Plascencia v. Lending 1st Mortgage

Posted on November 17, 2008. Filed under: Case Law, Truth in Lending Act | Tags: , |

In Plascencia v. Lending 1st Mortgage, ___ F.Supp.2d ___, 2008 WL 4544357 (N.D. Cal. Sept. 30, 2008), the court (Judge Claudia Wilken) denied a defendant’s motion to dismiss a UCL claim. The motion was based on the argument that defendants may not be vicariously liable for UCL violations, but the court relied on aiding and abetting principles instead:

EMC argues that it cannot be held liable under the UCL because the statute does not impose vicarious liability. See People v. Toomey, 157 Cal.App.3d 1, 14, 203 Cal.Rptr. 642 (1984). It is true that the UCL imposes liability only for a party’s “personal participation in the unlawful practices.” Id. However, it is sufficient that the defendant aided and abetted the principal violator. Id. at 15, 203 Cal.Rptr. 642. Under the common law definition, a person “aids and abets the commission of an intentional tort if the person … knows the other’s conduct constitutes a breach of duty and gives substantial assistance or encouragement to the other to so act.” Fiol v. Doellstedt, 50 Cal.App.4th 1318, 1325, 58 Cal.Rptr.2d 308 (1996) (quoting Saunders v. Superior Court, 27 Cal.App.4th 832, 846, 33 Cal.Rptr.2d 438 (1994)).

The complaint alleges that EMC routinely purchased and securitized OARMs that Lending 1st issued in violation of TILA. It also alleges that all Defendants are “engaged in the business of promoting, marketing, distributing, selling, servicing, owning, or are and were the assignees of the Option ARM loans that are the subject of this Complaint.” TAC ¶ 8. By showing that EMC purchased Lending 1st’s OARMs with knowledge of Lending 1st’s TILA violations, Plaintiffs may be able to establish that EMC gave Lending 1st a financial incentive to continue to commit those violations, and therefore may be subjected to liability for aiding and abetting violations of the UCL. Moreover, EMC’s profiting from loans featuring oppressive terms that were not fully disclosed in compliance with TILA could itself be an unfair business practice under the UCL. EMC may therefore be liable for UCL violations in its own right. Accordingly, the UCL claim will not be dismissed.

Id. at *6. Another case addressing UCL liability for aiding and abetting is Schulz v. Neovi Data Corp., 152 Cal.App.4th 86 (2007).

The court also rejected the argument that the Truth in Lending Act (15 U.S.C. § 1601 et seq.) preempted the UCL claim because the UCL’s four-year statute of limitations was “inconsistent” and therefore conflicted with TILA’s three-year statute:

California law provides a four-year limitations period for UCL claims. Cortez v. Purolator Air Filtration Prods. Co., 23 Cal.4th 163, 178-79, 96 Cal.Rptr.2d 518, 999 P.2d 706 (2000). This contrasts with the one- and three-year limitations periods applicable to TILA claims for damages and rescission, respectively. In addition, restitution and injunctive relief are available as remedies for UCL violations. Cal. Bus. & Prof.Code § 17203. EMC argues that these aspects of the UCL render it “inconsistent” with TILA, and thus Plaintiffs’ UCL claims are preempted.

[T]he fact that the UCL allows a claim to be brought within four years or may provide remedies not available under TILA (and it is not clear that it does) simply provides an additional level of protection for consumers. The UCL does not mandate additional disclosures that are substantively inconsistent with TILA’s, and therefore does not bring the UCL within the scope of TILA’s preemption provision. See In re First Alliance Mortgage Co., 280 B.R. 246, 250-51 (C.D. Cal.2002) (“Additional penalties are not inconsistent with TILA, but merely provide greater protection to consumers. Section 17200 does not provide inconsistent disclosure requirements.”); Black v. Financial Freedom Senior Funding Corp., 92 Cal.App.4th 917, 936, 112 Cal.Rptr.2d 445 (2001) (“[A]n inconsistency or contradiction with federal law does not exist merely because the state requires disclosures in addition to those required by and under TILA.”)

The UCL Practitioner

www.nationalloanaudits.com

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