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In Intervest, a borrower asserted a tort claim against the lending bank, alleging that the bank had negligently administered the loan.
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NO. CIV. S-08-1543 LKK/DAD.
November 24, 2008
ORDER
The origin of this suit lies in a housing development, The Crest At Memory Lane. The owner of the development, The Crest at Memory Lane, LLC (CAML), sought to construct various improvements of the development, and financed these improvements with a loan from plaintiff Intervest. Intervest protected this loan in two ways: it was secured by real property owned by defendant CAML, and defendant Skidmores signed a separate guaranty holding them personally liable as guarantors on the loan.
Intervest now claims that this loan is in default, and brings this action claiming that Skidmores are in breach of their contractual obligation to pay that guaranty. In this suit, Intervest is not seeking to recover from CAML directly.
The Skidmores filed a counterclaim alleging that Intervest was negligent and grossly negligent in administering the loan, that Intervest misrepresented and suppressed various facts, and that Intervest engaged in unfair competition. The Skidmores seek damages, recision of the guaranty, and a declaratory judgment that the guaranty is unenforceable.
In response, Intervest has filed a Fed.R.Civ.P. 12(b)(6) motion to dismiss the counterclaims for failure to state a claim upon which relief may be granted. Intervest has also filed a motion to attach certain real property formerly owned by the Skidmores and now owned by defendant Alaska Trust Company; that motion is discussed in a separate order.
I. FACTUAL BACKGROUND
The facts forming the background in this case are set out in this court's order on Intervest's motion to attach. Only the facts underlying Skidmores' counterclaims are provided here.
The loan underlying this dispute was entered into to finance improvements to a multifamily condominium development in Sacramento, CA, owned by CAML. In March of 2007, Intervest and CAML entered a loan agreement authorizing payment of $4.7 million. This payment was not provided all at once; instead, Intervest was to make disbursements to pay for particular elements of the development as the project progressed.
This loan was protected in two ways. First, it was secured by real property owned by CAML. That security is not relevant to the counterclaims. Second, the Skidmores provided a personal guaranty for the full amount of the loan, detailed in the "guaranty agreement."
The loan agreement specified numerous conditions that would provide Intervest with the option of accelerating the loan. At least two of these conditions actually occurred, the general contractor lost its license in October 2007, and numerous mechanics' liens were attached to the project. The first lien was in June 2007. The total value of the liens as of August 2008 was about $900,490.00.
The Skidmores assert that a range of Intervest's conduct was wrongful, under a variety of theories. They allegedly include:
1. Intervest disbursed an additional $2,326,467 in funds after the first default. (Countercl. ¶ 10, 12, 15, 31, 72.) 2. Intervest wrongly approved budget increases. (¶ 10, 16-18, 31, 72.) By approving increases after default, Intervest increased the guarantor's potential liability. Furthermore, Intervest's approval of certain budget increases allegedly caused the failure to renew the OCIP insurance allowing increases in some construction budgets leaving insufficient funds in the budget responsible for paying such fees. (¶ 20.) 3. Intervest represented that it would comply with the terms of the loan agreement, when in fact it knew that it would not and could not have reasonably believed that it would. 4. Intervest did not keep the Skidmores informed about the state of the project and the loan. Intervest's motion to dismiss denies that the alleged acts violated the terms of the loan agreement or were otherwise wrongful. Intervest argues some acts are plainly consistent with the agreement. For the others, Intervest argues that it waived, rather than violated, the relevant provisions of agreement. Section 15 of the loan agreement provides that: "Lender may at any time . . . waive any one or more of the conditions contained in this Agreement," and does not qualify this power.II. STANDARD
In order to survive a motion to dismiss for failure to state a claim, plaintiffs must allege "enough facts to state a claim to relief that is plausible on its face." Bell Atlantic Corp. v. Twombly, ___ U.S. ___, 127 S. Ct. 1955, 1974 (2007). While a complaint need not plead "detailed factual allegations," the factual allegations it does include "must be enough to raise a right to relief above the speculative level." Id. at 1964-65.
The Supreme Court recently held that Federal Rule of Civil Procedure 8(a)(2) requires a "showing" that the plaintiff is entitled to relief, "rather than a blanket assertion" of entitlement to relief. Id. at 1965 n. 3. Though such assertions may provide a defendant with the requisite "fair notice" of the nature of a plaintiff's claim, the Court opined that only factual allegations can clarify the "grounds" on which that claim rests.Id. "The pleading must contain something more . . . than . . . a statement of facts that merely creates a suspicion [of] a legally cognizable right of action." Id. at 1965, quoting 5 C. Wright A. Miller, Federal Practice and Procedure, § 1216, pp. 235-36 (3d ed. 2004).
The holding in Twombly explicitly abrogates the well established holding in Conley v. Gibson that, "a complaint should not be dismissed for failure to state a claim unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." 355 U.S. 41, 45-46 (1957); Twombly, 127 S. Ct. at 1968.
On a motion to dismiss, the allegations of the complaint must be accepted as true. See Cruz v. Beto, 405 U.S. 319, 322 (1972). The court is bound to give the plaintiff the benefit of every reasonable inference to be drawn from the "well-pleaded" allegations of the complaint. See Retail Clerks Int'l Ass'n v. Schermerhorn, 373 U.S. 746, 753 n. 6 (1963). In general, the complaint is construed favorably to the pleader. See Scheuer v. Rhodes, 416 U.S. 232, 236 (1974), overruled on other grounds by Harlow v. Fitzgerald, 457 U.S. 800 (1982). Nevertheless, the court does not accept as true unreasonable inferences or conclusory legal allegations cast in the form of factual allegations. W. Mining Council v. Watt, 643 F.2d 618, 624 (9th Cir. 1981).
III. ANALYSIS
A) Negligence and Gross Negligence Claims
"The threshold element of a cause of action for negligence is the existence of a duty to use due care. . . ." Paz v. California, 22 Cal. 4th 550, 559 (2000). The Skidmores' negligence and gross negligence claims are based on essentially the same alleged conduct, and the duty analysis for the two claims is the same. As explained below, Skidmores have not satisfied this threshold issue.
It appears to the court that the negligence claims conflate contract and tort law. On the one hand, Skidmores contend that "Intervest owes them a legal duty based upon general principles of tort law separate and apart from its contractual obligations to the Skidmores," i.e., "a duty to Skidmores to administer the loan in a manner consistent with a reasonable bank." (Defs.' Opp'n to Mot. Dismiss at 6:12-14, 9:9.) On the other hand, Skidmores state that the relevant duty was "to administer and enforce the Loan Agreement in accordance with its terms," (Countercl. ¶ 30), and that "[t]he fact that Intervest did not follow the terms of the loan agreement is the very negligence that constitutes the basis of Skidmores['] claims." (Defs.' Opp'n to Mot. Dismiss at 9:15-16.)
The second allegations cannot support a negligence claim. "A person may not ordinarily recover in tort for the breach of duties that merely restate contractual obligations." Aas v. Superior Court, 24 Cal. 4th. 627, 643 (2000). Thus, tort claims between contracting parties "have been permitted [only when]. . . . the duty that gives rise to tort liability is either completely independent of the contract or arises from conduct which is both intentional and intended to harm." Erlich v. Menezes, 21 Cal. 4th 543, 551-52 (1999). Skidmores' negligence claims do not contend that Intervest intended harm. Therefore, the question is whether the duty asserted by Skidmores is "completely independent of" the contracts.
Later in Erlich, the Court observed that a breach of contract could also be tortious of the party knew "that such a breach will cause severe, unmitagable harm." 21 Cal. 4th at 553-54. Skidmores have not alleged such harm or knowledge thereof.
Clearly, a duty to comply with a contract's terms is not independent of the contract. Nonetheless, Skidmores also allege that there is a separate duty to act as "a reasonable bank." Their only support for this argument is Commercial Standard Insurance Co. v. Bank of America, 57 Cal. App. 3d 241 (1976).Commercial Standard held that a lender owed a guarantor a duty "to exercise reasonable care in the disbursement of loan proceeds in cases in which it has undertaken to disburse loan proceeds in accordance with the value of construction work performed." Id. at 249. However, Commercial Standard did not impose a duty that was "completely independent" of contractual obligations. Commercial Standard involved a unique set of facts, wherein the lender and guarantor were not in a contractual relationship. Id. at 244-45. Cases discussing Commercial Standard have held that the lender's duty was nonetheless based on the contractual relationship of the other parties. Fireman's Fund Ins. Co. v. Security Pacific Nat'l Bank, 85 Cal. App. 3d 797, 829 (Cal.App. 2d Dist. 1978), see also Continental Ins. Co. v. Morgan, Olmstead, Kennedy Gardner, Inc., 83 Cal. App. 3d 593, 603 (Cal.App. 2d Dist. 1978). This duty is ultimately rooted in contract.
Thus, the purported duty to act as a reasonable bank is a tort duty that is not completely independent of the relevant contract. Imposing this duty on Intervest would violate well-settled policies of California contract law. "When two parties make a contract, . . . . they define their respective obligations, rewards and risks. . . . [I]t is appropriate to enforce only such obligations as each party voluntarily assumed, and to give him only such benefits as he expected to receive." Robinson Helicopter Co., Inc. v. Dana Corp., 34 Cal. 4th 979, 992-993 (Cal. 2004) (quoting Applied Equipment Corp. v. Litton Saudi Arabia Ltd., 7 Cal. 4th 503, 517 (1994)).
It is important to note the limited applicability of theCommercial Standard rule. In the thirty-two years sinceCommercial Standard was decided, only three published California decisions have cited its statement that a lender owes a duty to a guarantor, and none of these cases have imposed that duty.Sehremelis v. Farmers Merchs. Bank, 6 Cal. App. 4th 767, 778 (1992), Fireman's Fund Ins. Co., 85 Cal. App. 3d at 829,Continental Ins. Co., 83 Cal. App. 3d at 603; see also Seabord Surety Co. v. Walker, 260 Cal. Rptr 924, 927 (1989) (withdrawn opinion). One Ninth Circuit opinion, decided shortly afterCommercial Standard was decided, applied the duty between non-contracting parties. Community Nat'l Bank v. Fidelity Deposit Co., 563 F.2d 1319, 1323 (9th Cir. 1977).
The court concludes that Intervest owed no independent duty to the Skidmores. Accordingly, the court does not address the parties' arguments related to breach or waiver of such a duty. Skidmores' counterclaims for negligence and gross negligence are dismissed.
B) Negligent Misrepresentation
The Skidmores' negligent misrepresentation claim alleges that Intervest represented "that it would adhere to the terms of the Loan Agreement" when Intervest had no reasonable grounds for believing that it would "properly administer the loan." (Countercl. ¶¶ 37, 39.)
Under California law, the elements of a negligent misrepresentation claim are
(1) a misrepresentation of a past or existing material fact,
(2) without reasonable grounds for believing it to be true,
(3) with intent to induce another's reliance on the fact misrepresented,
(4) ignorance of the truth and justifiable reliance thereon by the party to whom the misrepresentation was directed, and
(5) damages.Fox v. Pollack, 181 Cal. App. 3d 954, 962 (Cal.App. 1st Dist. 1986), see also Cal. Civ. C. §§ 1709, 1710.
Intervest argues that the Skidmores cannot satisfy the first and fourth elements of a negligent misrepresentation claim. Specifically, Intervest argues that if it represented that it would comply with the terms of the loan agreement, this was not a misrepresentation, because Intervest fully complied. Citing section 15 of the loan agreement, which authorizes Intervest to waive conditions of that agreement, Intervest argues that it unilaterally waived any the terms of the loan agreement that Intervest's acts otherwise would have violated. At a minimum, however, Intervest violated the loan agreement's requirement that "all . . . waivers . . . shall be in writing," because Intervest did not provide written notice of its purported waivers. Thus, if Intervest represented that it intended to comply with this provision, but lacked a reasonable basis for believing that it would be able to do so, that would have been a misrepresentation.
Nonetheless, even if Intervest made such a misrepresentation, the Skidmores cannot show justifiable reliance on it. The notice provision only requires the lender (Intervest) to inform the borrower (CAML) of waiver. Although a requirement that the Skidmores, as guarantors, be notified of any waiver might have served to inform them that the project was not proceeding according to plan, and thereby spurred earlier intervention, neither the loan agreement nor the guaranty state that the guarantors needed to be notified of any waiver.
Therefore, even if Skidmores are able to show that Intervest made a misrepresentation about its intent to comply with the notice provision, this showing will not entitle Skidmores to any recovery on a negligent misrepresentation theory.
Because this claim is dismissed on these grounds, the court does not address Intervest's argument that no representations were made outside of the loan and guaranty agreements.
C) Suppression of Fact
Under California law, a claim for suppression of fact is not actionable unless the defendant had a duty to disclose the fact or gave other information that was likely to be misleading due to nondiscloure of the suppressed fact. Cal. Civ. Code § 1710(3). Skidmores argue that "[a] duty of disclosure [arose] from the covenant of good faith and fair dealing," relying on Sumitomo Bank of California v. Iwasaki, 70 Cal.2d 81, 85 (1968), and that Intervest suppressed "the deteriorating financial condition of the borrower" and "the fact that Intervest did not intend to comply with the terms of the Loan Agreement."
Skidmores' argument misreads the law, including Sumitomo. Although the implied covenant of good faith and fair dealing carries with it a duty not to "misrepresent or conceal" facts, this is not the same thing as a duty requiring Intervest to affirmatively disclose information. Sumitomo, 70 Cal. 2d. at 85.Sumitomo did discuss some circumstances in which a creditor might owe a duty to disclose information to the guarantor of a debt (either before or during the relationship), but Skidmores have not alleged that those circumstances exist here. The suppression of fact claim therefore fails.
A separate problem with the suppression claim is that some of the alleged suppression occurred after the acts it is alleged to have induced. The counterclaim states that Intervest's suppression induced the Skidmores to invest money and execute the guaranty. (Countercl. ¶ 46.) Even if Intervest had a duty of disclosure, suppression of the deterioration of the financial condition, when the deterioration occurred after execution of the guaranty agreement, could not have induced Skidmores to enter the guaranty.
D) Unfair Competition
Skidmores also bring a claim under California's Unfair Competition Law (UCL), Cal. Bus. Prof Code § 17200 et seq.. The UCL provides a cause of action for individuals who have been harmed by business practices that are either "unfair" or that violate any other law. This second prong of the UCL essentially provides a private right of action for violations of other laws.
Skidmores' UCL claim is based on an alleged violation of the Federal Deposit Insurance Corporation's (FDIC) "Real Estate Lending Standards," 12 C.F.R. § 365.2, and that regulation's accompanying appendix. Intervest argues that the appendix is nonbinding and therefore cannot form the predicate of a UCL claim. Intervest then challenges the Skidmores' standing to bring a claim based on a violation of the regulation itself, in part because Skidmores cannot show that any actions harming them were caused by violations of the regulation. This court concludes that the Skidmores have stated a violation of the regulation and that they have standing.
1) FDIC's Real Estate Lending Standards, 12 C.F.R. § 365.2
Intervest is alleged to have violated the FDIC's "Real Estate Lending Standards," 12 C.F.R. section 365.2, and their accompanying guidelines, 57 Fed. Reg. 62890 (December 31, 1992) (codified at 12 C.F.R. Appendix A to pt 365).
12 C.F.R. section 365.2(a) requires FDIC insured nonmember banks to "adopt and maintain written policies that establish appropriate limits and standards for extensions of credit that are secured by liens on or interests in real estate, or that are made for the purpose of financing permanent improvements to real estate." Subsection 365.2(b)(2)(iii) states in its entirety that lending policies must establish "loan administration procedures for the bank's real estate portfolio."
Skidmores allege that Intervest is such a bank.
Thus, the requirement imposed by this section is that banks must establish "appropriate limits and standards." The regulation does not specify what "appropriate" requires.
2) The Appendix to the Regulation is Unenforcable, and Cannot Be a Predicate to a UCL Claim
The FDIC has stated that the Guidelines are not part of the regulation:
While the guidelines are included as an appendix to the regulation, they are not part of the regulation. Therefore, when an apparent violation of Part 365 is identified, it should be listed in the Report of Examination in the same manner as other apparent violations. Conversely, when an examiner determines that an institution is not in conformance with the guidelines . . . the deficiency would not be a violation of the regulation.
FDIC's Risk Management Manual of Examination Policies, Section 3.2, Real Estate Lending Standards. Since the appendix is not part of the regulation, it does not have the force of law. Therefore, a violation of the guidelines cannot serve as the predicate for a claim under the UCL.
3) Skidmore's Standing to Bring a UCL Claim
Intervest challenges the Skidmores' standing to bring their UCL claim. Courts have identified three standing doctrines: constitutional (or Article III) standing, prudential standing, and statutory standing. Constitutional standing addresses whether plaintiff's claim satisfies Article III's jurisdictional requirement of a "case or controversy." Prudential standing refers to a set of non-constitutional limits imposed by federal courts. Statutory standing refers to whether a plaintiff's claim is authorized by the statute she seeks to invoke. As discussed below, the doctrines of prudential and statutory standing overlap, and Intervest's challenge to Skidmores' standing implicates this intersection.
Skidmores clearly have constitutional standing. Pursuant to Article III's case or controversy requirement, a plaintiff does not present a case or controversy giving rise to federal jurisdiction unless he can show injury, causation of that injury by defendants' conduct, and redressability of that injury. Skidmores' injury is increased liability under the guaranty (or increased risk thereof), this injury was caused by Intervest's challenged disbursement of funds, and this court can redress this injury through an award of money damages. See, e.g., Friends of the Earth, Inc. v. Laidlaw Envtl. Servs. (TOC), Inc., 528 U.S. 167, 181 (2000).
Turning to statutory standing, the UCL imposes explicit statutory standing requirements, as amended by California Proposition 64 in 2004. Specificaly, the UCL imposes its own injury and causation requirements: a claim can be brought "by any person who has suffered injury in fact and has lost money or property as a result of the unfair competition." Cal. Bus. Prof. Code § 17204. See also Californians for Disability Rights v. Mervyn's, LLC, 39 Cal. 4th 223, 228 (2006).
Intervest's challenge to statutory standing argues that the Skidmores cannot show that their injury (increased liability on the guaranty) is the "result of" unfair competition, because (Intervest argues) Skidmores cannot show that disbursement of funds was the "result of" the alleged violation of 12 C.F.R. section 365.2. According to Intervest, the regulation "does not require lending institutions to include any particular terms in their loan agreements, does not mandate the circumstances under which disbursements will be made, and does not require that loan agreements be administered in particular ways."
Although Article III and the UCL impose different injury requirements, this distinction is not relevant here. The UCL requires loss of "money or property," whereas Article III can be satisfied by non-economic injury. See Friends of the Earth, 528 U.S. at 181-82.
This argument reads the regulation too narrowly. Although the regulation does not specify particular requirements, it does require that policies be "appropriate." The requirement of appropriateness, like a requirement of reasonableness, is imprecise, but not contentless, and at this stage, the court cannot conclude that Skidmores will be unable to show that the policies that allowed these disbursements were inappropriate. The Skidmores have sufficiently alleged that Intervest failed to adopt appropriate policies; that appropriate policies would have prevented Intervest from making disbursements after the lodgment of the first mechanics' lien; that Intervest therefore would have provided a notice of default at that time, when less money had been disbursed; and that Skidmores' liability on their guaranty would therefore have been significantly lower. These allegations satisfy the UCL's "result of" requirement.
It is unclear whether the counterclaim also alleges that Intervest's continued disbursements of funds were themselves a violation of the FDIC regulation.
Intervest also makes the separate argument that Skidmores lack standing because they are not the intended beneficiaries of the FDIC regulation. Whether an individual is the intended beneficiary of a statute or regulation is an aspect of the "zone of interests" requirement. McMichael v. County of Napa, 709 F.2d 1268, 1273 (9th Cir. 1983). This test is typically discussed as a component of prudential standing.
In decisions prior to Alexander v. Sandoval, 532 U.S. 275 (2001), courts also asked "whether the plaintiff is an intended beneficiary of the statute" as part of the inquiry into whether a statute provided an implied right of action (itself a question related to statutory standing). Blessing v. Freestone, 520 U.S. 329 (1997), see also Cort v. Ash, 422 U.S. 66, 78 (1975). Here, counter-plaintiff Skidmores rely on the explicit private right of action provided by California's UCL, so these cases discussing implied rights of action, and the extent to which Sandoval overruled them, are not relevant in this case.
See, e.g., Elk Grove Unified Sch. Dist. v. Newdow, 542 U.S. 1, 12 (2004), FEC v. Akins, 524 U.S. 11, 20 (1998), Bennett v. Spear, 520 U.S. 154, 163 (1997). However, several cases have stated that the zone of interest test is a component of statutory standing. See Steel Co. v. Citizens for a Better Env't, 523 U.S. 83, 97 (1998) ("[Whether] . . . plaintiff came within the 'zone of interests' . . . is an issue of statutory standing."), Holmes v. Sec. Investor Prot. Corp., 503 U.S. 258, 287-88 (1992) (Scalia, J., concurring) (stating that statutory standing requires the two elements of "proximate causality" and injury within the "zone of interests."), Ocean Advocates v. United States Army Corps of Eng'rs, 402 F.3d 846, 861 (9th Cir. 2005). The categorization does not change the analysis in this case.
This disparity in categorization reveals the imprecision in the cases that have discussed statutory standing. The Ninth Circuit implicitly clarified the issue when it recently stated that statutory standing is a type of prudential standing. Potter v. Hughes, 2008 U.S. App. LEXIS 21306, *6 (9th Cir. Oct. 10, 2008),see also Cetacean Cmty. v. Bush, 386 F.3d 1169, 1175 (9th Cir. 2004), but see Leuthner v. Blue Cross Blue Shield of Northeastern Pa., 454 F.3d 120, 125 (3d Cir. 2006) (distinguishing statutory standing from prudential standing). The Ninth Circuit approach is consistent with the Supreme Court's frequent omission of statutory standing from its discussions of standing doctrine. "Our standing jurisprudence contains two strands: Article III standing, which enforces the Constitution's case-or-controversy requirement, and prudential standing, which embodies judicially self-imposed limits on the exercise of federal jurisdiction." Newdow, 542 U.S. at 11-12 (2004) (internal quotations and citations omitted), see also Franchise Tax Bd. v. Alcan Aluminium, 493 U.S. 331, 335 (1990) ("We have treated standing as consisting of two related components: the constitutional requirements of Article III and nonconstitutional prudential considerations.").
Under the zone of interest requirement, the question is whether the claim "fall[s] within the zone of interests protected by the law invoked." Elk Grove Unified Sch. Dist. v. Newdow, 542 U.S. 1, 12 (2004) (quoting Allen v. Wright, 468 U.S. 737, 751 (1984)). The principle underlying this requirement is that when legislatures provide a right of action, they can control who can enforce it, and for what purpose. The requirement was initially stated in an interpretation of section 702 of the Administrative Procedures Act, which provides a cause of action to persons "aggrieved by agency action within the meaning of a relevant statute," and which the Court held broadened the ordinary scope of who could state a claim. 5 U.S.C. § 702, Association of Data Processing Service Organizations, Inc. v. Camp, 397 U.S. 150, 153 (1970). The zone of interests requirement has since been applied to non-APA claims, and its breadth "varies according to the provisions of law at issue, so that what comes within the zone of interests of a statute for purposes of obtaining judicial review of administrative action under the generous review provisions of the APA may not do so for other purposes." Bennett v. Spear, 520 U.S. 154, 164 (1997) (internal quotations and citations omitted).
Spear demonstrated that the relevant zone of interests is determined by the statutory provision providing the cause of action, rather than the provision sought to be enforced. For suits brought under the Endangered Species Act's citizen suit provision, 16 U.S.C. § 1540(g), the relevant interests are determined by the purpose of that provision — which authorizes suits by "any person" — and not the purpose of the substantive provision plaintiffs seek to enforce. Spear, 520 U.S. at 164-67. Thus, the Court in Spear held plaintiffs seeking to challenge, rather than promote, environmental protection were within the zone of interests contemplated by the citizen suit provision, even though the purpose of the allegedly violated substantive provision was to protect to the environment. Id. Similarly, for claims brought under APA § 702, courts look to the zone of interests protected by this section. Section 702, in turn, by its text incorporates the purposes of the violated statute; that the APA itself controls is demonstrated by the fact that section 702 recognizes a more "generous" zone of interests than other causes of action seeking to vindicate the same statute. Spear, 520 U.S. at 164, see also Association of Data Processing Service Organizations, 397 U.S. at 153.
Returning to the instant case, the relevant inquiry is therefore whether Skidmores' claim is within the zone of interests sought to be protected by California's UCL, and not whether it is within the interests sought to be protected by the FDIC regulation. Unlike the APA, the UCL does not refer to or incorporate the purposes of the law providing the substantive standard. Instead, "[t]he UCL's purpose is to protect both consumers and competitors by promoting fair competition in commercial markets for goods and services." Kasky v. Nike, Inc., 27 Cal. 4th 939, 949 (2002) (citing Barquis v. Merchants Collection Assn., 7 Cal. 3d 94, 110 (1972)). The UCL can make the provisions of other laws actionable even when the legislature did not intend for the other law to provide a private right of action. Thus, the California Supreme Court found that a private party could bring a UCL claim for violation of a criminal statute prohibiting sale of tobacco to minors, even though it is clear that the purpose of the statute, which provided only criminal penalties, was not to provide for private enforcement. Stop Youth Addiction v. Lucky Stores, 17 Cal. 4th 553, 566 (Cal. 1998). "[I]t is in enacting the UCL itself, and not by virtue of particular predicate statutes, that the Legislature has conferred upon private plaintiffs specific power to prosecute unfair competition claims." Id. at 562 (internal quotation omitted).
In light of the UCL's broad purpose, the FDIC's purposes are relevant only insofar as they might indicate a legislative bar to, or preemption of, a UCL claim, id. at 567-68, and there is no such indication here. Therefore, as interpreted by the California Supreme Court in Stop Youth Addiction, the UCL expands standing "to the full extent permitted under Article III." Spear, 520 U.S. at 165. Although proposition 64 narrowed the UCL so that it only protects economic interests, Skidmores are well within this narrowed scope. Absent preemption, the fact that the predicate violation is of a federal regulation, rather than a state law, does not change this analysis.
For the reasons stated above, the Skidmores have alleged facts sufficient to plead a violation of California's UCL and to establish standing to bring such a claim.
E) Rescission and Declaratory Judgment
These counterclaims are derivative of Skidmores' claims for misrepresentation and suppression. Specifically, the claim for rescission states that consent to the guaranty "was obtained solely through misrepresentation and/or mistake." (Countercl. ¶ 61.) This claim merely repeats the allegations in the misrepresentation claim, and must be dismissed for the same reasons.
The claim for declaratory judgment similarly seeks "a judicial declaration that Counterclaimants are relieved from any and all duties, responsibilities and obligations arising from same." (Countercl. ¶ 67.) Skidmores' only surviving claim, for unfair competition, cannot entitle Skidmores to this remedy. Therefore, this claim must also be dismissed.
IV. CONCLUSION
For the reasons stated above, Intervest's Motion to Dismiss Counterclaims is:
1) GRANTED as to Skidmores' first, second, third, fifth, sixth, and seventh counterclaims.
2) DENIED as to Skidmores' fourth counterclaim.
3) Plaintiff shall file an answer to the counterclaim within thirty (30) days.
IT IS SO ORDERED.