Judge: Daniel S. Murphy, Case: 23STCV16013, Date: 2023-08-07 Tentative Ruling

Case Number: 23STCV16013    Hearing Date: August 7, 2023    Dept: 32

BACKGROUND

            On July 10, 2023, Plaintiffs Delmy I. Franco and Jose G. Bonilla filed this action against Defendants JPMorgan Chase Bank NA (Chase) and National Default Servicing Corporation (NDSC), alleging claims for quiet title, cancellation of instrument, and declaratory relief.

            Plaintiffs are owners of a home located in North Hollywood (the Property). Plaintiffs purchased the Property in 2003. The prior owner of the Property, William E. James (James), had a loan from Washington Mutual Bank FA, secured by a Deed of Trust recorded against the Property (WaMu Deed of Trust). Plaintiffs allege that James paid off the WaMu loan but that the Deed of Trust was erroneously not reconveyed. When Plaintiffs purchased the Property, they expected that the WaMu loan would have been paid off, such that Plaintiffs’ own lender would have first lien priority on the Property.

            Instead, in March 2023, twenty years after Plaintiffs purchased the property, Chase (assignee of the WaMu Deed of Trust) and NDSC (trustee under the WaMu Deed of Trust) recorded a Notice of Default against the Property and sought a foreclosure sale. Plaintiffs allege that the WaMu Deed of Trust serves as an illegitimate lien against the Property because there is no underlying obligation being secured. Through this action, Plaintiffs seek to cancel the WaMu Deed of Trust, the assignment to Chase, the substitution of NDSC as trustee, and the Notice of Default.

            On July 12, 2023, Plaintiffs filed the instant motion for a preliminary injunction to enjoin defendants from proceeding with foreclosure of the Property. Defendant Chase filed its opposition on July 25, 2023. Plaintiffs replied on July 31, 2023.

LEGAL STANDARD

The purpose of a preliminary injunction is to preserve the status quo pending final resolution upon a trial. (See¿Scaringe¿v.¿J.C.C. Enterprises, Inc.¿(1988) 205 Cal.App.3d 1536.) A trial court deciding whether to issue an injunction weighs two interrelated factors—the likelihood the moving party will prevail on the merits at trial and the relative balance of interim harms that are likely to result from the granting or denial of preliminary injunctive relief. (White v. Davis (2003) 30 Cal.4th 528, 554; Cohen v. Board of Supervisors (1985) 40 Cal.3d 277, 286.) “Generally, the ruling on an application for a preliminary injunction rests in the sound discretion of the trial court.” (Cohen, supra, 40 Cal.3d at p. 286.)

EVIDENTIARY OBJECTIONS

            Chase’s objections are overruled.

DISCUSSION

I. Balance of Harms

            “To obtain a preliminary injunction, a plaintiff ordinarily is required to present evidence of the irreparable injury or interim harm that it will suffer if an injunction is not issued pending an adjudication of the merits.” (White, supra, 30 Cal.4th at p. 554.) Plaintiffs are “not required to wait until they have suffered actual harm before they apply for an injunction, but may seek injunctive relief against the threatened infringement of their rights.” (Maria P. v. Riles (1987) 43 Cal.3d 1281, 1292.)

            The loss of real property, especially a home, is considered an irreparable injury. (See Civ. Code, § 3387; Franco Decl. ¶ 4.) Chase argues that the foreclosure sale, initially scheduled for August 2023, has been cancelled, and therefore Plaintiffs’ motion is based on speculative harm. However, the cancellation of one foreclosure date does not negate the threat of future foreclosure attempts. There is still a pending Notice of Default against the Property, and Defendants are clearly capable of and intent on foreclosing the Property. The harm is more than speculative.   

            On the other hand, there would be little harm to Chase if the injunction were granted. Chase would simply be prevented from foreclosing on the Property pending resolution of the title dispute. As Chase points out, it has already voluntarily cancelled the August 2023 foreclosure while the matter is investigated. This shows that Chase itself recognizes the propriety of holding off on foreclosure while the merits are being determined. Assuming Chase has a contractual right to foreclose, Chase fails to demonstrate that the harm it would suffer from a delay in exercising that right outweighs the irreparable harm Plaintiffs would suffer from losing their home. The Court concludes that the balance of harms weighs in favor of granting injunctive relief.        

II. Likelihood of Success

            a. Plaintiffs’ Showing

“Regardless of the balance of interim harm, the preliminary injunction cannot be allowed to stand unless there is ‘some possibility’ [Plaintiffs] will prevail on the merits of [their] action.” (Costa Mesa City Employees Assn. v. City of Costa Mesa (2012) 209 Cal.App.4th 298, 309.)

According to Plaintiffs, they purchased the property on the condition that it was free and clear of all liens and encumbrances. (Franco Decl. ¶ 4.) Plaintiffs’ lender also required its loan to have first priority against the Property. (Id., ¶ 5.) Plaintiffs’ title insurer provided a copy of a payoff/closure statement from WaMu in October 2003 demanding $119.10 as the remaining balance on the WaMu loan. (White Decl. ¶ 8, Ex. D.) James paid off the WaMu Deed of Trust upon selling the Property to Plaintiffs. (James Decl. ¶ 7.) This evidence supports “some possibility” that the WaMu loan was paid off. (See Costa Mesa, supra, 209 Cal.App.4th at p. 309.) Chase presents no evidence that the WaMu loan was not paid off. Considering the irreparable harm that would result from an erroneous foreclosure, a less significant showing on the merits is needed to justify an injunction. (See King v. Meese (1987) 43 Cal.3d 1217, 1227 [describing a sliding-scale approach to the two factors].)

b. FIRREA

The federal Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA) provides a mandatory administrative procedure for claims against failed banking institutions. FIRREA “preclude[s] courts from exercising jurisdiction over . . . ‘any claim relating to any act or omission’ of a failed bank, without respect to the identity of the claimant.” (Rundgren v. Wash. Mut. Bank, FA (9th Cir. 2014) 760 F.3d 1056, 1061; 12 U.S.C. § 1281(d)(13)(D).) “Once a claim is filed, the FDIC has 180 days to determine whether to allow or disallow the claim. 12 U.S.C. § 1821(d)(5)(A)(i). If the claim is disallowed, or if the 180 days expire without a determination by the FDIC, then the claimant may request further administrative consideration of the claim, or seek judicial review. 12 U.S.C. § 1821(d)(6).” (Henderson v. Bank of New England (9th Cir. 1993) 986 F.2d 319, 320.) “A claimant must therefore first complete the claims process before seeking judicial review.” (Id. at p. 321.) The deadline for claims against WaMu expired in 2008. (Alkasabi v. Wash. Mut. Bank, F.A. (D.D.C. 2014) 31 F. Supp. 3d 101, 104.)  

Chase argues that Plaintiffs have no probability of success on the merits because they have not exhausted the administrative procedure under FIRREA. Chase argues that although it is the defendant in this litigation, Plaintiffs’ claims are functionally against WaMu because they are based on WaMu’s purported failure to reconvey the Deed of Trust. “FIRREA's jurisdictional bar applies to claims asserted against a purchasing bank [Chase] when the claim is based on the conduct of the failed institution [WaMu].” (Benson v. JPMorgan Chase Bank, N.A. (9th Cir. 2012) 673 F.3d 1207, 1214.) However, “[c]laims of independent misconduct by an institution that purchases a failed bank are not covered by FIRREA's exhaustion requirement.” (Id. at p. 1215.)

Here, Plaintiffs’ claims stem from Chase’s independent conduct in trying to foreclose on the Property based on an invalid lien. (See, e.g., Compl. ¶ 35.) Although Chase is only attempting to foreclose on the Property because WaMu first executed and failed to reconvey the Deed of Trust, that is insufficient to render this a “claim” within the meaning of FIRREA. (See Benson, supra, 673 F.3d at p. 1216 [that the acts of the purchasing bank relate to the acts of the failed bank does not mean plaintiff’s claims relate to the acts of the failed bank].) “Purchase of a failed bank does not buy an institution immunity to continue in its predecessor's malfeasance.” (Ibid.) Ultimately, it is Chase, not WaMu, that is attempting to enforce an allegedly invalid lien. Even if the complaint is based on a mix of wrongdoing by both WaMu and Chase, “[a]n adequately pled claim based on JPMorgan's own misconduct cannot fail merely because it is coupled with a barred claim against WaMu.” (Ibid.) Therefore, FIRREA does not bar Plaintiffs’ claims against Chase.

c. Statute of Limitations

Chase argues that Plaintiffs’ claims are time-barred because the applicable statute of limitations is either three or four years (see Code Civ. Proc., §§ 338, 343), and Plaintiffs waited more than nineteen years since purchasing the Property back in 2003. However, Plaintiffs aver that they did not discover the WaMu Deed of Trust encumbering the Property until NDSC issued the Notice of Default in March 2023. (Franco Decl. ¶ 11.) Chase’s argument does not preclude the possibility of delayed discovery or equitable tolling. The recording of the WaMu Deed of Trust does not necessarily impart constructive notice. (See Lewis v. Superior Court (1994) 30 Cal.App.4th 1850, 1866-67.) It is a factual issue whether the Deed of Trust was recorded in a way that provided constructive notice. There is “some possibility” that Plaintiffs’ claims are not time-barred. (See Costa Mesa, supra, 209 Cal.App.4th at p. 309.)

            In conclusion, the Court finds that Plaintiffs have demonstrated a sufficient likelihood of success on their quiet title, cancellation, and declaratory relief claims because the evidence shows some possibility that the WaMu loan was paid off and could no longer properly encumber the Property. (See All. Mortg. Co. v. Rothwell (1995) 10 Cal.4th 1226, 1235.) When this showing is balanced against the irreparable harm of losing the Property, the Court finds that an injunction is warranted to prevent foreclosure until the merits are resolved.  

CONCLUSION

            Plaintiffs’ motion for preliminary injunction is GRANTED.