Judge: Anne Richardson, Case: 22STCV06139, Date: 2023-07-20 Tentative Ruling

DEPARTMENT 40 - JUDGE ANNE RICHARDSON - LAW AND MOTION RULINGS
The Court issues tentative rulings on certain motions.The tentative ruling will not become the final ruling until the hearing [see CRC 3.1308(a)(2)]. If the parties wish to submit on the tentative ruling and avoid a court appearance, all counsel must agree and choose which counsel will give notice. That counsel must 1) email Dept 40 by 8:30 a.m. on the day of the hearing (smcdept40@lacourt.org) with a copy to the other party(ies) and state that all parties will submit on the tentative ruling, and 2) serve notice of the ruling on all parties. If any party declines to submit on the tentative ruling, then no email is necessary and all parties should appear at the hearing in person or by Court Call. 

Case Number: 22STCV06139    Hearing Date: January 19, 2024    Dept: 40

Superior Court of California

County of Los Angeles

Department 40

Background

Plaintiff 5007 Holdings, LLC sues Defendants Jun I. Yoon, an individual, and as Trustee of the Jun I. Yoon Trust UDT August 15, 1994 (collectively, “Yoon”) and Does 1 to 10 pursuant to an August 7, 2023 Second Amended Complaint (SAC) alleging claims of (1) Breach of Contract and (2) Misrepresentation.

The claims arise from allegations that Plaintiff 5007 Holdings—a successor-in-interest borrower on a loan made pursuant to a promissory note (as amended) and deed of trust secured by real property owned by Plaintiff in Marina Del Rey, California—was overcharged interest and late fee payments, as well as attorney fees charged in relation to loan renegotiations with Defendant Yoon, the lender, and that Yoon made misrepresentations in relation to the principal and interest owned on the loan.

On October 6, 2023, Defendant Yoon demurred to the SAC’s two causes of action on the ground of sufficiency of pleading. (Although the parties sometimes referred to Yoon, as an individual and as Trustee, in the plural as Defendants, the Court refers to Yoon in the singular, understanding that he is sued in both capacities.)

That same day, Defendant Yoon filed a motion to strike the entire SAC on the ground that it was filed on August 7, 2023, four days beyond the permissible timeframe to file the SAC in accordance with this Court’s July 20, 2023 order regarding Yoon’s demurrer to and motion to strike 5007 Holdings First Amended Complaint—14 days, or August 3, 2023.

On January 8, 2024, Plaintiff 5007 Holdings opposed the demurrer but not the motion to strike.

On January 11, 2024, Defendant Yoon replied to 5007 Holdings’ opposition to the demurrer.

The demurrer and motion to strike are now before the Court.

Motion to Strike

Legal Standard

The court may, upon a motion or at any time in its discretion and upon terms it deems proper: (a) strike out any irrelevant, false, or improper matter inserted in any pleading; or (b) strike out all or any part of any pleading not drawn or filed in conformity with the laws of California, a court rule, or an order of the court. (Code Civ. Proc. § 436, subds. (a), (b); Stafford v. Shultz (1954) 42 Cal.2d 767, 782 [“Matter in a pleading which is not essential to the claim is surplusage; probative facts are surplusage and may be stricken out or disregarded”].)

For the purposes of a motion to strike pursuant to Sections 435 to 437 of the Code of Civil Procedure, the term “pleading” generally means a demurrer, answer, complaint, or cross-complaint, (Code Civ. Proc., § 435, subd. (a)), and an immaterial allegation or irrelevant matter in a pleading entails (1) an allegation that is not essential to the statement of a claim or defense, (2) an allegation that is neither pertinent to nor supported by an otherwise sufficient claim or defense, or (3) a demand for judgment requesting relief not supported by the allegations of the complaint or cross-complaint (Code Civ. Proc., § 431.10, subds. (b)(1)-(3), (c)).

Ruling on Motion to Strike: DENIED.

The Court DENIES Defendant Yoon’s motion to strike. Though the Court recognizes that the SAC should have been filed on August 3, 2023, not August 7, 2023, the filing was only four days late, and the Court is empowered to permit this filing as to conform with justice. (See, e.g., Code Civ. Proc., § 128, subd. (a)(8).) The decision whether to dismiss a complaint for failure to timely file an amended complaint is within the court’s discretion. (Harding v. Collazo (1986) 177 Cal.App.3d 1044, 1054.) Here, the delay of 4 days is not sufficient for the court to grant such an extreme remedy. (Compare, Harding, supra, 177 Cal.App.3d at p. 1052 [plaintiff delayed in filing second amended complaint for 60 days; dismissal affirmed].) The Court denies the motion to strike so as to accord with public policy to hear the case on the merits. “It has always been the policy of the courts in California to resolve a dispute on the merits of the case rather than allowing a dismissal on technicality.”  (Harding, supra, 177 Cal.App.3d at p. 1061 (dis. opn. of Lui, acting P.J.))

Request for Judicial Notice

The Court takes judicial notice of the July 20, 2023 minute order and a 1994 grant deed for the property. (Demurrer, RJN; see Evid. Code, §§ 452, subds. (c), (d), 453, subds. (a)-(b).)

Demurrer

Demurrer Sufficiency Standard

A demurrer for sufficiency tests whether the complaint states a cause of action. (Hahn v. Mirda (2007) 147 Cal.App.4th 740, 747; see Code Civ. Proc., § 430.10, subd. (e).) This device can be used only to challenge defects that appear on the face of the pleading under attack or from matters outside the pleading that are judicially noticeable. (Blank v. Kirwan (1985) 39 Cal.3d 311, 318.) To sufficiently allege a cause of action, a complaint must allege all the ultimate facts—that is, the facts needed to establish each element of the cause of action pleaded. (Committee on Children’s Television, Inc. v. General Foods Corp. (1983) 35 Cal.3d 197, 212, superseded by statute as stated in Branick v. Downey Savings & Loan Assn. (2006) 39 Cal.4th 235, 242.) Thus, “[t]o survive a [general] demurrer, the complaint need only allege facts sufficient to state a cause of action; each evidentiary fact that might eventually form part of the plaintiff’s proof need not be alleged.” (C.A. v. William S. Hart Union High School Dist. (2012) 53 Cal.4th 861, 872.) In testing the sufficiency of the cause of action, the demurrer admits the truth of all material facts properly pleaded. (Aubry v. Tri-City Hospital Dist. (1992) 2 Cal.4th 962, 966-67.) A demurrer, however, “does not admit contentions, deductions or conclusions of fact or law.” (Daar v. Yellow Cab Co. (1967) 67 Cal.2d 695, 713.) When considering demurrers, courts read the allegations liberally and in context. (Taylor v. City of Los Angeles Dept. of Water and Power (2006) 144 Cal.App.4th 1216, 1228, disapproved on other grounds, Jones v. Lodge at Torrey Pines Partnership (2008) 42 Cal.4th 1158, 1162.) The face of the complaint includes exhibits attached to the complaint. (Frantz v. Blackwell (1987) 189 Cal.App.3d 91, 94.) If facts appearing in the exhibits contradict those alleged, the facts in the exhibits take precedence. (Holland v. Morse Diesel Intern., Inc. (2001) 86 Cal.App.4th 1443, 1447, superseded by statute on other grounds as stated in White v. Cridlebaugh (2009) 178 Cal.App.4th 506, 521.)

FAC, First Cause of Action, Breach of Contract: OVERRULED.

“A contract is a voluntary and lawful agreement, by competent parties, for a good consideration, to do or not to do a specified thing.” (Robinson v. Magee (1858) 9 Cal. 81, 83.) “To prevail on a cause of action for breach of contract, the plaintiff must prove (1) the contract, (2) the plaintiff’s performance of the contract or excuse for nonperformance, (3) the defendant’s breach, and (4) the resulting damage to the plaintiff.” (Richman v. Hartley (2014) 224 Cal.App.4th 1182, 1186.) Implicit in the element of damage is that the defendant’s breach caused the plaintiff’s damage.” (Troyk v. Farmers Group, Inc. (2009) 171 Cal.App.4th 1305, 1352, italics omitted.)

The breach of contract claim arises from the following allegations. Plaintiff 5007 Holdings, as borrower and owner of the property subject to deed of trust, and Defendant Yoon as lender in his individual capacity and as trustee, are parties to a promissory note-based loan agreement that is subject to four modifications. Defendant breached the agreement by assessing, demanding, and collecting payment for interest and late fees and by demanding and collecting attorneys’ fees exceeding that authorized by law or otherwise recoverable as a condition for new financing and payment on the note and deed of trust. As to fees, by collecting interest and late fees above the contractually agreed upon rates, Defendant recovered excess amounts that should be applied to the principal on the loan, which must be recalculated to take into account the excess amounts paid by Plaintiff to Defendant in relation to interest and late fees and excessive attorneys’ fees. Plaintiff was damaged by this conduct in an amount exceeding $150,000. (SAC, ¶¶ 14-18.)

In his demurrer, Defendant Yoon argues that the breach of contract claim is based on factual allegations beyond the statute of limitations. Specifically, Yoon argues that the discovery rule is not applicable to breach of contract claims unless a fiduciary duty applies, which the SAC does not allege. Yoon also argues that even if the discovery rule applied, the SAC shows Plaintiff should have discovered a breach of contract sooner. Yoon argues that the SAC alleges that Plaintiff first made overpayment in 2014 based on representations by Defendant, for which reason Plaintiff could have discovered the charges by Defendant were erroneous by comparing the charges to the promissory note, which has been in Plaintiff’s possession since 2006. As a result, the four-year statute of limitations would apply to most of the breach of contract facts alleged in the SAC, i.e., those factual grounds not within four years of this action being filed on February 17, 2022.

Yoon argues that the SAC otherwise shows allegations amounting to acquiescence of the overcharges within four years of this lawsuit, including by entering various amendments to the note and a release agreement, for which reason any breach of contract grounds alleged on these grounds fails.

Yoon last argues that a 2012 assumption agreement between the parties released any breach of contract claims between the parties and that the claim is otherwise waived by Plaintiff’s acknowledgment of the overpayment on the debt in entering the amendments and release agreements. Yoon adds that Plaintiff failed to acknowledge a fifth amendment to the promissory note that also confirmed the debt owed by Yoon and thus waives any argument as to overpayments on that acknowledged debt. (Demurrer, pp. 11-14.)

In opposition, Plaintiff 5007 Holdings argues that Defendant Yoon’s discovery rule statute of limitations argument does not consider the continuous accrual doctrine, which states that when an obligation or liability arises on a recurring basis, a cause of action accrues each time a wrongful act occurs, triggering a new limitations period, for which reason, each of the allegations that occurred within four years of filing this Complaint should survive demurrer.

5007 Holdings also argues that an Allocation of Payments provision in the promissory note also supports a breach of contract claim, though the Court notes that basis for recovery is not alleged in the body of the SAC.

 5007 Holdings adds that the fifth amendment to the promissory note should not be considered because it is unsigned, not a part of the contract at issue, and outside of the pleadings, and that any communications between counsel relating to whether the fifth amendment was adopted by Plaintiff are better suited for an evidentiary proceeding that cannot be resolved by demurrer.

As to the 2012 release clause in the 2012 agreement by which 5007 Holdings assumed the rights and obligations of its predecessor-in-interest, 5007 Holdings argues that while the 2012 assumption agreement and 2014 fourth amendment to promissory note released certain claims between the parties, the breach of contract grounds starting in September 2014 lies outside of those agreements.

In reply, Defendant Yoon argues that the continuous accrual doctrine does not save the allegations for breach of contract prior to February 17, 2018, i.e., four years prior to this action being filed. Yoon also makes an argument relating to the Allocation of Payments provision, which the Court does not further discuss for reasons stated below.

Yoon add that the 2014 release in the fourth amendment to the promissory note should apply to this breach of contract claim even if the breaches took place after the February 2014 amendment because the claims Plaintiff now asserts are no different in nature than the claims it previously released.

Yoon argues that the fifth amendment is a proper matter for consideration on demurrer because it is within the four corners of the SAC and it is instead Plaintiff who has acted improperly by failing to attach the fifth amendment to the SAC. Yoon also argues that extrinsic evidence attached to the moving papers shows that the parties agreed to the fifth amendment.

The Court finds in favor of Plaintiff 5007 Holdings.

The Court initially notes that it does not consider 5007 Holdings’ Allocation of Payments argument or Yoon’s responsive arguments because a review of the SAC does not show that this theory of recovery is a basis for breach of contract. (SAC, ¶¶ 14-18.)

Moving to the merits, the argument that the release clause in the 2012 assumption agreement applies here is unavailing. The 2012 assumption agreement is attached to the SAC and is thus part of its body. (SAC, Ex. F; Frantz v. Blackwell, supra, 189 Cal.App.3d at p. 94.) A review of the assumption agreement indicates that the release applies to claims between the parties that had accrued as of or would mature after execution of the assumption agreement in May 2012. (See FAC, Ex. F, § 2.2.) Any overcharge on interest or late fees or overpayment on attorneys’ fees, as alleged in the SAC, does not appear to have taken place until September 2014, and thus, none of the damages appear, on the face of the pleadings, to have accrued on or matured after, May 2012. (See SAC, ¶ 15; cf. SAC, ¶ 21.) Moreover, the Court finds, as discussed below, that any claims are necessarily limited by the statute of limitations applicable to damages arising from breach of contract (or fraud).

The reply argument that a release in the fourth amendment to the promissory note also releases rights to the relief upon which this breach of contract claim is based is similarly unavailing. The 2014 amendment is attached to the SAC and is thus part of its body. (SAC, Ex. G; Frantz v. Blackwell, supra, 189 Cal.App.3d at p. 94.) A review of the fourth amendment fails to show any release clause to this effect. The only release provision specifies that Defendant Yoon released 5007 Holdings’ predecessor-in-interest from obligations under the note and that 5007 Holdings ratified and confirmed the 2012 assumption agreement, the loan, and the promissory note and deed of trust (and amendments). Even if the Court were to assume that 5007 Holdings’ ratifications and confirmations in the 2014 amendment extended the release clause in the 2012 assumption agreement to the date of the 2014 amendment’s execution in February 2014, the same reasoning as the preceding paragraph undercuts the applicability of the release provision to the claims stated in the SAC.

The arguments related to the fifth amendment are also unavailing. That amendment is not attached to the SAC. It is therefore not a part of the pleadings. (See Frantz v. Blackwell, supra, 189 Cal.App.3d at p. 94.) Moreover, the parties dispute the execution of the purported fifth amendment to the promissory note. The Court therefore need not further discuss the fifth amendment lest it convert this into an evidentiary hearing. (See Joslin v. H.A.S. Ins. Brokerage (1986) 184 Cal.App.3d 369, 375.)

Last, the Court finds no merit to the argument that Plaintiff 5007 Holdings acquiesced to any additional interest or excessive fees by entering amendments confirming the amount to be charged and by entering the 2012 assumption agreement, which included a release of claims. The release of claims argument has been discussed above and found unavailing. The remainder of the argument is not supported by any stated authority. (Demurrer, pp. 12-13.)

The Court briefly notes that the parties essentially agree that all breach of contract factual grounds alleged in the SAC that precede February 17, 2018 cannot support a breach of contract claim (discovery rule and continuous accrual doctrine). However, the Court declines to strike paragraphs 21 through 61 from the SAC, as requested in Yoon’s reply, because those paragraphs (1) are not contained in the breach of contract claim and (2) are background facts for, for example, knowledge in the misrepresentation claim. (See Reply, p. 6.)

Defendant Yoon’s demurrer is thus OVERRULED as to the SAC’s first cause of action.

FAC, Second Cause of Action, Fraud: SUSTAINED, with leave to amend.

Intentional misrepresentation involves “(1) a knowingly false representation by the defendant; (2) an intent to deceive or induce reliance; (3) justifiable reliance by the plaintiff; and (4) resulting damages.” (Service by Medallion, Inc. v. Clorox Co. (1996) 44 Cal.App.4th 1807, 1816.)

Allegations of fraud “must be pled with more detail than other causes of action.” (Apollo Capital Fund, LLC v. Roth Capital Partners, LLC (2007) 158 Cal.App.4th 226, 240.) “Every element of the cause of action for fraud must be alleged … factually and specifically[,] and the policy of liberal construction of the pleadings … will not ordinarily be invoked to sustain a pleading defective in any material respect. [Citations.]” (Committee on Children’s Television, Inc. v. General Foods Corp. (1983) 35 Cal.3d 197, 216, superseded by statute as stated in Branick v. Downey Savings & Loan Assn. (2006) 39 Cal.4th 235, 242.) “[G]eneral and conclusory allegations do not suffice.” (Small v. Fritz Cos., Inc. (2003) 30 Cal.4th 167, 184 [citations omitted].) Fittingly, a plaintiff pleading fraud must plead facts showing “how, when, where, to whom, and by what means” the allegedly fraudulent representations were tendered. (Lazar v. Superior Court (1996) 12 Cal.4th 631, 645.)

The misrepresentation claim arises from the following allegations. Throughout the life of the loan, on a nearly monthly basis, Defendants knowingly misrepresented the amount of interest and/or late fees owed by 5007 Holdings, as based on the assessment, demand for, and collection of interest and late fees above those permitted by the parties’ agreement. Defendants acted through their attorneys, managers, or office employees, among others involved in transactions relating to the promissory note. Defendants intended that 5007 Holdings rely on the representations to receive payment as stated by Defendants. Plaintiff in fact paid the overstated amounts in monthly payments made between September 2014 and November 2021. In making these payments, Plaintiff relied on Defendants’ knowledge and expertise concerning loan transactions. Plaintiff was damaged in an amount exceeding $150,000 and is entitled to attorneys’ fees. Plaintiff discovered these injuries in the summer of 2020 “or within three years prior to the filing of this action.” (SAC, ¶¶ 19-112.)

Plaintiff also alleges that Defendants misrepresented that Plaintiff had an obligation to pay certain attorney fees under the note and deed of trust. This claim does not appear to be further elaborated by the remaining allegations in this claim. However, the incorporated portions of the first cause of action clarify that the excessive attorneys’ fees were charged by Defendant Yoon when Plaintiff obtained new financing and payment of the note and trust deed in March 2022. (SAC, ¶ 20; see SAC, ¶¶ 15-18, 19.)

In his demurrer, Defendant Yoon argues that the misrepresentation claim is time barred because, as argued in relation to the breach of contract claim, Plaintiff should have become aware of the overcharging on interest and fees when such conduct allegedly began in 2014, well before this action was filed, for which reason the three-year statute of limitations has expired on any fraud claim.

Yoon also argues that the misrepresentations claim does not sufficiently identify, with particularity, who made the alleged misrepresentations for Defendants other than to conclusorily allege that “agents” and other unidentified individuals acted on Defendants’ behalf in making the misrepresentations.

Yoon add that the SAC is not sufficiently alleged as to the misrepresentations because the SAC does not identify what the proper monthly interest for each of the overcharges alleged in the SAC should have been.

Last, Yoon argue that the SAC does not sufficiently plead reliance because Plaintiff had access to the promissory note, from which Plaintiff could have deduced, as early as 2014, that overcharges were occurring, and that the SAC alleges no grounds for finding that, as pleaded, Plaintiff acted with reasonable diligence in discovering its injuries so belatedly. (Demurrer, pp. 15-21.)

In opposition, 5007 Holdings argues in favor of the sufficiency of the misrepresentation claim and argues that any misrepresentations occurring within the four years preceding the filing of this action are viably stated. 5007 Holdings also argues that it has alleged grounds for delayed discovery, i.e., discovery in the summer of 2020, delayed based on reliance on defendant’s knowledge and expertise concerning loan transactions. (Opp’n, pp. 7-8.)

In reply, Yoon reiterate their arguments from the moving papers. (Reply, pp. 8-10.)

The Court finds in favor of Plaintiff 5007 Holdings.

The Court adopts its summary of the second cause of action above to identify the pleadings amounting to misrepresentation. (SAC, ¶¶ 19-112.)

Regarding the statute of limitations arguments, as discussed above in relation to the breach of contract claim, and as accepted by the parties, any fraud claim is limited to claims involving misrepresentations within three years of the filing of this action. Additionally, the Court declines to strike paragraphs 21 to 61 of the SAC as they are relevant to the fraud claim, e.g., knowledge.

The Court agrees however that the SAC does not sufficiently allege reliance. It is unclear how Plaintiff only discovered until 2020 or “within three years prior to the filing of this action” that it was overcharged on the loan when it had access to monthly billing from Defendants as of September 2014 and when, as the successor borrower, Plaintiff surely had access to the promissory note—i.e., the document that allowed Plaintiff to realize that it was being overcharged—as of 2012 or even 2006, when Plaintiff’s property was used as guarantee for the loan. (SAC, ¶¶ 4-5, 10, 19, 21, 107, Exs. A, F.)

The Court also sustains the demurrer as to the attorneys’ fees portion of the fraud claim, which is not sufficiently elaborated insofar as the majority of the misrepresentation claim focuses on misrepresentations related to overcharges in interest and late fees, not on the attorneys’ fees payment tied to modifying the loan. (See SAC, ¶ 20; see also SAC, ¶¶ 19-112.) For this reason, an order as to the entire claim is proper.

The Court therefore need not discuss the sufficiency of allegations regarding “who” made the alleged misrepresentations and SUSTAINS Defendant Yoon’s demurrer to the SAC’s second cause of action, with leave to amend.

Conclusion

The Motion to Strike Second Amended Complaint filed by Defendant Jun I. Yoon, an individual, and as Trustee of the Jun I. Yoon Trust UDT August 15, 1994 is DENIED.

The Demurrer to Second Amended Complaint of Plaintiff 5007 Holdings, LLC filed by Defendant Jun I. Yoon, an individual, and as Trustee of the Jun I. Yoon Trust UDT August 15, 1994 is:

(1) OVERRULED as to the Second Amended Complaint’s first cause of action; and

(2) SUSTAINED, with leave to amend, to the Second Amended Complaint’s second cause of action. Plaintiff 5007 Holdings, LLC may file an amended pleading within 14 calendar days of this order.