Preview
Victor M. Marquez, Esq. (SBN: 151520)
Neil E. Chan, Esq. (SBN: 321864)
THE MARQUEZ LAW GROUP
649 Mission Street, 5" Floor ELECTRONICALLY
San Francisco, CA 94105 FILED
Telephone: (41 5) 848-8971 Superior Court of California,
Facsimile: (415) 677-9798 County of San Francisco
02/01/2019
Attorney for: c ler k of the Co} prt
EDUARDO PANIAGUA AND ELENA ASTURIAS Deputy Clerk
IN THE SUPERIOR COURT OF THE STATE OF CALIFORNIA
IN AND FOR THE COUNTY OF SAN FRANCISCO.
EDUARDO PANIAGUA and ELENA Case No.: CGC-18-571279
ASTURIAS, individuals,
. FIRST AMENDED COMPLAINT FOR
Plaintiffs,
1. FRAUD
Vv. 2. NEGLIGENCE
3. VIOLATION OF CAL. BPC §§ 17200 ET|
MILESTONE FINANCIAL, LLC a SEQ. “UNFAIR COMPETITION LAW”;
California corporation, BEAR BRUIN VIOLATION OF CAL. BPC §§ 17500 ET
VENTURES, INC., a California Corporation; SOE ALSE PUERTISING ODE §&
WILLIAM R. STUART, an individual; I .
CAROLYN T. STUART, an individual; and 1750 ET SEQ. “CAL. CONSUMER
DOES 1-100, inclusive. REMEDIES ACT
. VIOLATION OF CAL. CONST. ART.
XV, §§ 1 ET SEQ. “CAL. USURY LAW”
Defendants. 5. RESCISSION
6. DECLARATORY RELIEF
Plaintiffs EDUARDO PANIAGUA and ELENA ASTURIAS (“PLAINTIFFS”) herein
complain against Defendants MILESTONE FINANCIAL LLC, a California corporation, BEAR
BRUIN VENTURES, INC., a California corporation, WILLIAM R. STUART, an individual,
CAROLYN T. STUART, an individual, and ZOE HAMILTON, an individual, (“MILESTONE”,
“BRUIN”, “STUARTS”, “HAMILTON”, or “DEFENDANTS’”) as follows:
THE PARTIES
1
FIRST AMENDED COMPLAINT1. MILESTONE is a corporation incorporated in the State of California, and at all times
herein mentioned was doing business in the City of San Francisco, County of San Francisco,
State of California.
2. BRUIN is a corporation incorporated in the State of California, and at all times
mentioned herein was doing business in the City of San Francisco, County of San Francisco.
3. The STUART’S are individuals, and at all times mentioned herein were doing business in|
the City of San Francisco, County of San Francisco.
4, The STUART’S are agents of MILESTONE and BRUIN.
5. ALL DEFENDANTS are joint and severally liable to one another based on their agency
relationship and based on the fiduciary duty they have as business associates and as principals of
their businesses, MILESTONE and BRUIN.
6. DEFENDANTS had various employees and/or consultants work on various aspects of the|
financing as defined and alleged herein. The DEFENDANTS are responsible for the action of
all its employees and/or consultants identified herein or which may be discovered through the
discovery period, under the agency theory of liability.
7. PLAINTIFFS are individuals domiciled in the State of California and at all times herein
mentioned were residents of the State of California.
8. PLAINTIFFS are ignorant of the true names and capacities of defendants sued herein as
DOES | through 100, inclusive, and therefore sue these defendants by such fictitious names.
Plaintiffs will amend this complaint to allege their true names and capacities when ascertained.
JURISDICTION
9. Venue is proper in this judicial district, pursuant to California Code of Civil Procedure
§ 392(a)(1)-(2) and 395(a). The real property that is the subject of this action is situated in the
County of San Francisco, and is within the jurisdiction of this Court for purposes of service of
process. The action involves the determination of rights or interests of the parties in the
property. The contract between the parties was entered into and was to be performed in the
County of San Francisco.
GENERAL ALLEGATIONS
2
FIRST AMENDED COMPLAINT10. Plaintiffs are or have been the owners of the real property located at 1228 Funston
Avenue, San Francisco, California 94122 (the “PROPERTY”) and described as follows:
Commencing at a point on the easterly line of Funston Avenue, distant thereon 175 feet
southerly from the southerly line of Lincoln line of Lincoln Way; Running thence
southerly and along said like of Funston Avenue 25 feet; Thence at a right angle easterly
120 feet; Thence at a right angle northerly 25 feet; Thence at a right angle westerly 120
feet to the point of commencement.
Being part of Outside Land Block No, 661.
11. | PLAINTIFFS purchased the PROPERTY in November of 2009.
12. PLAINTIFF ASTURIAS’ grandmother lived in the PROPERTY for approximately 40
years. After she passed away, PLAINTIFF PANIAGUA’S brother and sister-in-law, along with
a nephew and his family, lived on the PROPERTY until some time in 2015.
13. | The PROPERTY has been in PLAINTIFFS’ family for over 50 years, and PLAINTIFFS
acquired the property from PLAINTIFF ASTURIAS’ 84 year-old mother (“mother”) and elderly
aunt suffering from cancer (“aunt”), respectively for the purpose of rehabilitating the
PROPERTY and adding value and to subsequently liquidate the added value while keeping the
family home, so that such funds could be used for the mother’s retirement fund, and, to help pay
for the aunt’s ongoing expensive cancer treatments.
14. On or about March of 2014, DEFENDANTS began offering lending services via
advertisements stating that MILESTONE was a “Wholesale Direct Lender” offering “Fast
Quotes”, “Fast Closings” and “Competitive Rates.” The advertisements directed the public to
MILESTONE’S website, www.milestonelender.com, wherein DEFENDANTS represented that
MILESTONE was “in the business of originating or purchasing loans secured by California real
estate.” Additionally, the website stated that the STUARTS were licensed real estate brokers and|
officers of MILESTONE.
15. | PLAINTIFFS were introduced to DEFENDANTS by Jose Ruffrage who held himself out
to be a loan broker in early 2014. Mr. Ruffage is, in fact, not a licensed loan broker. The
3
FIRST AMENDED COMPLAINT“broker,” Jose Ruffage, is not a licensed broker and simply referred PLAINTIFFS to
DEFENDANTS.
16. DEFENDANTS then unilaterally selected its own broker MJF Funding Corporation
(“MIF”) to “represent” PLAINTIFFS in the transaction. In fact, DEFENDANTS and MJF
worked together to prepare the documents without PLAINTIFFS’ consent and without
PLAINTIFFS’ input. This is a clear conflict of interest and a violation of the respective
fiduciary duties owed to PLAINTIFFS, as well as violations of numerous California statutes.
17. On or about March 11, 2014, PLAINTIFFS entered into a loan agreement and escrow
with DEFENDANTS for a residential mortgage loan secured by the PROPERTY. While the
documents recite a loan principal amount of $500,000.00, DEFENDANTS subsequently
disbursed only $400,000.00 to PLAINTIFFS.
18. On or about March 11, 2014, PLAINTIFFS entered into management and escrow with
DEFENDANTS for a residential mortgage loan secured by the PROPERTY. While the
documents recite a loan principal amount of $500,000.00, DEFENDANTS subsequently
disbursed only $400,000.00 to PLAINTIFFS.
19. Unbeknown to PLAINTIFFS, during March of 2014, DEFENDANTS were unlicensed
and legally barred from issuing or entering into such a loan agreement. DEFENDANTS were
then later restrained from issuing any and all residential mortgage and consumer loans by a
Desist and Refrain Order (“DOR”) issued by the California Bureau of Real Estate, the regulatory
body tasked with ensuring compliance with, among other things, California Business and
Professions Code Sections 10166.01 and 10166.02 (outlining the license requirements for
lenders engaging in residential mortgage or consumer loans) cited in DEFENDANTS instant
petition/application. Notably, the DOR describes similar illegal lending activities occurring on
or around June of 2014 for which DEFENDANTS were eventually disciplined and restrained,
not long after DEFENDANTS made their fraudulent representations to PLAINTIFFS.
20. | Had PLAINTIFFS known that DEFANDANTS were unlicensed and prohibited from
making loans, PLAINTIFFS would not have contracted with DEFENDANTS for a loan on the
PROPERTY.
4
FIRST AMENDED COMPLAINT21. | PLAINTIFFS detrimentally relied on the representation being made by DEFENDANTS
about their legal ability to make loans.
22. The reliance on DEFENDANTS illegal and egregious representations were detrimental to
PLAINTIFFS and they suffered significant damages as a result.
23. During the period in question wherein DEFENDANTS were actively promoting
themselves and were in fact making loans, the California Bureau of Real Estate (“BRE”)
initiated an investigation of MILESTONE. Between June 10 and July 1, 2014, a Special
Investigator (“Investigator”) for the BRE engaged in email correspondence with HAMILTON,
acting on behalf of MILESTONE. Within the course of the email correspondence, HAMILTON
solicited mortgage loan originator activity on behalf of MILESTONE and arranged to meet the
Investigator with the purpose of negotiating a residential mortgage loan refinance agreement.
24. Onor about July 2, 2014, the Investigator met with HAMILTON at the MILESTONE
office address advertised on the MILESTONE advert. At the meeting, HAMILTON, acting on
behalf of MILESTONE, solicited and/or offered to negotiate the terms and rates of a residential
mortgage loan refinance with the Investigator concerning a piece of real property located within
the State of California.
25. DEFENDANTS received an Order to Desist and Refrain from the California Bureau of
Real Estate (“BRE”) on or about March 13, 2015. DEFENDANTS failed to inform
PLAINTIFFS of the BRE order.
26. DEFENDANTS received a Second Amended Order to Desist and Refrain (“ORDER”)
from the California Bureau of Real Estate (“STATE”) on or about April 27, 2015. Once again,
DEFENDANTS failed to inform PLAINTIFFS of the ORDER.
27. | The ORDER stated, among other things, the following statements of fact and conclusions
of law: DEFENDANTS solicited, offered, and/or negotiated terms of a residential mortgage loan
for one or more borrowers without obtaining a mortgage originator license endorsement in
violation of California Business and Professions Code (“Code”) Section 10166.02(b);
HAMILTON performed and/or participated in mortgage loan activities which required a real
estate license under Code Sections 10130 and 10131(b) during a period of time when
5
FIRST AMENDED COMPLAINTHAMILTON’S real estate salesperson license was expired; MILESTONE had performed and/or
participated in mortgage loan activities which require a real estate license under Code Sections
10130 and 10131(b) during a period of time when MILESTONE was not licensed by the BRE in
any capacity.
28. As the ORDER makes clear, at the time of the LOAN, MILESTONE was in fact not
licensed to enter into a residential mortgage loan with PLAINTIFFS. Nevertheless,
DEFENDANTS misrepresented to PLAINTIFFS that MILESTONE was in fact licensed to
perform such work and enter into such agreements.
29. Over the next few years, PLAINTIFFS made a series of interest payments to
MILESTONE until DEFENDANTS, in or around January of 2017, threatened to file a Notice of
Default and initiate foreclosure proceedings on PLAINTIFFS’ home.
30. | DEFENDANTS purportedly sent a demand letter to PLAINTIFFS via regular mail, not
certified, demanding payment and invoking an acceleration clause for the loan. Astoundingly,
DEFENDANTS then invoked a non-existent right to accelerate the balloon date for the loan and
coupled it with an extortionate demand for $50,000.00 disguised as a “late fee” for missing the
balloon date.
31. On or about January 20, 2017, PLAINTIFFS and DEFENDANTS entered into a loan
modification agreement spuriously titled “Settlement Agreement, Indemnity and Second
Amendment to Promissory Note Secured By Deed of Trust” (“MODIFICATION”) that
contained an interest-rate increase clause that effectively charged PLAINTIFFS 19.75 percent
annual interest on the remaining principal. In fact, over the life of the LOAN and subsequent
MODIFICATION, PLAINTIFFS have paid over $165,000.00 in interest payments alone on an
initial principal of $400,000.00.
32. In or around the beginning of January 2017 and continuing through March 2017,
PLAINTIFFS requested that MILESTONE disclose the pay-off amounts currently due.
MILESTONE, in clear violation of California law, refused to disclose to PLAINTIFFS the pay-
off amount.
6
FIRST AMENDED COMPLAINT33. On January 20, 2017, DEFENDANTS acted unlawfully in pressuring PLAINTIFFS to
enter into a new Loan agreement as DEFENDANTS were under the BRE order and the second
ORDER to not practice lending and to not enter into any new paper. DEFENDANTS’ actions
were both malicious and performed with the intent to defraud PLAINTIFFS.
34. PLAINTIFFS were forced to accept the terms of the MODIFICATION because
DEFENDANTS continued to threaten PLAINTIFFS with a Notice of Default and foreclosure
proceedings intimating that they would lose their property. Despite coming to an agreement as
recited in the MODIFICATION and DEFENDANTS explicitly promising to refrain from filing a
Notice of Default, DEFENDANTS filed a Notice of Default against PLAINTIFFS in or around
March of 2018 resulting in harm to PLAINTIFFS’ credit.
35. Throughout this period, DEFENDANTS remained unlicensed even as they made
unlawful demands on PLAINTIFFS for payment of a loan that DEFENDANTS were never
legally allowed to issue in the first place.
36. In fact, given that MILESTONE had not been licensed in any capacity by the BRE as
stated in the ORDER, the LOAN charging 10.75 percent interest, subsequently increased to
19.75 percent interest, exceeds the maximum allowable interest rate under the California
Constitution Article XV, Section | et seq. of 10 percent interest. While an exception exists for
licensed Real Estate Brokers engaged in lending activities, MILESTONE possessed no license
that would qualify it for the exception. MILESTONE is the issuing entity for the LOAN, and
flagrantly disregarded California law.
37. Moreover, in addition to the acceleration of the interest rate from 10.75 percent to 19.75,
DEFENDANTS also added a 10 percent penalty clause for late payments and in fact applied that
clause to charge PLAINTIFFS the additional 10 percent, making the total interest rate a
whopping 29.75 percent. The 10 percent penalty was applied to both the principal and interest
payments on the January 20, 2017 loan amount.
38. Separate and apart from this instant lawsuit, PLAINTIFFS suffered damages from the
negligence and fraud perpetrated by their licensed engineer that led to the loss of a prospective
7
FIRST AMENDED COMPLAINTbuyer for the PROPERTY. The loss of the buyer at that time directly caused PLAINTIFFS to
suffer large financial losses in the form of carrying costs.
39. Asaresult of the fact that the sale of the property deal fell apart, PLAINTIFF
PANIAGUA suffered irreparable harm to his credit as MILESTONE would go on to file a
Notice of Default, with DEFENDANTS making a call on the LOAN and then refusing for two
months to respond to PLAINTIFFS demand for disclosure of a pay-off amount.
40. To date, the PROPERTY has remained empty and the carrying costs and losses at the
various levels now exceed $1,000,000.00 dollars.
FIRST CAUSE OF ACTION
(Fraud/Intentional Misrepresentation)
Against ALL Defendants and DOES 1 - 100
41. PLAINTIFFS incorporate herein the allegations of paragraphs 1 through 35 inclusive, as
though fully set forth at length herein.
42. | DEFENDANTS fraudulently represented to PLAINTIFFS that they possessed the
necessary licenses from the California Bureau of Real Estate to enter into residential mortgage
loan agreements.
43. In fact, the STUARTS?’ lacked the proper mortgage loan originator licenses and flagrant,
disregarded California law.
44, | HAMILTON and MILESTONE lacked all required licenses in flagrant disregard of
California law.
45. | DEFENDANTS knew that they were required to be licensed by the California Bureau of
Real Estate in order to enter into such a residential mortgage loan agreement with PLAINTIFFS.
46. | DEFENDANTS knew their fraudulent representations were false when they made such
fraudulent representations to PLAINTIFFS.
47. | DEFENDANTS intended for PLAINTIFFS to rely on the fraudulent representations.
48. | PLAINTIFFS reasonably relied on DEFENDANTS’ fraudulent representations.
49. PLAINTIFFS’ reliance on DEFENDANTS’ fraudulent representations was a substantial
factor, if not sole cause, of the harm to PLAINTIFF.
8
FIRST AMENDED COMPLAINT50. | DEFENDANTS failed to mitigate the harm to PLAINTIFF when DEFENDANTS failed
to disclose the existence of the ORDER to PLAINTIFFS.
51. Asaresult, PLAINTIFFS have suffered harm in the form of damages to be proved at
trial.
SECOND CAUSE OF ACTION
(Negligent Misrepresentation)
Against ALL Defendants and DOES 1-100
52. PLAINTIFFS incorporate herein the allegations of paragraphs | through 46 inclusive, as
though fully set forth at length herein.
53. | DEFENDANTS represented to PLAINTIFFS that they possessed the necessary and
required licenses to enter into residential mortgage loan agreements.
54. DEFENDANTS’ representations were not true.
55. Although DEFENDANTS may have honestly believed that the representation was true,
DEFENDANTS’ had no reasonable grounds for believing the representations were true when
they made them. DEFENDANTS are professionals with years of experience and should have
known that the license requirements applied to them.
56. | DEFENDANTS intended for PLAINTIFFS to rely on their untrue representations.
57. PLAINTIFFS reasonably relied on DEFENDANTS’ representations.
58. | PLAINTIFFS’ reliance on DEFENDANTS’ representations was a substantial factor, if
not sole cause, of the harm to PLAINTIFFS.
59. | DEFENDANTS failed to mitigate the harm to PLAINTIFF when DEFENDANTS failed
to disclose the existence of the ORDER to PLAINTIFFS.
60. | PLAINTIFFS have incurred damages to be proved at trial.
THIRD CAUSE OF ACTION
(Violations of Cal. Business & Professions Code § 17200 et seq. “Unfair Competition Act”,
Cal. Business and Professions Code § 17500 et seq. “False Advertising Act”, and Cal. Civil
Code § 1750 et seq. “California Consumers Legal Remedies Act”)
Against ALL Defendants and DOES 1-100
9
FIRST AMENDED COMPLAINT61. | PLAINTIFFS incorporate herein the allegations of paragraphs 1 through 55 inclusive, as
though fully set forth at length herein.
62. DEFENDANTS represented to the public, by and through the MILESTONE
advertisements as recited in the ORDER, that they could offer, accept, enter into, and otherwise
administer residential mortgage loan agreements.
63. DEFENDANTS knew their statements in the MILESTONE advertisements, as recited in
the ORDER, were false and likely to mislead the public into believing that MILESTONE had the!
legal ability to enter into residential mortgage loan agreements.
64. | DEFENDANTS intended for PLAINTIFFS and the public to rely on the false
representations included in the MILESTONE advertisements and MILESTONE website as state
in the ORDER.
65. | PLAINTIFFS reasonably relied on DEFENDANTS’ false representations.
66. DEFENDANTS’ false representations were a substantial factor if not sole cause of the
harm to PLAINTIFFS.
67. PLAINTIFFS and the public have been damaged in an amount to be proved at trial.
FOURTH CAUSE OF ACTION
(Violation of Cal. Const. Art. XV, Section 1 et seq., “California Usury Law”)
Against ALL Defendants and DOES 1-100
68. | PLAINTIFFS incorporate herein the allegations of paragraphs | through 62 inclusive, as
though fully set forth at length herein.
69. Cal. Const. Art. XV, Section 1 allows for any non-exempt lender to charge a maximum
of 10 percent annual interest on any loan.
70. | MILESTONE is the issuing entity on the LOAN to PLAINTIFFS.
71. | MILESTONE, having not been licensed in any capacity by the California Bureau of Real
Estate at any point during the offering, acceptance, or negotiation of the LOAN, is a non-exempt
lender during the relevant time period stated herein.
72. | MILESTONE charged an annual interest rate of 10.75 percent on the LOAN.
10
FIRST AMENDED COMPLAINT73. | MILESTONE subsequently entered into the MODIFICATION with PLAINTIFFS that,
given the circumstances necessitating the MODIFICATION and known to DEFENDANTS,
effectively resulted in a 19.75 percent annual interest rate.
74. Subsequent to the MODIFICATION, DEFENDANTS then charged a 10 percent late fee
on both the remaining principle and the accrued interest, resulting in an effective interest rate
charge of 29.75 percent.
75. | DEFENDANTS generally, and MILESTONE particularly, have violated the California
Constitution’s ban on charges of greater than 10 percent annual interest on a loan by a non-
exempt entity.
76. | PLAINTIFFS have suffered harm in the form of damages to be proved at trial.
FIFTH CAUSE OF ACTION
(Rescission)
Against ALL Defendants and DOES 1 - 100
77. PLAINTIFFS incorporate herein the allegations of paragraphs 1 through 76 inclusive, as
though fully set forth at length herein.
78. | DEFENDANTS selected MJF to be the broker for PLAINTIFFS.
79. DEFENDANTS presented PLAINTIFF PANIAGUA with the documents
80. MJF, at DEFENDANTS direction, drafted the loan documents and included onerous,
inaccurate, and illegal terms to the contract that misrepresented the loan as a business purpose
loan when in reality it was a residential or consumer loan to be used to remodel PLAINTIFFS
primary residence.
81. DEFENDANTS induced PLAINTIFFS assent by presenting this contract of adhesion to
PLAINTIFF PANIAGUA, a limited-english speaker, and demanded he sign or else the deal was
off.
82. In reasonable reliance on DEFENDANTS’ fraudulent misrepresentations, PLAINTIFFS
signed the loan documents and affidavits.
83. In reality, DEFENDANTS were unlicensed and legally barred from entering into such a
contract with PLAINTIFFS. Thus, the contract is illegal.
FIRST AMENDED COMPLAINTSIXTH CAUSE OF ACTION
(Declaratory Relief)
Against ALL Defendants and DOES 1 - 100
84. | PLAINTIFFS incorporate herein the allegations of paragraphs 1 through 83 inclusive, as
though fully set forth at length herein.
85. An actual controversy has arisen and now exists between PLAINTIFFS and.
DEFENDANTS concerning their respective rights and duties in that PLAINTIFFS contend that
the contract was illegal as a matter of law.
86. PLAINTIFFS desire a judicial determination of DEFENDANTS’ rights and duties, and al
declaration as to the legality of the contract.
87. A judicial determination is necessary and appropriate at this time under the
circumstances so that PLAINTIFFS due process and property rights may be upheld.
88. PLAINTIFFS have no other adequate legal remedy to resolve the parties’ disputes other
than by declaratory judgment from this court.
PRAYER FOR RELIEF
WHEREFORE, PLAINTIFFS pray for judgment against DEFENDANTS as follows:
For the All Causes of Action:
1. For general damages according to proof; and
2. For special damages according to proof;
3. For punitive damages five times the actual losses or $5,000,000.00
whichever is greater; and
4, For treble damages; and
5. For legal fees and costs of suit incurred; and
6. For such other and further relief as the court may deem proper.
12
FIRST AMENDED COMPLAINTDate: February 1, 2019
Vile M. Margene
By:
Victor M. Marquez, Esq.
Attorney for Eduardo Paniagua and Elena
Asturias
13
FIRST AMENDED COMPLAINT
Preview
Victor M. Marquez, Esq. (SBN: 151520) Neil E. Chan, Esq. (SBN: 321864) THE MARQUEZ LAW GROUP 649 Mission Street, 5" Floor ELECTRONICALLY San Francisco, CA 94105 FILED Telephone: (41 5) 848-8971 Superior Court of California, Facsimile: (415) 677-9798 County of San Francisco 02/01/2019 Attorney for: c ler k of the Co} prt EDUARDO PANIAGUA AND ELENA ASTURIAS Deputy Clerk IN THE SUPERIOR COURT OF THE STATE OF CALIFORNIA IN AND FOR THE COUNTY OF SAN FRANCISCO. EDUARDO PANIAGUA and ELENA Case No.: CGC-18-571279 ASTURIAS, individuals, . FIRST AMENDED COMPLAINT FOR Plaintiffs, 1. FRAUD Vv. 2. NEGLIGENCE 3. VIOLATION OF CAL. BPC §§ 17200 ET| MILESTONE FINANCIAL, LLC a SEQ. “UNFAIR COMPETITION LAW”; California corporation, BEAR BRUIN VIOLATION OF CAL. BPC §§ 17500 ET VENTURES, INC., a California Corporation; SOE ALSE PUERTISING ODE §& WILLIAM R. STUART, an individual; I . CAROLYN T. STUART, an individual; and 1750 ET SEQ. “CAL. CONSUMER DOES 1-100, inclusive. REMEDIES ACT . VIOLATION OF CAL. CONST. ART. XV, §§ 1 ET SEQ. “CAL. USURY LAW” Defendants. 5. RESCISSION 6. DECLARATORY RELIEF Plaintiffs EDUARDO PANIAGUA and ELENA ASTURIAS (“PLAINTIFFS”) herein complain against Defendants MILESTONE FINANCIAL LLC, a California corporation, BEAR BRUIN VENTURES, INC., a California corporation, WILLIAM R. STUART, an individual, CAROLYN T. STUART, an individual, and ZOE HAMILTON, an individual, (“MILESTONE”, “BRUIN”, “STUARTS”, “HAMILTON”, or “DEFENDANTS’”) as follows: THE PARTIES 1 FIRST AMENDED COMPLAINT1. MILESTONE is a corporation incorporated in the State of California, and at all times herein mentioned was doing business in the City of San Francisco, County of San Francisco, State of California. 2. BRUIN is a corporation incorporated in the State of California, and at all times mentioned herein was doing business in the City of San Francisco, County of San Francisco. 3. The STUART’S are individuals, and at all times mentioned herein were doing business in| the City of San Francisco, County of San Francisco. 4, The STUART’S are agents of MILESTONE and BRUIN. 5. ALL DEFENDANTS are joint and severally liable to one another based on their agency relationship and based on the fiduciary duty they have as business associates and as principals of their businesses, MILESTONE and BRUIN. 6. DEFENDANTS had various employees and/or consultants work on various aspects of the| financing as defined and alleged herein. The DEFENDANTS are responsible for the action of all its employees and/or consultants identified herein or which may be discovered through the discovery period, under the agency theory of liability. 7. PLAINTIFFS are individuals domiciled in the State of California and at all times herein mentioned were residents of the State of California. 8. PLAINTIFFS are ignorant of the true names and capacities of defendants sued herein as DOES | through 100, inclusive, and therefore sue these defendants by such fictitious names. Plaintiffs will amend this complaint to allege their true names and capacities when ascertained. JURISDICTION 9. Venue is proper in this judicial district, pursuant to California Code of Civil Procedure § 392(a)(1)-(2) and 395(a). The real property that is the subject of this action is situated in the County of San Francisco, and is within the jurisdiction of this Court for purposes of service of process. The action involves the determination of rights or interests of the parties in the property. The contract between the parties was entered into and was to be performed in the County of San Francisco. GENERAL ALLEGATIONS 2 FIRST AMENDED COMPLAINT10. Plaintiffs are or have been the owners of the real property located at 1228 Funston Avenue, San Francisco, California 94122 (the “PROPERTY”) and described as follows: Commencing at a point on the easterly line of Funston Avenue, distant thereon 175 feet southerly from the southerly line of Lincoln line of Lincoln Way; Running thence southerly and along said like of Funston Avenue 25 feet; Thence at a right angle easterly 120 feet; Thence at a right angle northerly 25 feet; Thence at a right angle westerly 120 feet to the point of commencement. Being part of Outside Land Block No, 661. 11. | PLAINTIFFS purchased the PROPERTY in November of 2009. 12. PLAINTIFF ASTURIAS’ grandmother lived in the PROPERTY for approximately 40 years. After she passed away, PLAINTIFF PANIAGUA’S brother and sister-in-law, along with a nephew and his family, lived on the PROPERTY until some time in 2015. 13. | The PROPERTY has been in PLAINTIFFS’ family for over 50 years, and PLAINTIFFS acquired the property from PLAINTIFF ASTURIAS’ 84 year-old mother (“mother”) and elderly aunt suffering from cancer (“aunt”), respectively for the purpose of rehabilitating the PROPERTY and adding value and to subsequently liquidate the added value while keeping the family home, so that such funds could be used for the mother’s retirement fund, and, to help pay for the aunt’s ongoing expensive cancer treatments. 14. On or about March of 2014, DEFENDANTS began offering lending services via advertisements stating that MILESTONE was a “Wholesale Direct Lender” offering “Fast Quotes”, “Fast Closings” and “Competitive Rates.” The advertisements directed the public to MILESTONE’S website, www.milestonelender.com, wherein DEFENDANTS represented that MILESTONE was “in the business of originating or purchasing loans secured by California real estate.” Additionally, the website stated that the STUARTS were licensed real estate brokers and| officers of MILESTONE. 15. | PLAINTIFFS were introduced to DEFENDANTS by Jose Ruffrage who held himself out to be a loan broker in early 2014. Mr. Ruffage is, in fact, not a licensed loan broker. The 3 FIRST AMENDED COMPLAINT“broker,” Jose Ruffage, is not a licensed broker and simply referred PLAINTIFFS to DEFENDANTS. 16. DEFENDANTS then unilaterally selected its own broker MJF Funding Corporation (“MIF”) to “represent” PLAINTIFFS in the transaction. In fact, DEFENDANTS and MJF worked together to prepare the documents without PLAINTIFFS’ consent and without PLAINTIFFS’ input. This is a clear conflict of interest and a violation of the respective fiduciary duties owed to PLAINTIFFS, as well as violations of numerous California statutes. 17. On or about March 11, 2014, PLAINTIFFS entered into a loan agreement and escrow with DEFENDANTS for a residential mortgage loan secured by the PROPERTY. While the documents recite a loan principal amount of $500,000.00, DEFENDANTS subsequently disbursed only $400,000.00 to PLAINTIFFS. 18. On or about March 11, 2014, PLAINTIFFS entered into management and escrow with DEFENDANTS for a residential mortgage loan secured by the PROPERTY. While the documents recite a loan principal amount of $500,000.00, DEFENDANTS subsequently disbursed only $400,000.00 to PLAINTIFFS. 19. Unbeknown to PLAINTIFFS, during March of 2014, DEFENDANTS were unlicensed and legally barred from issuing or entering into such a loan agreement. DEFENDANTS were then later restrained from issuing any and all residential mortgage and consumer loans by a Desist and Refrain Order (“DOR”) issued by the California Bureau of Real Estate, the regulatory body tasked with ensuring compliance with, among other things, California Business and Professions Code Sections 10166.01 and 10166.02 (outlining the license requirements for lenders engaging in residential mortgage or consumer loans) cited in DEFENDANTS instant petition/application. Notably, the DOR describes similar illegal lending activities occurring on or around June of 2014 for which DEFENDANTS were eventually disciplined and restrained, not long after DEFENDANTS made their fraudulent representations to PLAINTIFFS. 20. | Had PLAINTIFFS known that DEFANDANTS were unlicensed and prohibited from making loans, PLAINTIFFS would not have contracted with DEFENDANTS for a loan on the PROPERTY. 4 FIRST AMENDED COMPLAINT21. | PLAINTIFFS detrimentally relied on the representation being made by DEFENDANTS about their legal ability to make loans. 22. The reliance on DEFENDANTS illegal and egregious representations were detrimental to PLAINTIFFS and they suffered significant damages as a result. 23. During the period in question wherein DEFENDANTS were actively promoting themselves and were in fact making loans, the California Bureau of Real Estate (“BRE”) initiated an investigation of MILESTONE. Between June 10 and July 1, 2014, a Special Investigator (“Investigator”) for the BRE engaged in email correspondence with HAMILTON, acting on behalf of MILESTONE. Within the course of the email correspondence, HAMILTON solicited mortgage loan originator activity on behalf of MILESTONE and arranged to meet the Investigator with the purpose of negotiating a residential mortgage loan refinance agreement. 24. Onor about July 2, 2014, the Investigator met with HAMILTON at the MILESTONE office address advertised on the MILESTONE advert. At the meeting, HAMILTON, acting on behalf of MILESTONE, solicited and/or offered to negotiate the terms and rates of a residential mortgage loan refinance with the Investigator concerning a piece of real property located within the State of California. 25. DEFENDANTS received an Order to Desist and Refrain from the California Bureau of Real Estate (“BRE”) on or about March 13, 2015. DEFENDANTS failed to inform PLAINTIFFS of the BRE order. 26. DEFENDANTS received a Second Amended Order to Desist and Refrain (“ORDER”) from the California Bureau of Real Estate (“STATE”) on or about April 27, 2015. Once again, DEFENDANTS failed to inform PLAINTIFFS of the ORDER. 27. | The ORDER stated, among other things, the following statements of fact and conclusions of law: DEFENDANTS solicited, offered, and/or negotiated terms of a residential mortgage loan for one or more borrowers without obtaining a mortgage originator license endorsement in violation of California Business and Professions Code (“Code”) Section 10166.02(b); HAMILTON performed and/or participated in mortgage loan activities which required a real estate license under Code Sections 10130 and 10131(b) during a period of time when 5 FIRST AMENDED COMPLAINTHAMILTON’S real estate salesperson license was expired; MILESTONE had performed and/or participated in mortgage loan activities which require a real estate license under Code Sections 10130 and 10131(b) during a period of time when MILESTONE was not licensed by the BRE in any capacity. 28. As the ORDER makes clear, at the time of the LOAN, MILESTONE was in fact not licensed to enter into a residential mortgage loan with PLAINTIFFS. Nevertheless, DEFENDANTS misrepresented to PLAINTIFFS that MILESTONE was in fact licensed to perform such work and enter into such agreements. 29. Over the next few years, PLAINTIFFS made a series of interest payments to MILESTONE until DEFENDANTS, in or around January of 2017, threatened to file a Notice of Default and initiate foreclosure proceedings on PLAINTIFFS’ home. 30. | DEFENDANTS purportedly sent a demand letter to PLAINTIFFS via regular mail, not certified, demanding payment and invoking an acceleration clause for the loan. Astoundingly, DEFENDANTS then invoked a non-existent right to accelerate the balloon date for the loan and coupled it with an extortionate demand for $50,000.00 disguised as a “late fee” for missing the balloon date. 31. On or about January 20, 2017, PLAINTIFFS and DEFENDANTS entered into a loan modification agreement spuriously titled “Settlement Agreement, Indemnity and Second Amendment to Promissory Note Secured By Deed of Trust” (“MODIFICATION”) that contained an interest-rate increase clause that effectively charged PLAINTIFFS 19.75 percent annual interest on the remaining principal. In fact, over the life of the LOAN and subsequent MODIFICATION, PLAINTIFFS have paid over $165,000.00 in interest payments alone on an initial principal of $400,000.00. 32. In or around the beginning of January 2017 and continuing through March 2017, PLAINTIFFS requested that MILESTONE disclose the pay-off amounts currently due. MILESTONE, in clear violation of California law, refused to disclose to PLAINTIFFS the pay- off amount. 6 FIRST AMENDED COMPLAINT33. On January 20, 2017, DEFENDANTS acted unlawfully in pressuring PLAINTIFFS to enter into a new Loan agreement as DEFENDANTS were under the BRE order and the second ORDER to not practice lending and to not enter into any new paper. DEFENDANTS’ actions were both malicious and performed with the intent to defraud PLAINTIFFS. 34. PLAINTIFFS were forced to accept the terms of the MODIFICATION because DEFENDANTS continued to threaten PLAINTIFFS with a Notice of Default and foreclosure proceedings intimating that they would lose their property. Despite coming to an agreement as recited in the MODIFICATION and DEFENDANTS explicitly promising to refrain from filing a Notice of Default, DEFENDANTS filed a Notice of Default against PLAINTIFFS in or around March of 2018 resulting in harm to PLAINTIFFS’ credit. 35. Throughout this period, DEFENDANTS remained unlicensed even as they made unlawful demands on PLAINTIFFS for payment of a loan that DEFENDANTS were never legally allowed to issue in the first place. 36. In fact, given that MILESTONE had not been licensed in any capacity by the BRE as stated in the ORDER, the LOAN charging 10.75 percent interest, subsequently increased to 19.75 percent interest, exceeds the maximum allowable interest rate under the California Constitution Article XV, Section | et seq. of 10 percent interest. While an exception exists for licensed Real Estate Brokers engaged in lending activities, MILESTONE possessed no license that would qualify it for the exception. MILESTONE is the issuing entity for the LOAN, and flagrantly disregarded California law. 37. Moreover, in addition to the acceleration of the interest rate from 10.75 percent to 19.75, DEFENDANTS also added a 10 percent penalty clause for late payments and in fact applied that clause to charge PLAINTIFFS the additional 10 percent, making the total interest rate a whopping 29.75 percent. The 10 percent penalty was applied to both the principal and interest payments on the January 20, 2017 loan amount. 38. Separate and apart from this instant lawsuit, PLAINTIFFS suffered damages from the negligence and fraud perpetrated by their licensed engineer that led to the loss of a prospective 7 FIRST AMENDED COMPLAINTbuyer for the PROPERTY. The loss of the buyer at that time directly caused PLAINTIFFS to suffer large financial losses in the form of carrying costs. 39. Asaresult of the fact that the sale of the property deal fell apart, PLAINTIFF PANIAGUA suffered irreparable harm to his credit as MILESTONE would go on to file a Notice of Default, with DEFENDANTS making a call on the LOAN and then refusing for two months to respond to PLAINTIFFS demand for disclosure of a pay-off amount. 40. To date, the PROPERTY has remained empty and the carrying costs and losses at the various levels now exceed $1,000,000.00 dollars. FIRST CAUSE OF ACTION (Fraud/Intentional Misrepresentation) Against ALL Defendants and DOES 1 - 100 41. PLAINTIFFS incorporate herein the allegations of paragraphs 1 through 35 inclusive, as though fully set forth at length herein. 42. | DEFENDANTS fraudulently represented to PLAINTIFFS that they possessed the necessary licenses from the California Bureau of Real Estate to enter into residential mortgage loan agreements. 43. In fact, the STUARTS?’ lacked the proper mortgage loan originator licenses and flagrant, disregarded California law. 44, | HAMILTON and MILESTONE lacked all required licenses in flagrant disregard of California law. 45. | DEFENDANTS knew that they were required to be licensed by the California Bureau of Real Estate in order to enter into such a residential mortgage loan agreement with PLAINTIFFS. 46. | DEFENDANTS knew their fraudulent representations were false when they made such fraudulent representations to PLAINTIFFS. 47. | DEFENDANTS intended for PLAINTIFFS to rely on the fraudulent representations. 48. | PLAINTIFFS reasonably relied on DEFENDANTS’ fraudulent representations. 49. PLAINTIFFS’ reliance on DEFENDANTS’ fraudulent representations was a substantial factor, if not sole cause, of the harm to PLAINTIFF. 8 FIRST AMENDED COMPLAINT50. | DEFENDANTS failed to mitigate the harm to PLAINTIFF when DEFENDANTS failed to disclose the existence of the ORDER to PLAINTIFFS. 51. Asaresult, PLAINTIFFS have suffered harm in the form of damages to be proved at trial. SECOND CAUSE OF ACTION (Negligent Misrepresentation) Against ALL Defendants and DOES 1-100 52. PLAINTIFFS incorporate herein the allegations of paragraphs | through 46 inclusive, as though fully set forth at length herein. 53. | DEFENDANTS represented to PLAINTIFFS that they possessed the necessary and required licenses to enter into residential mortgage loan agreements. 54. DEFENDANTS’ representations were not true. 55. Although DEFENDANTS may have honestly believed that the representation was true, DEFENDANTS’ had no reasonable grounds for believing the representations were true when they made them. DEFENDANTS are professionals with years of experience and should have known that the license requirements applied to them. 56. | DEFENDANTS intended for PLAINTIFFS to rely on their untrue representations. 57. PLAINTIFFS reasonably relied on DEFENDANTS’ representations. 58. | PLAINTIFFS’ reliance on DEFENDANTS’ representations was a substantial factor, if not sole cause, of the harm to PLAINTIFFS. 59. | DEFENDANTS failed to mitigate the harm to PLAINTIFF when DEFENDANTS failed to disclose the existence of the ORDER to PLAINTIFFS. 60. | PLAINTIFFS have incurred damages to be proved at trial. THIRD CAUSE OF ACTION (Violations of Cal. Business & Professions Code § 17200 et seq. “Unfair Competition Act”, Cal. Business and Professions Code § 17500 et seq. “False Advertising Act”, and Cal. Civil Code § 1750 et seq. “California Consumers Legal Remedies Act”) Against ALL Defendants and DOES 1-100 9 FIRST AMENDED COMPLAINT61. | PLAINTIFFS incorporate herein the allegations of paragraphs 1 through 55 inclusive, as though fully set forth at length herein. 62. DEFENDANTS represented to the public, by and through the MILESTONE advertisements as recited in the ORDER, that they could offer, accept, enter into, and otherwise administer residential mortgage loan agreements. 63. DEFENDANTS knew their statements in the MILESTONE advertisements, as recited in the ORDER, were false and likely to mislead the public into believing that MILESTONE had the! legal ability to enter into residential mortgage loan agreements. 64. | DEFENDANTS intended for PLAINTIFFS and the public to rely on the false representations included in the MILESTONE advertisements and MILESTONE website as state in the ORDER. 65. | PLAINTIFFS reasonably relied on DEFENDANTS’ false representations. 66. DEFENDANTS’ false representations were a substantial factor if not sole cause of the harm to PLAINTIFFS. 67. PLAINTIFFS and the public have been damaged in an amount to be proved at trial. FOURTH CAUSE OF ACTION (Violation of Cal. Const. Art. XV, Section 1 et seq., “California Usury Law”) Against ALL Defendants and DOES 1-100 68. | PLAINTIFFS incorporate herein the allegations of paragraphs | through 62 inclusive, as though fully set forth at length herein. 69. Cal. Const. Art. XV, Section 1 allows for any non-exempt lender to charge a maximum of 10 percent annual interest on any loan. 70. | MILESTONE is the issuing entity on the LOAN to PLAINTIFFS. 71. | MILESTONE, having not been licensed in any capacity by the California Bureau of Real Estate at any point during the offering, acceptance, or negotiation of the LOAN, is a non-exempt lender during the relevant time period stated herein. 72. | MILESTONE charged an annual interest rate of 10.75 percent on the LOAN. 10 FIRST AMENDED COMPLAINT73. | MILESTONE subsequently entered into the MODIFICATION with PLAINTIFFS that, given the circumstances necessitating the MODIFICATION and known to DEFENDANTS, effectively resulted in a 19.75 percent annual interest rate. 74. Subsequent to the MODIFICATION, DEFENDANTS then charged a 10 percent late fee on both the remaining principle and the accrued interest, resulting in an effective interest rate charge of 29.75 percent. 75. | DEFENDANTS generally, and MILESTONE particularly, have violated the California Constitution’s ban on charges of greater than 10 percent annual interest on a loan by a non- exempt entity. 76. | PLAINTIFFS have suffered harm in the form of damages to be proved at trial. FIFTH CAUSE OF ACTION (Rescission) Against ALL Defendants and DOES 1 - 100 77. PLAINTIFFS incorporate herein the allegations of paragraphs 1 through 76 inclusive, as though fully set forth at length herein. 78. | DEFENDANTS selected MJF to be the broker for PLAINTIFFS. 79. DEFENDANTS presented PLAINTIFF PANIAGUA with the documents 80. MJF, at DEFENDANTS direction, drafted the loan documents and included onerous, inaccurate, and illegal terms to the contract that misrepresented the loan as a business purpose loan when in reality it was a residential or consumer loan to be used to remodel PLAINTIFFS primary residence. 81. DEFENDANTS induced PLAINTIFFS assent by presenting this contract of adhesion to PLAINTIFF PANIAGUA, a limited-english speaker, and demanded he sign or else the deal was off. 82. In reasonable reliance on DEFENDANTS’ fraudulent misrepresentations, PLAINTIFFS signed the loan documents and affidavits. 83. In reality, DEFENDANTS were unlicensed and legally barred from entering into such a contract with PLAINTIFFS. Thus, the contract is illegal. FIRST AMENDED COMPLAINTSIXTH CAUSE OF ACTION (Declaratory Relief) Against ALL Defendants and DOES 1 - 100 84. | PLAINTIFFS incorporate herein the allegations of paragraphs 1 through 83 inclusive, as though fully set forth at length herein. 85. An actual controversy has arisen and now exists between PLAINTIFFS and. DEFENDANTS concerning their respective rights and duties in that PLAINTIFFS contend that the contract was illegal as a matter of law. 86. PLAINTIFFS desire a judicial determination of DEFENDANTS’ rights and duties, and al declaration as to the legality of the contract. 87. A judicial determination is necessary and appropriate at this time under the circumstances so that PLAINTIFFS due process and property rights may be upheld. 88. PLAINTIFFS have no other adequate legal remedy to resolve the parties’ disputes other than by declaratory judgment from this court. PRAYER FOR RELIEF WHEREFORE, PLAINTIFFS pray for judgment against DEFENDANTS as follows: For the All Causes of Action: 1. For general damages according to proof; and 2. For special damages according to proof; 3. For punitive damages five times the actual losses or $5,000,000.00 whichever is greater; and 4, For treble damages; and 5. For legal fees and costs of suit incurred; and 6. For such other and further relief as the court may deem proper. 12 FIRST AMENDED COMPLAINTDate: February 1, 2019 Vile M. Margene By: Victor M. Marquez, Esq. Attorney for Eduardo Paniagua and Elena Asturias 13 FIRST AMENDED COMPLAINT