Aliff v. Vervent, Inc.

[6] 7 UNITED STATES DISTRICT COURT 8 SOUTHERN DISTRICT OF CALIFORNIA [9] 10 HEATHER TURREY, et al., Case No.: 20-CV-0697 DMS (AHG) 11 Plaintiffs, ORDER (1) DENYING 12 v. DEFENDANTS’ MOTION FOR SUMMARY JUDGMENT; (2) 13 VERVENT, INC., et al., DENYING PLAINTIFFS’ MOTION 14 Defendants. TO STRIKE; AND (3) GRANTING PLAINTIFFS’ MOTION TO FILE A [15] SURREPLY [17] This case comes before the Court on Defendants’ renewed Motion for Summary [18] Judgment (ECF No. 158), and Plaintiffs’ Motion to Strike Reply to Response to Motion, [19] or in the alternative, to file a Surreply brief (ECF No. 178). The matter is fully briefed and [20] submitted. [21] Defendants bring a second summary judgment motion again challenging Plaintiffs’ [22] claims under (1) the Racketeer Influenced and Corrupt Organizations Act (“RICO”); (2) [23] the Fair Debt Collection Practices Act (“FDCPA”); (3) California’s Rosenthal Fair Debt [24] Collection Practice Act (“Rosenthal Act”); (4) California’s Unfair Competition Law [25] (“UCL”); and (5) common law negligent misrepresentation. Plaintiffs move to strike [26] portions of Defendants’ Reply brief, which introduced new evidence obtained from third27 party Access Group. Alternatively, Plaintiffs request leave to file a Surreply if the Court [28] 1 elects to consider the new evidence. For the reasons set forth below, the Court denies 2 Defendants’ renewed motion for summary judgment, denies Plaintiffs’ motion to strike, 3 and grants Plaintiffs’ motion to file a Surreply brief. 4 The background of this case is summarized in prior orders, (see ECF Nos. 128, 140, 5 151), as is the standard governing a motion for summary judgment, and need not be 6 repeated. Defendants’ arguments are nearly identical to those raised in their earlier motion 7 for summary judgment. (ECF No. 105.) The Court denied that motion as to Plaintiffs’ 8 RICO and UCL claims, (see ECF No. 128 at 10-16), and deferred ruling on the FDCPA, 9 Rosenthal Act, and negligent misrepresentation claims pending substitution of new 10 plaintiffs. (See id. at 16-20.) Nothing of significance has changed. The Court’s prior 11 summary judgment order, (see generally id.), and this Order, should guide the parties as 12 they prepare for trial. 13 A renewed motion for summary judgment is appropriate if it is based on previously 14 unavailable evidence. Hoffman v. Tonnemacher, 593 F.3d 908, 911-12 (9th Cir. 2010). In 15 support of the present motion, Defendants proffer evidence from recent depositions of the 16 named Plaintiffs, a declaration from expert witness David Harmon, written discovery 17 responses, and newly discovered Truth In Lending Act (TILA) disclosures. Defendants 18 also argue Plaintiffs’ claims fail for lack of evidence as Plaintiffs will not be calling 19 witnesses at trial from ITT or Deutsche Bank, the alleged principal fraudsters in the PEAKS 20 student loan scheme at issue. Defendants further argue that Defendants were never ordered 21 to stop collecting PEAKS loans by any governmental entity investigating the loan scheme 22 and no criminal charges were ever brought against ITT or Deutsche Bank, let alone a 23 finding that a RICO enterprise existed. In addition, in their Reply brief, Defendants submit 24 a declaration by Melissa Scott, an employee with Access Group, and attach as exhibits 25 TILA disclosures for the named Plaintiffs regarding their PEAKS loans and argue that 26 evidence shows the underlying loans complied with TILA and were not invalid as alleged 27 by Plaintiffs. (See ECF No. 175-1.) The declaration states that due to the age of the records 28 and archiving system, Access Group was previously “unable to recover records for the 1 50,000+ borrowers in the entire PEAKS portfolio.” (Id. ¶ 11.) Now, shortly before trial 2 and well after discovery has closed, Defendants provide the foregoing TILA disclosures. 3 Plaintiffs argue Defendants are engaging in “last minute gamesmanship.” (ECF No. 178 4 at 1.) Despite the late disclosure, the Court elects to consider the evidence, as well as 5 Plaintiffs’ Surreply, which adequately responds to Defendants’ late discovery. 6 The question of the validity of the underlying PEAKS loans is principally related to 7 Plaintiffs’ FDCPA, RFDCPA, UCL and negligent misrepresentation claims. The alleged 8 invalidity of the underlying loans is also relevant to Plaintiffs’ RICO conspiracy claim, as 9 it is one of the alleged red flags they claim put Defendants on notice of ITT’s alleged 10 fraudulent loan scheme. The newly discovered TILA disclosures are not dispositive of any 11 of the claims at issue. As Plaintiffs note, there is no documentation in the record 12 establishing consummation of the PEAKS loans. Defendants admit they never saw such 13 documentation. (See ECF No. 143-3, Ex. 1 at 90:21-99:17.) Moreover, as explained by 14 Plaintiffs’ expert, Persis Yu, TILA requires an Application Disclosure, an Approval 15 Disclosure, and a Final Disclosure. (ECF No. 169-8, Expert Report of Persis Yu ISO 16 Plaintiffs’ Opposition at 17-20.) The TILA disclosures submitted by Defendants appear to 17 be Final Disclosures only. Triable questions of fact remain whether other required TILA 18 disclosures exist, and if so, whether they were provided to Plaintiffs. These questions are 19 appropriately addressed at trial and not on a motion for summary judgment. The validity 20 of the underlying loans cannot be determined as a matter of law based on this newly 21 discovered evidence. 22 Defendants argue Plaintiffs “have no evidence to establish any triable issues as to 23 the requisite existence of a RICO enterprise[,]” and that there is no causation as a matter 24 of law “stemming from the alleged wrongful conduct[,]” (Mot. at 13, 17), but the Court 25 disagrees for the reasons set forth in detail in its prior Order. (See ECF No. 128 at 10-16.) 26 In addition, Plaintiffs’ percipient and expert testimony and the circumstances of the case 27 raise material questions about the existence of a RICO enterprise and whether Defendants 28 joined such an enterprise knowing of its illicit objectives. Plaintiffs argue the PEAKS loan 1 structure, the large number of underperforming loans, Defendants’ client (alleged principal 2 fraudster ITT, not an independent trust), Defendants collection for many years on loans 3 without proper documentation and underwriting, the contents of CFPB and SEC 4 complaints and likely cancelation of loans assigned to Activate Financial for collection, 5 and the lack of a genuine securitization structure combine to show Defendants knowingly 6 or with deliberate indifference participated in a RICO enterprise and furthered ITT’s 7 deception of investors and the Department of Education (“DOE”) by disguising payments 8 made by ITT on behalf of borrowers. (See generally Pl. Oppo. at 4-18.) Triable questions 9 of fact remain, including, among other questions, whether: (1) Defendants knew that 10 PEAKS was a fraudulent scheme, designed as a financial subterfuge for ITT to defraud its 11 investors and DOE; (2) the PEAKS loans lacked consummated loan agreements containing 12 legally required information, such as the high interest rates and fees charged; (3) the 13 PEAKS loan program functioned as an association in fact enterprise that included ITT, the 14 PEAKS Loan Trust, DBTCA, Access Group and Defendants, with each member of the 15 association in fact having an assigned role; and (4) that association in fact was engaged in 16 making fraudulent representations to the DOE, ITT shareholders, and PEAKS Trust 17 investors. 18 Defendants also contend for the first time that the alleged fraudulent conduct 19 comprising the predicate RICO acts is barred by the statute of limitations. (Def. Mot. at 20 16-17.) Plaintiffs disagree, stating their “RICO claim accrued, alternatively, either in 21 October 2020, when they received notice about the cancellation of the remaining balances, 22 or at the earliest, in September 2016, when ITT collapsed into bankruptcy.” (Pl. Oppo. at 23 18.) Civil RICO claims have a four-year statute of limitations. Agency Holding Corp. v. 24 Malley-Duff & Associates, Inc., 483 U.S. 143, 156 (1987). The “civil RICO limitations 25 period begins to run when a plaintiff knows or should know of the injury that underlies his 26 cause of action” pursuant to the injury discovery rule. Pincay v. Andrews, 238 F.3d 1106 , 27 1109 (9th Cir. 2001). Under the separate accrual rule, “a cause of action accrues when new 28 overt acts occur within the limitations period, even if a conspiracy was formed and other 1 acts were committed outside the limitations period.” Grimmett v. Brown, 75 F.3d 506 , 512 2 (9th Cir. 1996). 3 Here, Plaintiffs “seek to remedy the payments they made on or after April 10, 2016.” 4 (Pl. Oppo. at 18.) Plaintiffs filed their complaint on April 10, 2020. (See ECF No. 1.) 5 Under the injury discovery rule, Plaintiffs either discovered their injuries in October 2020 6 upon notice of their loan balances being cancelled, or in September 2016, once ITT filed 7 bankruptcy. Defendants’ assertion that the injury occurred in January 2014, is incorrect. 8 As Plaintiffs note, that timeframe relates to the PEAKS creditors’ knowledge about ITT’s 9 payments on behalf of borrowers, not PEAKS borrowers’ knowledge, who argue they were 10 never notified that ITT had been making such payments on behalf of borrowers nearing 11 default. The separate accrual rule requires “new and independent acts” which involve “new 12 and accumulating injury.” Grimmett, 75 F.3d at 513 . Each collection effort by Defendants 13 was a distinct choice constituting a new and independent act, and each monetary collection 14 allegedly inflicted new injury. The Court, therefore, need not decide which event triggers 15 the limitations period for Plaintiffs because all alleged events fall within the Class 16 timeframe. 17 Under the UCL claim, material questions of fact remain whether Plaintiff Hernandez 18 suffered an injury as a result of Defendants alleged “unfair” business acts or practices raise. 19 Defendants insist summary judgment is warranted because Plaintiffs seek damages, not 20 restitution or injunctive relief. See Korea Supply Co. v. Lockheed Martin Corp., 29 Cal.4th 21 1134, 1144 (2003) (stating remedies for violation of UCL are “limited to injunctive relief 22 and restitution.”) Plaintiffs argue “Hernandez and class members seek restitution measured 23 by the amount necessary to restore them to their status quo.” (Pl. Oppo. at 22.) The point 24 of UCL “restitution is to restore the status quo by returning to the plaintiff funds in which 25 he or she has an ownership interest.” Korea Supply, 29 Cal.4th at 1149. Such restitution 26 is “measured by what was taken from the plaintiff.” Clark v. Superior Court, 50 Cal.4th 27 605, 615 (2010). A “defendant may be ordered to restore what the plaintiff lost, even if 28 the amount exceeds what the defendant received.” Hahn v. Massage Envy, No. 12-cv-153, [1] 2014 WL 5100220 , at *15-16 (S.D. Cal. Sept. 25, 2014). As such, the Court declines to 2 characterize Plaintiffs’ desired UCL remedy as one for damages. The amount sought by 3 Plaintiffs, and any offsets, is an issue for trial. See Massage Envy, 2014 WL 5100220 , at 4 *17 (finding genuine disputes of material fact regarding the amount of restitution precluded 5 summary judgment and reserved the issue for trial). 6 The “FDCPA imposes strict liability on creditors, including liability for violations 7 that are not knowing or intentional.” McCollough v. Johnson, Rodenburg & Lauinger, 8 LLC, 637 F.3d 939, 952 (9th Cir. 2011). As this Court previously noted, collecting, or 9 attempting to collect, an invalid debt is a violation of the FDCPA and Rosenthal Act, even 10 absent knowledge of the debt’s invalidity. Clark v. Capital Credit & Collection Servs., [11] 460 F.3d 1162 , 1175-76 (9th Cir. 2006). Nevertheless, Defendants insist debt collectors 12 may attempt to collect debts that are invalid because “a debt collector’s obligation to verify 13 a debt [is] quite limited.” (Def. Mot. at 21) (citing Clark, 460 F.3d at 1174). Defendants 14 misinterpret Clark. Because the FDCPA imposes strict liability, an attempt to collect 15 money not owed causes injury under the statute. See Clark, 460 F.3d at 1175-76. Here, 16 there is a triable question of fact whether Defendants attempted to collect money Plaintiffs 17 did not owe. 18 To establish negligent misrepresentation, Plaintiffs must prove “(1) the defendant 19 made a false representation as to a past or existing material fact; (2) the defendant made 20 the representation without reasonable ground for believing it to be true; (3) in making the 21 representation, the defendant intended [plaintiff to rely on the representation]; (4) the 22 plaintiff [reasonably] relied on the representation; and (5) the plaintiff suffered resulting 23 damages.” Majd v. Bank of Am., N.A., 243 Cal.App.4th 1293, 1307 (2015); Judicial 24 Council of CA Civil Jury Instructions (“CACI”) No. 1903. Negligent misrepresentation 25 “requires a positive assertion and does not apply to implied misrepresentations” or 26 omissions. Randi W. v. Muroc Joint Unified Sch. Dist., 14 Cal.4th 1066, 1083 (Cal. 1997); 27 Regents of Univ. of Cal. v. Principal Fin. Grp., 412 F.Supp.2d 1037, 1045 (N.D. Cal. 28 2006). l Defendants state Plaintiff Hernandez has provided no evidence of any positive 2 ||assertion by Defendants. (Def. Mot. at 29-31.) However, Plaintiff Hernandez provided 3 ||evidence of payment demands from both First Associates and Activate Financial, and 4 evidence that he paid money to both entities as a result of their demands. (See ECF 158-2, 5 || Purcell Decl., Ex. D at Nos. 1-2 at 7:7-15, 8:1-9.) Here, whether the PEAKS loans were 6 invalid and whether Defendants knew that to be the case when they made their collection 7 ||demands are factual questions to be decided by the trier of fact.! Additionally, whether 8 || Defendant Vervent, fka First Associates, is liable under the FDCPA on an alter ego theory 9 ||is reserved for trial or post-trial proceedings as the issue was not sufficiently briefed. 10 For the foregoing reasons, Defendants’ renewed motion for summary judgment is 11 || denied. 12 || Dated: April 20, 2023 13 , rn Yn 14 Hon. Dana M. Sabraw, Chief Judge 15 United States District Court [22] 23 ' Defendants argue Plaintiffs cannot seek damages beyond the statute of limitations for negligent 24 misrepresentation, which they assert is limited to two years before the filing of this action on April 20, 2020. Because negligent misrepresentation is treated as a form of fraud, the statute of limitations for such 25 || claims is three years from discovery of facts constituting the fraud. Cal. Civ. Proc. § 338(d). The amount of such damages 1s reserved for trial. In addition, the Court is unable to determine the accrual date of the 26 || subject limitations period based on the present record. Plaintiffs have argued their RICO claim accrued “either” in October 2020, when they received notice of cancellation of their remaining loan balances, or 27 \lin September 2016, when ITT “collapsed into bankruptcy.” (Pl. Oppo. at 18.) The Court therefore 2g || Teserves ruling on the issue, including whether the accrual date should be addressed at trial through special interrogatories to the jury.