Gloria Stitt v. Citibank, N.A.

• Court: Court of Appeals for the Ninth Circuit
• Decided: August 28, 2018
• Docket: 16-17008
• Status: Unpublished

Opinion

NOT FOR PUBLICATION FILED UNITED STATES COURT OF APPEALS AUG 28 2018 MOLLY C. DWYER, CLERK U.S. COURT OF APPEALS FOR THE NINTH CIRCUIT

GLORIA STITT; et al., No. 16-17008

Plaintiffs-Appellants, D.C. No. 4:12-cv-03892-YGR

v. MEMORANDUM*

CITIBANK, N.A., a national association; CITIMORTGAGE, INC., a New York corporation,

Defendants-Appellees.

Appeal from the United States District Court for the Northern District of California Yvonne Gonzalez Rogers, District Judge, Presiding

Argued and Submitted May 18, 2018 San Francisco, California

Before: N.R. SMITH and FRIEDLAND, Circuit Judges, and LYNN,** Chief District Judge.

* This disposition is not appropriate for publication and is not precedent except as provided by Ninth Circuit Rule 36-3. ** The Honorable Barbara M. G. Lynn, Chief United States District Judge for the Northern District of Texas, sitting by designation. Appellants Gloria and Ronald Stitt and Mark and Terri Louise Zirlott appeal

from three district court orders, entered in a case where they were complaining

about post-default property inspections. On January 6, 2015, the district court

entered an Order Granting Defendants’ Motion to Dismiss Without Leave to

Amend. On October 5, 2016, the district court entered an Order Granting

Defendants’ Motion for Summary Judgment. The same day, the district court

entered an Order Denying Plaintiffs’ Motion for Order of Entitlement to Catalyst

Fee Award Under Cal. Code Civ. P. § 1021.5. We have jurisdiction under 28

U.S.C. § 1291 and affirm all three Orders.

I.

A dismissal of claims under Rule 12(b)(6) is reviewed de novo. Cervantes

v. United States, 330 F.3d 1186, 1187 (9th Cir. 2003).

The district court dismissed Appellants’ federal claims, under 18 U.S.C. §

1962(c) and (d) of the Racketeer Influenced and Corrupt Organizations Act

(RICO), because it determined that the First Amended Complaint failed to allege

the existence of an “enterprise.” A RICO enterprise is an “individual, partnership,

corporation, association, or other legal entity, and any union or group of

individuals associated in fact although not a legal entity.” Odom v. Microsoft

Corp., 486 F.3d 541, 548 (9th Cir. 2007) (en banc) (quoting 18 U.S.C. § 1961(4)).

To state the existence of an associated-in-fact enterprise, a plaintiff must allege

2 facts to establish three elements: (1) “a common purpose of engaging in a course of

conduct”; (2) “an ongoing organization, formal or informal”; and (3) “evidence

that the various associates function as a continuing unit.” Id. at 552.

Appellants argue that the district court erred when it held that Citibank, N.A.

and CitiMortgage, Inc. (collectively, “Citi”) did not form an enterprise with their

third-party property inspection vendor, Safeguard Real Estate Properties, LLC

(“Safeguard”). However, Appellants did not allege any facts showing that any

combination of these entities existed together as a single unit with a common

purpose. The First Amended Complaint alleges only that Citi instructed its vendor,

Safeguard, to perform property inspections upon request. The mere existence of

such a servicing contract between Citi and Safeguard does not establish a common

purpose under RICO. By failing to plead an enterprise, Appellants did not state a

plausible RICO claim under 18 U.S.C. § 1962(c) or (d). We therefore affirm the

district court’s Order dismissing the RICO counts.

II.

Upon dismissing Appellants’ RICO claims, the district court denied

Appellants’ request for leave to amend their pleading. Appellants appeal the

district court’s ruling.

A denial of a motion seeking leave to amend is reviewed for abuse of

discretion. DCD Programs, Ltd. v. Leighton, 833 F.2d 183, 186 (9th Cir. 1987).

3 Because Appellants’ request for leave to amend was untimely under the district

court’s case management order, Appellants were required to establish “good

cause” for their delay. Fed. R. Civ. P. 16(b)(4); Johnson v. Mammoth Recreations,

Inc., 975 F.2d 604, 607–08 (9th Cir. 1992). Appellants failed to present evidence

to the district court showing good cause. They also did not propose additional

factual allegations that would cure the pleading defects associated with their RICO

claims. Accordingly, the district court did not abuse its discretion in denying

Appellants’ request for leave to amend.

III.

Appellants contend the district court erred by granting summary judgment

on their remaining claims—for fraudulent misrepresentation and unjust

enrichment.1 A district court’s grant of summary judgment is reviewed de novo.

Oswalt v. Resolute Indus., Inc., 642 F.3d 856, 859 (9th Cir. 2011).

The parties agree that New York law governs the Stitts’ fraud claim and

Alabama law governs the Zirlotts’ fraud claims. Under both states’ laws, a

plaintiff may establish fraud by showing: (1) a material misrepresentation, (2)

which defendants knew to be false, (3) made to induce the plaintiff’s reliance, (4)

justifiable reliance, and (5) injury. See Mandarin Trading Ltd. v. Wildenstein, 944

1 Appellants previously pursued, but have since dropped, fraudulent concealment claims.

4 N.E.2d 1104, 1108 (N.Y. 2011); Ex parte Ledford, 761 So. 2d 990, 993 (Ala.

2000). Appellants’ first fraud theory is that Citi charged borrowers for property

inspections that Citi knew did not occur and for which there should have been no

charge. In response, Citi cited evidence that Citi only charged Appellants for

property inspection fees if Safeguard charged Citi for the same inspections.

Appellants did not rebut this evidence.

Appellants next argue that Citi fraudulently invoiced Appellants for

inspections it knew, under the terms of the mortgage instruments, were not

“reasonable or appropriate.” In effect, Appellants contend that Citi misrepresented

that it was contractually authorized to pass along property inspection fees under the

terms of the respective mortgages. The district court rejected this same argument

by Appellants on the basis that fraud generally cannot be predicated on

misrepresentations as to matters of opinion or law. The district court’s conclusion

is consistent with New York and Alabama law. See Randolph Cty. v. Ala. Power

Co., 784 F.2d 1067, 1070 (11th Cir. 1986), as amended on denial of reh’g, 798

F.2d 425 (11th Cir. 1986); Koagel v. Ryan Homes, Inc., 562 N.Y.S.2d 312, 313

(App. Div. 1990) (mem.); see also Miller v. Yokohama Tire Corp., 358 F.3d 616,

621 (9th Cir. 2004). Appellants do not show that any exception to this general rule

should apply. Nor do Appellants identify any express or implicit

5 misrepresentations by Citi that are actionable. We therefore conclude that the

district court properly dismissed Appellants’ fraud claims on summary judgment.

Additionally, Appellants contend that the district court erred by granting

summary judgment on Appellants’ unjust enrichment claim. Under New York and

Alabama law, the basis for an unjust enrichment claim is that the defendant

obtained a benefit that in “equity and good conscience” belongs to the plaintiff.

See Mandarin Trading, 944 N.E.2d at 1110 (quoting Paramount Film Distrib.

Corp. v. State, 285 N.E.2d 695, 698 (N.Y. 1972)); Flying J Fish Farm v. Peoples

Bank of Greensboro, 12 So. 3d 1185, 1193 (Ala. 2008). An unjust enrichment

claim is rooted in the principle that a person should not be able to enrich himself

unjustly at the expense of another. Georgia Malone & Co. v. Rieder, 973 N.E.2d

743, 746 (N.Y. 2012); Flying J, 12 So. 3d at 1193. But “an unjust enrichment

claim is not available [when] it simply duplicates a conventional [breach of

contract] or tort claim.” Corsello v. Verizon N.Y., Inc., 967 N.E.2d 1177, 1185

(N.Y. 2012); see also Pearson’s Pharmacy, Inc. v. Express Scripts, Inc., 505 F.

Supp. 2d 1272, 1278 (M.D. Ala. 2007) (citing Am. Family Care, Inc. v. Irwin, 571

So. 2d 1053, 1061 (Ala. 1990)).

Here, Appellants alleged that Citi was unjustly enriched by defrauding

Appellants into paying contractual fees that were not due and owing. This claim is

precluded because Appellants have an adequate remedy at law to contest these fees

6 under contract law. The unjust enrichment claim is also duplicative of Appellants’

fraud claims. Because the district court found that there is no evidence of fraud,

Appellants’ unjust enrichment claim based on fraud also fails.

IV.

The district court’s denial of a motion for attorney’s fees is reviewed for

abuse of discretion. Carnes v. Zamani, 488 F.3d 1057, 1059 (9th Cir. 2007).

Section 1021.5 of the California Code of Civil Procedure provides for an

award of catalyst fees to successful plaintiffs.2 To recover, plaintiffs must show:

“(1) the lawsuit was a catalyst motivating the defendants to provide the primary

relief sought; (2) that the lawsuit had merit and achieved its catalytic effect by

threat of victory, not by dint of nuisance and threat of expense . . . ; and, (3) that

the plaintiffs reasonably attempted to settle the litigation prior to filing the

lawsuit.” Tipton-Whittingham v. City of Los Angeles, 101 P.3d 174, 177 (Cal.

2004). To have a catalytic effect, the lawsuit must be a “substantial causal factor”

contributing to the defendant’s change in conduct. Graham v. DaimlerChrysler

Corp., 101 P.3d 140, 156 (Cal. 2004).

A court may infer causation when a change in the defendant’s conduct

occurs after the filing of the lawsuit. Hogar v. Cmty. Dev. Comm’n of Escondido,

2 We assume for the purposes of this discussion that catalyst fees could be available under California law even when non-California plaintiffs bring non- California claims.

7 69 Cal. Rptr. 3d 250, 257 (Ct. App. 2007). To determine whether such an

inference should arise, courts look to “(a) the situation immediately prior to the

commencement of suit, and (b) the situation today, and the role, if any, played by

the litigation in effecting any changes between the two.” Id. (quoting Folsom v.

Butte Cty. Ass’n of Gov’ts, 652 P.2d 437, 449 n.31 (Cal. 1982)). If a plaintiff

raises an inference of causation, the burden shifts to the defendant to offer rebuttal

evidence. Californians for Responsible Toxics Mgmt. v. Kizer, 259 Cal. Rptr. 599,

603 (Ct. App. 1989).

The district court determined that two issues precluded Appellants from

recovering catalyst fees. First, California law does not allow for an award of

catalyst fees unless the precise condition that the plaintiff sought to remedy by its

lawsuit is changed. See Graham, 101 P.3d at 155. Here, Appellants argue they

caused Citi, in mid-2013, to reform its policy of automatically ordering property

inspections and invoicing borrowers in default for the cost. The district court was

unconvinced by this contention, because Appellants were largely arguing in mid-

2013 that they sought to remedy Citi’s alleged overcharges for inspections—not

the frequency of inspections. By the time Appellants filed their First Amended

Complaint to focus instead on Citi’s previous automated-property-inspection

policies, Citi had already reformed those policies.

8 Second, the district court determined that Citi reformed its inspection

policies for reasons unrelated to this lawsuit. On April 4, 2012, another federal

district court entered a consent judgment against Citi, under the National Mortgage

Settlement (“NMS”). The NMS required Citi to reform its servicing standards to

limit the frequency and circumstances under which it would charge delinquent

borrowers for property inspections and other third-party fees. The NMS also

required Citi to pay a penalty of more than $400 million for its prior actions. The

instant lawsuit was filed after the NMS was entered. The district court therefore

reasonably concluded that the NMS, rather than this lawsuit, caused Citi to amend

its policies for ordering property inspections.

The district court did not abuse its discretion in denying Appellants’ request

for catalyst fees.

AFFIRMED.