Judge: Daniel S. Murphy, Case: 22STCV33843, Date: 2023-02-10 Tentative Ruling

Case Number: 22STCV33843    Hearing Date: February 10, 2023    Dept: 32

BACKGROUND

            On October 10, 2022, various borrowers (Plaintiffs) initiated this action against Defendant Bank of Hope, asserting causes of action for (1) breach of contract, (2) breach of the duty of good faith and fair dealing, (3) negligence, (4) declaratory relief, and (5) unfair competition.

Plaintiffs allege that Defendant orchestrated pretextual defaults on multiple loans in order to cause the borrowers to incur millions of dollars in interest and thereby inflate the value of the loans. (Compl. ¶ 1.) The loans stem from a decades-old relationship that businessman Joseph Ghim (Kim) had with Defendant wherein Mr. Ghim would borrow money for financing various properties. (Id., ¶ 11.) Mr. Ghim’s family also worked with Defendant, and over the years, the Kim family built up a portfolio of over $35 million in loans from Defendant secured by over $130 million in real property. (Id., ¶¶ 12-13.) Mr. Ghim passed away in 2020, survived by his spouse, Helen Kim, and children, including daughter Amy Kim. (Id., ¶ 16.) The Plaintiffs are Helen Kim as administrator of Mr. Ghim’s estate, along with various entities formed by Mr. Ghim to hold the investment properties. (Id., ¶ 14.)

            On January 17, 2023, Defendant filed the instant demurrer to the complaint.

LEGAL STANDARD

A demurrer for sufficiency tests whether the complaint states a cause of action. (Hahn v. Mirda (2007) 147 Cal.App.4th 740, 747.) 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.) In a demurrer proceeding, the defects must be apparent on the face of the pleading or by proper judicial notice. (Code Civ. Proc., § 430.30, subd. (a).) A demurrer tests the pleadings alone and not the evidence or other extrinsic matters. (SKF Farms v. Superior Court (1984) 153 Cal.App.3d 902, 905.) Therefore, it lies only where the defects appear on the face of the pleading or are judicially noticed. (Ibid.) The only issue involved in a demurrer hearing is whether the complaint, as it stands, unconnected with extraneous matters, states a cause of action. (Hahn, supra, 147 Cal.App.4th at 747.) A complaint will survive demurrer if it sufficiently apprises the defendant of the issues, and specificity is not required where discovery will clarify the ambiguities. (See Ludgate Ins. Co. v. Lockheed Martin Corp. (2000) 82 Cal.App.4th 592, 608.) All reasonable inferences are drawn in favor of the complaint. (Kruss v. Booth (2010) 185 Cal.App.4th 699, 713.)

MEET AND CONFER

Before filing a demurrer or a motion to strike, the demurring or moving party is required to meet and confer with the party who filed the pleading demurred to or the pleading that is subject to the motion to strike for the purposes of determining whether an agreement can be reached through a filing of an amended pleading that would resolve the objections to be raised in the demurrer. (Code Civ. Proc., §§ 430.41, 435.5.) The Court notes that Defendant has complied with the meet and confer requirement. (Watson Decl. ¶ 4.)

DISCUSSION

I. Breach of Contract

            To establish breach of contract, a plaintiff must show: (1) the contract existed, (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.)

            The complaint alleges that the loan agreements contained provisions allowing for Plaintiffs to cure defects before a default and that Defendant breached these provisions by not providing an opportunity to cure. (Compl. ¶¶ 28, 41.) Defendant argues that the complaint fails to attach a copy of the contract or allege its terms verbatim. However, a complaint is sufficient if it pleads “the legal effect of the contract rather than its precise language.” (Miles v. Deutsche Bank National Trust Co. (2015) 236 Cal.App.4th 394, 402.) Plaintiffs have pled the material terms pertinent to the breach. The additional details inquired by Defendant are factual matters best left for discovery. (See Reply 4:16-19 [“what events qualify as a default? What defaults can be cured? What are the parameters of curable events?”].) At this stage, Defendant is sufficiently on notice of the claim.

            The demurrer is OVERRULED as to the first cause of action.

II. Good Faith and Fair Dealing

“The covenant of good faith and fair dealing, implied by law in every contract, exists merely to prevent one contracting party from unfairly frustrating the other party’s right to receive the benefits of the agreement actually made.” (Guz v. Bechtel National, Inc. (2000) 24 Cal.4th 317, 349-50.)  

The complaint alleges that Defendant orchestrated pretextual defaults to artificially inflate the value of the loans, forcing Plaintiffs to refinance under unfavorable terms. (Compl. ¶¶ 1, 48.) This constitutes bad faith conduct beyond a mere breach of contract. Contrary to Defendant’s contention, this cause of action is not duplicative of the breach of contract claim. While the complaint incorporates some of the same allegations, it also contains additional allegations of bad faith conduct indicating that this was not merely an inadvertent breach. (Compare Compl. ¶¶ 40-43 [breach of contract] with ¶ 48 [bad faith conduct].)

The demurrer is OVERRULED as to the second cause of action.

III. Negligence

The elements of negligence are: (1) a duty to exercise ordinary care; (2) breach of that duty; (3) causation; and (4) damages. (Ladd v. County of San Mateo (1996) 12 Cal.4th 913, 917.)

The negligence claim in this case is premised on the allegation that Defendant insisted on adding Amy Kim as a signatory on Plaintiffs’ accounts without disclosing that Ms. Kim had provided personal gifts to bank officers. (Compl. ¶¶ 16-18.) Ms. Kim then transferred $3.5 million from the business accounts to her personal account. (Id., ¶ 21.) Plaintiffs recovered the money from Ms. Kim through an injunction in a separate case. (Id., ¶ 23.)

“To establish negligence, the evidence must show the alleged wrongdoer owed some duty of care to the person injured.” (Hahn v. Mirda (2007) 147 Cal.App.4th 740, 745.) Plaintiffs do not articulate how Defendant owed Plaintiffs a duty of care to provide notice of gifts received from Amy Kim or to scrutinize Amy Kim’s transfers. “The relationship of bank and depositor is founded on contract . . . [and] does not involve any implied duty to supervise account activity or to inquire into the purpose for which the funds are being used . . . .” (Chazen v. Centennial Bank (1998) 61 Cal.App.4th 532, 537, internal citations omitted.) Negligence claims against banks have traditionally been limited to instances of fraudulent check deposits. (See Sun 'n Sand, Inc. v. United California Bank (1978) 21 Cal.3d 671; Joffe v. United California Bank (1983) 141 Cal.App.3d 541; E. F. Hutton & Co. v. City National Bank (1983) 149 Cal.App.3d 60; Sehremelis v. Farmers & Merchants Bank (1992) 6 Cal.App.4th 767.)  

The demurrer is SUSTAINED without leave to amend as to the third cause of action.

IV. Declaratory Relief

“Any person interested under a written instrument . . . or under a contract . . . may, in cases of actual controversy relating to the legal rights and duties of the respective parties, bring an original action or cross-complaint in the superior court for a declaration of his or her rights and duties . . . arising under the instrument or contract.” (Code Civ. Proc., § 1060.)  

            Plaintiffs seek declaratory relief to resolve a dispute regarding whether Plaintiffs are in default of the loans. (Compl. ¶¶ 59-60.) This constitutes an actual controversy involving the rights and duties of the parties.

Defendant argues that the declaratory relief claim duplicates other causes of action and seeks to right past wrongs. However, “[o]ur Supreme Court held that in a dispute involving an alleged breach of contract, courts may provide declaratory relief under section 1060 if the relief sought would also govern the future conduct of the parties.” (Osseous Technologies of America, Inc. v. DiscoveryOrtho Partners LLC (2010) 191 Cal.App.4th 357, 372.) “[T]he mere fact that the contract has already been breached and a cause of action therefor (one of the traditional remedies) has accrued, does not necessarily deprive the court of the power to grant declaratory relief under the law.” (Ibid., quoting Ermolieff v. R.K.O. Radio Pictures (1942) 19 Cal.2d 543, 547.) The question of whether Plaintiffs are in default under the loans implicates the parties’ rights and duties moving forward.

Defendant insists that Plaintiffs have admitted in the complaint that the loans are in default, thereby presenting no justiciable controversy. While the complaint lists the grounds that Defendant presented for the defaults (Compl. ¶ 27), it does not admit that those grounds are legitimate and in fact alleges that the defaults are pretextual (id., ¶¶ 1, 20). The complaint refers to the “purported defaults” and alleges that Plaintiffs should have been given 15 days’ notice “before the loans could be put into default.” (Id., ¶ 28.) Lastly, the complaint expressly alleges that “none of the loans were in monetary default.” (Id., ¶ 29.)

Therefore, there is no admission on the face of the complaint that the loans are in default. Listing the reasons that Defendant gave does not constitute an admission that those reasons are true. The complaint alleges that the loans could not be put into default because Plaintiffs were not provided adequate opportunity to cure. Plaintiffs allege that Defendant improperly declared pretextual defaults and currently dispute that the loans are in default. This is a proper subject for declaratory relief.  

The demurrer is OVERRULED as to the fourth cause of action.

V. Unfair Competition

Business and Professions Code section 17200 prohibits unlawful, unfair, or fraudulent business acts or practices. Each of the three prongs is an independent basis for relief. (Smith v. State Farm Mutual Automobile Insurance Co. (2001) 93 Cal.App.4th 700, 718.) Unlawful conduct is defined as any practice forbidden by law. (Farmers Ins. Exchange v. Superior Court (1992) 2 Cal.4th 377, 383.) UCL actions alleging unlawful conduct “borrow” from other statutes or common law causes of action outside Section 17200. (Klein v. Chevron U.S.A., Inc. (2012) 202 Cal.App.4th 1342, 1383.) The UCL has a broad scope and sweeping coverage regarding unfair conduct. (See In re Tobacco Cases II (2015) 240 Cal.App.4th 779, 789.)

Defendant argues that the UCL claim fails because Plaintiffs have not adequately pled any other cause of action. As discussed above, Plaintiffs have sufficiently pled breach of contract and bad faith arising from Defendant pretextually orchestrating loan defaults. Those allegations and causes of action sufficiently serve as the predicate for a UCL claim.

The demurrer is OVERRULED as to the fifth cause of action.

CONCLUSION

            Defendant’s demurrer is SUSTAINED without leave to amend as to the third cause of action and OVERRULED in all other respects.