ORDER GRANTING FLAGSHIP'S MOTION FOR SUMMARY JUDGMENT AND DENYING FLAGSHIP'S MOTION TO STRIKE AND PLAINTIFFS' MOTION TO AMEND

JOHN A. MENDEZ, District Judge.

This matter came before the Court on three motions: Flagship's Motion for Summary Judgment or, in the Alternative, for Partial Summary Judgment; Plaintiffs' Motion to Amend the Amended Complaint; and Flagship's Motion to Strike. A hearing was held before District Judge John A. Mendez on March 22, 2016. For the reasons stated by the Court at the hearing, the Court grants summary judgment in favor of Flagship on all causes of action. Further, for the reasons stated by the Court at the hearing, the Court denies Plaintiffs' Motion to Amend as well as Flagship's Motion to Strike.

The pretrial and trial dates for Flagship are ordered vacated.

The transcript of the hearing held on March 22, 2016, is attached hereto and incorporated by reference.

THE CLERK: Calling civil 14-1482, McMenemy versus Flagship Financial Group.

Counsel, state their appearances, please.

MR. DWYER: Patrick Dwyer appearing for the plaintiffs Diane and Michael McMenemy.

MR. WELCH: Ben Welch appearing for defendant Flagship Financial.

THE CLERK: Mr. Dwyer made some reference to getting access to the transcripts that they submitted if he needed them.

THE COURT: Okay. Mr. Dwyer, you made reference to something about a transcript?

MR. DWYER: Your Honor, if in the course of our discussion there's a need to refer to specific language in the transcripts, something like that, I might need to look at those transcripts. It was my understanding when I deposited them that they would be available here for argument.

THE COURT: Okay.

MR. DWYER: I'm hoping that's not the case.

MR. WELCH: And, Your Honor, I just wanted to note that defendant Devin Jones is also present. He's seated in the gallery.

THE COURT: Okay.

All right. This is on for a number of motions, plaintiffs' motion for leave to file a second amended complaint, Flagship's motion for summary judgment, and Flagship's motion to strike.

Let me say at the outset that there was, and there has been, orders issued by the Court regarding page limitations in which both parties were sanctioned given the Court's rules regarding page limitations.

Mr. Dwyer, I did not in any way think that your decision to file a 38-page brief was intentional bad faith and so on and so forth. But, as you can see from just this afternoon's calendar, the reason I make and have lived by these rules for the entire time I've been a federal court judge, because you can't do it in state court unfortunately, is because of this workload that we have. And I know you sent a letter acknowledging that you recognize the burden on the courts and the judges in the Eastern District, and I appreciate that. You have no idea what we're working under, and it is the reason why there are page limitations.

And I know that concerns lawyers who believe that they need to include more rather than less and to be more detailed rather than less succinct. But as a rule, I cannot and do not make exceptions, never have and never will, unless I think there is good cause for a 40-page brief.

And I know you've viewed that as penalizing your client. Well, it's your responsibility as a lawyer to know — and whether it was intentional or inadvertent, it still is your responsibility and Mr. Welch's responsibility to know, ah, what the Court's expectations and rules are with respect to these types of motions.

And it's particularly important in summary judgment motions because summary judgment motions not only contain the the briefs, they always include these large, large number of pleadings with respect to so-called statements of undisputed facts. I always sort of chuckle when I get statements of undisputed facts in summary judgment cases such as this because, if I get a hundred so-called undisputed facts, I can guarantee that I'll find a disputed fact in a summary judgment motion that would preclude summary judgment in 99 percent of these cases.

It just amazes me that lawyers tend to focus on providing so much detail, and it happens over and over again. You're not the only two lawyers who have done this, and I understand it. I'll say to you the same thing I said to the last lawyers at the last hearing I had in which a similar summary judgment motion was presented. And that is, you do it in part to prepare for trial, I get that. And a really good summary judgment motion such as this tends to lead to resolution of cases because both sides lay out their cases. I appreciate that in terms of it working for the two of you. It doesn't work for the Court, though.

A summary judgment motion should be, if I take all of the facts in the light most favorable to the plaintiff, if I accept everything that they say, there is still no way as a matter of law they can recover. That's really what it comes down to.

Or the flip side of that is, they've alleged certain things in their complaint — and this is the sort of argument that's in this case, they've alleged a lot of things against my client, but there's no evidence of those things. I don't need a hundred facts to get to the gist of this case.

And so while both of you may believe that you needed more than 25 pages, I completely disagree. They're wonderfully written briefs, but you spent 19 pages discussing facts. You also then submitted a separate statement of — you responded to their undisputed facts, and then you submitted your own separate statement of disputed facts.

Keep in mind, I read everything, so at most the briefs should contain a summary of the important facts given that I'm going to look at, and do look at, the responses to the statement of facts, the statement of facts and any other facts that you may submit.

So I don't see it as a penalty. I know you disagree, Mr. Dwyer, that I'm penalizing your client. I'm not penalizing your client. I do believe that cases should be resolved on the merits, but within the rules of the Court, within a — a background and a procedure that allows the Court to adequately review and address the issues raised.

You both have paid your sanctions, I appreciate that, and we'll go forward.

I'm going to take up first the motion to strike, which I am denying. I have to, Mr. Welch, tell you honestly that I was close to imposing another sanction on you for what was, in my mind, a not-so-well-disguised attempt to get around my 10-page reply brief limit by bringing a motion to strike which contains an awful lot of argument on the merits.

A motion to strike should be no more than two or three pages. Yours ended up — I can't even remember how long it was, but there's no basis for striking the first 19 pages of his opposition. It's a wonderfully written opposition. It contains too many facts, but — it just concerned me.

And so I'm not going to impose sanctions. I'd be very careful about trying to get around my page limits by doing something clever like this. And I know you, again, maybe didn't think of it that way and maybe I'm reading too much into it. But by the time I saw that motion to strike, after reading these briefs and then having lawyers who have ignored my page limits, it concerned me.

So the motion to strike is denied, we're not going to have any further argument on it.

In terms of the pleading that Mr. Dwyer filed, in terms of what he calls — I think you titled it plaintiffs' undisputed facts. I'm not going to penalize a plaintiff for in effect mislabeling his response or the facts in opposition. You really should have just labeled it plaintiffs' disputed facts to comply with the local rule, but it's a pleading that is allowed. Again, I think it's a bit excessive, but there's no reason to strike it, and it has been considered by the Court.

MR. DWYER: Thank you, Your Honor.

THE COURT: Okay. In terms of the motion for leave to file a second amended complaint, I'm not going to have a lot of argument on that as well. I'm denying that for a number of reasons.

First, the motion itself is procedurally defective. Again, it should have been brought, and you should have discussed Rule 16, and it should have been a motion to modify the scheduling order or status order as opposed to a motion to amend. There's no.discussion concerning Rule 16, so just initially it's procedurally defective.

Even if I thought that you had met the Rule 16 good cause requirement, I have significant concerns with respect to someone who attempts to amend a complaint at such a late date.

Tell me what our trial date is in this case, Mr. Vine.

THE CLERK: That's a good question, Your Honor.

THE COURT: I know it's coming up.

THE CLERK: I'll have to look it up.

THE COURT: Okay.

THE CLERK: Sorry.

THE COURT: Go ahead.

But to seek leave to amend over two years after a case has been filed causes me great concern. And so I'm not even sure you would have satisfied the Rule 16 good cause requirement.

Go ahead.

THE CLERK: Pre-trial is May 27, and trial is 6/27.

THE COURT: Even if I thought you had met the Rule 16 good cause requirement, Rule 15 then would have to come into play, and there's a good cause standard that has to be met with respect to Rule 15.

Flagship has argued, if I allowed a second amended complaint at this late date, that would cause undue delay which would substantially prejudice Flagship. And, again, Flagship believes that many of the claims are futile, and it will be contrary to judicial economy. While I don't agree with all those arguments, the prejudice argument is one that seriously concerns me.

And then, in addition, the second amended complaint wasn't filed until well after the close of discovery, which would preclude Flagship from investigating any of the new allegations. So I know, while you may believe it was just a clean-up attempt, it's much more than that. And it's simply not appropriate at this time to go forward on an amended complaint, particularly with a looming trial date.

So that takes care of that motion. The motion for leave to file the second amended complaint is denied, which leaves us with the motion for summary judgment.

And while — while although I didn't consider necessarily the arguments with respect to the merits or lack thereof of the claims against Flagship, the statute of limitations issue, which would result in summary adjudication if I accepted it, was fully briefed. The Court has fully considered that argument, and I'm going to hear further argument on that issue.

Mr. Dwyer, I do want to give you an opportunity — because you don't obviously get to file a response to a reply brief, but I'd like to give you an opportunity to respond to some of the arguments that I noted in the reply brief. In particular, I want to start with your conspiracy claim. We'll come back to the statute of limitations argument.

It's the tenth cause of action, I think, in which you allege conspiracy. And in the operative complaint, although it says against all defendants, you didn't specifically name Flagship in the complaint itself. And so that to me is one flaw.

MR. DWYER: Your Honor, in that regard, I believe the paragraph does say all defendants in the heading and all the —

THE COURT: It does in the heading.

MR. DWYER: And the paragraph headings that are incorporated into it include all defendants. So it's clear when you incorporate the paragraphs that all the defendants are there.

THE COURT: Okay. But there's no specific allegation, again, against Flagship within that cause of action. And I'm looking at your complaint.

(Reading.)

Plaintiffs are informed, believe and thereon allege that Colonial, Jones and Colonial FBD knowingly and willfully conspired between themselves to perpetrate the wrongful actions described in paragraphs 18 to 24 and 50 to 54.

So initially, even though you had named Flagship as a defendant, you hadn't included them specifically in that cause of action. That is sort of point No. 1. And point No. 2 is, what's the conspiracy?

MR. DWYER: Your Honor, the — Flagship, ah, cooperated and assisted with Jones and Colonial to perpetrate a fraud on the client, which is my client, the McMenemys and the loan.

THE COURT: I asked it wrong. What's the evidence of a conspiracy?

MR. DWYER: They knew that Jones and Colonial were not licensed in California. They knew they couldn't originate a loan in California. And — and they facilitate the wrongful loan origination through their coming in behind the scenes and acting with the lender and then with the escrow company and never disclosed to us that, in fact, Jones and Colonial were not licensed.

Flagship had that knowledge. They had a fiduciary duty to tell us that.

THE COURT: Hold it. You're not answering my question at all.

This is a specific claim that there was some illicit, unlawful, improper agreement.

MR. DWYER: Yes, Your Honor. I alleged as I went through the summary judgment —

THE COURT: We're past the allegations. What is the evidence that there is some type of conspiracy here?

MR. DWYER: Yes. The evidence would be —

THE COURT: As opposed to three businesses or two businesses doing business together, one business that isn't licensed in California, but finds a broker that is licensed in California to assist your clients?

Other than that, where is this con — where is, for example, some type of evidence of an agreement to let's keep this quiet from the — from the plaintiffs?

I don't know what the what is, but a conspiracy is a serious allegation. In effect, it's an allegation that there is some — something above and beyond, that there is some wrongdoing, that there is some secretive agreement that we're going to keep from the plaintiffs. I don't see it in this case, and I'm trying to figure out where — where is this — you didn't name them in the cause of action specifically. But putting aside that first hurdle, I'm still trying to find the evidence of some type of conspiracy. Because there's no documentation.

MR. DWYER: I believe that I have thoroughly documented in the opposition brief, there's two halves to this. The front half is what my client saw was Mr. Jones handling a loan. They had no knowledge that Flagship was behind the scenes. It turns out that Flagship shows up at the escrow, collects the fees, and then splits those fees between itself and Colonial and Jones.

And the reason there was a fee split is because they had a working agreement, and they knew, all of them knew that Jones and Colonial were not licensed in California and couldn't do this loan. And they had to have the participation and cooperation of Flagship to complete that loan.

In order to go into the escrow company and collect the fees, they had to be a California licensee. The escrow company is going to check it out. So Flagship was a necessary party to that arrangement. Jones and Colonial could not have completed the loan scam that was —

THE COURT: I understand all that. Where is the conspiracy? What is wrong with that?

MR. DWYER: It's illegal to originate a loan in California when you're not licensed, and it's illegal to facilitate and be accessory to that.

THE COURT: Well, Flagship originated the loan.

MR. DWYER: No, they did not. The only people that ever spoke to my clients was Mr. Jones at Colonial. My clients didn't know Flagship. They were the loan processor. They were not involved in —

THE COURT: That's not true. They're a loan broker. They're a licensed broker in California.

MR. DWYER: I —

THE COURT: They originated this loan for your client. And while your client alleges — and we'll get into that — that they didn't know anything about Flagship, and the documents suggest completely otherwise, but let's assume for purposes of this discussion that your clients didn't know about Flagship, Flagship is licensed.

Jones isn't licensed. Jones knows he can't do a loan in California, so he does what every broker does, he finds someone who is licensed.

Colonial is a business that refers. In fact, there's obviously evidence that they're related, Colonial and Flagship, but it's a referral. So what's illegal about a referral that allowed your clients to buy a home?

MR. DWYER: It is illegal to originate a loan in California without a license. And the origination process is not appearing at the escrow to collect the money. The origination occurs in California under California law when you contact a person to offer your services for mortgage brokering.

In other words, they called up my clients and said we can get you this loan, we can do the loan for you. And in order to do that, you must be licensed. You cannot do that based upon someone else's license.

And our expert will testify that, in fact, under California law, you cannot call up somebody cold anywhere else and say I can handle this loan for you. That is against California law. My expert will opine on that.

THE COURT: Okay. I understand your theory.

MR. DWYER: And so — and then Flagship, in fact, knows that and is an accessory to them getting and subverting — circumventing California law.

California has very strict licensing requirements because of this type of problem. They don't want anyone to offer their services to obtain a loan without being licensed.

THE COURT: You want to respond to that just on the tenth cause of action?

MR. WELCH: I mean, the only thing I want to add is just that — I mean, specifically we are talking about the underlying issues? We're talking about the procedural issue?

THE COURT: Well, the procedural issue is the problem. But setting aside the procedural issue that your client isn't named specifically.

MR. WELCH: Right.

THE COURT: But —

MR. WELCH: Right.

Yeah, as far as the underlying issues, I mean, our position is exactly what the Court has articulated, which is that this is a normal business relationship and, you know, that's being completely fleshed out in the documents.

And I think that the argument that the plaintiffs were somehow in the dark on this is completely inconsistent with their own, ah, statements under oath. And so I think when we start, you know, trying to build a theory of the case — and it's a great theory, but it's just not supported by the facts.

Because if you start looking at the deposition testimony given by both the plaintiffs, and you start looking at the documents, it just doesn't hold up. What holds up is Flagship's position, which is this was a business arrangement. They understood the — how this was being operated. It was fully disclosed in the papers.

THE COURT: Okay. Let's go to the statute of limitations argument.

Mr. Dwyer, the argument obviously is that the lawsuit wasn't filed against Flagship until 2014. It is a three-year statute of limitations and, therefore, it — February 4th, 2014. So the issue really is, is there what I call a triggering date, a date that starts that statute running prior to February 11th - February 4th, 2011?

You argue at one point that it really wasn't — you submitted a declaration — it wasn't until the deposition, the first deposition of Ms. Hodge — you took some depositions in 2012 — that you really discovered the basis for the claims against Flagship.

There is also an argument that they really didn't learn the extent of the fraud and what went on here until after they talked to — what was the woman's name?

MR. DWYER: April Smith.

THE COURT: April Smith. Thank you.

You didn't — it's interesting to me, no one submitted the 2012 deposition. I have the 2015 deposition. In that deposition, you asked some questions about the 2012. But it was curious to me, and you make this point, you didn't really learn about the extent of Flagship's involvement until that deposition, but then you didn't submit the deposition.

One of the arguments that the defendants raise in response to your argument is, well, Mr. Dwyer said it was that deposition that clarified things for him, but you don't point to anything specific in the 2012 deposition. And obviously I can't consider it because I don't have the 2012 deposition, and I'm not sure you actually made reference to it in your — what we're calling your own statement of undisputed or disputed facts.

Is there some reason you didn't give me that deposition if it was in your — according to your declaration, it was such an important deposition? And, again, obviously if the facts aren't discovered until 2012, you're well within the statute of limitations, so that finding would help you if I agreed with it. But it's hard for me to agree with something if I don't have the underlying evidence.

MR. DWYER: I understand. Your Honor. May I —

THE COURT: Go ahead.

MR. DWYER: I think that what happened was, as we've presented fairly in our opposition, the McMenemys learned around March 4th, to the best we can determine, of 2011, that there was a — April Smith said this was a fraud. This wasn't an inadvertent boo-boo, there was something seriously wrong.

THE COURT: I can't remember why that date was so specific —

MR. DWYER: Because —

THE COURT: — with respect to Ms. Smith.

MR. DWYER: — April Smith testified — I believe it's her Exhibit No. 2, there's a little typewritten note, one paragraph long. I think it's Exhibit 2 to her deposition.

THE COURT: It has that date on it?

MR. DWYER: Well, she testified that that was the date she typed that up because she had calendar notes that she looked at in her deposition that said, yes, I met with the McMenemys on March 4th, and I remember that I typed up that note, which is Exhibit I believe it's 2, on or about that date, and I handed it to them at that meeting on March 4th.

THE COURT: They had met with her before, though?

MR. DWYER: They had met with her before I believe a couple times.

THE COURT: Okay. Well, let's just focus on — again, I'll have specific questions, but let's just focus on the 2012 depositions.

Is there some reason why you didn't include that?

MR. DWYER: Your Honor, I didn't think it was admissible evidence to this court, number one. Number two, I did include in my declaration my e-mail communications with Flagship, in fact Mr. Welch, in the fall of 2011, specifically when we were communicating with Flagship as to how this happened. Because when we spoke to Mr. Jones and Colonial before the suit was filed, they said it was Flagship. We went to Flagship, and Flagship said we're just the loan processor.

THE COURT: Well, again —

MR. DWYER: Yes.

THE COURT: You answered my question is you thought it wasn't admissible. But how do you respond to Flagship's argument that how can the Court make a finding that it wasn't until January 5th, 2012, that the claim came to light if you don't tell me specifically what it was that made the claim come to light during that deposition?

MR. DWYER: May I have just a moment. Your Honor? I'm reviewing my declaration.

THE COURT: Okay.

It's in paragraph 16 of your first amended complaint where you allege that plaintiffs did not know, and they had no reason to know, about the allegedly fraudulent conduct of Flagship until on or around January 5th, 2012 when they took the deposition of Heather Hodge. It's a. wonderful allegation, but I need the evidence in support of it, and right now I don't have any.

MR. DWYER: I thought in my declaration I had recited the same facts. Apparently I have not.

THE COURT: Okay.

MR. DWYER: Not — in that what occurred at the — in the deposition was we learned more about the players. We learned, you know, who Heather Hodge was, what Flagship's role was.

THE COURT: Well, again, none of that is in anything before the Court.

MR. DWYER: Yes. If that is admissible evidence, then I certainly could put that into evidence.

THE COURT: You're a little late now because we're at the summary judgment stage.

MR. DWYER: I understand, Your Honor.

THE COURT: Okay. Besides that, there are at least six what I call triggering events that the defendant argues should have started the statute of limitations running. The first was when the loan documents themselves were received, which is way back in the summer of 2008.

Your clients, who had previously purchased a home, so were familiar with loan documents, clearly indicated in their depositions that they went through the loan documents, that they saw the loan documents. In fact, most of those facts are undisputed.

One of the interesting documents signed by your clients on July 2nd, 2008, is this mortgage loan origination agreement, in which, in big letters, it says there's an agreement between actually only Mr. — how do you pronounce his name, McMenemy?

MR. DWYER: McMenemy.

THE COURT: Only Mr. McMenemy actually signed the loan documents. But it says:

(Reading.)

You, Michael McMenemy, agree to enter into this mortgage loan agreement with Flagship Financial Group, LLC, and it goes on, as an independent contractor.

MR. DWYER: Your Honor, yes, I —

THE COURT: And then — and then it sort of snowballs from there in terms of your clients.

And in general, there is all these loan documents, and then there is the subsequent tax notices which your clients admit they received. Then there is the 2010 escrow statement that was received on September 3rd, 2010. And your clients admitted that it was at this time that, quote, we knew there was a problem. That's statement of undisputed fact No. 80.

Then there was, in or around September of 2010, that they understood that they may have been subjected to mortgage fraud. They actually accessed their loan account on the Cenlar website. Again, that should have put them on notice and started the statute of limitations running. Cenlar even told plaintiffs that they may have been duped.

And then the last of the meetings with April Smith, although in the reply brief defendants aren't necessarily relying on those meetings given the April 2011 date when the letter was written.

It's a document case is what it comes down to. It's really your clients arguing that they — despite acknowledging they looked at these documents and they do have some experience in purchasing property, that in addition to the documents they should have been told, and they should have been told by Flagship more specifically that, by the way, your property taxes are going to go up, this $1800 monthly mortgage payment isn't going to hold.

I understand that's your clients' argument, that they should have been told a lot more. The response to that is, these documents tell them everything. And at some point, don't your clients have some responsibility for knowing what is in the documents when they're buying a house, knowing what's in there?

And then the second point is, and it's a point that goes to the statute of limitations argument, even if they didn't know everything, they at least were put on notice. They should have had a reasonable suspicion by September of 2010 that there was much more to this than what they were told and, because of that, they were defrauded, and they shouldn't have waited four years or three and a half years — they were filed in February of 2014 — to bring this lawsuit.

And then we'll get to the equitable tolling, but the documents don't help your clients at all. And the way you try to get around those documents is we weren't told. I acknowledge — your clients acknowledge throughout their deposition we knew, but we weren't told.

MR. DWYER: Your Honor, may I address —

THE COURT: Go ahead.

MR. DWYER: There's a lot there. If you can give me a moment.

So with regard to the documents, and there are many of them which we admitted, on July 2nd, 2008, those were faxed to my clients at their home by Mr. Jones. That's been established in the testimony, and my facts support that.

They called up Mr. Jones and said who is Flagship? Mr. Jones said he's our — they're just our paper pusher or loan processor. That's corroborated further on by actual written documents by Mr. Jones stating — where he says, oh, Flagship is just my loan processor. They don't — they're not involved in this. So my clients took him at face value and ignored the fact that they were signing documents with Flagship's name on them.

And, indeed, Mr. Jones made a direct representation that they were not important, they were just a processor and had nothing to do with the actual terms of the loan. That's why my clients never suspected Flagship of anything until very late in the game.

First of all, under California law, the loan processor has no liability whatsoever. The loan processor has no duty to a borrower to disclose anything. So if in fact all Flagship was was a loan processor, we wouldn't sue them because they had no liability.

They had — what happened here was my clients were led into a loan — and, again, we'll show by expert testimony that under California law, as a matter of law, you must disclose the property taxes to be paid on a loan, in particular on a loan which has an impound account which is taking money out of the loan payment every month for the property taxes and insurance. California law requires those disclosures. Federal law requires those disclosures.

What happened here was the disclosure of the property taxes to the McMenemys was wrong. There's no physical possible way that the McMenemys are going to know this number is wrong. That's the job of the mortgage broker. They have an absolute fiduciary duty to make sure that those numbers are correct, and they're not correct. So, at a minimum in this case, we have a breach of fiduciary duty.

And April Smith, who is an expert — we didn't — didn't have her testify as an expert —

THE COURT: You can't talk about evidence that's not before me. I know you put a footnote in your brief.

MR. DWYER: Yeah.

THE COURT: I gotta rely on what's in front of me.

MR. DWYER: I have an expert who I spoke to earlier today —

THE COURT: You can't tell me about that. That's not before me. It doesn't matter. I've got to live with the evidence that's in front of me, not what might be.

MR. DWYER: I think the testimony of April Smith is very clear what the duty was on the part Mr. Jones and Flagship, since they've now stepped in and said, well, we're a mortgage broker also. They had the duty to make sure, under California law, that the McMenemys knew the true terms of the loan.

They admitted — again, Mr. Jones admitted that the McMenemys told him we can only afford a total of $1800 a month. And if we can't get a loan for that amount, we don't want to do the deal. That's been acknowledged in the testimony, so there's no dispute about that.

So they relied upon Mr. Jones saying I can get you a loan for this house, this principal, this interest, at this monthly payment. That was the misrepresentation. We claim it was both a breach of fiduciary duty, which I think it's a very — a 100-percent solid case, and we think it was an intentional misrepresentation.

Now, with regard to the —

THE COURT: Let me have Mr. Welch respond to that.

MR. WELCH: Just a couple things.

THE COURT: Why do you disagree? Because your client is admitting that they were the mortgage broker —

MR. WELCH: Correct.

THE COURT: — on this.

MR. WELCH: Absolutely.

THE COURT: But they're also trying to argue that they were an independent contractor and didn't have a fiduciary duty.

MR. WELCH: I think —

THE COURT: Mr. Dwyer seems to think as a matter of law that's just wrong.

MR. WELCH: Yeah, I think there's a good discussion of this — we referenced the case in our reply brief — in the Stetler case. And Stetler does a kind of similar analysis because, if I recall, in this case there was also a loan origination agreement. And although I don't have the document that Stetler was looking at, it sounds very similar to the one in this case just because it has similar provisions about, you know, being an independent contractor and not an agent. So the court looked at that document and concluded that — let's see. Let me get a citation for you.

So this is on page 5 —

THE COURT: Page 5 of your —

MR. WELCH: Oh, excuse me. Sorry. I'm referencing the actual opinion. Let me see if I cited the language in the reply brief. One moment.

THE COURT: I didn't see it in your reply brief.

MR. DWYER: If counsel would — I'm just trying to — referring, Your Honor, to what page now in the reply brief?

THE COURT: He's going to try to find it.

MR. WELCH: So the discussion in the reply brief is page 9 and 10.

THE COURT: Okay.

(Reading.)

Plaintiffs argue that Flagship owed additional duties under Wyatt. Wyatt is inapplicable. Any duties under Wyatt arise from a prohibition against making affirmative misrepresentations rather than from a duty to explain the ins and outs of each loan product.

That's the Stetler case.

This is especially true when a party reads and signs the documents that disclosed the issues that he now complains of. As Stetler observed, a party may have not understood the meaning of the documents, but that does not render otherwise sufficient disclosures ineffective. Because plaintiffs have not substantiated a single affirmative misrepresentation by Flagship about their loan, Wyatt is inapplicable here, and there is no breach of fiduciary duty.

Well, the allegation is that there was an omission, the omission being that they didn't indicate at least orally that your impound account is going to change because your property taxes are going to go up. It's that simple.

MR. DWYER: Your Honor —

THE COURT: You think the documents show that.

MR. WELCH: Yeah, I think the documents are very clear, that it describes exactly what happened with the property taxes. And I don't think that there's any authority that suggests the kind of duty that Mr. Dwyer says he's a 100-percent sure of, which is that somehow there's an obligation to go above and beyond those documents and make an oral disclosure to the effect that he's describing.

THE COURT: You don't think Wyatt requires it.

MR. WELCH: No, I think Wyatt says you can't — Wyatt is a case where it says you can't affirmatively misrepresent what is in the loan documents, particularly when you know that the borrowers haven't read the loan documents. Those are the facts of Wyatt. But Stetler and the other case cited here, Nero, says that's about as far as Wyatt goes. It doesn't then go on to say, as I think plaintiffs are trying to argue here, you have to affirmatively disclose the ins and outs of every, you know, single term of the loan documents. That's not the law, and it certainly would be unwieldy for these kinds of transactions.

You just can't lie about what's in there when the borrowers haven't read the documents and you know that. That's what Wyatt says.

THE COURT: Mr. Dwyer, go ahead.

MR. DWYER: Yeah, the problem is it's easily distinguished. What happened in this case was — and I referenced the document — they were given a document, the McMenemys, that said your principal and interest will be a dollar amount, I think it was $1,655. It said your property taxes per month will be — I believe it was $85 and some change, and your insurance will be, I think, sixty some dollars per month.

THE COURT: $1,807 a month.

MR. DWYER: That was the — that is the actual operative disclosure, and that document was a misrepresentation of the true facts. They relied upon that representation. And of all the things that a mortgage broker does, the one key thing they must do is make sure that those numbers are accurate.

THE COURT: But it doesn't say, which is your clients' position, that it will be $1,807 for the life of the loan. It doesn't say that, so there's no affirmative misrepresentation in these documents.

And, in fact, shortly thereafter — not very shortly, but — your clients admit in their depositions — in fact, Ms. McMenemy admits in her deposition that she knows the property is going to be re-appraised and that she expects the property taxes to go up.

And, in fact, if you fast-forward to September of 2008, they now are clearly on notice that their impound account is going to have to increase, that their property taxes have increased. And if they say, well, that's news to us, we've been defrauded, that starts your statute of limitations running.

So you've got a problem there that, as of September 2008, it's running.

MR. DWYER: Well, Your Honor, there is a — there's a misassumption about the facts in terms of what a mortgage disclosure means.

In California, we have Proposition 13 for property taxes, and all mortgage — residential mortgage loans are subject to that. And that says that the property tax from the date of purchase forward is going to be based upon the value paid for the property, the price paid for the property, not the prior seller's old value.

THE COURT: Right.

MR. DWYER: And so all — all mortgage disclosures to a borrower must follow Proposition 13 and must disclose — on the document that we spoke about that was made to my client, must have disclosed what the property tax was going to be on the new assessed value.

What happened in this case was —

THE COURT: You agree with that?

MR. WELCH: I disagree. Do you want me to explain?

THE COURT: Yeah, I want to stay on that point.

MR. DWYER: I want to —

THE COURT: Because that's an important point. You're saying that — although I didn't see that in your brief, but —

MR. WELCH: Yeah, that's one point, is that it's a great argument, but they're not —

THE COURT: It's not in the brief, but go ahead.

MR. WELCH: They're not in the brief.

The way that Prop 13 operates is that this change occurs upon — or excuse me — this reassessment occurs upon change of ownership.

THE COURT: I'm well familiar with Prop 13, folks.

MR. WELCH: And as you go through the documents, this is precisely what is explained to the borrowers. And so, because that assessment hasn't taken place, the documents have to rely on the preliminary report generally provided by the title company that is based on the then value of the property.

And then it has all these notices, which are cited in our statement, as far as what's going to happen in the future, these are estimates, these are going to change, it happens upon change of ownership. You know, look for this in the mail. I mean, there are half a dozen of these similarly worded notices in these documents that describe precisely the process.

THE COURT: And they knew it was a $315,000 home.

MR. WELCH: Correct.

MR. DWYER: Your Honor —

THE COURT: Go ahead, Mr. Dwyer.

MR. DWYER: — that is not the way it works at an escrow in California, it just is not.

And our expert will testify, but what happens is —

THE COURT: Well, you can't tell me what your expert will do because, again, that should have been in front of me —

MR. DWYER: I —

THE COURT: — if you really believe that that evidence is going to be what you say it is.

MR. DWYER: The —

THE COURT: So don't go down that path because it's not in front of me, if that's what you're relying on.

MR. DWYER: California law requires the mortgage broker to disclose the full amount of the actual loan.

THE COURT: Where is that in your brief?

MR. DWYER: That's several places. It's Wyatt. That's fiduciary duty under — it starts with Wyatt. That's fiduciary duty. The first fiduciary duty is to disclose the true and correct terms of the loan.

So — I can get you the page cite for that, Your Honor. Just a moment.

(Pause in proceedings.)

MR. DWYER: Ah, beginning on page 13, Your Honor.

THE COURT: Hang on.

MR. DWYER: And right there on page 14, I think I quote from the Whitehurst versus Bank2Native case, where it says the mortgage broker owes a fiduciary duty to the highest faith and is charged with the duty of the fullest disclosure of all material facts concerning the transaction that might affect the principal's decision. That's right out of the case, Your Honor, and I cite other cases to that effect.

THE COURT: So what wasn't disclosed?

MR. DWYER: They didn't disclose the fact that your actual property taxes are going to be based upon the property — the purchase price. Your taxes are not going to be 85, they're going to be 300 some dollars.

That was the failure, and that's —

THE COURT: Okay. So you're saying that these documents don't disclose that. At least you're arguing that there is a genuine issue of material fact as to what these documents do or do not disclose?

MR. DWYER: Absolutely, Your Honor. Now we're at the nut.

THE COURT: Okay.

MR. DWYER: We've hit —

THE COURT: But as the Court, I can look at those documents. It's not a jury that has to review those. It's an argument that really on a summary judgment motion the Court can either agree or disagree with you.

MR. DWYER: Well —

THE COURT: Correct? I mean, the documents say what they say.

MR. DWYER: Yeah, well, April Smith testified at deposition that in fact the numbers on those documents are in fact wrong.

THE COURT: Well, that's one person's opinion.

MR. DWYER: Well —

THE COURT: That doesn't create a triable issue of fact just because April Smith —

MR. DWYER: She has 27 years in the mortgage brokerage business.

THE COURT: Sure.

MR. DWYER: That's all she does.

THE COURT: Hired by the plaintiffs.

MR. DWYER: She's not hired by us, Your Honor. She's just a third party witness.

THE COURT: No, she was contacted by the plaintiffs to assess them. Wasn't she?

MR. DWYER: She was asked what — they were trying to ask her what happened here, what went wrong.

THE COURT: She get paid by the plaintiffs for her —

MR. DWYER: Excuse me?

THE COURT REPORTER: I need you to move closer to the microphone.

MR. DWYER: I'm sorry. I apologize. Thank you.

THE COURT: Okay.

MR. WELCH: Can I make just one —

THE COURT: They contacted their real estate agent, and their real estate agent put them in touch with her.

MR. DWYER: Yes.

THE COURT: Okay. Go ahead.

MR. WELCH: Well, and I want to point out that the reason they — that she was put in contact with them was to do a refinance, and so there was a financial relationship. It wasn't just out of the goodness of her heart that there was a —

THE COURT: A refinance under California law.

MR. WELCH: Correct.

And the other point I want to make is that her testimony is being presented here as some kind of expert testimony, which is improper. I mean, she was presented as a fact witness to describe some conversations she had, and she's being used here as sort of an ersatz expert because that information is not before the Court, which I think is improper.

THE COURT: Right, I agree. Her testimony isn't that of an expert. Although she does have 37 years, that may not be enough to qualify her as an expert to testify as to some of the things she testified to.

Okay. Let me move — assuming I did find that the statute of limitations had not been met, there is a second argument with respect to this issue, and that is the equitable tolling argument. And that even if I found that this lawsuit should have been brought before February 2014, that I still should allow the case to go forward because of the doctrine of equitable tolling.

And, again, this was well briefed, thoroughly briefed. I'm not sure there is a factual issue that is involved here. It's really more of a legal question as to whether I think equitable tolling applies. Factually the facts aren't greatly in dispute with respect to this, and the issue is whether as a matter of law I should suspend or extend the statute of limitations.

The doctrine of equitable tolling will suspend or extend the statute of limitations as necessary to ensure fundamental practicality and fairness. The parties seeking equitable tolling, in this case the plaintiff, must show three elements: First, timely notice, a lack of prejudice to the defendant, and reasonable and good faith conduct on the part of the plaintiff.

The timely notice requirement essentially means that the first claim must have been filed within the statutory period. Furthermore, the filing of the first claim must alert the defendant in the second claim of the need to begin investigating the facts which form the basis for the second claim.

Generally this means that the defendant in the first claim is the same one being sued in the second. That's not the case in this case before the Court today. Flagship was not named in the first lawsuit, which was filed I believe in Nevada County, right, the Nevada County Superior Court? They were not named as a defendant.

The second prerequisite essentially translates to a requirement that the facts of the two claims be identical, or at least so similar that the defendant's investigation of the first claim will put him in a position to fairly defend the second. That's a Hopkins versus — and I'll spell the name — K-E-D-Z-I-E-R-S-K-I, a 2014 Court of Appeals case.

In terms of whether the first lawsuit was timely filed, Flagship has argued that even the first lawsuit was filed beyond the statute of limitations period. I don't necessarily agree. There is an argument that, again, the statute was triggered on July 3rd, 2008 when plaintiffs received the loan documents. But for purposes of this motion, I'll assume that the first lawsuit was filed within the statutory period. If it doesn't, then I'm not making any finding with respect to that. It would obviously render plaintiffs' claims against the other defendants as improper and subject to dismissal. But, for purposes of this motion today, I'm going to assume that the first lawsuit was within the statute of limitations.

And then the second inquiry is whether the first claim somehow alerted in this case Flagship of the need to begin investigating the facts which form the basis for this now operative complaint.

Plaintiffs argue that Flagship was properly placed on notice when counsel for the plaintiffs first inquired of Flagship about the loan and then noticed depositions to try to find out what went wrong. And Flagship has argued, in response to that argument, that plaintiffs' attempt to merely schedule a deposition in November of 2007 - 2011, sorry, which plaintiffs ultimately did not pursue, is hardly the basis for establishing a need to investigate.

Mr. Dwyer, why do you disagree with that?

MR. DWYER: Your Honor, I think it is very clear that they knew, because of the contacts that I put in my declaration, that we had discovered there was a problem alone. We had both — I inquired both of Flagship and Mr. Jones what went wrong here, how did this happen?

And I attached in my declaration the e-mail communications, a couple of examples which clearly indicate that they were notified that there was — what the nature of the problem was.

THE COURT: Let me ask this. When you sent those initial e-mails, my impression was you may not have had all of the loan documents that I now have and everybody has. There was some correspondence and discussion in depositions that both of you were operating at a disadvantage because you couldn't find Flagship's file. Ultimately I obviously have a huge stack of the closing documents. I don't know if those came from your clients or from Flagship.

But I got the impression that you were operating at an earlier stage in the litigation without the benefit of these documents. Is that fair?

MR. DWYER: Yes, Your Honor. Most of this comes in later, much later discovery.

THE COURT: Because if a lawyer had looked at the closing documents, there would have been a different discussion as to what we're discussing now, which is did these documents really put my clients on notice what was Flagship's role? You could tell from the documents that Flagship is the mortgage broker.

And I took it that your letters in early — late 2011, early 2012, in addition to trying to schedule depositions, were to try to get some assistance from Flagship as to exactly what their role was. Am I reading that wrong?

I mean, it's fairly friendly, innocuous, not adversarial e-mails.

MR. DWYER: Yes, Your Honor.

THE COURT: It's not I'm thinking of suing you type of e-mails. I'm trying to figure out what's going on here.

MR. DWYER: Well, Your Honor, I have to admit —

THE COURT: Microphone.

MR. DWYER: I'm sorry. Thank you.

I have to admit, and I hate to do this if I sound foolish, I was as gullible as my clients. Because I looked at the letters from Mr. Jones, telling Georgianne Russell, the real estate broker, that Flagship was just the loan processor, just a paper pusher. And I listened to my clients, and they were adamant that they never — they didn't know who Flagship is and what their involvement is, they only spoke to Devin Jones.

I assumed — after my initial communications with Flagship when they said we're just a loan processor, I took them at face value. And I suppose I was —

THE COURT: Flagship said they were just the loan processor?

MR. DWYER: They said they were just the loan processor initially, and that's why in my e-mail —

THE COURT: Who said that?

MR. DWYER: Flagship in some of my e-mails here. The first — it's the first page of Exhibit A, Your Honor, to my declaration. It's a letter from me to Benjamin Welch.

It's just a very short two-paragraph e-mail, first when I ask him about some — I thank him for the documents, and then I ask him right then and there about was there a splitting of money out of escrow?

THE COURT: Where is the representation that —

MR. DWYER: And —

THE COURT: Where is the representation that Flagship was just the loan processor?

MR. DWYER: Well, in the next paragraph, I said I'm trying to understand how Flagship became involved in the transaction. For example, was it merely the result of a business relationship between Mr. Jones and Ms. Hodge? Because, again, Ms. Hodge has been stated to just be the loan processor.

And I believe there's another reference here to this as well.

THE COURT: Yeah, but there's nothing in here that said they were trying to represent that Flagship was just a loan processor.

MR. DWYER: Well, I —

THE COURT: In fact, he attaches the loan application and appraisal and said his client will continue to research and search for additional documents.

MR. DWYER: Well, in my — what was in my hands were the documents that Devin Jones had sent to my client saying Flagship was just the loan processor.

THE COURT: I understand that, but you're kind of holding Flagship responsible for what your clients allege was a fraudulent representation made by Mr. Jones, not in any way — and there's no evidence that Flagship had knowledge of that representation, that they supported it, agreed to it.

Flagship never — you sort of point to it throughout the brief that you can't point to an affirmative misrepresentation made by Flagship. Your clients' response to that is I never talked to the guys, so how can they make an affirmative misrepresentation? But you're trying to attribute much of the fraud that is alleged against Mr. Jones to Flagship, and I'm having trouble seeing the link.

Mr. Jones didn't receive any money from Flagship, at least there's no evidence of that. And there is, again, no sort of trail, no evidence — that comes back to sort of my initial question about the conspiracy theory. If this was a conspiracy, then it would be a different case.

But this is a broker, Jones, who is acting on his own and trying to help your clients initially do a refinance, which I guess he was successful in doing, knowing that the refinance money had to be used to — as the down payment for the home in California. And from Jones's point of view, he's got to stay involved because the two transactions were so interrelated that he can't simply drop out.

Now, there's an issue of dispute that clearly has to be resolved only at trial as to whether Mr. Jones in fact did say what you're saying he said, or whether he actually told your clients at some point I'm not licensed in California, and I've got to get someone else to do that. Granted, that's a credibility issue, and that's a dispute. For purposes of this motion, I'm assuming that what he said to your clients is he is just a paper pusher.

How do you hold Flagship responsible for that? I know you want to keep Flagship in this case, but they're not the ones that hired Jones. Again, it would be a much different situation if they had actually hired Jones, if they had told Jones to go after these people, if there was some misunderstanding that initially this was going to involve property in California, so Flagship would get a piece of that.

There's none of that sort of pattern. It's kind of the opposite. Jones gets involved first, does the refinance knowing that ultimately this is going to end up in California, and that Flagship gets brought in. And now suddenly Flagship is being held responsible in your clients' mind for all the misrepresentations that Mr. Jones made, and that's a problem I see with the case.

I understand your clients' frustration. I see this time and time again in these cases. But they've sued Mr. Jones, and I know he's not a deep pocket, but let's be honest here, they want to keep Flagship in. But as a matter of law, I don't know how you can do that.

Go ahead.

MR. DWYER: Your Honor, I think I can make it very quickly for you.

Number one, Flagship already admitted under oath in the interrogatories that it was a mortgage broker. That creates an affirmative duty to disclose. That means they have to tell us all of the salient facts to make the loan.

THE COURT: Right back to what do the documents show.

MR. DWYER: And, in addition, unfortunately this brings us back to where I'm concerned about the Court's ruling on not reading the last two pages of my brief. Because in my brief, I explained to the Court that, under California law, there's two types of — two approaches to fraud.

There's fraud by representation —

THE COURT: And fraud by omission.

MR. DWYER: — and also fraud by omission.

THE COURT: Right.

MR. DWYER: And Flagship, for the most part, is fraud by omission because they don't disclose what they had a duty to disclose.

THE COURT: I understand. That comes back to —

MR. DWYER: Had we known the truth —

THE COURT: It comes back to your clients' view that the documents don't disclose what should have been disclosed.

MR. DWYER: Correct.

THE COURT: It really comes back to the $1800 is going to go up to $2400. And their point, their argument in response to that is, Judge, look at the documents, it does disclose that. The clients may not have picked up on it, but it's in there.

And they've also acknowledged, again in their depositions, they know that there is information in there about the property taxes. And, again, the case law makes it clear that your clients don't have to know each and every fact that gives rise to the claims. It's really sort of a reasonable notice, was there something that should have triggered a further inquiry? Was there enough? It doesn't have to be the full panoply of facts that gave rise to the lawsuit that's contained in your complaint.

And that's the other argument the defendants make, which is there is clearly enough here to put them on notice, and they sat on it.

MR. DWYER: Well, Your Honor —

THE COURT: It's a tough argument.

MR. DWYER: Your Honor, I think this goes, again, down to one simple nut. Let me explain it to you.

THE COURT: Go ahead.

MR. DWYER: This is crucial. This is going to be crucial if it goes to a jury.

That is, the mortgage broker must disclose what your monthly payments are going to be. This was a fixed 30-year loan, fixed interest rate. It had to give them the monthly payment with a breakdown of principal and interest, property taxes and insurance.

They got a document that was the disclosure document, and those numbers were — as we've already been over before, we don't need to go over it again — those numbers were wrong. Those were the numbers not for what it will be the first week, that was the monthly payment for the term of the loan. There were no significant adjustments to occur after that for the entire length of the loan.

Under California law, Prop 13, that number that they disclosed as the principal and interest and the property — the property taxes doesn't change, that's it. And so that's what went wrong here. They simply had to give the McMenemys a document saying you're going to have to pay this much principal and interest for 30 years, you're going to have to pay this much property taxes at a minimum, and you have to pay this much house insurance for right now.

Now, they understood that the house insurance, sure, could fluctuate a little bit. They understood that the assessed value — there might be a bond, a school bond or something, minor changes in the assessed value. But they knew that the assessed value for the property taxes had to be based upon the purchase value of the house. And there is testimony that I cited in there that, in fact, they understood that the loan payment was to include property taxes based upon the purchase price that they paid for it, not the old price. And they understood that.

The confusion that Flagship is trying to sell them here is that somehow in the document the McMenemys are told, gee, your property taxes are going to go up. No, they were told in this disclosure that this is your monthly payment for the next 30 years, and that payment was wrong. They would not have done the loan but for that wrong disclosure.

THE COURT: Where is that document that says —

MR. DWYER: It —

THE COURT: — your payment for the next 30 years is going to be $1,807? And I'll tell you the problem I see with that argument.

Loan documents contain amortization schedules, and it's for the mortgage, and that's the $1,600 figure in this case, the impound accounts, the property taxes and insurance. You're arguing — even though, again, there's no evidence of this in your opposition, but I understand your argument. You're arguing that, in addition, I should find in these documents a 30-year schedule as to what your impound account is going to be. And the response to that by the defendants is you don't know what your property taxes are going to be until the actual appraisal is done.

So, in the closing documents, you need to — and these closing documents do alert the plaintiffs, and the plaintiffs admit they're aware that their property tax is going to go up. It's not going to be based on the $94,000 appraisal or the $94,000 that the owner's property taxes are based on. It's going to be based on the $315,000 amount that they paid for that the house was appraised at. Everyone knows this at the time of closing.

Then you add on top — so you're saying there should have been more disclosure. And then you add on top of that that they actually get a supplemental property tax bill. Lights should go off our property tax just went up. They are told by their lender at some point, your impound account is in arrears because you haven't paid enough property tax. And that's the problem with your clients' case. They know all that as of September of 2008.

So if their claim was you should have told me that back in July when we bought the house, and you defrauded me, then they should have sued Flagship at that point because Flagship's name is all over these documents. And the problem with your clients' case, as I said in many of these cases, is the documents don't support their memory of what occurred or the alleged omissions that took place. And, again, there is no affirmative — it's an omissions case, I understand that, but there's no affirmative misrepresentation.

MR. DWYER: Your Honor, I disagree —

THE COURT: There is nothing in the documents that say — as your clients want me to find or believe, that says your payments for the next 30 years, including the impound account portion of your payment, will not change. I know that's what your clients wanted, and I understand that.

There's also in every purchase of homes, as I'm sure you are well aware, a three-day right to cancel. They didn't exercise that.

And it's — I know it's a hardship on plaintiffs in these cases, but it's a question of do they have to take some responsibility for reading and understanding the documents? And, second, were they on notice? That's the hard part of your case.

But go ahead.

MR. DWYER: Okay. Your Honor, the number disclosed was on — both in the closing documents and the payment coupon shows a monthly payment of $1,807. It breaks out the principal and interest. That number had to disclose the correct Prop 13 new property tax amount. It does not. It discloses $85. It should have disclosed about $315 or $325. That was the omission and/or the act of fraud. We don't know all the details yet, but that is the error.

They looked at that $85 a month and reasonably relied upon that as being an accurate disclosure from their mortgage broker, and it was not.

And there was nothing — there was no way for them to know, any manner that —

THE COURT: Why was that reasonable in light of all the other information they were receiving?

MR. DWYER: Because the mortgage broker is supposed to tell them what is the correct dollar amount that they're going to pay per month. That's the mortgage broker's job, number one. The first thing the mortgage broker has got to do is tell them what their monthly payments are going to be on the loan, job one for the mortgage broker.

THE COURT: We're going in circles here. I understand your argument.

Mr. Welch —

MR. DWYER: And —

THE COURT: I get it. I get your argument.

Mr. Welch, anything you want to add?

MR. WELCH: Just that I think the payment coupon is a little misleading. I mean, that's simply the coupon for the month. That's in no way a representation of what the payments will be for the next 30 years.

And, again, I think that all of these other documents that have any mention of an actual payment are always tempered with phrases like estimate with regards to property taxes and insurance. I think, you know, again, looking at the plain language of the documents, it bears that out.

THE COURT: Okay. We'll take a short break. I'll come back out and let you know my decision on the motion. We'll come back in 10 minutes.

(Recess taken.)

THE COURT: All right. The Court's prepared to rule on the motion for summary judgment as follows:

In this case, the initial complaint against Flagship was filed on January 2nd, 2014. Flagship did remove the case to this court on February 18th, 2014, and plaintiffs filed the first amended complaint, the operative complaint, in this case.

The defendants have moved for summary judgment on two grounds. One is that all of the claims that have been raised against Flagship are barred by the statute of limitations. The second argument, which the Court has not considered given the page limitations, is an argument that the claims are without merit. Portions of the argument in support of that basis exceeded the page limit, and plaintiffs' opposition to that portion of Flagship's arguments also exceeded the page limitation. The Court is not in any way basing its determination today on those grounds or that ground for summary adjudication. I am focusing only on the statute of limitations argument, which was fully briefed by both sides and fully considered by the Court in this case.

As indicated, the statute of limitations that is applicable in this case is a three-year statute of limitation. The cause of action is not deemed to have accrued until the discovery by the aggrieved party, in this case the plaintiffs, of the facts constituting the fraud or mistake. Pursuant to this rule, the statute of limitations begins to run when the plaintiffs suspect or should suspect that the injury was caused by wrongdoing and that someone had done something wrong, in this case to them. That's the Jolly versus Ely Lilly and the Kline versus Turner case, which are discussed by the parties in their briefs.

In Kline, the Court of Appeals held that the statute of limitations begins to run when the plaintiff has information which would put a reasonable person on inquiry. A plaintiff need not be aware of the specific facts necessary to establish a claim since they can be developed in pre-trial discovery.

Initially Flagship claimed that there was a two-part test to discover — or to determine whether the rule of discovery applied. Flagship argued that plaintiffs must establish first that discovery was actually delayed and, second, that discovery occurred after the statute of limitations would normally have expired, otherwise the normal statute of limitations would still apply. Plaintiffs did object to the second part of this inquiry arguing that it was not novel and arguing that there was no authority under California law that supported this novel theory.

I agree with plaintiffs with respect to that second theory, the authority for the alleged two-part test. The Court is unconvinced by the authorities cited by Flagship that that is in fact the applicable law, and so I have not applied this what I find to be a novel theory in this case.

The language in the case law does not appear to support any conclusion that the discovery rule can only be invoked when discovery occurred after the statute of limitations would normally have expired, otherwise the normal statute of limitations will still apply. The cases relied on by Flagship simply point out that if an action is brought after the expiration of the statute of limitations based on the discovery exception, then the discovery must still have been made within three years prior to the filing of the complaint. In other words, once discovery is made, then the three-year statute of limitations rule begins to run. And so that is the test that is applied here.

Since plaintiffs filed their initial complaint against Flagship on — is it February 4th or January 4th?

January 2nd. Let me make sure. Hang on.

(Pause in proceedings.)

THE COURT: Okay. The case was removed in February. It was January 2nd, 2014. The issue in this case on the summary judgment motion is whether the filing of the complaint occurred more than three years after the date of discovery of facts constituting the alleged fraud in this case.

Plaintiffs initially — not initially, but plaintiffs have argued, through Mr. Dwyer's declaration, that they did not know, and had no reason to know, about the alleged fraudulent conduct of Flagship until on or around January 5th, 2012, when the deposition of Heather Hodge was taken.

As the Court has discussed during oral argument here today, that argument at least is unsupported by any evidence that has been submitted to the Court in support of or in opposition to the motion for summary adjudication. Therefore, I don't find that that argument has merit. Obviously if discovery wasn't made until January 5th, 2012, then the complaint was clearly filed within the statute of limitations. But, again, I have no evidence to support that claim.

Flagship has argued that there were at least six distinct triggering events that provided plaintiffs with knowledge of actual fraud or at least provided the plaintiffs with enough information that would lead a reasonably prudent person to suspect fraud. Each of these events occurred before the complaint, the three years going back, which would be January 2nd, 2011.

Again, Flagship's argument is that each of these events occurred before that date, and that the complaint was filed after the three-year statute of limitations expired. All of the events that Flagship points to — and I'll go through them — occurred in the 2008 to 2010 time period.

It was under this impression that I am not considering with respect to the April Smith meetings. Although plaintiffs appear to have met with Ms. Smith beginning in 2010, there is at least some argument that they were not on notice until April of 2011 when Ms. Smith wrote a letter, helped them write a letter to the FBI. And it was under the impression, and I'm not relying on it, that the defendants had in fact not really pursued that as one of the triggering events, and so I won't spend much time discussing that.

Again, in plaintiffs' opposition and through oral argument, they vigorously disagree that Flagship has demonstrated and shown through uncontroverted facts that plaintiffs waited until after three years from the date of discovery to file their complaint.

Flagship must show that there are uncontradicted facts that are susceptible of only one inference. And looking at the triggering events, this court can, and in fact does, conclude in this case that the plaintiffs had sufficient information prior to January of 2011 to suspect that their injury was caused by wrongdoing and that this information would put a reasonable person on notice as to a potential cause of action.

And, again, if I'm using the wrong date — I don't have the actual first complaint in front of me — if one of the lawyers wants to look up when they removed it, when the original complaint was filed, we'll make sure that that date is included.

MR. DWYER: Your Honor is asking about the original date of filing of the current lawsuit? That would be January 4th, 2012.

THE COURT: It was January 4th.

MR. DWYER: Yes.

THE COURT: No. It was in 2014, the complaint against Flagship. Because it was removed on February —

MR. DWYER: Yes. I'm sorry. Yes, January 4th, 2014. I misspoke on the year. You're correct.

THE COURT: It was January 4th.

MR. DWYER: Correct.

THE COURT: 2014.

MR. DWYER: Yes.

THE COURT: Okay. All right.

The first triggering event, according to Flagship, was the loan documents themselves that the plaintiffs received in the summer, it was actually July of 2008, when the original loan was finalized. Flagship has argued that these loan documents specifically advised plaintiffs that the monthly payment was calculated on the California property's then current value and would be reassessed upon change of ownership. It's undisputed that the buyer's instructions were received by the plaintiffs on or around August 1st, 2008, and that these instructions stated that the property tax would be assessed, quote, as a result of revised assessed values.

That's Exhibit 22 and statement of undisputed facts 47 to 52.

Plaintiffs do admit that their residential purchase agreement, which they signed on June 25th, 2008, states that, quote, property will be reassessed upon change of ownership — that's Exhibit 23 — close quote. Plaintiffs also acknowledged that they knew that property tax would be reassessed upon the change of ownership.

There's also multiple other documents that similarly notified plaintiffs about the potential increase in their monthly impoundment account payments. Plaintiffs have argued that these documents demonstrate the falsity of plaintiffs' claim that Jones and Colonial stated that the monthly payments would not exceed $1800. However, plaintiffs argue at least it placed the plaintiffs on notice that Jones and Colonial may have been lying.

Plaintiffs claim that Colonial and Jones represented to plaintiffs that they would broker the property loan and that Flagship was merely a paper pusher. Yet Flagship points out that this understanding was directly contradicted by the multiple loan documents that in fact describe Flagship's obligations as the loan broker, the originator.

For example, there is a servicing disclosure statement signed by plaintiffs on July 2nd, 2008, which lists Flagship as the lender. That's Exhibit 19. There's a loan application that clearly identifies Flagship. That's Exhibit 11.

There is the origination agreement, which we discussed, that identifies Flagship was the mortgage loan originator and clearly states that plaintiffs have agreed to enter into the origination agreement with Flagship as an independent contractor to apply for a residential mortgage loan. And Mr. McMenemy admitted in his deposition that he in fact understood that they had entered into a contractual relationship with Flagship.

Despite this overwhelming evidence, plaintiffs still allege that they simply relied on Jones's representations that Flagship was his paper pusher. Yet the evidence in this case that has been submitted by Flagship in support of the summary judgment motion fully demonstrates that a reasonable person in plaintiffs' situation would have realized that Flagship was more than a mere paper pusher and that the monthly payments would likely change.

It's also worth noting that this is not a plaintiff or plaintiffs that are new home buyers. These plaintiffs had purchased a home previously. They had a home in Idaho that they were refinancing. And so there was some familiarity with the loan process and mortgage process.

Plaintiffs also admit in their depositions, such as when Mr. McMenemy states that their understanding at the time, again in 2008, was, quote, inconsistent with the plain facts. He also said in his deposition that I'm very surprised to see how many papers have Flagship with my name on it.

He stated in his deposition, I simply accepted Mr. Jones's representations about the role of Flagship and apparently completely disregarded the meaning of the plain words on some of these documents. This is in his deposition at page 112, lines 14 through 19.

He also indicated in his deposition that he was embarrassed by that.

The next triggering event, according to Flagship, was when plaintiffs received a subsequent tax notice or notices which showed that, while the property in California had a prior value of $100,039, the assessed value for the plaintiffs at the time of purchase was now $315,000. The parties, it's undisputed, agree that these tax notices clearly show what amount plaintiffs were now required to pay and, therefore, Flagship argues to the extent that the amount was different than what Jones or Colonial may have told plaintiffs they were required to pay, plaintiffs were now placed on notice of potential fraud because a reasonably prudent person would investigate further.

Plaintiffs' response to that is that these documents are not as important as defendants are arguing because, quote, there was nothing out of the ordinary in them.

The next triggering event is the 2010 escrow statement that plaintiffs received on or about September 3rd, 2010. It's undisputed that this document explained that the monthly escrow deposit would increase to $386.01, which in turn would raise the monthly payment. This is undisputed fact No. 78. That document also notified plaintiffs of an escrow shortage of $1,782.12 as well as a deficiency of $2,619.89. That's statement of undisputed fact 79.

Plaintiffs admitted that it was at this time that, quote, we knew we had — we knew there was a problem, close quote. That is statement of undisputed fact No. 80.

Plaintiffs have argued in their opposition that they only knew that they were in arrears, but did not know what went wrong. Ms. McMenemy allegedly diligently investigated why theloan servicers said they were in arrears, but it took some time because it was so difficult to communicate with the loan servicers during that time.

And then there was the fourth and fifth alleged triggering events which Flagship has cited to in support of their argument, that plaintiffs understood in or around September of 2010 that they may have been subjected to mortgage fraud. Plaintiffs accessed their loan account on their lender's website, Cenlar, on September 14th, 2010. At that time, they confirmed that their escrow account had a negative balance of $2,774.79.

In response to this, plaintiffs contacted Cenlar directly and asked about their payments. Cenlar told plaintiffs that they needed to pay the money that was in arrears. And when plaintiffs told Cenlar that they had been paying $1,807 per month, Cenlar informed them that this was the the wrong amount. And Cenlar even told plaintiffs that they had been duped. This is statement of undisputed fact No. 83.

The discovery rule allows the statute of limitations to begin running when the plaintiffs suspect or should suspect that their injury was caused by wrongdoing. In this case, the defendants have submitted more than enough evidence for the Court to conclude that the plaintiffs were actually suspicious and should have been suspicious well before the complaint was filed in 2011, and that there may have been fraudulent activity associated with their mortgage.

Plaintiffs have also admitted that in September of 2010, they became aware that there was a problem, and they investigated the problem and discovered that their previous payments were apparently insufficient.

Though the plaintiffs may not be aware of the specific facts necessary to establish a claim against Flagship at this point, that amount of clarity is not necessary to trigger the discovery rule. That's Kline versus Turner.

Alternatively, the Court does also point out — I'm sorry. No. There is no alternatively.

The Court does, again, conclude that, based on all of this evidence, that the plaintiffs in fact did violate the statute of limitations because they discovered their cause of action at the latest by September of 2010, and they waited to file their complaint against Flagship more than three years later.

While that finding has been made by the Court, it does not end the inquiry since there is a second response in opposition to the statute of limitations argument, and that is that the Court has been requested by plaintiffs to apply the doctrine of equitable tolling if in fact, as I have concluded, that the plaintiffs did discover their potential claims against Flagship more three years before they filed the complaint.

Where applicable, the doctrine of equitable tolling will suspend or extend a statute of limitations as necessary to ensure fundamental practicality and fairness. And the party seeking equitable tolling must show, again, three elements, timely notice, lack of prejudice to the defendant, and reasonable and good faith conduct on the part of the plaintiffs.

Again, normally in an equitable tolling situation, the first claim includes the — in this case, it would be Flagship, but includes the defendant and puts them on notice, and that the defendant in the first claim is the same as the defendant being sued in the second. Again, that did not happen here. The first complaint was only filed against Jones and Colonial.

And, again, while Flagship argued even that complaint was beyond the statute of limitations for purposes of this summary judgment motion, I have assumed and have not reached any finding as to whether the first complaint was filed beyond the three-year statute of limitations.

The second inquiry, then, is the timely notice element of the equitable tolling rule, and that is whether the first claim alerted the defendant in the second claim, again here Flagship, of the need to begin investigating the facts which formed the basis for the second claim.

Again, plaintiffs' argument here is that Flagship was properly placed on notice when counsel for plaintiffs first inquired of Flagship about the loan. Again, this is Mr. Dwyer's declaration and the exhibit that was attached that we discussed.

The Court does, however, agree with Flagship that this is not sufficient, and that Flagship was not properly placed on notice of a need to begin investigating facts. While Mr. Dwyer did contact Mr. Welch by e-mail regarding the McMenemy loan application, this e-mail exchange does demonstrate that Mr. Welch sent a loan application completed by Mr. McMenemy, the July 2008 loan application, as well as an appraisal that was prepared for the California property.

Mr. Dwyer did ask Mr. Welch questions about whether Flagship was affiliated with Colonial, but the e-mail chain stops there. That question wasn't really responded to. And this evidence alone does not demonstrate that in fact Flagship was placed on notice about plaintiffs' allegations of fraud against Colonial and Jones, much less that plaintiffs believed that Flagship engaged in fraud.

Plaintiffs have also raised the argument that the notice to take the deposition of the president of Flagship in December of 2011 placed Flagship on notice that, quote, plaintiffs were seeking an explanation of the loan, close quote. That deposition was never taken. And certainly Flagship was on notice that plaintiffs may have been inquiring about the loan, but plaintiffs have failed to meet their burden that notice was sufficient to begin investigating the facts which form the basis for the second claim, especially given the fact that the deposition was never taken.

The second element of the equitable tolling rule also is that there is no prejudice to the defendant. The second prerequisite essentially translates to a requirement that the facts for the two claims be identical or at least so similar that the defendant's investigation in the first claim will put him in a position to fairly defend the second. That's the Hopkins case.

As Flagship points out, plaintiff never argued that the two cases are identical or at least similar. Plaintiffs have merely alleged that the facts of this case meet all of the criteria, but then they proceed to discuss their good faith efforts and the existence of notice.

The Court concludes that plaintiffs, again, have failed to meet their burden under the second element of equitable tolling and, therefore, do not find that equitable tolling would be applicable.

The third element is that plaintiffs acted reasonably and in good faith. On this element, there does seem to be good faith, and Flagship has not in fact argued that plaintiffs acted in bad faith.

For these reasons, the fact that all of the elements have not been met that would allow the Court to apply equitable tolling, the Court concludes that equitable tolling is not applicable here. Plaintiffs have not satisfied their burden, they have not demonstrated compliance with all of the elements of the equitable tolling test and, therefore, the response and the request to apply equitable tolling is denied as to the statute of limitations argument.

For those reasons, the Court does grant summary judgment in favor of Flagship on all of the causes of action. As indicated, the Court has not and need not reach any of the arguments on the merits. They have not been taken up, not considered by this court, and is not the basis for the Court's decision in this case.

Mr. Welch, if you want to prepare an order, you may do so. Run it by Mr. Dwyer for approval as to form, and you can submit it' to me within 10 days.

A lot of times lawyers will order a transcript and simply indicate in the order that, for the reasons stated in the transcript or at the hearing, the motion is granted. I'll leave it up to you as to whether you want to address something else.

MR. WELCH: Is that acceptable to the Court?

THE COURT: That's fine. That just allows us to have a record. We do put a minute order on the docket. But if this case is going to be appealed, it might be easier to do it that way.

MR. WELCH: Very good.

THE COURT: Okay. Thank you both.

MR. DWYER: Thank you.

(Proceedings were concluded at 4:57 p.m.)

I certify that the foregoing is a correct transcript from the record of proceedings in the above-entitled matter.