Antitrust Law Daily Wrap Up, STATE UNFAIR TRADE PRACTICES—C.D. Cal.: Homeowner’s UCL claims against lender may proceed, (Oct 8, 2014)

By Linda O’Brien, J.D., LL.M.

A homeowner adequately stated California Unfair Competition Law (UCL) and unjust enrichment claims against Countrywide Financial Corporation, LandSafe, Inc., and their affiliated entities for requiring worthless appraisals for mortgage refinancing, the federal district court in Los Angeles has decided. However, the homeowner failed to plead claims for racketeering, conspiracy to violate the RICO statute, and fraud with the requisite particularity. Those claims were dismissed without prejudice (Waldrup v. Countrywide Financial Corporation, October 6, 2014, Snyder, C.).

In 2004, Barbara Waldrup obtained a loan from Countrywide Financial to purchase a home. As part of this loan transaction, Countrywide required her to procure an appraisal of the property being purchased. Countrywide directed Waldrup to get that appraisal from LandSafe, which charged her $400. In 2007, Waldrup refinanced her home for a second time through Countrywide. Countrywide again required her to seek an appraisal from LandSafe. She paid $320 for the second appraisal.

Waldrup filed a putative class action suit against Countrywide, LandSafe, and their affiliates, alleging that the required two appraisals were worthless. Rather than supplying her with an accurate valuation of her property, LandSafe allegedly inflated the value of the property in order to ensure that the loans would be approved. Waldrup alleged that Countrywide developed an affiliation with LandSafe, which served as a captive appraiser that would deliver the inflated appraisals Countrywide needed to justify its loans. She asserted that LandSafe inflated the two appraisals it sold to her in 2004 and 2007 as part of a scheme to assist Countrywide in originating as many loans as possible. In April 2014, the defendants’ motion to dismiss the complaint was granted in part. A motion to dismiss the plaintiff’s first amended complaint was also granted in part. Waldrup filed a second amended complaint and the defendants again moved for dismissal.

UCL and unjust enrichment. The UCL prohibits any unlawful, unfair, or fraudulent business act or practice. The homeowner alleged that the defendants charged her fees of $320 and $400 for her appraisals, and that her payment of these fees unjustly enriched defendants because the appraisal she received was intentionally manipulated and inflated the value of her property. In rejecting the defendants’ argument that Waldrup received the benefit of her bargain by obtaining the required appraisals for which she paid, the court noted that, taking her allegations as true, Waldrup did not receive the benefit of her bargain, since she paid for an appraisal that would not contain an inflated, predetermined value. Therefore, dismissal of the plaintiff’s unjust enrichment claim was not warranted.

The defendants’ argument that Waldrup did not adequately allege unlawful, unfair, or fraudulent conduct sufficient to support a claim under the UCL was also rejected. The court noted that the plaintiff adequately alleged a claim for unjust enrichment. The claim for unjust enrichment, in turn, supplied a basis for a claim under the “unlawful” prong of the UCL. Thus, the court did not need to address whether plaintiff has sufficiently alleged a claim under the “unfair” or “fraudulent” prongs of the UCL.

Fraud claims. However, the plaintiff did not plead her fraud and RICO claims with sufficient particularity, as required by Fed. R. Civ. P. 9(b). The plaintiff asserted claims for fraud, violation of RICO, and conspiracy to violate RICO. The RICO claims were explicitly predicated on allegations of mail and wire fraud. According to the court, she did not identify the specific corporate individuals who made representations regarding the appraisals and the authority of those individuals to make such representations. Although the court acknowledged that some facts were exclusively with the opposing party’s knowledge, the plaintiff did not explain why the identities of the Countrywide employees and LandSafe appraisers who transmitted the appraisals to her were not within her personal knowledge.

The case is No. 2:13-cv-08833-CAS.

Attorneys: Daniel Alberstone (Baron and Budd PC) for Barbara Waldrup. Douglas A. Thompson (Bryan Cave LLP) for Countrywide Financial Corp., Countrywide Home Loans, Countrywide Bank, NA, Bank of America Corp., and LandSafe, Inc.

Companies: Countrywide Financial Corp.; Countrywide Home Loans; Countrywide Bank, NA; Bank of America Corp.; LandSafe, Inc.

Cases: RICO StateUnfairTradePractices CaliforniaNews