DCM-P1 v. Rushmore Loan Management Services CA2/1 ( 2021 )

Filed 7/1/21 DCM-P1 v. Rushmore Loan Management Services CA2/1
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on
opinions not certified for publication or ordered published, except as specified by rule 8.1115(b).
This opinion has not been certified for publication or ordered published for purposes of
rule 8.1115.
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND APPELLATE DISTRICT
DIVISION ONE
DCM-P1, LLC, B303878
Plaintiff and Appellant, (Los Angeles County
Super. Ct. No. BC677324)
v.
RUSHMORE LOAN MANAGEMENT
SERVICES, LLC, et al.,
Defendants and Respondents.
APPEAL from an order of the Superior Court of Los Angeles
County, Daniel J. Buckley, Judge. Affirmed.
Levoto Law and Stephen D. Weisskopf for Plaintiff and
Appellant.
Alston & Bird, Michael J. Agoglia, Rachel A. Naor, Deborah
Yoon Jones and Gillian H. Clow for Defendants and Respondents.
________________________________
Plaintiff DCM-P1 LLC (DCM) and defendants Rushmore
Loan Management Services LLC (Rushmore), Roosevelt
Management Company LLC (Roosevelt), and Dakota Asset
Services LLC (Dakota) (collectively, defendants) resolved a
discovery dispute by stipulating that DCM would respond to
discovery requests by a certain date; DCM agreed that if it
did not timely respond, it would dismiss its complaint with
prejudice. After DCM did not provide timely or complete
responses, defendants moved to dismiss the complaint based
upon the stipulation. The court granted the motion and entered
a judgment of dismissal. DCM appealed.
DCM contends that the stipulation is unenforceable
because its counsel entered into the stipulation without
its consent. It further contends that, if the stipulation is
enforceable, it amounts to an unjustifiable terminating
sanction. We reject these arguments and affirm the judgment.
FACTUAL SUMMARY
DCM filed its initial complaint in this case in
September 2017. In December 2018, it filed its third amended
complaint. According to that pleading, Rushmore acted as the
servicing agent for the trustee of a trust comprised of residential
mortgage loans and real properties.
In April 2017, the trustee allegedly assigned to DCM
the trustee’s rights to file “a lawsuit against Rushmore on
behalf of the [t]rust” to recover damages and obtain other relief.
In May 2018, the trustee allegedly further assigned to DCM
its “right to pursue an action against Rushmore’s affiliated
entities.” Rushmore’s affiliated entities include Roosevelt
(Rushmore’s parent corporation) and Dakota (a subsidiary of
Rushmore).
2
DCM alleged that Rushmore breached its servicing
agreement in a variety of ways, including failing to remit sums
to the trust, diverting sums “for its own gain and/or that of
its affiliates,” and improperly selling real properties below
market value. DCM further alleged that Dakota was negligent
and unjustly enriched itself by, among other acts, providing
inaccurate opinions of property values to Rushmore, which
Rushmore relied on in selling the properties.1 Rushmore’s
and Dakota’s practices also allegedly had the effect of unjustly
enriching Roosevelt by maximizing its return on certain notes
to the detriment of trust beneficiaries.2
In the third amended complaint, DCM refers to a “forensic
analysis of 471 liquidated mortgage assets,” which it defines as
“the analysis” and which allegedly “confirms that the damages
resulting from Rushmore’s conduct are substantial.”
(Capitalization omitted.)
During a status conference held on February 25, 2019, the
court and counsel discussed a plan proposed by the defendants
by which discovery would proceed in phases. In the first phase,
DCM would produce the analysis referred to in its third
amended complaint. During phase two, the parties would
“complete the exchange of previously requested, highly relevant
1 DCM also alleged a cause of action for fraud against
Dakota. In April 2019, the court sustained Dakota’s demurrer
to that cause of action without leave to amend. That ruling is
not challenged on appeal.
2 In April 2018, Rushmore and Dakota filed a cross-
complaint against RMS Asset Management, LLC (RMS) for
express contractual indemnity and declaratory relief. RMS is
not involved in this appeal.
3
documents identified in the [third amended complaint] or in
writing during the prior meet and confer discussions.” In the
third phase, DCM was to identify each loan or property that is
the subject of their claims by “I.D. number” or property address,
and provide a short explanation of the factual basis for each
claim. The fourth and fifth phases are focused on obtaining
“targeted additional information” regarding the particular
transactions that are the subjects of DCM’s claims.
During the conference, counsel for DCM, Benjamin
Cutchshaw, agreed that there was no dispute concerning
the first three phases of the discovery plan. Regarding the
analysis that is the subject of phase one, Cutchshaw said that it
would include the “input and output that make up the analysis,”
and he “would have it produced within ten days.” The court
allowed DCM “two weeks.” Counsel agreed that phases two and
three could take place concurrently and be completed in 30 days.
The court then set April 8, 2019 (38 days after the conference),
as the deadline for completing phases one through three and set
a “status conference re discovery” for April 19, 2019.
In response to phase one of the discovery plan,
DCM produced a 29-page report, which defendants deemed
insufficient. DCM did not provide any responses pursuant to
phases two or three. Meet and confer efforts among counsel
failed to resolve the disputes.
On April 17, 2019, defendants served a status report
in advance of the April 19, 2019 case management conference.
Defendants reported that DCM’s production of the phase one
documents was inadequate and that DCM produced no phase
two or phrase three documents. Defendants stated that they
4
would raise the issue of DCM’s “discovery abuses” and the
possibility of sanctions at the case management conference.
On the evening of April 18, 2019, Cutchshaw and counsel
for defendants engaged in telephone calls and exchanges of
emails which culminated in an email from Cutchshaw to
defendants’ counsel stating: “Client will agree to your proposed
offer. Please confirm with your client. To be clear, we will . . .
agree to produce remaining discovery phases within two weeks
or consent to case-terminating sanctions.”
Defendants’ counsel responded the next morning:
“Spoke to my client. We will stip[ulate] to that . . . , provided
it’s clear that what we’re talking about is a full and complete
production following a reasonably diligent search of the
materials responsive to phase 1 and 2, and that for phase 3
DCM is obligated to identify for each loan or property subject
to its claims (1) the relevant servicing ID # and address, (2) the
claims to which each is subject, (3) and short explanation of its
basis.” (Capitalization omitted.)
At the status conference held on April 19, 2019,
Cutchshaw informed the court of the stipulation reached
with defendants’ counsel. Pursuant to the stipulation, DCM
agreed to produce all responsive documents within two weeks;
that is, by May 3, 2019. In addition, DCM agreed to identify
the specific loans that are the subject of its claims, and identify
“any specific allegations with respect to [each] particular
loan.” “Within that two weeks[,] if those documents can’t
be provided . . . , DCM will agree to dismiss the case with
prejudice.” Counsel for defendants explained “that if DCM is
unable to comply with its obligation[s], . . . it will on its own file
a motion for a request for dismissal with prejudice with this
5
court without further action.” The court then set a further case
management conference for May 24, 2019.
On May 2, 2019, Cutchshaw sent an email to DCM’s
counsel requesting an additional week to produce documents
due to “staffing and budget issues impacting DCM.”
Defendants’ counsel informed Cutchshaw that defendants
would not agree to a further extension.
DCM did not produce any documents by the May 3, 2019
deadline. Counsel for defendants and Cutchshaw thereafter
exchanged emails in which defendants’ counsel requested DCM
dismiss the third amended complaint in accordance with the
April 19 stipulation, and Cutchshaw said DCM would not.
On May 7, 2019, defendants’ counsel received 19 pages
of documents, 12 pages of which had been previously produced.
The seven new pages consisted of a list of 312 loans and related
property addresses and, for each, an indication that the loan
relates to a claim by DCM described as either an “undefined
loss” or “improper liquidation.”3 (Capitalization omitted.)
In addition to being untimely, defendants considered the
production to be insufficient.
On May 13, 2019, defendants filed an ex parte application
for entry of dismissal of the third amended complaint based
on the April 19 stipulation. The court denied the application,
stating that a dismissal related to discovery would require a
noticed motion.
3 According to Cutchshaw, “undefined loss” refers to the
servicer’s failure to remit funds due to the trust, and “improper
liquidation” refers to a sale of real property for an “inadequate
value.”
6
On or about June 3, 2019, defendants’ counsel learned
that DCM was no longer in good standing under Delaware law.
Defendants informed the court of this fact in a status report
filed on June 4, 2019. According to Cutchshaw, DCM revived
its good standing status with the Delaware Secretary of State
on June 5, 2019. Defendants, however, submitted evidence
showing that DCM’s good standing status “[c]ease[d]” again on
June 12, 2019. As of September 11, 2019, DCM was back in
good standing with the Delaware Secretary of State.
On June 6, 2019, the court held a status conference at
which defendants’ counsel appeared and plaintiff ’s counsel
did not. The court directed defendants to prepare a noticed
motion to dismiss the third amended complaint. The court
set a hearing on the motion for July 16, 2019.
On June 14, 2019, defendant filed a motion to dismiss the
third amended complaint based on DCM’s failure to comply with
the April 19 stipulation. In support of the motion, defendants
submitted the declaration of Adam Le Berthon, counsel for
cross-defendant RMS. Le Berthon stated that on April 19, 2019,
he spoke with Cutchshaw before and after the case management
conference at which the stipulation was put on the record.
Cutchshaw told Le Berthon “that there was no way DCM could
possibly comply with their delinquent and outstanding discovery
obligations in this matter” and that “DCM’s claims were
effectively a ‘holding action’ and were being pursued to ward off
creditors.”
7
DCM did not file an opposition to the motion or appear
at the hearing on the motion.4
On July 16, 2019, the court granted the motion and
ordered the third amended complaint dismissed with prejudice.
On July 23, 2019, DCM filed a motion to set aside the
order granting the motion to dismiss. DCM based its motion
solely on the attorney neglect provision of Code of Civil
Procedure section 473, subdivision (b).5 In support of the
motion, Cutchshaw filed a declaration describing his efforts
to file written opposition to the motion and to appear at the
hearing on the motion, and how these efforts failed because
the vendors that handled the firm’s filing and telephonic court
appearances declined to provide these services because of
unpaid invoices.
In support of the motion to set aside the dismissal,
DCM provided a copy of the written opposition to the motion
4 DCM later asserted that it attempted to file an
opposition but that it was “rejected due to an accounting issue
with [DCM’s] counsel’s e-filing vendor.” It explained the failure
to appear at the hearing as the result of a failure to reserve a
court call appearance “due to an internal misunderstanding.”
5 Code of Civil Procedure section 473, subdivision (b)
provides in relevant part: “[T]he court shall, whenever an
application for relief is made no more than six months after
entry of judgment, is in proper form, and is accompanied by
an attorney’s sworn affidavit attesting to his or her mistake,
inadvertence, surprise, or neglect, vacate any . . . resulting
default judgment or dismissal entered against his or her client,
unless the court finds that the default or dismissal was not in
fact caused by the attorney’s mistake, inadvertence, surprise,
or neglect.”
8
to dismiss that Cutchshaw had attempted to file. The
opposition acknowledged the “discovery stipulation reached on
April 19, 2019” and DCM’s obligation “to produce documents
responsive to previously defined phases 1−3 in its possession,
custody, or control by May 3, 2019.” (Capitalization omitted.)
According to DCM, it complied with its obligations under the
stipulation and defendants refused to meet and confer in good
faith regarding the discovery dispute.
On October 9, 2019, the court granted DCM’s motion
based on its finding that DCM’s non-opposition to the motion to
dismiss resulted from Cutchshaw’s inadvertence and excusable
neglect. The court set aside its order dismissing the third
amended complaint and set a hearing on defendants’ motion to
dismiss.
After additional briefing and oral arguments on
October 25 and November 4, 2019, the court granted defendants’
motion to dismiss and thereafter entered judgment of dismissal.
The court explained that it was granting the motion for “all
the reasons asserted by the [defendants], but especially that
in phase three, there was substantive information that should
have been provided as to each particular claim,” but was not
provided.
The court’s order entering the judgment of dismissal
states that “DCM entered into a stipulation . . . whose terms
unambiguously required full and complete compliance with
phases 1, 2, and 3 of the previously ordered discovery following
a reasonable and diligent search for responsive documents
and information by May 3, 2019, or DCM’s claims would be
dismissed with prejudice”; “[t]he record demonstrates that DCM
failed to comply with its obligations, by May 3, 2019 or since,
9
with respect to any of those phases of discovery, and that DCM’s
failure was particularly evident with respect to phase 3”; and
“[i]n accordance with the plain terms of the stipulation, and for
all the reasons articulated in the motion to dismiss, the third
amended complaint against defendants is hereby dismissed
with prejudice in its entirety.” (Capitalization omitted.)
On December 9, 2019, DCM filed a motion for
reconsideration of the order dismissing the third amended
complaint. DCM argued that the failures in responding to
discovery that led to the order dismissing its case were the
result of DCM’s dire financial circumstances. The required
discovery responses, it argued, “could only be acquired and
produced if [DCM] had a full staff and access to its cloud-based
records.” During the critical time, however, it had to “lay off
nearly every employee, and was unable to pay its most basic
bills including cloud storage, email backup, and professional
service providers.”
DCM explained that its cash flow depended in part on
payments from Wells Fargo Bank, the “paying agent” for the
trust (capitalization omitted), and in part on cross-defendant
RMS’s authorization for the payment of DCM’s expenses. The
lack of funds during the pertinent time period resulted from
RMS’s refusal to authorize payments to DCM and Wells Fargo
Bank’s failure to send payments to DCM. During that time,
DCM was engaged in negotiations concerning the trust with
Wells Fargo Bank’s attorneys, the law firm of Alston & Bird.
Alston & Bird was also counsel for defendants in this litigation.
DCM argued that “[t]his undisclosed conflict of interest casts
serious doubt on the legitimacy of these proceedings and . . .
should be considered by the [c]ourt.”
10
DCM supported the motion for reconsideration with a
declaration from Matthew Browndorf, the “managing member
and authorized representative” of DCM’s general manager.
According to Browndorf, he had been working with attorneys at
Alston & Bird, who represented Wells Fargo Bank in connection
with DCM’s efforts to obtain changes to the trust that would be
financially advantageous to DCM. Alston & Bird, however,
seemed to be “making matters overly complicated.” At some
point, Browndorf learned that Alston & Bird represented
defendants in this action; he thus had reason to believe that
the law firm had a conflict of interest and that Wells Fargo
Bank had inappropriately failed or refused to remit payments
to DCM.6
DCM appealed.
DISCUSSION
DCM contends that it did not authorize Cutchshaw to
enter into the April 19 stipulation and, because the stipulation
affects its substantive rights, it is not bound by it. (See, e.g.,
Linsk v. Linsk (1969) 70 Cal.2d 272, 276 [attorney may “bind
the client in procedural matters arising during the course of the
action but he may not impair the client’s substantial rights or
the cause of action itself ”]; Blanton v. Womancare, Inc. (1985)
38 Cal.3d 396, 404 [attorney had implied authority to stipulate
as to procedural matters, but “attorney must be specifically
authorized to settle and compromise a claim”].)
6It does not appear from our record whether there
were further proceedings or a ruling on DCM’s motion for
reconsideration.
11
As defendants point out, DCM did not assert this
argument below, despite several opportunities to do so, and
the argument is unsupported by citations to the record. In
response to defendants’ ex parte application to dismiss the
third amended complaint based on the stipulation, for example,
DCM opposed the application on the ground that it had
complied with the stipulation, not that it had not authorized
it or that the stipulation was otherwise unenforceable. In its
July 2019 motion to set aside the order granting defendants’
motion to dismiss based on attorney neglect, DCM did not
argue or indicate that the stipulation was unauthorized or void.
In its opposition to defendants’ noticed motion to dismiss, DCM
expressly acknowledged the “discovery stipulation reached on
April 19, 2019,” and opposed the motion on the grounds that it
had complied with its discovery obligations and defense counsel
had failed to meet and confer in good faith. During two
hearings on the motion to dismiss, DCM argued that it had
produced all documents called for in the stipulation, and did not
assert that the stipulation was unauthorized or unenforceable.
Even if the absence of an argument that the stipulation
was unauthorized can be explained by the fact that DCM’s
arguments in each instance were asserted by Cutchshaw—the
same attorney who announced the stipulation—this explanation
is belied by the declaration of DCM’s managing member and
“authorized representative,” Browndorf, in support of the
December 2019 motion for reconsideration. By that time, the
court had, in the judgment of dismissal, expressly found that
“DCM entered into [the April 19] stipulation.” In seeking
to have that judgment set aside, Browndorf submitted his
declaration in support of DCM’s argument that DCM’s difficulty
12
in fulfilling its discovery obligations was due to DCM’s financial
situation at the relevant time. Conspicuously absent from his
declaration is any suggestion that DCM did not authorize the
stipulation.
Generally, “ ‘issues not raised in the trial court cannot
be raised for the first time on appeal.’ ” (Sea & Sage Audubon
Society, Inc. v. Planning Com. (1983) 34 Cal.3d 412, 417; accord,
Rancho Mirage Country Club Homeowners Assn. v. Hazelbaker
(2016) 2 Cal.App.5th 252, 264.) This rule “is based on the
rationale that the opposing party should not be required to
defend for the first time on appeal against a new theory that
‘contemplates a factual situation the consequences of which
are open to controversy and were not put in issue or presented
at the trial.’ ” (Ward v. Taggart (1959) 51 Cal.2d 736, 742.)
Allowing an appellant to assert a new, fact-based theory
on appeal “would not only be unfair to the trial court, but
manifestly unjust to the opposing litigant.” (Ernst v. Searle
(1933) 218 Cal. 233, 240−241.) These reasons apply forcefully
here. As defendants contend, if the argument had been asserted
below, the critical fact—DCM’s authorization of Cutchshaw’s
actions—could have been litigated and defendants would have
had the opportunity to obtain and present evidence supporting
such authorization. Although there is an exception to this
general rule where the new issue involves only questions of law
or undisputed facts (see Ward v. Taggart, supra, 51 Cal.2d at
p. 742), that is not the case here; DCM’s authorization is a
disputed question of fact.
Defendants’ point that DCM fails to support its argument
with pertinent citations to the record is also well-taken. In
its opening brief, DCM states, for example, that it “did not
13
know about the stipulation at the time it was entered and only
learned about it after the dismissal was granted and judgment
was entered by the court.” At another point, DCM states:
“Neither [DCM’s] Chief Investment Officer, Matthew
Browndorf, nor anyone else at [DCM] has any recollection of
their counsel discussing this and seeking their authority to
compromise the lawsuit. If counsel had, [DCM] would not
have authorized such a stipulation given the circumstances.”
No citations to the record are offered for these and similar
statements, and our own review of the record reveals no support
for them.
“It is axiomatic that an appellant must support all
statements of fact in his briefs with citations to the record.”
(Pierotti v. Torian (2000) 81 Cal.App.4th 17, 29; see Cal. Rules
of Court, rule 8.204(a)(1)(C).) We may, and in this case do,
disregard a party’s statements of fact when those statements
are unsupported by citations to the record. (Tanguilig v. Valdez
(2019) 36 Cal.App.5th 514, 520; Sharabianlou v. Karp (2010)
181 Cal.App.4th 1133, 1149.) Without such statements, there is
no factual support for DCM’s assertion that it did not authorize
entry into the stipulation.
Even if the argument that DCM did not authorize
Cutchshaw to make the April 19 stipulation was properly before
us, we would reject it. The order dismissing the third amended
complaint is premised upon the court’s factual finding that
“DCM entered into [the April 19] stipulation.” We review
factual findings to determine whether, based on the entire
record, the findings are supported by substantial evidence; that
is, “evidence that is ‘of ponderable legal significance,’ ‘reasonable
in nature, credible, and of solid value.’ ” (Conservatorship of
14
O.B. (2020) 9 Cal.5th 989, 1006.) Under this standard “ ‘we
have no power to judge of the effect or value of the evidence, to
weigh the evidence, to consider the credibility of the witnesses,
or to resolve conflicts in the evidence or in the reasonable
inferences that may be drawn therefrom.’ ” (Leff v. Gunter
(1983) 33 Cal.3d 508, 518.)
The court’s finding that DCM entered into the stipulation
is supported by: (1) The April 18, 2019 email from Cutchshaw
to defendants’ counsel stating that his “[c]lient will agree to
your proposed offer,” which included DCM’s “consent to case-
terminating sanctions,” and (2) defendants’ counsel’s declaration
that Cutchshaw confirmed to him in court the following day
“that DCM was in agreement with the terms as laid out in
that email.” The finding is further supported by Cutchshaw’s
representation to the court at the April 19, 2019 conference
that if the discovery is not provided in accordance with the
stipulation, “DCM will agree to dismiss the case with prejudice.”
Such statements by DCM’s counsel imply that DCM itself
had approved the stipulation, and the court could reasonably
draw that inference. There is, therefore, substantial evidence
to support the court’s finding that DCM entered into the
stipulation.
DCM further contends that even if the stipulation is
enforceable, dismissing the third amended complaint is
tantamount to a terminating sanction, which was not warranted
in this case. DCM supports its argument with cases addressing
the propriety of terminating sanctions imposed under the
Discovery Act. (See Creed-21 v. City of Wildomar (2017) 18
Cal.App.5th 690, 701–702; Department of Forestry & Fire
Protection v. Howell (2017) 18 Cal.App.5th 154, 191; Lopez v.
15
Watchtower Bible & Tract Society of New York, Inc. (2016)
246 Cal.App.4th 566, 604−605; Doppes v. Bentley Motors, Inc.
(2009) 174 Cal.App.4th 967, 992; Puritan Ins. Co. v. Superior
Court (1985) 171 Cal.App.3d 877, 885.) None of the cited cases
involves the enforcement of a stipulation among the parties,
as in this case. In the absence of apposite authority to support
the argument, we reject it. (See Ewald v. Nationstar Mortgage,
LLC (2017) 13 Cal.App.5th 947, 948 [“the failure to provide
legal authorities to support arguments forfeits contentions of
error”].)7
7 Defendants filed a motion in this court for sanctions
against DCM and its appellate counsel for filing a frivolous
appeal. We requested and received opposition to the motion
and provided counsel with the opportunity to argue the merits
of the motion together with argument on the appeal. We denied
the motion.
16
DISPOSITION
The judgment is affirmed. Respondents are awarded their
costs on appeal.
NOT TO BE PUBLISHED.
ROTHSCHILD, P. J.
We concur:
BENDIX, J.
FEDERMAN, J.*
* Judge of the San Luis Obispo County Superior Court,
assigned by the Chief Justice pursuant to article VI, section 6
of the California Constitution.
17