Jordan v. Paul Financial, LLC
285 F.R.D. 435
N.D. Cal.2012Background
- plaintiffs Gregory Jordan and the Goldhabers entered into Option ARM loans with Paul Financial; teaser rates lasted one month before rates jumped to the index plus 3.825%.
- TILDS disclosed a payment schedule tied to teaser rate, which did not cover accrued interest after the first month, causing negative amortization if followed.
- RBS Financial Products purchased the Goldhaber loan shortly after origination under an MLPA; other related entities were dismissed from the case.
- The operative 4AC asserts fraudulent omissions and UCL claims against RBS; TILA claims were previously dismissed as time-barred.
- The Goldhabers filed for Chapter 7 bankruptcy; a stipulation with the trustee granted standing to prosecute the claims on behalf of the debtor’s estate, with limited exempt proceeds.
- The court has denied summary judgment for RBS and granted class certification for a California-domiciled class of similarly situated Option ARM borrowers against RBS.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Standing of plaintiffs to sue | Goldhabers’ standing preserved via trustee ratification; assignee status allowed under Sprint | Trustee cannot ratify; standing should be limited to the real party in interest | Goldhabers have standing to prosecute against RBS |
| Whether loan documents misrepresented negative amortization | Teaser rate, misdescribed payment schedule, and certainty of negative amortization were concealed | Documents accurately describe negative amortization and are not misleading | There exists a genuine issue of material fact as to misrepresentation of negative amortization |
| Whether interest rate disclosures were misleading | Note and TILDS used conflicting ‘yearly rate’ terms; APR vs note rate not adequately disclosed | Disclosures are not misleading; TIL Recap clarifies the terms | Genuine issue of material fact remains as to misleading interest disclosures |
| Aiding and abetting liability of RBS | RBS knew of and substantially assisted Paul Financial’s misrepresentations | RBS’s involvement was routine due diligence with no substantial knowledge or assistance | Genuine issues of material fact on actual knowledge and substantial assistance preclude summary judgment |
| UCL claims and class certification viability | RBS conduct was fraudulent or unfair; class should be certified due to common misrepresentations and presumption of reliance | Standing, reliance, and individualized issues defeat class certification | Class certification granted; reliance presumed and predominance satisfied |
Key Cases Cited
- Plascencia v. Lending 1 Mortgage, 259 F.R.D. 437 (N.D. Cal. 2009) (certified class for similar option ARM omissions)
- Vasquez v. Superior Court, 4 Cal.3d 800 (Cal. 1971) (material misrepresentation reliance considerations in class context)
- Mirkin v. Was-serman, 5 Cal.4th 1082 (Cal. 1993) (limits on UCL reliance presumptions for California fraud)
- First Alliance Mortgage Co., 471 F.3d 977 (9th Cir. 2006) (aiding and abetting mortgage fraud framework)
- U-Haul International v. Jartran, Inc., 793 F.2d 1034 (9th Cir. 1986) (real party in interest and standing principles)