Antitrust Law Daily Wrap Up, STATE UNFAIR TRADE PRACTICES—CalAppCt: Chase Could Be Held Liable for Washington Mutual’s Misrepresentations of a Construction Loan, (Feb 14, 2013)

By Jody Coultas, J.D.

JP Morgan Chase could be held liable under the California Unfair Competition Law (UCL) for actions undertaken by Washington Mutual Bank (WaMu) relating to a construction loan, according to a California appellate court (Jolley v. Chase Home Finance, LLC, February 11, 2013, Richman, J.).

The loan holder alleged that WaMu lost the loan documents, which held up construction financing for approximately eight months, made false representations about whether money prepaid for construction would be reimbursed to him, and that there were significant irregularities in the loan disbursements.

WaMu was closed by the Office of Thrift Supervision, and the FDIC was appointed receiver. Chase bought WaMu‘s assets through a purchase and assumption agreement. The loan holder argued that Chase was the successor in interest to WaMu and therefore was liable for any misrepresentation made by WaMu.

A trial court granted Chase’s request for judicial notice and granted summary judgment for both defendants. The loan holder appealed.

Summary judgment of the UCL claim was improper, according to the court. The UCL prohibits unlawful, unfair, and fraudulent practices. There is a split among California courts as to what constitutes an unfair practice. Courts have held that an unfair practice is one that offends established public policy, that is immoral, unethical, oppressive, unscrupulous, or substantially injurious to consumers, or that has an impact on the victim that outweighs defendant‘s reasons, justifications, and motives for the practice. Others have held that the public policy which is a predicate to a claim must be tethered to specific constitutional, statutory, or regulatory provisions. Dual tracking, a practice in which a lender continues to pursue foreclosure, even though the homeowner applied for a mortgage modification, has been alleged and supported by the loan holder’s declaration. While dual tracking might not have been forbidden by statute at the time, new legislation and its legislative history might contribute to its being considered “unfair” for purposes of the UCL. The court also found that the loan holder stated a claim under the fraudulent prong based misstatements made about the loan.

The case is No. A134019.

Attorneys: Vernon Bradley) for Scott Jolley. Patricia M. Kelly (Law Offices of Sohnen & Kelly) for Chase Home Finance, LLC.

Companies: JP Morgan Chase; Washington Mutual Bank

Cases: StateUnfairTradePractices CaliforniaNews