Thursday, December 27, 2012

The Old Courthouse in Santa Clara County. This courthouse is often cited as the origin of corporate personhood, as the 1886 Supreme Court case in Santa Clara County v. Southern Pacific Railroad began here.

Judge James A. Stoelker of Santa Clara County, California Superior Court was disqualified from hearing a case on predatory lending practices the day before Christmas, on a technicality. The case was filed by David and Salma Merritt of Santa Clara County against multiple defendants, including Countrywide, Bank of America, and First American Title, among others.

The Merritts had challenged Judge Stoelker’s involvement in the case, claiming many of his rulings had favored his former clients even when law would have indicated otherwise. Some of the defendants are Judge Stoelker’s former clients.

The events leading to this case began in 2006 when the Merritts accepted a home loan from Countrywide. At that time, Countrywide was advertising 30-year mortgages at between 1 and 3 percent interest. The Merritts received a “good faith estimate” consistent with those advertisements. They claim that Countrywide representatives tricked them into signing loan documents that were subsequently altered to appear to commit them to an obligation they had not agreed to.

A review of similar predatory lending cases filed by individuals in California found that all had been settled in at most 9 months, usually in favor of the banks. Merritt v. Mozilo has continued in the courts for much longer, celebrating its third anniversary last Saturday. The Merritts’ claims are consistent with published statements by Eileen Foster, former Executive Vice President of Fraud Risk Management at Countrywide, that fraud was endemic to certain parts of Countrywide.

Theirs was the only case heard in Department 9 that morning in recognition of Christmas. That hearing was scheduled, because the Sixth District of the California Court of Appeals (case number H038883) required the Santa Clara County Superior Court to (a) give all parties an opportunity to be heard regarding the possible disqualification of Judge Stoelker and (b) reply to the appellate court by December 26. This appellate ruling was only issued on November 26, and Judge Mark H. Pierce did not schedule the required hearing until December 12. The notice for this hearing required parties to file responses ten days before, which meant that the parties only had two days to prepare their replies.

On August 16, the Merritts learned Judge Stoelker had represented defendants in this case on numerous occasions before he was appointed to the bench in December 2010 and had not disclosed this fact to the Merritts. The next day they filed a Verified Statement of Disqualification asking Stoekler to recuse himself. The California Code of Civil Procedure (CCP) 170.3(c)(3) and (4) [confirmed in the 1988 appellate decision in Lewis v. Superior Court] give a judge ten days to respond to to such a motion. Stoelker replied on the eleventh day.

“All Rise” was heard at 9:04 AM local time Monday morning, whereupon Judge Pierce entered the courtroom. Attending by phone were attorneys James Goldberg representing Bank of America and Brian Craft representing First American Title. David Merritt was present representing himself. Goldberg had filed a brief asserting that the Merritts’ Verified Statement of Disqualification was served upon Judge Stoelker on August 17 but was not filed, as witnessed by the fact that it was not listed on the docket. Judge Pierce reported that he had checked the files and found that this Statement had indeed been filed, and he didn’t know why it was not on the docket. Attorney Goldberg suggested that the fact that the Statement was not on the docket may have contributed to Judge Stoelker’s failure to respond within the ten day limit. Judge Pierce replied, “That’s a stretch.”

Attorney Craft asked about next steps, since all action in this case had been stayed by the appellate court pending resolution of this issue. Judge Pierce then replied that Judge Manoukian would be handling discovery in this case, replacing Judge Stoelker in that capacity. He further stated that a reply to the appellate court had been prepared concurring with the appellate court’s disqualification of Judge Stoelker and asked Mr. Merritt to retrieve that order from the clerk in the courtroom and file it as usual with the clerk’s office. He also noted that this action would lift the stay. Other actions in this case could now proceed with the next steps being scheduled January 22, 2013, or later.

This is the second appellate reversal of decisions by this superior court in this case. The first reversal came on December 19, 2011, when the appellate court reinstated Wells Fargo as a defendant.

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