Judge: Curtis A. Kin, Case: 22STCV37755, Date: 2023-04-25 Tentative Ruling
Case Number: 22STCV37755 Hearing Date: April 25, 2023 Dept: 72
MOTION FOR JUDGMENT ON THE PLEADINGS
Date: 4/25/23
(9:30 AM)
Case: Pacific Panorama, LLC v. Kwala, LLC et al. (22STCV37755)
TENTATIVE
RULING:
Defendants Kwala LLC and FCI Lender Services, Inc.’s Motion
for Judgment on the Pleadings is GRANTED.
Defendants Kwala LLC and FCI Lender Services, Inc.’s
requests for judicial notice are GRANTED. (Evid. Code § 452(c), (h); Fontenot v. Wells Fargo Bank, N.A. (2011) 198 Cal.App.4th 256, 265 [court
may take judicial notice of “a document's recordation, the date the document
was recorded and executed, the parties to the transaction reflected in a
recorded document, and the document's legally operative language, assuming
there is no genuine dispute regarding the document’s authenticity”].)
As a preliminary matter, on April 20, 2023, counsel for
plaintiff Pacific Panorama, LLC filed a Notice of Stay of Proceedings, wherein
counsel declares that the case is stayed with regard to plaintiff due to
plaintiff’s filing of a bankruptcy petition. The filing of a bankruptcy
petition “operates as a stay…of…the commencement or continuation…of a
judicial…action against the debtor….” (11 U.S.C. § 362(a)(1).) Plaintiff filed
the bankruptcy petition as a debtor. However, the instant action is not against
the debtor; rather, it was commenced by the debtor. Accordingly, the automatic
stay is inapplicable to the instant action. (Martin-Trigona v. Champion
Federal Sav. and Loan Ass’n (7th Cir. 1989) 892 F.2d 575, 577 [“[T]he
automatic stay is inapplicable to suits by the bankrupt (“debtor,” as he is now
called).”]; Shah v. Glendale Federal Bank (1996) 44 Cal.App.4th 1371,
1376 [“The automatic stay provision was not intended to prevent debtors from
prosecuting actions against others”].) The Court rules on the merits of the
motion.
Defendants Kwala LLC and FCI Lender Services, Inc. move for
judgment on the pleadings on the ground that plaintiff Pacific Panorama, LLC
has no standing to assert any of the contractual or statutory claims in the
First Amended Complaint (“FAC”) because plaintiff is not a borrower under the
two security interests held by Kwala. The Court agrees.
Plaintiff alleges that it is the current owner of the
subject property located at 17000 Sunset Blvd. in Pacific Palisades. (FAC ¶ 8.)
The subject property is encumbered by two deeds of trust. A deed of trust
recorded on April 26, 2007 (“1st Deed of Trust”) secures a
promissory note. (RJN No. 2.) The other deed of trust also recorded on April
26, 2007 (“2nd Deed of Trust”) secures a home equity line of credit
(“HELOC”). (RJN No. 5.) The sole borrower under the two deeds of trust is Gregg
Corlyn. (RJN Nos. 4, 6.) Corlyn quitclaimed title to the subject property to
plaintiff. (RJN No. 7.)
Even if plaintiff became the current owner of the subject
property before foreclosure, “[A] successor in interest does not assume a
borrower’s obligations simply upon obtaining title to property when the deed of
trust requires an assumption be made in writing and approved by the lender.” (Green
v. Central Mortgage Company (N.D. Cal. 2015) 2015 WL 5157479, at *5; Anolik
v. Bank of America Loans (E.D. Cal. 2011) 2011 WL 1549291, at *3 [finding
no standing when the plaintiff “was not the borrower on the subject loan and
had not assumed the obligations under the loan in writing and with the lender’s
consent, as required by the Deed of Trust”].)
With respect to the 1st Deed of Trust, paragraph
13 states: “Subject to the provisions of Section 18 [pertaining to Lender’s
right to accelerate loan payment upon transfer of property without Lender’s
written consent], any Successor in Interest of Borrower who assumes Borrower’s
obligations under this Security Instrument in writing, and is approved by Lender,
shall obtain all of Borrower’s rights and benefits under this Security
Agreement.” (RJN No. 3.)
With respect to the 2nd Deed of Trust, paragraph
14 of the HELOC states: “I will not sell, transfer ownership of, mortgage, or
otherwise dispose of my interest in the Premises, in whole or in part, or
permit any other lien or claim against the Premises, or transfer possession,
whether by lease, rental, or otherwise, or discontinue to use the Premises as
my primary and/or personal residence without your prior written consent.” (FAC
¶ 13 & Ex. F at ¶ 14.) Paragraph 19 of the HELOC states, “My rights under
this Agreement belong only to me. I cannot transfer or assign them to anyone
else.” (Id. ¶ 13 & Ex. F at ¶ 19(A).)
Plaintiff alleges that defendants’ predecessor accepted
plaintiff as the successor in interest and treated plaintiff as the borrower
since 2010. (FAC ¶ 17.) However, plaintiff’s claims of excessive balances are
based on the Notice of Default of the 1st Deed of Trust, which was
recorded on October 3, 2022. (RJN No. 10; FAC ¶ 16.) Plaintiff does not allege
that the beneficiary under the 1st Deed of Trust approved
plaintiff’s assumption of the obligations and rights of Corlyn, the borrower.
The HELOC secured by the 2nd Deed of Trust prohibits the transfer of
rights under the HELOC. Consequently, plaintiff fails to allege facts
establishing that it can bring claims as a borrower based on the deeds of trust
between Corlyn and the beneficiaries of the two deeds of trust. (FAC ¶¶ 15, 21,
22, 36, 41, 47, 53, 60 [alleging excessive balance in notice of default issued
pursuant to deed of trust].)
Plaintiff argues that a written contract can be orally
modified. However, the cases that plaintiff cites for this proposition are
inapposite because the oral modification was made by a party to the contract. (Eluschuk
v. Chemical Engineers Termite Control, Inc. (1966) 246 Cal.App.2d 463, 466
[“parties [to written employment contract] modified the same by an oral
agreement which they later executed”]; Panno v. Russo (1947) 82
Cal.App.2d 408, 410 [parties to written agreement made oral modification
permitting delay in payment]; Heple v. Kluge (1952) 114 Cal.App.2d 473,
486 [jury instruction allowing for finding that parties to written agreement
orally agreed to change of terms]; Miller v. Brown (1955) 136 Cal.App.2d
763, 774 [written construction contract between builder and owner modified by
owner’s oral order of changes to builder]; see also Civ. Code § 1698(b)
[“A contract in writing may be modified by an oral agreement to the extent that
the oral agreement is executed by the parties”].) Here, plaintiff makes no
allegation that the parties to the deeds of trust – Corlyn and defendants or
their predecessors – executed any oral modification pertaining to the
requirement of written approval to transfer the 1st Deed of Trust.
Plaintiff also contends that defendants’ predecessor
accepted payments in satisfaction of the loans. (Weingarten Decl. ¶¶ 30, 31.)
Extrinsic evidence is not considered on a motion for judgment on the pleadings.
(Burnett v. Chimney Sweep (2004) 123 Cal.App.4th 1057, 1063.) Even if
plaintiff had alleged that defendants or its predecessors accepted payments to
satisfy the loans, such allegations would be unavailing because plaintiff is a
third party to the deeds of trust. “Absent assumption, from the lender's
standpoint any payments made by Plaintiff were nothing other than voluntary.” (Anolik,
2011 WL 1549291, at *3.) Voluntary payments by plaintiff do not confer standing
on plaintiff to stop a non-judicial foreclosure. (Ibid. [“If, for
example, a friend or relative decides to assist a distressed homeowner by
making certain payments in order to help the homeowner stay in his or her home,
does that give the friend or relative the right to assert his or her own
interests in the context of a resulting foreclosure proceeding? The answer has
to be no”].)
Plaintiff maintains that a formal assignment is not
necessary for it to have standing. The cases plaintiff cites in support of this
proposition are inapposite. In Quan Wye v. Chin Lin Hee (1898) 123 Cal.
185, the high court found evidence sufficient to establish proper
assignment of instrument. (Quan Wye, 123 Cal. at 186.) In Don Rose
Oil Co. Inc v. Lindsley (1984) 160 Cal.App.3d 752, the Court of Appeal
found that the issue of whether a party to the contract reasonably withheld
consent to an assignment was a factual question. (Don Rose, 160 Cal.App.3d
at 759.) Here, plaintiff makes no allegation regarding whether Corlyn obtained
written approval of the assignment of the 1st Deed of Trust, as
required by paragraph 13 of the 1st Deed of Trust. Further, even
though the 1st Deed of Trust defines “Successor in Interest of
Borrower” as any party who takes title to the subject property, paragraph 13 of
the 1st Deed of Trust restricts who can assert the borrower’s rights
under the instrument to those who are approved by the lender in writing.
For the foregoing reasons, given the absence of any
allegation that plaintiff obtained written approval for the transfer of the 1st
Deed of Trust, which is the only security interest that was potentially
transferrable according to its terms, plaintiff does not have standing to
pursue an action based on any purported violation of the 1st Deed of
Trust. Accordingly, all of plaintiff’s causes of action fail.
With respect to the first cause of action for breach of
contract, the judicially noticed documents indicate that plaintiff was not a
party to the deeds of trust upon which it is suing. (FAC ¶¶ 13-20; Hatchwell
v. Blue Shield of California (1988) 198 Cal.App.3d 1027, 1034 [“Someone who
is not a party to the contract has no standing to enforce the contract or to
recover extra-contract damages for wrongful withholding of benefits to the
contracting party”].) The first cause of action fails.
With respect to the second cause of action for injunctive
relief, “[A] cause of action must exist before injunctive relief may be
granted.” (Shell Oil Co. v. Richter (1942) 52 Cal.App.2d 164, 168.) The
second cause of action is based on a purported breach of the 1st
Deed of Trust and a violation of 12 C.F.R. § 1024.41. (FAC ¶¶ 30, 32.) For the
reasons stated above, absent assumption, plaintiff cannot assert any rights
under the 1st Deed of Trust. With respect to 12 C.F.R. § 1024.41,
only “borrowers” may assert claims under the Real Estate Settlement Procedures
Act. (Green, 2015 WL 5157479, at *5; see also 12 C.F.R. §
1024.41(a) [“A borrower may enforce the provisions of this section pursuant to
section 6(f) of RESPA (12 U.S.C. 2605(f))].) For the foregoing reasons, the
second cause of action fails.
With respect to the third cause of action for accounting, “A
cause of action for an accounting requires a showing that a relationship exists
between the plaintiff and defendant that requires an accounting, and that some
balance is due the plaintiff that can only be ascertained by an accounting.” (Teselle
v. McLoughlin (2009) 173 Cal.App.4th 156, 179.) Plaintiff fails to allege a
fiduciary or any other special relationship that would require an accounting. (See
Jolley v. Chase Home Finance, LLC (2013) 213 Cal.App.4th 872, 910.) Indeed,
lenders “owe[] no duty of care to a borrower when the institution's involvement
in the loan transaction does not exceed the scope of its conventional role as a
mere lender of money.” (Nymark v. Heart Fed. Savings & Loan Assn.
(1991) 231 Cal.App.3d 1089, 1096.) Absent a special relationship between
plaintiff and defendants, the third cause of action fails.
With respect to the fourth cause of action for declaratory
relief, standing is required to obtain declaratory relief. (Sherwyn &
Handel v. Department of Social Services (1985) 173 Cal.App.3d 52, 58.) For
the reasons stated above, plaintiff lack standing to seek any declaration with
respect to the 1st or 2nd Deeds of Trust. (FAC ¶ 48.) The
fourth cause of action fails.
With respect to the fifth cause of action for violation of
the Rosenthal Act, “Only the person who owes the debt or is otherwise obligated
to pay the debt has standing to assert violations under the California [Rosenthal]
Act….” (People v. Persolve, LLC. (2013) 218 Cal.App.4th 1267, 1272.) As
stated above, plaintiff fails to allege written approval of assignment of the 1st
Deed of Trust, and plaintiff is not a party to the non-transferable 2nd
Deed of Trust. Accordingly, plaintiff fails to allege that it owed the debts
secured by the deeds of trust. The fifth cause of action fails.
With respect to the sixth cause of action for breach of
covenant of good faith and fair dealing, because plaintiff was not a party to
the deeds of trust, there is no underlying contract upon which to imply a
covenant of good faith and fair dealing. (Smith v. City and County of San
Francisco (1990) 225 Cal.App.3d 38, 49 [“The prerequisite for any action
for breach of the implied covenant of good faith and fair dealing is the
existence of a contractual relationship between the parties, since the covenant
is an implied term in the contract”].) The sixth cause of action fails.
The motion is GRANTED. Before deciding whether to allow
leave to amend, the Court will hear from plaintiff with respect to how the
defect regarding standing can be remedied. If leave to amend is not allowed,
defendants Kwala LLC and FCI Lender Services, Inc. shall submit a proposed
judgment of dismissal within five (5) days hereof.