Here is a possible new arrow in the quiver of defenses available to the growing

number of American homeowners under relentless assault with the real and
immediate threat of foreclosure. At this point, every potentially useful strategy
need be given careful consideration, because the stakes of this game are damnably
high, and it is nothing like fair. If the American people feel uneasy and anxious, it
is for good reason: we are in free fall. The word “foreclosure”: always known to
us, but never before so personal. First it’s somewhere else, and then it’s that nice
family just a couple of blocks away. Then, papers are served on your next-door
neighbor, and time suddenly becomes their enemy. Countdown to Day 20, and the
pages of the calendar just keep on flipping. At that point, you want to just stop
thinking about it.

But if you are in the position of many Americans, you cannot afford to. When the
cards are so heavily stacked in favor of the hugely wealthy, driven, politically
connected and sociopathic, hope itself calls for something, anything, to hang on to.
Good people are suffering, and whole families finding themselves quite literally
and inelegantly out on the street. (Merry Christmas, Happy Chanukah, and get
the HELL out. NOW!) They are the ones feeling the pain, but generally
speaking have neither played a role in creating this state of affairs nor benefited
from its sorry dealings. Something has gone badly wrong.

Sharks P. Crockett

I personally have been absolutely disgusted by the Banks’ eager willingness to

accept OUR tax dollars in a massive bailout, a cash infusion granted upon certain
specific conditions of passing along some measure of relief to the beleaguered
American People, and their nearly complete failure or unwillingness to follow
through with their promises. It is crazy. We have quite literally kept their doors
open and the roofs over their heads, and yet in return now find ourselves treated as
“the enemy.” No, it does not make sense. I can only make the observation that
when a ravenous, full-fledged addiction is unchecked and in full force, a great
many things stop making sense, and the casualties tend to pile up. The addiction
we are dealing with here is as ancient as it is essentially uninteresting: unbridled
greed. A lust for dollars that satisfies no hunger, but creates only a craving for
more. Yes, more! That’s it, exactly! Always more. Never enough.
Consequences? What? Oh, we’ll deal with that later.

I am working on a post for my web log, www.growingintothemystery.com, tentative working title

Forgotten Fundamentals of American Business, No. 1: Eat Not Thy Customer. Illustration by Francisco
Goya.

Only by considering the situation from this perspective can I begin to get a handle
on what is happening. No reason sufficient or vaguely satisfying, mind you: just a
means of approach to understanding. Only then can I begin to comprehend
ingratitude on so huge and disastrous a scale. There is no counting the human cost
here. One must wonder: does anyone care?
Of course we do, but our capacity for outrage had been reached, and then exceeded, and
then far surpassed. We are left numb. How many of us live in daily fear of losing the
very roof over our heads, and those that we love? The great American dream that has for
so long and with such rare brilliance tied us all together and made us proud is being put to
the test, and is even now on the rocks. It has become the same old, sad story, and it’s a
heartbreaker: Greed has ruled the day and a moral covenant been breached. One more
time, our trust and good faith have been abused, even turned, sharp-edged, against us.

But this recent California court decision, published on December 23, 2009 (only last
week as of time of writing) might open a new strategy of defense in the domestic war
being waged upon the People by these ruinously aggressive and morally bankrupt
institutions. In holding that a bank’s refusal/ inaction to grant or even properly answer an
application for mortgage modification before rushing to foreclosure might have violated
the law, and therefore the borrowers’ rights of due process, there might be a promise of a
call to accountability to which the banks will have to answer. How have we strayed so
very far from the notion of banks as integral, driving participants in community?

(By the way, I don’t think the plaintiffs here are Bill Cosby’s Huxtables. But one never
knows…)

Decision posted by Dean Mostofi on http://loanaudit.wordpress.com/ and “cut/

pasted” from that site. Source is gratefully acknowledged. Thank you, Dean.

Hang in there, people.

_______________________________________________________________________
_

LYNNE HUXTABLE and JEFFREY A. AGNEW, Plaintiffs, v. TIMOTHY F.

GEITHNER, et al., Defendants.

Case No. 09cv1846 BTM (NLS)

UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF

CALIFORNIA

December 23, 2009, Decided

December 23, 2009, Filed

CORE TERMS: lender, public function, joint action, mortgage, factual allegations,
private entities, modification, state action, state actors, quotations, guaranty, notice, home
mortgage, mortgage loan, mere fact, federal program, summary judgment, fully
developed, fact-bound, foreclosed, defaulted, federally, veteran’s, nexus, government
officials, discovery, recorded

COUNSEL: [*1] For Lynne Huxtable, Jeffrey A Agnew, Plaintiffs: Jeffrey Alan Agnew,
LEAD ATTORNEY, Jeffrey A Agnew, Attorney at Law, Ramona, CA.

For Timothy F. Geithner, as United States Secretary of the Treasury, United States
Department of the Treasury, Defendants: Thomas C Stahl, LEAD ATTORNEY, U S
Attorneys Office Southern District of California, San Diego, CA.

For The Federal Housing Finance Agency, as conservator for the Federal National
Mortgage Association and for the Federal Home Loan Mortgage Corporation, doing
business as Freddie Mac, doing business as Fannie Mae, Defendant: Christopher S
Tarbell, LEAD ATTORNEY, Arnold & Porter LLP, Los Angeles, CA.

For National City Corporation, a Delaware corporation, PNC Financial Services Group,
Inc, a Pennsylvania corporation, National City Mortgage, a division of National City
Bank, National City Bank, a nationally chartered bank, Defendants: Cathy Lynn Granger,
LEAD ATTORNEY, Wolfe & Wyman LLP, Irvine, CA.

For Cal-Western Reconveyance Corporation, a California corporation, Defendant:

Thomas N Abbott, LEAD ATTORNEY, Pite Duncan LLP, San Diego, CA.

JUDGES: Honorable Barry Ted Moskowitz, United States District Judge.

OPINION BY: Barry Ted Moskowitz

OPINION

ORDER DENYING MOTION TO DISMISS

On [*2] September 21, 2009, Defendants National City Bank and PNC Financial
Services Group, Inc. (“Moving Defendants”) filed a motion to dismiss the Complaint for
failure to state a claim. For the following reasons, the motion is DENIED.

I. BACKGROUND

Plaintiffs’ Complaint arises out of non-judicial foreclosure proceedings related to their

home in Ramona, California. The following are factual allegations in the Complaint and
are not the Court’s findings.

Plaintiffs defaulted on their home mortgage in November 2007. (Compl. P 26.) In

February 2008, a notice of default was recorded and served. (Compl. P 27.) And in
December 2008, a notice of sale was recorded and served, setting a date for the public
auction of Plaintiffs’ home. (Compl. P 29.) Pursuant to a joint motion, the Court has
enjoined the sale of Plaintiffs’ home during the pendency of this action. (September 29,
2009 Order, Doc. 25.)

Plaintiffs allege that they are eligible for a loan modification under the Home Affordable
Modification Program (“HAMP”). (Compl. P 95.) HAMP is a federally funded program
that allows mortgagors to refinance their mortgages and reduce their monthly payments.
(Compl. P 66.) Despite their eligibility for HAMP, [*3] the loan servicer, Defendant
National City Mortgage Company, twice denied their application for a loan modification.
(Compl. PP 90, 93.) Plaintiffs did not receive a reason for the denial or an opportunity to
appeal. (Compl. P 100.)

Plaintiffs’ Complaint contains two counts. Both are for violation of due process under the
Fifth Amendment for failing to create rules implementing HAMP that comport with due
process. (Compl. PP 114-27.)

Defendants National City Bank and PNC Financial Services Group, Inc. have moved to
dismiss the Complaint on the grounds that Plaintiffs have failed to plead that they are
state actors.

II. LEGAL STANDARD

Under Federal Rule of Civil Procedure 8(a)(2), the plaintiff is required only to set forth a
“short and plain statement of the claim showing that the pleader is entitled to relief,” and
“give the defendant fair notice of what the . . . claim is and the grounds upon which it
rests.” Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555, 127 S. Ct. 1955, 167 L. Ed. 2d
929 (2007). When reviewing a motion to dismiss, the allegations of material fact in
plaintiff’s complaint are taken as true and construed in the light most favorable to the
plaintiff. See Parks Sch. of Bus., Inc. v. Symington, 51 F.3d 1480, 1484 (9th Cir. 1995).
[*4] But only factual allegations must be accepted as true–not legal conclusions. Ashcroft
v. Iqbal, 129 S.Ct. 1937, 1949, 173 L. Ed. 2d 868 (2009). “Threadbare recitals of the
elements of a cause of action, supported by mere conclusory statements, do not suffice.”
Id. Although detailed factual allegations are not required, the factual allegations “must be
enough to raise a right to relief above the speculative level.” Twombly, 550 U.S. at 555.
Furthermore, “only a complaint that states a plausible claim for relief survives a motion
to dismiss.” Iqbal, 129 S.Ct. at 1949.

III. DISCUSSION

Plaintiffs have alleged that Defendants have violated their Fifth Amendment procedural
due process rights. The Fifth Amendment, however, only applies to governmental actions,
Bingue v. Prunchak, 512 F.3d 1169, 1174 (9th Cir. 2008), and the Moving Defendants
are private entities. Therefore, the Moving Defendants argue, the Complaint fails to state
a claim against them.

But in some circumstances the Fifth Amendment does apply to private entities. “In order
to apply the proscriptions of the Fifth Amendment to private actors, there must exist a
sufficiently close nexus between the (government) and the challenged action of the . [*5]
. . (private) entity so that the action of the latter may be fairly treated as that of the
(government) itself.” Rank v. Nimmo, 677 F.2d 692, 701 (9th Cir. 1982) (internal
quotations omitted). There are four different tests used to determine whether private
action can be attributed to the state: “(1) public function; (2) joint action; (3)
governmental compulsion or coercion; and (4) governmental nexus. Satisfaction of any
one test is sufficient to find state action, so long as no countervailing factor exists.”
Kirtley v. Rainey, 326 F.3d 1088, 1092 (9th Cir. 2003). The application of these tests is a
“necessarily fact-bound inquiry.” Lugar v. Edmondson Oil Co., Inc., 457 U.S. 922, 939,
102 S. Ct. 2744, 73 L. Ed. 2d 482 (1982).

Plaintiffs argue that two tests apply here: public function and joint action.

1. Public Function

“Under the public function test, when private individuals or groups are endowed by the
State with powers or functions governmental in nature, they become agencies or
instrumentalities of the State and subject to its constitutional limitations. The public
function test is satisfied only on a showing that the function at issue is both traditionally
and exclusively governmental.” Kirtley, 326 F.3d at 1093 [*6] (internal quotations and
citations omitted). Mortgage loan servicing is neither traditionally nor exclusively
governmental, and Plaintiffs cannot show government action under this test.

2. Joint Action

Under the joint action test, the Court considers “whether the state has so far insinuated
itself into a position of interdependence with the private entity that it must be recognized
as a joint participant in the challenged activity. This occurs when the state knowingly
accepts the benefits derived from unconstitutional behavior.” Kirtley, 326 F.3d at 1093
(internal quotations omitted). “A private party is liable under this theory, however, only if
its particular actions are ‘inextricably intertwined’ with those of the government.”
Brunette v. Humane Soc’y of Ventura County, 294 F.3d 1205, 1211 (9th Cir. 2002). “The
mere fact that a business is subject to state regulation does not itself convert its action
into that of the State . . . . Nor does the fact that the regulation is extensive and detailed . .
. .” Jackson v. Metropolitan Edison Co., 419 U.S. 345, 350, 95 S. Ct. 449, 42 L. Ed. 2d
477 (addressing equivalent provision in Fourteenth Amendment).

The Court does not have sufficient facts before it to determine whether [*7] state action
exists here. As the Supreme Court has stated, this is a “necessarily fact-bound inquiry.”
Lugar, 457 U.S. at 939. Although the mere fact that a business is subject to extensive
regulation is not sufficient to find joint action, here there may be more than just extensive
regulation. Plaintiffs have pled that the HAMP program imposes affirmative duties on
lenders, like the Moving Defendants, who participate in the program. If an applicant
meets certain federally created criteria, then the lender has no discretion and must grant a
loan modification. The federal program is completely administered by the Moving
Defendants, and they are essentially acting as the government’s agents in executing
HAMP. Making all reasonable inference in Plaintiff’s favor, the Court find that Plaintiff
has stated a claim upon which relief can be granted.

Of course, facts developed through discovery may ultimately show that Plaintiff cannot
establish state action. But at this stage in the litigation, the Court does not have the
answers to several relevant issues, including (1) whether government officials were
involved in the decision to deny Plaintiff’s request; (2) whether government officials
[*8] provide guidance to the Moving Defendants regarding the administration of HAMP;
(3) the extent of ongoing communication between the government and the Moving
Defendants regarding HAMP; (4) and the financial arrangements between the
government and the Moving Defendants regarding HAMP. This is not an exhaustive list
and the course of discovery may yield other relevant facts not listed here.

Defendant’s best case–which it does not cite–in support of its motion to dismiss is Rank
v. Nimmo, 677 F.2d 692 (9th Cir. 1982). In Nimmo, the Ninth Circuit held that a private
mortgage lender who foreclosed on a plaintiff’s property was not a state actor. The
plaintiff had obtained a mortgage loan through the VA Home Mortgage Guarantee
Program, which was a federal program that guaranteed a portion of a qualifying veteran’s
mortgage, enabling veterans to obtain mortgage loans without a substantial down
payment. 677 F.2d at 693-94. A private commercial lender made a loan to the plaintiff
under the program. Id. at 693. When the plaintiff defaulted, the lender foreclosed on the
plaintiff’s property. Id. at 695-96. The Plaintiff sued the lender for depriving him of his
entitlement to a federal-home-loan [*9] program without affording him due process
under the Fifth Amendment. Id. at 696. The Ninth Circuit held that even though the
private lender was subject to extensive federal regulation under the federal home loan
guaranty program, the private lender was not a state actor. Id. at 702.

This case is different from Nimmo for at least two reasons. First, and most importantly,
the Ninth Circuit decided Nimmo on cross motions for summary judgment and had the
benefit of a more fully developed factual record. And second, the guaranty program at
issue in Nimmo was very different from HAMP. Under the guaranty program, private
lenders applied to the government for participation in the program and the government
could deny their participation if the private lender failed to meet certain criteria. 677 F.2d
692, 694. But in this case, Plaintiffs contend that the government required private lenders
to participate if they have received federal money, and the private lenders must
administer HAMP on the government’s behalf. Whether this is correct or not is not an
issue that can be determined on the record before the Court.

IV. CONCLUSION

For the foregoing reasons, the Court DENIES the Motion to Dismiss (Doc. [*10] 21.)
The Moving Defendants may raise their argument again on a motion for summary
judgment once the record has been more fully developed.

IT IS SO ORDERED.
DATED: December 23, 2009

/s/ Barry Ted Moskowitz

Honorable Barry Ted Moskowitz

United States District Judge