Judge: Daniel S. Murphy, Case: 24STCV08040, Date: 2024-08-14 Tentative Ruling

Case Number: 24STCV08040    Hearing Date: August 14, 2024    Dept: 32

BACKGROUND

            On March 29, 2024, Plaintiff Sirak Minasyan filed this action against Defendants Puerto Loreto LLC (Puerto) and California TD Specialists (Cal TD), asserting causes of action for (1) declaratory relief, (2) cancellation of written instruments, (3) wrongful foreclosure, (4) unfair business practices, and (5) injunctive relief. The complaint alleges the following facts.

            On July 19, 2021, Plaintiff purchased a residential real property in Glendale, California (the Property). (Compl. ¶ 7.) At the time of purchase, Plaintiff obtained a $1.65 million loan from Puerto, secured by a deed of trust against the Property. (Id., ¶ 8.) The loan called for interest-only payments of $12,356.46 per month, with all principal and interest due in one year. (Ibid.) Plaintiff made monthly interest payments from July 29, 2021 to July 10, 2022, at which time the remainder became due. (Id., ¶ 9.) Due to financial issues caused by the Covid pandemic, Plaintiff requested an extension on the loan. (Ibid.) Jim Metheson, who Plaintiff understood to be Puerto’s owner or authorized representative, told Plaintiff that the loan could be extended if Plaintiff paid the loan down by $200,000. (Ibid.)

            On October 28, 2022, Puerto, through its trustee Cal TD, recorded a Notice of Default and Election to Sell under the deed of trust, identifying the amount due as $1.7 million. (Compl. ¶ 10.) On February 2, 2023, Puerto, through Cal TD, recorded a Notice of Trustee sale, though the sale did not take place. (Id. ¶ 11.) In March and May 2023, Plaintiff wired $100,000 and $180,000 to Puerto. (Id., ¶ 12.) Plaintiff believed that the default had been cured and that the foreclosure would be rescinded based on his transmittal of more than $200,000. (Id., ¶ 13.) Plaintiff requested Matheson to rescind the foreclosure but received no response. (Ibid.)  

            On August 22, 2023, Plaintiff filed for bankruptcy, which stayed foreclosure proceedings. (Compl. ¶ 14.) Although the bankruptcy was dismissed on March 1, 2024, all foreclosure proceedings were stayed until March 9, 2024. (Ibid.) However, on March 8, 2024, Puerto, through Cal TD, recorded a Notice of Trustee Sale, which was a violation of the bankruptcy stay. (Id., ¶ 15.) 

            On July 10, 2024, Puerto filed the instant demurrer to the complaint. Plaintiff filed his opposition on August 1, 2024. Puerto filed its reply on August 7, 2024.

LEGAL STANDARD

A demurrer for sufficiency tests whether a pleading states a cause of action or defense. (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 pleading, as it stands, unconnected with extraneous matters, states a cause of action or defense. (Hahn, supra, 147 Cal.App.4th at 747.)

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. (See Hubbard Decl.)

REQUEST FOR JUDICIAL NOTICE

            Defendant requests judicial notice of (i) records in the County Recorder (Ex. A, B, D, E) and (ii) a bankruptcy court order (Ex. C). Defendant’s request is granted. (See Evid. Code, § 452(c), (h); Fontenot v. Wells Fargo Bank, N.A. (2011) 198 Cal.App.4th 256, 264-65.) 

DISCUSSION

I. 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.)

“Declaratory relief operates prospectively to declare future rights, rather than to redress past wrongs.” (Canova v. Trustees of Imperial Irrigation Dist. Employee Pension Plan (2007) 150 Cal.App.4th 1487, 1497.) In the foreclosure context, if “the property has been sold, there remain no prospective claims appropriate for declaratory relief.” (Mendoza v. JPMorgan Chase Bank, N.A. (2016) 6 Cal.App.5th 802, 820.) Moreover, the declaratory relief would be “duplicative of [the] cause of action for wrongful foreclosure.” (Ibid.)

Here, the Property was sold on April 2, 2024. (Def.’s RJN, Ex. E.) Therefore, the declaratory relief claim is moot to the extent Plaintiff alleges a controversy over the validity of Puerto’s foreclosure of the Property. However, a dispute remains as to the validity of the written instruments Notice of Default and Notice of Sale, as discussed further below. Thus, Plaintiff may maintain a declaratory relief claim.  

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

II. Cancellation of Written Instruments

            “A written instrument, in respect to which there is a reasonable apprehension that if left outstanding it may cause serious injury to a person against whom it is void or voidable, may, upon his application, be so adjudged, and ordered to be delivered up or canceled.” (Civ. Code, § 3412.) “To prevail on a claim to cancel an instrument, a plaintiff must prove (1) the instrument is void or voidable due to, for example, fraud, and (2) there is a reasonable apprehension of serious injury including pecuniary loss or the prejudicial alteration of one's position.” (Thompson v. Ioane (2017) 11 Cal.App.5th 1180, 1193-94.) 

            Plaintiff’s second cause of action alleges that “The Notices of Default and Notice of Trustee's Sale should be cancelled because they are of record but are legally invalid.” (Compl. ¶ 19.) For support, Plaintiff incorporates the allegations in paragraph 16 of the complaint. (Id., ¶ 18.) Paragraph 16 alleges that: Puerto was not a licensed lender; Plaintiff cured the default by paying $280,000; and Puerto defrauded Plaintiff by promising to rescind the foreclosure if Plaintiff paid down the loan by $200,000. (Id., ¶ 16.)

            Puerto argues that “Plaintiff has failed to set forth any facts in support of his bare allegation suggesting that the Notice of Default and/or the Notice of Sale are invalid.” (Dem. 8:10-11.) However, the second cause of action incorporates prior allegations, which do contain facts explaining why the Notices are invalid. In particular, the court in Thompson, supra, 11 Cal.App.5th at pp. 1193-94 acknowledged that an instrument may be void due to fraud, and Plaintiff alleges fraud, among other reasons. The allegations also support an inference that the Notices will result in pecuniary loss or prejudice to Plaintiff. (Ibid.) Therefore, Plaintiff has adequately alleged a claim for cancellation.

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

III. Wrongful Foreclosure

            “The basic elements of a tort cause of action for wrongful foreclosure track the elements of an equitable cause of action to set aside a foreclosure sale. They are: ‘(1) the trustee or mortgagee caused an illegal, fraudulent, or willfully oppressive sale of real property pursuant to a power of sale in a mortgage or deed of trust; (2) the party attacking the sale (usually but not always the trustor or mortgagor) was prejudiced or harmed; and (3) in cases where the trustor or mortgagor challenges the sale, the trustor or mortgagor tendered the amount of the secured indebtedness or was excused from tendering.’” (Miles v. Deutsche Bank National Trust Co. (2015) 236 Cal.App.4th 394, 408, quoting Lona v. Citibank, N.A. (2011) 202 Cal.App.4th 89, 104.)

            Plaintiff’s wrongful foreclosure claim again incorporates paragraph 16 of the complaint and also specifically alleges that “Plaintiff relied on Defendant PUERTO LORETO'S representations to Plaintiff in that Defendant PUERTO LORETO would rescind the foreclosure and extend the loan if Plaintiff would pay down the loan by $200,000.00 which was made fraudulently because Defendant PUERTO LORETEO did not record a rescission of the foreclosure even though Plaintiff paid the loan down by $280,040.00.” (Id., ¶¶ 20-22.)

            For pleading purposes, these facts sufficiently show that the sale was procured by “illegal, fraudulent, or willfully oppressive” conduct and that Plaintiff was “prejudiced or harmed.” (See Miles, supra, 236 Cal.App.4th at p. 408.) Puerto argues that the foreclosure was proper as a matter of law because Plaintiff indisputably defaulted on the loan. However, Plaintiff alleges that he cured the default by paying $280,000 based on Puerto’s representations. This is a factual matter which cannot be resolved on a demurrer.

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

IV. 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.)

            As discussed above, Plaintiff has adequately pled a cause of action for wrongful foreclosure. “[W]rongful foreclosure is a tort” (Miles, supra, 236 Cal.App.4th at p. 409), which would make it “unlawful” within the meaning of the UCL. Thus, Plaintiff has pled a UCL claim.

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

V. Injunctive Relief

            “[I]njunctive relief lies only to prevent threatened injury and has no application to wrongs that have been completed.” (Huntingdon Life Sciences, Inc. v. Stop Huntingdon Animal Cruelty USA, Inc. (2005) 129 Cal.App.4th 1228, 1266.)   

            Plaintiff’s fifth cause of action seeks to enjoin Defendants from foreclosing on the Property. (Compl. ¶ 29.) However, as discussed above, the foreclosure has already occurred. Therefore, there is nothing to enjoin.

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

CONCLUSION

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