Fuller v. First Franklin Financial Corp.
163 Cal.Rptr.3d 44
Cal. Ct. App.2013Background
- Plaintiffs Michael Fuller and Karen Gehrig sued First Franklin Financial Corp., Bank of America, and Sacramento First Mortgage in Nov 2010 over a June 2006 loan transaction; MERS is no longer a party.
- The complaint alleges a predatory lending scheme including inflated appraisal, misrepresentations, and concealments intended to maximize lender profit, undiscovered by plaintiffs until 2009.
- Plaintiffs received a 435,000 loan with a first mortgage (30-year amortization, interest-only initially) and a second balloon mortgage; broker Graves (unlicensed) and SFM acted as First Franklin’s agents.
- The appraiser used stale, non-comparable sales to inflate the appraisal; closing revealed kickbacks and undisclosed loan options; plaintiffs allegedly relied on the broker’s expertise.
- After November 2009, plaintiffs sought loan relief, learned of the inflated appraisal and lender reputation; forbearance was granted in 2010, but payments ceased later that year.
- The trial court dismissed some causes as time-barred and others with leave to amend; the appellate court later reversed the demurrers, holding delayed discovery allegations were sufficiently pled and the claims could proceed against the lenders.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Timeliness of claims under fraudulent concealment and discovery rule | Fuller/Gehrig alleged concealment caused delayed discovery | Defendants contend limitations expired and discovery was not adequately pled | Demurrers improper; delayed discovery adequately pled, claims tollable |
| Vicarious liability of First Franklin for broker/agent conduct | First Franklin was liable through agency/conspiracy with SFM | No direct fiduciary duty or liable conduct by First Franklin beyond lending | First Franklin liable through agency/conspiracy for misrepresentations and nondisclosures |
| Sufficiency of UCL and deceit claims against First Franklin | Allegations show kickbacks, overvaluation, and nondisclosures; actionable under UCL/ deceit | Duties and actionable conduct not adequately pled against First Franklin | Pleadings sufficiently detailed; UCL and deceit theories survive demurrer |
Key Cases Cited
- Fogarty v. City of Chico, 148 Cal.App.4th 537 (Cal. Ct. App. 2007) (assessing pleading standards and de novo review on demurrer)
- Aryeh v. Canon Business Solutions, Inc., 55 Cal.4th 1185 (Cal. 2013) (discovery rule and tolling for concealed claims)
- Boatwright v. Cause, 124 Cal.App.3d 888 (Cal. Ct. App. 1981) (burden to plead and prove discovery details)
- Nymark v. Heart Fed. Savings & Loan Assn., 231 Cal.App.3d 1089 (Cal. Ct. App. 1991) (fiduciary duties and reliance in lending context)
- Wyatt v. Union Mortgage Co., 24 Cal.3d 773 (Cal. 1979) (duty of mortgage brokers beyond disclosure of terms)
- Riverisland Cold Storage, Inc. v. Fresno-Madera Production Credit Assn., 55 Cal.4th 1169 (Cal. 2013) (economic realities of disclosures in lending transactions)
- Maheu v. CBS, Inc., 201 Cal.App.3d 662 (Cal. Ct. App. 1988) (conspiracy pleading and liability considerations)
- Thomson v. Canyon, 198 Cal.App.4th 594 (Cal. Ct. App. 2011) (de-emphasized for deceit-related limitations)
- Rosenthal v. Great Western Fin. Securities Corp., 14 Cal.4th 394 (Cal. 1996) (contractual terms and duties in disclosures)
- ABF Capital Corp. v. Berglass, 130 Cal.App.4th 825 (Cal. Ct. App. 2005) (demurrer and limitations in contract-related actions)