NATURE OF PROCEEDINGS: Defendants LoanCare LLC and New Rez, LLC dba Shellpoint Mortgage Servicing’s Demurrer to the First Amended Complaint  

 

Defendants’ Demurrer is sustained with leave to amend.

 

BACKGROUND

Plaintiff Pamela Alexander, as Trustee of the Willie J. Nichols Trust (Plaintiff) filed the operative First Amended Complaint (“FAC”) against Defendants Loancare, LLC (Loancare) and NewRez, LLC dba Shellpoint Mortgage Servicing (erroneously sued as NewRez, LLC) (Shellpoint) alleging causes of action for: (1) Unfair Business Practices; (2) Injunction; (3) Breach of Good Faith and Fair Dealing; (4) Declaratory Relief; and (5) Fraudulent Misrepresentation.  

Defendants filed a demurrer to each cause of action in the FAC, and Plaintiff opposes.

REQUEST FOR JUDICIAL NOTICE

The Court grants Defendants’ request for judicial notice of the Deed of Trust recorded in the Los Angeles County Recorder’s Office, on July 26, 2016, as Document No. 20160872652 (Exhibit A).

LEGAL STANDARD

When considering demurrers, courts read the allegations liberally and in context. Wilson v. Transit Authority of City of Sacramento (1962) 199 Cal.App.2d 716, 720-21. In a demurrer proceeding, the defects must be apparent on the face of the pleading or via proper judicial notice. Donabedian v. Mercury Ins. Co. (2004) 116 Cal.App.4th 968, 994. “A demurrer tests the pleading alone, and not on the evidence or facts alleged.” E-Fab, Inc. v. Accountants, Inc. Servs. (2007) 153 Cal.App.4th 1308, 1315. As such, courts assume the truth of the complaint’s properly pleaded or implied factual allegations. Ibid. However, it does not accept as true deductions, contentions, or conclusions of law or fact. Stonehouse Homes LLC v. City of Sierra Madre (2008) 167 Cal.App.4th 531, 538.

Leave to amend must be allowed where there is a reasonable possibility of successful amendment. See Goodman v. Kennedy (1976) 18 Cal.3d 335, 349 (court shall not “sustain a demurrer without leave to amend if there is any reasonable possibility that the defect can be cured by amendment”); Kong v. City of Hawaiian Gardens Redevelopment Agency (2002) 108 Cal.App.4th 1028, 1037 (“A demurrer should not be sustained without leave to amend if the complaint, liberally construed, can state a cause of action under any theory or if there is a reasonable possibility the defect can be cured by amendment.”). The burden is on the complainant to show the Court that a pleading can be amended successfully. Blank v. Kirwan (1985) 39 Cal.3d 311, 318.

ANALYSIS

I. Allegations of the FAC

Plaintiffs alleges the following in the FAC: Plaintiff Pamela E. Alexander was appointed as the Administrator of the Estate of Willie J. Nichols by the Honorable Jonathan L. Rosenbloom on July 7, 2024. FAC, ¶ 3. Plaintiffs bring this action as the trustee of the Willie J. Nichols Trust (“Trustee”) dated October 26, 2005 (the “Trust”) and also as the administrator of the estate of Willie J. Nichols (the “Administrator”) to stop Defendants from depositing unauthorized payments on the Decedent’s mortgage causing great financial loss to the beneficiaries and heirs o the Estate and Trust of Decedent. FAC, ¶ 13. Decedent Willie J. Nichols purchased the property located at and known as 463 W. Arbutus Street, Compton, California (the “Residence”). FAC, ¶ 14. On or around October 26, 2005, it is believed that Mr. Nichols executed the Trust. FAC, ¶ 15; Exh. A. On or around October 26, 2005, Mr. Nichols transferred the Residence to himself as Trustee of the Trust. FAC, ¶ 16; Exh. B.

On or around July 19, 2016, the Residence was refinanced through a loan from Defendant Loancare. FAC, ¶ 17. Mr. Nichols passed away on March 8, 2023, leading to the Trustee assuming the role of the successor Trustee and commencing administration under the terms of the certification. FAC, ¶ 18. On or around March 2023, Trustee discovered that the Residence had an outstanding mortgage owed. FAC, ¶ 19. On or around April 2023, Trustee informed Defendants about the death of Mr. Nichols. FAC, ¶ 20.

Trustee requested that Defendant Shellpoint not accept any payments from anyone but Plaintiff, particularly not to accept payments from Gwendolyn Menefield. FAC, ¶ 21. In May 2023, Trustee asked Defendant Loancare to provide information on whether the loan was assumable, as Trustee believed it was not. FAC, ¶ 22. On or around May 18, 2023, Defendant Loancare explicitly informed Trustee that Mr. Nichols held an un-assumable mortgage and thus no one can assume the loan. FAC, ¶ 23; Exh. C.

Trustee alleges that Defendants refused to comply with the instructions to not accept payments from Gwendolyn Menefield or any other unauthorized person. FAC, ¶¶ 24-26. As such, litigation has resulted as shown in LASC Case No. 23STPB07538. FAC, ¶ 26. On or around July 17, 2023, Trustee received a payoff statement from Defendant Loancare with the entire balance currently due. FAC, ¶ 28. A payoff was not possible due to the lack of funds in the Trust to pay off the mortgage. FAC, ¶ 29. Plaintiffs allege that Defendants are ignoring the requests and continue to this day to accept payments from unauthorized persons on the loan that no party has assumed. FAC, ¶ 31. This renders the home unmarketable and unrentable, which prevents the heirs from receiving their inheritance. FAC, ¶ 32.

II. Third Cause of Action for Breach of Good Faith and Fair Dealing

Defendants argue that the third cause of action fails because Plaintiff cannot establish any contractual basis between either of the Defendants and the Trust. (Dem. at p. 7:18-19.) Defendants further contend that the Deed of Trust specifically contemplates the lender’s acceptance of payments from third parties on the loan. (Dem. at p. 8:1-2.) In response, Plaintiffs argue that the FAC properly alleged a cause of action for breach of the implied covenant of good faith and fair dealing, and factual disputes exist as to whether contractual privity exists between the Trust and Defendants. (Opp’n at p. 7:3-8:22.)

“A breach of the implied covenant of good faith and fair dealing involves something beyond breach of the contractual duty itself and it has been held that bad faith implies unfair dealing rather than mistaken judgment.” Careau & Co. v. Security Pacific Business Credit, Inc. (1990) 222 Cal.App.3d 1371, 1394. “If the allegations do not go beyond the statement of a mere contract breach and, relying on the same alleged acts, simply seek the same damages or other relief already claimed in a companion contract cause of action, they may be disregarded as superfluous as no additional claim is actually stated … [T]he only justification for asserting a separate cause of action for breach of the implied covenant is to obtain a tort recovery.” Id. at pp. 1394-1395. To recover in tort for breach of the implied covenant, the defendant must “have acted unreasonably or without proper cause.” Id. at p. 1395, citations and italics omitted.

Here, Plaintiffs allege that “the actions of Defendants . . . have violated the implied covenant of good faith and fair dealing contained in the Mortgage agreement that was entered with the Decedent . . . .” FAC, ¶ 51. The Court finds that Plaintiff has not stated a cause of action for breach of the implied covenant of good faith and fair dealing. First, Plaintiff has failed to allege any acts apart from an alleged breach of contract. FAC, ¶ 51. Second, Plaintiff has failed to allege that Defendants’ “wrongful conduct was contrary to the contract’s purpose and the parties’ legitimate expectations.” Cordoba Corp. v. City of Industry (2023) 87 Cal.App.5th 145, 156. Moreover, the Deed of Trust appears to allow the acceptance of payments from third persons. Defendants’ RJN, Exh. A at § 12. The Deed of Trust provides that “Lender’s acceptance of payments from third persons . . . shall not be a waiver of or preclude the exercise of any right or remedy.” Id.

As to the issue of contractual privity, Defendants’ position is inconsistent as they also argue in the demurrer that the Deed of Trust allows them to accept payments from third parties. (Dem. at p. 8:1-7.)

The Court finds that the third cause of action in the FAC is insufficiently alleged, and the Court SUSTAINS Defendants’ demurrer thereto with leave to amend.

III. Fifth Cause of Action for Fraudulent Misrepresentation

Defendants argue that the fraudulent misrepresentation claim fails because it is not alleged with the required particularity, does not allege fraudulent misrepresentation, and fails to allege reliance or resulting damages. (Dem. at p. 8:9-11:4.) In response, Plaintiffs contend that they have sufficiently pleaded a cause of action for fraudulent misrepresentation. (Opp’n at p. 9:19-12:20.)

“The elements of fraud are (a) a misrepresentation (false representation, concealment, or nondisclosure); (b) scienter or knowledge of its falsity; (c) intent to induce reliance; (d) justifiable reliance; and (e) resulting damage.” Hinesley v. Oakshade Town Ctr. (2005) 135 Cal.App.4th 289, 294. The facts constituting the alleged fraud must be alleged factually and specifically as to every element of fraud, as the policy of “liberal construction” of the pleadings will not ordinarily be invoked. Lazar v. Superior Court (1996) 12 Cal.4th 631, 645. To properly allege fraud against a corporation, the plaintiffs must plead the names of the persons allegedly making the false representations, their authority to speak, to whom they spoke, what they said or wrote, and when it was said or written. Tarmann v. State Farm Mut. Auto. Ins. Co. (1991) 2 Cal.App.4th 153, 157.

The Court finds that the fifth cause of action for fraudulent misrepresentation is insufficiently alleged. FAC, ¶¶ 58-63. Plaintiffs have failed to allege the fifth cause of action with the required specificity as there are no facts alleged as to whom and by what means the purported misrepresentations were tendered. FAC, ¶¶ 58-63. Further, Plaintiffs have failed to allege knowledge of the falsity of the purported misrepresentations as well as the element of justifiable reliance. FAC, ¶¶ 58-63. In sum, the fifth cause of action is not alleged with the required specificity and is much too conclusory.

The Court therefore SUSTAINS the demurrer to the fifth cause of action for fraudulent misrepresentation in the FAC with leave to amend.

IV. First Cause of Action for Unfair Business Practices

Defendants contend that the first cause of action for unfair business practices fails because Plaintiff lacks standing to assert a UCL claim, and Plaintiff fails to allege any wrongful conduct under the UCL. (Dem. at p. 11:5-12:12.) In response, Plaintiffs argue that they have standing, and they have pleaded wrongful conduct under the UCL. (Opp’n at p. 12:22-14:27.)

To set forth a claim for a violation of Business and Professions Code section 17200 (“UCL”), Plaintiffs must establish that Defendants were engaged in an “unlawful, unfair or fraudulent business act or practice and unfair, deceptive, untrue or misleading advertising” and certain specific acts. Bus. & Prof. Code, § 17200. A cause of action for unfair competition “is not an all-purpose substitute for a tort or contract action.” Cortez v. Purolator Air Filtration Products Co. (2000) 23 Cal.4th 163, 173.

“Business and Professions Code section 17200 et seq. prohibits unfair competition, including unlawful, unfair, and fraudulent business acts.” Korea Supply Co. v. Lockheed Martin Corp. (2003) 29 Cal.4th 1134, 1143. “The UCL covers a wide range of conduct. It embraces . . . anything that can properly be called a business practice and that at the same time is forbidden by law.” Ibid. “Section 17200 borrows violations from other laws by making them independently actionable as unfair competitive practices.” Ibid. A plaintiff asserting a claim for violation of Bus. & Prof. Code § 17200, et seq. must allege “lost money or property to have standing to sue.” Kwikset Corp. v. Superior Court (2011) 51 Cal.4th 310, 323. There must also be some “reliance on the alleged misrepresentation.” Id. at p. 326. “[T]he UCL imposes an actual reliance requirement on plaintiffs prosecuting a private enforcement action under the UCL’s fraud prong.” Graham v. Bank of America, N.A. (2014) 226 Cal.App.4th 594, 614. A plaintiff must also allege that members of the public are likely to be deceived to state a cause of action for violation of Bus. & Prof. Code § 17200, et seq. Bank of the West v. Superior Court (1992) 2 Cal.4th 1254, 1267. Generally, statutory causes of action must be pleaded with particularity. Perez v. Golden Empire Transit Dist. (2012) 209 Cal.App.4th 1228, 1237, fn. 3.

Pursuant to the first cause of action for unfair business practices, Plaintiffs allege that Defendants had knowledge of the facts that the loan is un-assumable and informed about its Trustee. FAC, ¶ 36. Defendants continued to take payments from Gwendolyn Menefield, who was an unauthorized person, although Trustee asked them not to take payments from Gwendolyn Menefield or any other party and take necessary steps to force the sale. FAC, ¶ 37. For eleven months, Defendants have wrongfully taken payments on the Residence even though they have admitted there is no responsible party on the personal loan of the Decedent. FAC, ¶ 38. Plaintiffs allege that the Defendants have violated the UCL by consummating an unfair business practice which has caused great loss to the Trust and heirs of the Decedent. FAC, ¶ 39. Plaintiffs allege that they have suffered and continue to suffer damages in a sum yet to be ascertained. FAC, ¶ 40.

The Court finds that the first cause of action is insufficiently alleged. First, Plaintiffs have failed to allege that they lost money or property due to the purported actions of Defendants. Second, Plaintiffs have failed to allege that any members of the public are likely to be deceived by Defendants’ conduct.

The demurrer of Defendants to the first cause of action in the FAC for unfair business practices is SUSTAINED with leave to amend.   

V. Second Cause of Action for Injunction and Fourth Cause of Action for Declaratory Relief

Defendants contend that the demurrer to the second and fourth causes of action should be sustained because they are not independent claims for relief. (Dem. at p. 12:15-16.) In response, Plaintiffs assert that such causes of action are valid because they are properly connected to substantive causes of action. (Opp’n at p. 15:1-7.)

“[I]njunctive and declaratory relief are equitable remedies, not causes of action.” Faunce v. Cate (2013) 222 Cal.App.4th 166, 173. A demurrer to causes of action for injunctive and declaratory relief will be sustained where such causes of action are “wholly derivative of other nonviable causes of action.” Ibid.

Here, the second and fourth causes of action are tethered to the other causes of action in the FAC, which all fail to state facts sufficient to constitute a cause of action. Under Faunce v. Cate, supra, 222 Cal.App.4th 166, 173, neither declaratory relief nor injunctive relief are causes of action. However, Faunce v. Cate, supra, 222 Cal.App.4th 166, 173 also stands for the proposition that such claims may exist where substantive claims are asserted in relation to such causes of action.

The demurrer of Defendants to the second cause of action for injunction and fourth cause of action for declaratory relief is SUSTAINED with leave to amend.

CONCLUSION

Defendants’ Demurrer is SUSTAINED as to the first, second, third, fourth, and fifth causes of action in the FAC. Plaintiffs have twenty days leave to amend.