Select Portfolio Servicing v. Valentino

875 F. Supp. 2d 975, 2012 WL 2343754, 2012 U.S. Dist. LEXIS 85607
CourtDistrict Court, N.D. California
DecidedJune 20, 2012
DocketNo. C 12-0334 SI
StatusPublished
Cited by2 cases

This text of 875 F. Supp. 2d 975 (Select Portfolio Servicing v. Valentino) is published on Counsel Stack Legal Research, covering District Court, N.D. California primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Select Portfolio Servicing v. Valentino, 875 F. Supp. 2d 975, 2012 WL 2343754, 2012 U.S. Dist. LEXIS 85607 (N.D. Cal. 2012).

Opinion

[979]*979ORDER DENYING CHU, CORPORATE COUNSEL LAW GROUP and VALENTINO’S MOTION TO DISMISS; GRANTING NESBITT AND NESZAHO’S MOTION TO DISMISS WITH LEAVE TO AMEND

SUSAN ILLSTON, District Judge.

This lawsuit is brought by loan servicing company Select Portfolio Servicing, Inc. (“SPS”) and U.S. Bank National Association (“U.S. Bank”) against the owners and several other affiliated parties of a residential property. Defendants Neszhao Consulting Co. (“Neszhao”) and Kevin Nesbitt (“Nesbitt”), the prospective short sale purchasers of the property (the “Buyer Defendants”), have filed a motion to dismiss pursuant to Fed.R.Civ.P. 12(b)(6). Defendants John Chu (“Chu”) and Corporate Counsel Law Group LLP (“CCLG”) have filed a separate motion to dismiss pursuant to Rule 12(b)(6) and a special motion to strike the Complaint pursuant to Cal. Code of Civ. P. § 425.16. Defendant Abraham Valentino (“Valentino”), the homeowner, has joined in the Attorney Defendants’ motion to dismiss. A hearing is set for both motions on June 22, 2012. Pursuant to Civil Local Rule 7 — 1(b), the Court finds these matters appropriate for resolution without oral argument and hereby VACATES the hearing. After consideration of the moving papers and arguments presented, the Court GRANTS defendants Neszhao and Nesbitt’s 12(b)(6) motion to dismiss WITH LEAVE TO AMEND and DENIES Defendants Chu and CCLG’s motion to dismiss pursuant to Rule 12(b)(6) and special motion to strike.

BACKGROUND

This case concerns allegations of fraud in a short sale of a home in Tiburón, California. Defendant Abraham Valentino was the owner of the home during all times relevant to this action. Codefendant John Chu was Valentino’s attorney in a California state court action where Valentino sought to prevent foreclosure on his home. Co-defendant CCLG is Chu’s law firm. Co-defendants Neszhao and Nesbitt (collectively, “Buyer Defendants”) were the prospective buyers of the home in the short sale at issue in this dispute.

In 2006, defendant Valentino purchased a home in Tiburón, CA, which was facilitated by a loan from CMG Mortgage Services, Inc. (not a party to this action) in the amount of $5.1 million. FAC ¶ 15. The loan is secured by a Deed of Trust on the property. Id. Plaintiff U.S. Bank, as trustee, is the current beneficiary under the Deed of Trust. Id. at ¶ 16. Plaintiff SPS is the current servicer of this loan.1 Id. at ¶ 17.

In January 2009, a Notice of Default was recorded in the Office of the Recorder of Marin County, California, beginning non-judicial foreclosure proceedings. Id. at ¶ 18. On May 14, 2009, Valentino, through his lawyers, defendants Chu and CCLG (collectively, “Attorney Defendants”), commenced a civil action (the “Foreclosure Action”) against Quality Loan Service Corporation (“QLSC”) and others to challenge the legality of the foreclosure.2 Specifically, Valentino alleged that defendants’ Notice of Default was illegally recorded for failure to comply with Civil Code § 2928.5. To resolve the Foreclosure Action, plaintiff SPS, the current [980]*980servicer of the loan, and U.S. Bank, the current trustee, entered into a settlement agreement (the “Settlement Agreement”) with Valentino. Id. at ¶ 20. The Settlement Agreement expressly states that it is effective on September 12, 2011.3 Id.) Chu Aff., Ex. IB. In the Settlement Agreement, SPS and U.S. Bank agreed to halt foreclosure proceedings until June 1, 2012 to allow Valentino seven months to complete a short, sale of the property. FAC ¶¶ 21-22. During that seven-month period, Valentino agreed to make monthly payments of $12,000 to SPS to begin on November 1, 2012. Id. at ¶ 21. Per the Settlement Agreement, SPS has sole discretion to accept or deny any proposed short sale of the property, and if Valentino failed to make timely payments, plaintiffs could immediately foreclose on the property. Id. at ¶¶ 22-23. The Settlement Agreement also states that each party shall bear its own costs and attorney’s fees. Id. at ¶ 24.

On October 4, 2011, Attorney Defendants presented SPS a proposed short sale of the property for $5,990,000 with Buyer Defendants as the prospective buyers. Id. at ¶ 26. Brian Gunn, counsel for SPS and U.S. Bank, contacted Chu to reject the proposed short sale because it allocated $500,000 to the second lien holder and $35,000 for attorney’s fees. Id. at ¶ 28. On October 7, 2011, Chu left Gunn a voice-mail apologizing that the proposed short sale offer allocated money for attorney’s fees and to the second lien holder. Id. at ¶ 29. Chu then promised to submit a revised proposal compliant with SPS’s requirements. Id. at ¶ 30. On November 10, 2011, Chu submitted a revised short sale proposal for $5.1 million with no money for the second lien holder or for attorney’s fees, and with Buyer Defendants as the prospective buyers. Id. at ¶¶ 29-31. Although Valentino did not pay SPS the $12,000 payment due on November 1 and December 1, 2011 per the Settlement Agreement, SPS did not initiate foreclosure. Id. at ¶¶ 32-33. SPS approved the revised proposed short sale on December 5,2011. Id.

Plaintiffs allege that on January 12, 2012, the day the short sale was to close, Michael Zhao, Buyer Defendants’ real estate agent, informed SPS that defendants were attempting to defraud plaintiffs. Id. at ¶ 34. The FAC alleges that Zhao told SPS that defendants prepared two sets of purported short sale documents. Id. One set, which was given to SPS for its review, provided that no proceeds from the sale would be directed to the Attorney Defendants or would be used to satisfy any junior liens on the property. Id. at ¶ 35. The second set of documents, which reflected a higher purchase price than the documents presented to SPS, provided that some proceeds would go to the Attorney Defendants as well as other junior lien holders. Id. Plaintiffs allege that defendants intended the second set of documents to be recorded as the actual transaction. Id.

On January 20, 2012, SPS filed a lawsuit against defendants, which this Court dismissed with leave to amend for plaintiffs failure to plead the allegations of fraud with sufficient particularity as required by Fed. R. Civ. P. 9(b). See Dkt. 37.

In the first amended complaint (“FAC”), U.S. Bank was with joined SPS as a plaintiff, and claims were asserted for: (1) intentional misrepresentation; (2) false promise; (3) negligent misrepresentation; (4) civil conspiracy to commit fraud; (5) tortious interference with prospective eco[981]*981nomic advantage against Buyer Defendants; and (6) breach of contract against Valentino. Plaintiffs allege that defendants submitted to SPS a revised short sale proposal that defendants had “no intention of actually performing.” Id. at ¶ 3. SPS asserts that it relied upon defendants’ representations and devoted time and expense toward reviewing the purported short sale proposal and refrained from proceeding with efforts to foreclose the property, thus incurring carrying costs for the loan. Id. ¶¶ 46-47, 61-62. For each of their first four causes of action, plaintiffs claim damages for $266,077 and punitive damages for $2,394,693.

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Cite This Page — Counsel Stack

Bluebook (online)
875 F. Supp. 2d 975, 2012 WL 2343754, 2012 U.S. Dist. LEXIS 85607, Counsel Stack Legal Research, https://law.counselstack.com/opinion/select-portfolio-servicing-v-valentino-cand-2012.