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					     THOMAS E. ALBORG (SBN 056425)
                                                                                  E-FILED
                                                                                      Dec 17, 2007 3:51 PM
 1                                                                                            KIRI TORRE
     MARK D. EPSTEIN (SBN 168221)                                                          Chief Executive Officer
 2   ALBORG, VEILUVA & EPSTEIN LLP                                                Superior Court of CA, County of Santa Clara
     200 Pringle Avenue, Suite 410                                                  Case #1-04-CV-032895 Filing #G-6412
 3   Walnut Creek, CA 94596                                                              By L. Quach-Marcellana, Deputy
     Tel: 925-939-9880
 4   Fax: 925-939-9915

 5   Attorneys for Plaintiffs RAFAEL LICEA, SHAWN
     SHERBURNE, and MANUEL NUNGARAY,
 6   individually and on behalf
     of all similarly situated persons
 7
 8                           SUPERIOR COURT OF THE STATE OF CALIFORNIA

 9                      COUNTY OF SANTA CLARA - UNLIMITED JURISDICTION

10   RAFAEL LICEA, SHAWN SHERBURNE,                               Case No. 104CV032895
     MANUEL NUNGARAY, individually and on
11   behalf of all similarly situated persons,                    PLAINTIFF’S UPDATED NARRATIVE
                                                                  CASE MANAGEMENT STATEMENT IN
12              Plaintiff,                                        CONNECTION WITH THE CONTINUED
                                                                  FINAL APPROVAL HEARIG ON THE
13       vs.                                                      PENDING CLASS ACTION
                                                                  SETTLEMENT_AGREEMENT_______
14   FIELDSTONE MORTGAGE COMPANY, a
     corporation, FIELDSTONE INVESTMENT                           Date:    December 21, 2007
15   CORPORATION, a corporation,                                  Time:    10:00 AM
     CALIFORNIA HOME & MORTGAGE, a
16   corporation, RALPH HODGEN, an individual,                    Dept.:   17
     VERONICA P. CAZAREZ, an individual, and                      Judge:   The Honorable Jack Komar
17   DOES 4 through 500, inclusive ,
                                                                  Complaint Filed: December 23, 2004
18              Defendants.

19

20             Pursuant to the Court’s instructions at the November 16, 2007 Case Management

21   Conference and final approval hearing on the parties’ pending class action settlement agreement,

22   plaintiffs submit this updated narrative case management statement in connection with the

23   continued final approval hearing and case management conference, which was recently placed

24   back on the court’s schedule by order dated December 7, 2007. 1

25

26   1
       After Fieldstone Mortgage Company (“FMC”) filed a Notice of Stay of Proceedings on November 27, 2007,
     stating that the case is stayed as to all parties, the court issued an order vacating the December 21 hearing date.
27   Plaintiffs filed a response to the Notice of Stay in which they pointed out that FMC’s parent company, Fieldstone
     Investment Corporation was not in bankruptcy, and thus the case is not stayed as to the parent company. On
28   December 7, 2007, the Court entered an order staying the case as to FMC only, and resetting the December 21
     hearing.                                                        1        900053.pld.Narrative CMC Stmnt.121207.mde.doc
                 UPDATED CASE MANAGEMENT STATEMENT IN CONNECTION WITH THE PENDING CLASS ACTION SETTLEMENT
E-Filed: Dec 17, 2007 3:51 PM, Superior Court of CA, County of Santa Clara, Case #1-04-CV-032895 Filing #G-6412




     1                                                   SUMMARY OF CASE STATUS

     2                In April 2007, plaintiffs and defendants Fieldstone Mortgage Company (“Fieldstone”)

     3     and its parent company, Fieldstone Investment Corporation, entered into a written agreement to

     4     settle plaintiffs’ class action claims against Fieldstone in this action. The Court issued an order

     5     granting preliminary approval to the settlement on or about May 31, 2007, in which the Court

     6     found that the terms of the settlement appeared to be fair, reasonable, and adequate, and

     7     preliminarily approved the Agreement pursuant to Rule 3.769(d) of the California Rules of

     8     Court. The settlement agreement was the product of serious good faith, and arms-length,

     9     negotiations by the parties, and was reached after the parties engaged in arduous and extended

   10      settlement procedures that included a mediation before the Honorable Richard Silver (Ret.) at

   11      JAMS, and two sessions of a voluntary settlement conference with the Honorable Jack Komar.

   12                 In issuing its order granting preliminary approval to the settlement, the Court scheduled a

   13      final approval hearing for August 24, 2007. Following the Court’s entry of the order granting

   14      preliminary approval, Fieldstone served the formal notice of the settlement on 33,600 class

   15      members. Counsel received notice of only two objections to the Agreement, which were

   16      provided to the Court. Nine class members gave notice that they want to opt-out of the

   17      settlement, and two class members even gave notice (unnecessary as it was) that they wish to

   18      participate in the settlement.

   19                 A.         The August 24, 2007 Final Approval Hearing

   20                 Ten days prior to the final approval hearing, on or about August 14, 2007, Fieldstone

   21      filed a “response” to plaintiffs’ motion for final approval of the settlement, in which counsel for

   22      Fieldstone advised that Fieldstone does not oppose the motion for final approval of the

   23      settlement. However, Fieldstone went on to represent in that filing that because of “recent

   24      margin calls,” the company that acquired Fieldstone Investment Corporation, and thus
   25      Fieldstone’s new parent company, Credit-Based Asset Servicing and Securitization, LLC ("C-
   26      BASS"), was facing “liquidity issues” and that as of August 14, 2007, Fieldstone had
   27      temporarily ceased accepting new loan applications while C-BASS worked to resolve its
   28      “liquidity” issues. Fieldstone represented further that while Fieldstone had closed its retail (non-
                                                                                  2     900053.pld.Narrative CMC Stmnt.121207.mde.doc
                           UPDATED CASE MANAGEMENT STATEMENT IN CONNECTION WITH THE PENDING CLASS ACTION SETTLEMENT
E-Filed: Dec 17, 2007 3:51 PM, Superior Court of CA, County of Santa Clara, Case #1-04-CV-032895 Filing #G-6412




     1     brokered) loan business, the company intended to re-open its wholesale loan business once the

     2     C-BASS liquidity issues were resolved. Fieldstone submitted no declarations or statements

     3     under oath from any company employees, nor did Fieldstone submit any other form of evidence

     4     in connection with its representations that it had temporarily ceased originating new loans.

     5                At the final approval hearing on August 24, 2007, the Court advised counsel that it had

     6     concerns about the settlement in light of the representations that had been made by counsel for
     7     Fieldstone regarding Fieldstone’s cessation of loan originations. The Court expressed concern
     8     that the $400 coupons that were distributed to the class members along with the settlement
     9     notice, which are supposed to be available to class members who want them to use as a credit
   10      against closing costs in connection with any new mortgage loan from Fieldstone, may be of no
   11      value if Fieldstone does not resume its mortgage lending operations. The Court went on to
   12      advise counsel that it was not inclined to grant final approval to the settlement unless it could be
   13      demonstrated that the coupons are of some value. The final approval hearing and case
   14      management conference were then continued to November 16, 2007 so that the Court could re-
   15      evaluate the settlement in light of the status of Fieldstone’s lending operations at that time.
   16                 B.         The Continued Final Approval Hearing on November 16, 2007
   17                 At the November 16 hearing, Fieldstone advised the court that in August and October
   18
           2007, Fieldstone laid off “substantially all of its workforce,” that Fieldstone had only 38
   19
           employees left at that time, and that further layoffs were expected. Fieldstone represented
   20
           further that it did not have the ability to make any new loans, and that it was unclear whether
   21
           Fieldstone would be able to originate any new loans in the near future.
   22
                      Upon learning this information, the Court advised the parties that it would be premature
   23
           for the Court to conclude that the settlement is no longer viable. The Court advised that it
   24
           wanted to consider whether there may be other avenues of recourse available to bring the
   25
           settlement into fruition, and whether Fieldstone’s parent entity (Fieldstone Investment
   26
           Corporation) and/or the entity that acquired Fieldstone’s parent company (C-BASS) may have
   27

   28
                                                                                  3     900053.pld.Narrative CMC Stmnt.121207.mde.doc
                           UPDATED CASE MANAGEMENT STATEMENT IN CONNECTION WITH THE PENDING CLASS ACTION SETTLEMENT
E-Filed: Dec 17, 2007 3:51 PM, Superior Court of CA, County of Santa Clara, Case #1-04-CV-032895 Filing #G-6412




     1     some may have some vicarious or derivative liability for Fieldstone that might provide some

     2     recourse to maintain a viable settlement.

     3                C.         Fieldstone (But Neither It’s Parent Company Nor the Acquiring Entity C-
                                 BASS) Files for Bankruptcy
     4
                      The Chapter 11 Bankruptcy Petition, a copy of which was attached to Fieldstone’s Notice
     5
           of Stay, shows that only Fieldstone Mortgage Company, and not Fieldstone Investment
     6
           Corporation, filed for Chapter 11 protection. Therefore, the automatic stay does not extend to
     7
           defendant Fieldstone Investment Corporation in this case. To the extent that Fieldstone
     8
           Investment Corporation has merged with a subsidiary of Credit-Based Asset Servicing and
     9

   10      Securitization, LLC ("C-BASS"), as represented in Fieldstone's July 2, 2007 8-K filing with the

   11      United States Securities and Exchange Commission, then either C-BASS or the subsidiary of C-

   12      BASS into which Fieldstone Investment Corporation was merged is now, by operation of

   13      California law, vicariously liable for any liability on the part of Fieldstone Investment

   14      Corporation in this case. Corp. Code §1107.

   15                 Upon a merger, the surviving entity succeeds, without other transfer, to all rights and

   16      property of the disappearing corporation, and is subject to all the debts and liabilities of the

   17      disappearing corporation as though the surviving entity had itself incurred them. Ibid.

   18                 Michael Sonnenfeld signed the settlement agreement in this case on behalf of both

   19      Fieldstone Mortgage Company and Fieldstone Investment Corporation, and both entities are

   20      express parties to the agreement. Therefore, C-BASS (or the subsidiary entity into which

   21      Fieldstone Investment Corporation merged) retains Fieldstone Investment Corporation's

   22      liabilities in this case.
   23                                                                    ANALYSIS
   24                 While the Court may not yet be in a position to grant final approval to the settlement as of
   25      the date of the continued hearing on December 21, 2007, there is certainly no reason to nullify
   26      the settlement agreement. Indeed, there is every reason to preserve and keep the settlement in
   27      force.
   28
                                                                                  4     900053.pld.Narrative CMC Stmnt.121207.mde.doc
                           UPDATED CASE MANAGEMENT STATEMENT IN CONNECTION WITH THE PENDING CLASS ACTION SETTLEMENT
E-Filed: Dec 17, 2007 3:51 PM, Superior Court of CA, County of Santa Clara, Case #1-04-CV-032895 Filing #G-6412




                      A.         The Settlement Monies Being Held in Trust May Not Be Part of Fieldstone’s
     1                           Bankruptcy Estate
     2                In light of Fieldstone’s Chapter 11 Bankruptcy, plaintiffs will not address any issues
     3     concerning settlement or the class certification motion with respect to Fieldstone because the
     4     automatic bankruptcy stay applies. However, plaintiffs do wish to point out that the settlement
     5     monies that were deposited into the joint trust account controlled by counsel for plaintiffs and
     6     defendants pursuant to the settlement agreement were deposited more than three months ago,
     7     well in advance of Fieldstone’s Bankruptcy petition. Plaintiffs are not insiders of Fieldstone, so
     8     the funds are not subject to a preference claim. Also, at this point it is unclear whose funds, as
     9     between Fieldstone, Fieldstone Investment Corporation and/or C-BASS, were deposited into the
   10      joint account, and it is unclear which portion of those funds were paid for the benefit of
   11      Fieldstone Investment Corporation as opposed to Fieldstone Mortgage Company.
   12
                      Under these circumstances, plaintiffs are not filing a creditor’s claim in Fieldstone’s
   13
           bankruptcy action, since the monies have already been paid, and if necessary will respond to any
   14
           adversary proceeding that may be filed in the Fieldstone’s bankruptcy action by the debtor in
   15
           possession or the trustee.
   16             B.      The Settlement Has Value Because Fieldstone’s Parent Company Still Holds
                          Mortgages That Were Originated By Fieldstone
   17
                      With respect to Fieldstone Investment Corporation and/or C-BASS, publicly filed
   18
           documents demonstrate that the parent company still holds thousands of mortgages originated by
   19
           Fieldstone Mortgage Company which may be the subject of refinance or restructuring,
   20
           particularly in light of the sub-prime mortgage melt-down, and Fieldstone Investment
   21
           Corporation and/or C-BASS are obligated to offer the same credits afforded by the coupons
   22
           distributed to the class members in this settlement in connection with any such loan restructure
   23
           or refinance pursuant to the terms of the settlement agreement which calls for the members of the
   24
           Settlement Class to receive a $400 discount per loan on a future mortgage loan with Fieldstone
   25
           or its successor in interest. This applies to any successor of Fieldstone, including Fieldstone
   26
           Investment Corporation, C-BASS, and/or any purchase of the assets of the loan portfolio.
   27

   28
                                                                                  5     900053.pld.Narrative CMC Stmnt.121207.mde.doc
                           UPDATED CASE MANAGEMENT STATEMENT IN CONNECTION WITH THE PENDING CLASS ACTION SETTLEMENT
E-Filed: Dec 17, 2007 3:51 PM, Superior Court of CA, County of Santa Clara, Case #1-04-CV-032895 Filing #G-6412




     1                Given these circumstances, this settlement can and should be confirmed as to Fieldstone

     2     Investment Corporation and/or C-BASS, and the funds can be disbursed on their instruction,

     3     especially since they are jointly and severally bound by the terms of the settlement. Since

     4     Fieldstone Investment Corporation was merged into C-BASS or a division thereof, C-BASS is

     5     liable for the debts and liabilities of Fieldstone Investment Corporation under the legal principals

     6     of merger. Therefore, C-BASS presumably purchased Fieldstone Investment Corporation on the
     7     premise that this case was finally resolved.
                  C.      There Is a Substantial Risk That the Class Members’ Rights May Be
     8
                          Emasculated By the Statute of Limitations and/or Fieldstone’s Bankruptcy
     9                    Filing if the Settlement Is Not Approved

   10                 If this settlement is not approved, there is a substantial risk that the class members’ rights

   11      to pursue their individual claims against the defendants may be eroded by the statute of

   12      limitations.

   13                 Under California law, the statute of limitations may only be tolled “under limited

   14      circumstances” if class certification is denied. Jolly v. Eli Lilly & Co. (1988) 44 Cal.3d 1103,

   15      1119-1120; Becker v. McMillin Construction Co. (1991) 226 Cal.App.3d 1493, 1498. In Jolly,

   16      supra, 44 Cal.3d 1121-1122, the California Supreme Court outlined two major policy

   17      considerations which the tolling rule was designed to accommodate: first, protection of

   18      efficiency and economy in litigation as promoted by the class action device, so that putative class

   19      members would not find it necessary to seek to intervene or to join individually because of fear

   20      the class might never be certified; and second, effectuation of the purpose of the statute of

   21      limitations to protect a defendant from unfair claims. The tolling doctrine must be analyzed and

   22      applied in each case, and focuses on the identity of the claimants, the nature of their claims, and
   23      the “equities” of the particular case. Becker v. McMillin Construction Co., supra, 226
   24      Cal.App.3d at 1498.
   25                 In short, where class certification is denied, the statute of limitations will be tolled as to
   26      individual class member claims only (1) were necessary to protect the efficiency and economy of
   27      the class action device, and (2) where the class action complaint provided the defendant with
   28
                                                                                  6    900053.pld.Narrative CMC Stmnt.121207.mde.doc
                          UPDATED CASE MANAGEMENT STATEMENT IN CONNECTION WITH THE PENDING CLASS ACTION SETTLEMENT
E-Filed: Dec 17, 2007 3:51 PM, Superior Court of CA, County of Santa Clara, Case #1-04-CV-032895 Filing #G-6412




     1     notice of the nature and number of all potential claims. Jolly v. Eli Lilly & Co., supra, 44 Cal.3d

     2     at 1498; Becker, supra, at 1498.

     3                Accordingly, in the case at bar, if the pending class action settlement is not approved, the

     4     class members risk losing their individual claims against Fieldstone Mortgage Company,

     5     particularly in light of Fieldstone’s bankruptcy filing, as well as Fieldstone Investment

     6     Corporation and its parent company C-BASS to the statute of limitations.
     7                D.         Possible Alternative Resolution of Case Based on the Value of Fieldstone’s
     8                           Earlier Cessation of the Offending Business Practice
                      In the event that the Court is unwilling to grant final approval to the class action
     9

   10      settlement, counsel for plaintiffs may, if necessary, submit a supplemental request for an award

   11      of fees and incentive fee payments to the named class representative plaintiffs based on the

   12      benefits that have been provided conferred on the putative class, and the broader group of

   13      Fieldstone borrowers nationwide, based upon Fieldstone’s unilateral change in business practice

   14      in July 2006. Deposition testimony of the company’s designated representative, Jake Culp, and

   15      declarations submitted by other corporate officers, confirmed that Fieldstone changed its practice

   16      of using boilerplate, percentage range footnotes to “disclose” the yield spread premiums it paid

   17      the borrowers’ mortgage brokers, after conferring with its outside counsel in this case. The

   18      change in practice occurred nationwide.

   19                 Accordingly, the class representative plaintiffs and their counsel have already conferred a

   20      substantial benefit on the public at large.

   21                                                                 CONCLUSION

   22                 Under the terms of the settlement pending agreement, the coupons do not even become
   23      effective in the first instance until 61 days after final approval is granted to the settlement. The
   24      coupons remain valid and redeemable for a period of five years after they first become effective,
   25      which affords Fieldstone Mortgage Company a substantial amount of time to reorganize and
   26      emerge from bankruptcy. In the meantime, Fieldstone Investment Corporation and/or C-BASS
   27      hold still hold thousands of mortgages that were originated by Fieldstone Mortgage Company,
   28      and which may be the subject of refinance or restructuring, particularly in light of the larger sub-
                                                                                  7     900053.pld.Narrative CMC Stmnt.121207.mde.doc
                           UPDATED CASE MANAGEMENT STATEMENT IN CONNECTION WITH THE PENDING CLASS ACTION SETTLEMENT
E-Filed: Dec 17, 2007 3:51 PM, Superior Court of CA, County of Santa Clara, Case #1-04-CV-032895 Filing #G-6412




     1     prime mortgage meltdown, in which case Fieldstone Investment Corporation and/or C-BASS are

     2     obligated to offer the $400 credit to holders of the coupons in connection with any such loan

     3     restructure or refinance. Finally, in the event that this settlement is not approved, there is a

     4     substantial risk that the class members will lose their individual claims against Fieldstone as a

     5     result of the statute of limitations and/or Fieldstone’s bankruptcy.

     6                Accordingly, on the basis of the foregoing, plaintiffs’ respectfully request that the Court
     7     grant final approval to the class action settlement agreement as to Fieldstone Investment
     8     Corporation and/or C-BASS. If the Court is not inclined to grant final of the settlement as to
     9     Fieldstone Investment Corporation and/or C-BASS at this time, plaintiffs respectfully ask that
   10      the Court further continue the final approval hearing for sixty to ninety days and order Fieldstone
   11      Investment Corporation and/or C-BASS to submit additional evidence and information as to the
   12      status and structure of the merger between Fieldstone Investment Corporation and C-BASS, and
   13      the status of the Fieldstone originated loans that are currently held in their portfolio.
   14

   15
           Dated: December 17, 2007
   16                                                                            ALBORG, VEILUVA & EPSTEIN LLP

   17
                                                                                                       /s/
   18                                                                     By:
                                                                                 MARK D. EPSTEIN
   19                                                                            Attorneys for Plaintiffs RAFAEL LICEA,
                                                                                 SHAWN SHERBURNE, and MANUEL
   20                                                                            NUNGARAY, individually and on behalf of
                                                                                 all similarly situated persons
   21

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                                                                                  8    900053.pld.Narrative CMC Stmnt.121207.mde.doc
                          UPDATED CASE MANAGEMENT STATEMENT IN CONNECTION WITH THE PENDING CLASS ACTION SETTLEMENT

				
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