST AND C.T.C. IS GOING TO BE THE DAY
19 AFTER THE AMENDED PLEADING COMES FORWARD AND FOR THE
20 VERY REASON THAT THIS IS AN THORNY PLEADING, I WILL GIVE
21 THE APPEARING DEFENDANTS UNTIL — IT’S GOING TO BE SIX
22 WEEKS, APRIL 22, IN WHICH TO ANSWER OR OTHERWISE RESPOND
23 TO THE NEW PLEADING.
24 I DON’T THINK THIS CASE IS GOING TO GO
25 EASILY. I WISH OTHERWISE, AND I HOPE I WILL SEE AT
26 LEAST PROFESSIONALISM AND COOPERATION AMONGST COUNSEL,
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27 RECOGNIZING THAT YOU DON’T GAIN EITHER SIDE ANYTHING BY
28 JUST BEING CANTANKEROUS FOR THE SAKE OF SHOWING YOU’VE
98
1 GOT MUSCLE.
2 BUT I DO THINK I WILL PROBABLY NEED TO GIVE
3 YOU MORE, RATHER THAN LESS ATTENTION. SO, CAN IT WAIT
4 UNTIL LIKE THE LAST WEEK OF JANUARY FOR THE NEXT TIME WE
5 CHECK IN WITH EACH OTHER? AND I’M HAPPY TO HAVE PHONE
6 APPEARANCES SO THOSE OF YOU WHO COME FROM THE DISTANCE
7 DON’T FEEL A NEED TO TRAVEL. OR DO I NEED TO SEE YOU
8 EVEN SOONER?
9 MR. KLEIN: I THINK, PROBABLY, YOUR HONOR, IF I
10 DID MY MATH CORRECTLY, HIGHLY UNLIKELY THAT I HAVE, BUT
11 IF THE 11TH, THE 18TH, THE COURT WERE TO ENTER AN ORDER
12 BY THE 20TH OR 21ST, I CERTAINLY DON’T WANT TO PUT UNDUE
13 BURDEN ON THE COURT. IT LOOKS LIKE IT’S THE END OF
14 JANUARY OR THE END OF THE FIRST WEEK OF FEBRUARY, MAY BE
15 THE BEST TIME FOR THAT, AFTER WE HAVE GOT THE ORDER
16 ENTERED.
17 THE COURT: WHEN YOU SAY YOU HAVE THE ORDER, YOU
18 ARE THEN TO TAKE A WRIT. I UNDERSTAND YOU WANT THE
19 ORDER FIRST AND THAT’S WHEN HOPEFULLY YOU’LL HAVE THE
20 DRAFT AND CAN MOVE AHEAD, BUT UNTIL YOU HAVE AN ORDER
21 FROM WHICH TO TAKE A WRIT, IT’S UNREASONABLE TO EXPECT
22 YOU TO PUT SOMETHING IN THE COURT OF APPEALS INBOX.
23 MR. KLEIN: WHICH IS EXACTLY THE TIME —
24 THE COURT: THEY ARE AMENABLE BY THE WAY OF
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25 PUTTING ON THE FIRST PAGE OF THE RED CAPTION PAGE THE
26 FACT THAT THE COURT HAS CERTIFIED IT, TO TRY CAPTURE
27 THEIR ATTENTION. AND I SAY THAT TO BOTH SIDES, ANY TIME
28 YOU WANT TO TAKE A WRIT, IF YOU HAVE IT CERTIFIED YOU
99
1 MIGHT AS WELL MAKE IT AS PLAIN AS THE NOSE ON YOUR FACE,
2 HOPING THAT SOME WRIT ATTORNEY WILL GO PAY A LITTLE MORE
3 ATTENTION TO YOUR PAPERWORK, RATHER THAN HAVING IT
4 BURIED. WE HAVEN’T HAD AS MUCH SUCCESS IN GETTING THEM
5 TO PAY ATTENTION TO CERTIFIED WRITS AS WE’D LIKE,
6 FRANKLY.
7 HOW ABOUT A FURTHER STATUS CONFERENCE ON
8 THURSDAY, FEBRUARY 3 AT 1:30 P.M.?
9 MR. SPIVAK: FINE, YOUR HONOR.
10 MR. KLEIN: LET ME TURN ON MY PHONE, I THINK IT
11 SHOULD BE FINE. LOOKS GREAT TO ME, YOUR HONOR.
12 THE COURT: OKAY. AND I’D LIKE EACH SIDE TO GIVE
13 ME FURTHER STATUS REPORT OF WHAT YOU THINK I NEED TO
14 KNOW. DON’T FEEL YOU’VE GOT TO RECAP ALL OF THE MERITS
15 OF THE CLAIMS, JUST TELL ME WHAT’S NEW AND DIFFERENT
16 THAT I WOULDN’T HAVE KNOWN BY MONDAY, JANUARY 31.
17 MR. KLEIN: YOUR HONOR, ONE POINT, I THINK
18 FEBRUARY 4TH IS THE DATE THAT THE PLAINTIFFS WOULD BE
19 FILING THEIR MOTION FOR PRELIMINARY INJUNCTION.
20 THE COURT: COULD BE. I FORGET.
21 MR. KLEIN: MY ONLY POINT RAISING THAT IS IT MAY
22 BE BENEFICIAL IN THE INTEREST OF DISCLOSURE IF THEY HAVE
23 AN OPPORTUNITY TO TELL US WHICH PLAINTIFFS ARE MOVING
24 BEFORE THE PRELIMINARY INJUNCTION, AT THIS TIME, SO WE
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25 CAN GATHER THOSE DOCUMENTS AND GET THEM TO THEM SOONER.
26 SINCE WE ARE GATHERING DOCUMENTS AND PRODUCING THEM, IF
27 THEY ARE ABLE TO IDENTIFY THOSE BORROWERS, IT WOULD HELP
28 US GATHER OUR DOCUMENTS AND NOT COME INTO COURT TO
100
1 COMPLAIN THAT WE DIDN’T HAVE ENOUGH TIME.
2 THE COURT: THAT’S A DIFFERENT QUESTION THAN
3 WHETHER OR NOT WE OUGHT TO HAVE A STATUS CONFERENCE
4 FEBRUARY 3. ARE YOU QUARRELING WITH THAT OR MAKING A
5 NEW REQUEST?
6 MR. KLEIN: I APOLOGIZE, YOUR HONOR. IT IS A
7 DIFFERENT ISSUE. YOU ARE CORRECT.
8 THE COURT: SO WE’LL STAY WITH FEBRUARY 3. I’D
9 LIKE A REPORT BY JANUARY 31.
10 IS IT FINE IF THE REPORT ON JANUARY 31
11 TELLS US WHO THEY EXPECT TO FILE FOR FOUR COURT DAYS
12 LATER?
13 MR. KLEIN: THE SOONER THE BETTER, BUT OBVIOUSLY
14 IF I CAN GET DOCUMENTS TO THEM PRIORITIZE DOCUMENTS
15 PRODUCTION SOONER, THAT WOULD BE BETTER, OTHERWISE, YOU
16 KNOW, THE MORE TIME I HAVE — I’M GATHERING UMPTEEN —
17 OVER 140,000 PAGES I’M LOOKING AT RIGHT NOW.
18 MR. STEIN: I THINK IT’S MORE THAN THAT.
19 THE COURT: I FORGET WHAT THE SOVIETS CALLED IT,
20 BUT YOU OBVIOUSLY WILL BE THE HERO WORKER FOR BRYAN CAVE
21 THIS YEAR.
22 MR. KLEIN: AGAIN, YOUR HONOR, THAT’S NOT
23 SOMETHING I ASPIRE FOR. PERHAPS THE OPPOSITE.
24 THE COURT: COMES WITH THE TERRITORY.
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25 IT SHOULD BE OBVIOUS THAT IT BEHOOVES
26 PLAINTIFFS TO SHARE THIS INFORMATION WHEN THEY CAN. I’M
27 NOT MAKING AN ORDER SPECIFIC TO IT.
28 IF YOU ARE GOING TO MOVE ON FEBRUARY 4TH
101
1 IT’S GOING TO BE OBVIOUS ENOUGH THEN WHO SEEKS A RELIEF.
2 BUT IF YOU’LL MAKE THE DISCLOSURES IN
3 ADVANCE, THEN DISCOVERY SHOULD GO MORE SMOOTHLY.
4 MR. STEIN: YOUR HONOR, EXTREMELY BRIEFLY. IN
5 VIEW OF THE CASE THAT WAS ISSUED TODAY, ALBEIT IN A
6 DISTANT STATE, PLAINTIFFS WILL HAVE TO EXAMINE THAT CASE
7 AND REEXAMINE IT, BECAUSE THAT CASE CRIES OUT FOR AND
8 OTHER CASES, SIMILAR CRIES OUT FOR INJUNCTIVE RELIEF
9 BECAUSE THE BANK MAY NOT HAVE STANDING TO FORECLOSE AS
10 THEY ARE — AS THEY HAVE SAID IN THEIR REPLY BRIEF THEY
11 ARE GOING TO DO SO —
12 THE COURT: THAT’S A POLITE WAY OF SAYING YOU MAY
13 MOVE AS TO ALL PLAINTIFFS.
14 MR. STEIN: OR WE MAY MOVE AS TO NONE OF THEM.
15 WE MAY PUSH BACK THE PRELIMINARY — WE HAVE TO EXAMINE
16 THE OPINION, THE OPINION WAS JUST ISSUED TODAY,
17 LITERALLY, LITERALLY, TODAY. I HAVEN’T READ IT.
18 THE COURT: DOES EITHER SIDE SUGGEST MY STATUS
19 CONFERENCE SHOULD BE SOONER THAN FEBRUARY 3, IN VIEW OF
20 ALL THIS? I WILL SEE YOU SOONER IF YOU THINK IT HELPS OR
21 ACTUALLY THAT MIGHT BE SOON ENOUGH.
22 MR. KLEIN: YOUR HONOR, I THINK MR. STEIN
23 ACTUALLY HAS A VERY BUSY CALENDAR, SO THERE’S NO
24 REASON — PARDON THE WORD “DRAG”, THERE’S NO REASON TO
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25 HAVE US ALL COME DOWN HERE DURING A HEAVY SCHEDULE.
26 THE COURT: IF ON FEBRUARY 3 YOU TELL ME
27 PLAINTIFFS DON’T INTEND TO FILE THE NEXT DAY, THEY ARE
28 NOT GOING TO BE IN CONTEMPT OF COURT. THEY ARE
102
1 PROTAGONISTS. IF THEY TELL ME THEY NEED MORE TIME, I
2 DON’T KNOW WHY I’D CHASTISE THEM FOR TAKING MORE TIME.
3 BUT I WOULD APPRECIATE KNOWING ON FEBRUARY 3 THAT
4 CALENDERING EVENTS HAVE CHANGED AND WE’LL TRY TO WORK
5 COOPERATIVELY.
6 MR. KLEIN: I DON’T THINK YOU’D HEAR COMPLAINT
7 FROM ME EITHER, YOUR HONOR.
8 THE COURT: MY PURPOSE ISN’T TO RULE FOR ONE SIDE
9 OR ANOTHER. I’M JUST HERE AS NEUTRAL TRYING TO BRING
10 FORWARD THE PEOPLE’S BUSINESS. I DO RECOGNIZE,
11 NOTWITHSTANDING SOME THE GENERAL COMMENTS I’VE MADE
12 ABOUT THE LARGER SOCIOECONOMIC IMPACTS OF SOME OF THESE
13 ISSUES THAT UNLESS AND UNTIL THE PARTIES ARE GIVEN AN
14 ALTERNATIVE MODE OF RESOLVING THEIR DISPUTES THAT THEY
15 FIND SATISFACTORY, WHICH FOR WHATEVER REASON LEGISLATIVE
16 BODY ATTEMPTS TO CRAM DOWN IF THEY THINK THEY CAN
17 CONSTITUTIONALLY DO SO, THAT MY PAID JOB IS TO PROVIDE
18 TRADITIONAL ADJUDICATIVE JUSTICE ON THE MERITS.
19 AND WHILE I EXPLORE AS CIVIL JUDGES ALWAYS
20 DO WHAT THE SETTLEMENT ALTERNATIVES ARE, INCLUDING IN
21 THE TRADITIONAL MODES WE USE HERE OR ALTERNATIVE
22 PROCESSES THAT MAY BE NASCENT, I EXPECT TO GIVE YOU
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23 TRADITIONAL COMMON LAW AND STATUTORY AN ADJUDICATIVE
24 PROCESSES TO CONSISTENT WITH THE CODE OF CIVIL PROCEDURE
25 AND OTHERWISE GET THE CASE RESOLVED IF THERE’S NO
26 COMPROMISE.
27 SO IT MAY BE A CHORE, BUT IF IT LOOKS LIKE
28 IT WILL BE AN INTERESTING CHORE FROM A NEUTRAL’S POINT
103
1 OF VIEW.
2 ALL COUNSEL: THANK YOU, YOUR HONOR.
3
4
5 (PROCEEDINGS CONCLUDED.)
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Introduction
![[NYSC] Judge Spinner “Plaintiff’s Papers Raises Disturbing Issues”, “Appears To Run Counter To New York’s Statute of Frauds” BENEFICIAL HOMEOWNER SERV. CORP v. STEELE](https://i0.wp.com/stores.livinglies-store.com/catalog/img_28491_thumb.jpg)
The Hedge 