Judge: Deirdre Hill, Case: 22TRCV00813, Date: 2023-02-07 Tentative Ruling

Case Number: 22TRCV00813    Hearing Date: February 7, 2023    Dept: M

Hearing Date:                         February 7, 2023

Moving Parties:                      Defendants PHH Mortgage Services, Deutsche Bank National Trust Company as trustee for CSAMP Trust 2006-HE1, and Western Progressive LLC

Responding Party:                  None

Demurrer to Complaint

The court considered the moving papers.  No opposition was filed.  The court notes that the hearing was previously continued at the request of defendant. 

RULING

            The demurrer is SUSTAINED WITHOUT LEAVE TO AMEND as to the complaint and each of the purported causes of action.

BACKGROUND

On September 16, 2022, plaintiff Emily Gaddi (self-represented) filed a complaint against PHH Mortgage Services, Deutsche Bank National Trust Company, as trustee for GSAMP Trust 2006-HE1, and Western Progressive, LLC for unfair business practices, declaratory relief and quiet title, negligence, cancellation of instrument, and violation of Bus. and Prof. Code §17200 as to the real property at 3605 West Hidden Lane, #107, Rolling Hills Estates, California 90274.

The court notes that on July 25, 2022, Emily Gaddi (self-represented) filed a complaint in 22TRCV00607 against PHH Mortgage Services, Deutsche Bank National Trust Company as trustee for GSAMP Trust 2006-HE1, and Western Progressive, LLC for “COVID-19 state and foreclosure and moratoriums and stays; failing to review borrowers’ applications for loss mitigation options within 30 days; charging unauthorized amounts; and violation of Homeowner’s Bill of Rights” as to the same property.  On September 13, 2022, the court sustained without leave to amend defendants’ demurrer to the complaint and the 1^st through 4^th causes of action and the case was dismissed.

In a separate ruling, the cases were deemed related.

LEGAL AUTHORITY

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.  “A demurrer tests the pleadings alone and not the evidence or other extrinsic matters.  Therefore, it lies only where the defects appear on the face of the pleading or are judicially noticed.”  SKF Farms v. Superior Court (1984) 153 Cal. App. 3d 902, 905.  “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 v. Mirda (2007) 147 Cal. App. 4th 740, 747.

DISCUSSION

Defendants demur to the complaint and purported causes of action on the grounds that they fail to state sufficient facts to constitute a cause of action and are uncertain.

Procedurally, the court finds that the complaint is defective.  Plaintiff failed to comply with Cal. Rules of Court, Rule 2.112 as to separately stating each cause of action by number, its nature, and as to whom it is directed.  As defendants noted, there are eight headings that appear to have been meant to be causes of action and six “causes of action” are referenced in the complaint’s caption, but only two are labelled as such.

Defendants present the following judicially-noticed documents:

Exh. 1 – Deed of Trust recorded on October 13, 2005, indicating that plaintiff obtained a loan secured by her real property at 3605 Hidden Lane, #107, Rolling Hills Estates, CA 90274.

Exh. 2 – Docket of bankruptcy filed on July 8, 2015.

Exh. 3 – Docket of bankruptcy filed on February 23, 2016.

Exh. 4 – Docket of bankruptcy filed on April 27, 2016.

Exh. 5 – Docket of bankruptcy filed on October 19, 2016.

Exh. 6 – Docket of bankruptcy filed on May 16, 2017.

Exh. 7 – Docket of bankruptcy filed on July 23, 2018.

Exh. 8 – Docket of bankruptcy filed on November 7, 2018.

Exh. 9 – Docket of bankruptcy filed on September 30, 2019.

Exh. 10 – Docket of bankruptcy filed on March 22, 2022.

Exh. 11 – Proof of claim in bankruptcy case filed on April 27, 2022 by Deutsche Bank stating that amount of the claim that is secured is $485,679 and the amount in arrears and explaining debt calculation and payment history.

Exh. 12 – Schedules in bankruptcy case.

Exh. 13 – Voluntary Petition in bankruptcy case.

Exh. 14 – Docket in federal case filed on March 15, 2018.

Exh. 15 – Complaint filed in YC072314 by plaintiff against Mila, Inc. and Western Progressive, LLC for unfair business practices and declaratory relief and quieting title to real property, which was removed to district court.

Exh. 16 – Minute order in federal case filed on March 15, 2018, dismissing for failure to oppose.

Exh. 17 – Docket in case no. 19TRCV00369 filed on April 18, 2019.

Exh. 18 – Complaint in 19TRCV00369 against Ocwen Loan Servicing, Deutsche Bank National Trust, and Western Progressive for violation of Civil Code §2924.17, negligence, cancellation of instrument, violation of Bus. & Prof. Code §17200, lack of title and standing (Civil Code §2924(a)(6)), and violations of HBOR.

Exh. 19 – Ruling in 19TRCV00369 sustaining demurrer without leave to amend on the ground that all the causes of action are barred by judicial estoppel.

Exh. 20 – Notice of Default recorded on April 9, 2015.

Exh. 21 – Quit claim deed recorded on March 5, 2020.

Exh. 22 – Docket of bankruptcy filed on March 5, 2020.

Exh. 23 – Docket of case no. 22TRCV00607.

Exh. 24 – Complaint filed in case no. 22TRCV00607.

Exh. 25 – Notice of trustee’s sale recorded on February 15, 2022.

Exh. 26 – Notice of ruling filed on September 13, 2022 in case no. 22TRCV00607.

Judicial estoppel

Defendants argue that the complaint is barred by judicial estoppel.  Defendants assert that plaintiff asserted in a bankruptcy that she had no claims against third parties.  RJN, Exh. 12, at 9.  “[T]he Bankruptcy Code and Rules impose upon bankruptcy debtors an express, affirmative duty to disclose all assets, including contingent and unliquidated claims. . . . ‘ [A] debtor is required to disclose all potential causes of action.’ . . . ‘The debtor need not know all the facts or even the legal basis for the cause of action; rather, if the debtor has enough information . . . to suggest that it may have a possible cause of action, then that is a “known” cause of action such that it must be disclosed.’ . . . ‘Any claim with potential must be disclosed, even if it is “contingent, dependent, or conditional.”’” Gottlieb v. Kest (2006) 141 Cal. App. 4th 110, 133.  A debtor who fails to disclose a legal claim on his bankruptcy schedules may be judicially estopped from asserting the claim in a subsequent proceeding.  See Hamilton v. State Farm Fire & Cas. Co. (9^th Cir. 2001) 270 F.3d 778, 782; Gottlieb, supra, at 137.

Defendants contend that plaintiff declared under penalty of perjury that she had no claims at the time she filed her bankruptcy petition in March 2022 but that all of the causes of action relate to conduct that occurred before such time.

Res judicata

Defendants argue that the complaint is barred by res judicata.  Defendants assert that as in the present action, plaintiff previously alleged that defendants See case no. 22TRCV00607.

The court finds that res judicata bars the complaint.  The prior and present lawsuits involve claims regarding foreclosure proceedings of the same property.  Whether the claims are the same is judged based on the primary right theory and the existence of a continuing violation is barred.  See Pollock v. University of Southern California (2003) 112 Cal. App. 4^th 1416.  There was a final judgment on the merits of the prior lawsuit (demurrer sustained without leave to amend and judgment of dismissal).  “A judgment on a general demurrer will have the effect of a bar in a new action in which the complaint states the same facts which were held not to constitute a cause of action on the former demurrer or, notwithstanding differences in the facts alleged, when the ground on which the demurrer in the former action was sustained is equally applicable to the second one.”  McKinney v. County of Santa Clara (1980) 110 Cal. App. 3d 787, 794.  There is privity between the parties.  See Boeken v. Phillip Morris USA, Inc. (2010) 48 Cal. 4^th 788, 797 (setting forth the elements).

“Lack of title and standing” cause of action

Plaintiff alleges that the “corrective assignment [dated May 23, 2012] was signed by Leticia N. Arias who was never an employee of MERS and she is not supposed to sign on MERS behalf, therefore, this assignment is void.”  Further, plaintiff alleges, the corrective assignment recorded on August 8, 2018 “is useless because corrective assignment #1 is void.”  Complaint, ¶¶17, 19. 

As defendants argue, the signing officer need not be a MERS employee.  See, e.g., Cervantes v. Countrywide Home Loans, Inc. (9^th Cir. 2011) 656 F.3d 1034, 1040 (“MERS relies on its members to have someone on their own staff become a MERS officer with the authority to sign documents on behalf of MERS.  As a result, most of the actions taken in MERS’ own name are carried out by staff at the companies that sell and buy the beneficial interest in the loans.”) (citation omitted).  Further, plaintiff has not cited to any legal authority prohibiting an individual from working in a dual capacity.

The court finds that the allegations are insufficient, and plaintiff has not shown how she can amend.

“Predatory lending” cause of action

Plaintiff alleges that she “never had a decent interest rate in spite of the hard work that she did to improve her credit score.”  She alleges that the original principal amount of this loan was $280,000 under [nonparty] MILA.  It was an interest-only repayment loan so that plaintiff would never repay the debt and that “there was negative amortization regarding this loan.”

As defendants argue, the claim is time-barred because the loan originated in 2005.  Further, the allegations are insufficient that the originator of the loan is related or connected to defendants.

The court finds that the allegations are insufficient, and plaintiff has not shown how she can amend.

“Shared Appreciation Mortgage (SAM)” cause of action

Plaintiff alleges that a shared appreciation mortgage or SAM is a mortgage in which the lender agrees to receive some or all of the repayment in the form of a share of the increase in value (the appreciation) of the property.  Plaintiff was never consulted as far as SAM.  Plaintiff received an email in October 2012 that the terms of the loan had changed.  Plaintiff found out recently that PHH Mortgage has a share of 30% with the equity of the subject property.  Plaintiff further alleges that defendants have been engaging in unfair business practices including “perpetual negative amortization,” introducing SAM as a form of loan modification and eventually putting plaintiff into foreclosure, and “a lot of illegal practices and they are in violation of” Civil Code §§2920.5, 2923.7, et seq.  She alleges that “negative amortization” “is a never ending debt” “similar to usury” and that “usury is against the law of God.”  Complaint, ¶¶24, 25, 28.

The allegations are uncertain.  Further, as defendants argue, the allegations are insufficient as to the loan modification being usurious.  Defendants explain that the loan had an interest rate of 7.2% at its inception (RJN, Exh. 11) and that the “fact that Plaintiff later defaulted and was so underwater that she was offered the SAM does not transmute the Loan into one that is usurious.”  Defendants assert that there are two contingencies—the forgiveness of the Deferred Principal Balance and the appreciation of the property—and that the SAM was thus subject to contingencies that provide a rate of return that is not usurious.

“The essential elements of a claim for usury are: ‘(1) The transaction must be a loan or forbearance; (2) the interest to be paid must exceed the statutory maximum; (3) the loan and interest must be absolutely repayable by the borrower; and (4) the lender must have a willful intent to enter into a usurious transaction.’”  WRI Opportunity Loans II, LLC (2007) 154 Cal. App. 4^th 525, 533 (citation omitted).  “The usuary law is subject to numerous exceptions and statutory exemptions.”  Id.  As relevant here, “[l]enders shall be exempt from the usury provision of Article XV of the California Constitution with respect to shared appreciation loan transactions.”  Id. at 536, citing to Civil Code §1917.005.

The court finds that the allegations are insufficient, and plaintiff has not shown how she can amend.

            “1^st cause of action for unfair business practices”

The purpose of the Unfair Business Practices Act (Bus. & Prof. Code §17000, et. seq.) is to “safeguard the public against the creation or perpetuation of monopolies and to foster and encourage competition, by prohibiting unfair, dishonest, deceptive, destructive, fraudulent and discriminatory practices by which fair and honest competition is destroyed or prevented.”  Bus. & Prof. Code §17001.  The Unfair Business Practices Act shall include “any unlawful, unfair or fraudulent business act or practice.”  Bus. & Prof. Code §17200.  The Unfair Business Practices Act is a tool with which to enjoin deceptive or sharp practices.  Samura v. Kaiser Foundation Health Plan, Inc. (1993) 17 Cal. App. 4th 1284, 1299, fn. 6.  A plaintiff alleging unfair business practices under these statutes must state with reasonable particularity the facts supporting the statutory elements of the violation.  Khoury v. Maly's of California, Inc. (1993) 14 Cal. App. 4th 612, 619. 

Plaintiff alleges that defendants “are in violation of Business and Profession Code 17070 [sic] because their property is affected by a recorded trust deed on unconscionable loan agreement.  Based from research, MILA is no longer in business.”  Complaint, ¶31. 

As defendants argue, the loan originated in 2005 and modified in 2012; thus, any claim as to “unconscionability” is time barred.  Defendants also argue that plaintiff is “simply wrong as to the Loan’s terms:  the Loan was originally interest-only for five years, after which principal and interest payments were to be made” and that there was not “perpetual negative amortization.”  Defendants also assert that the shared appreciation modification lowered the interest rate to 2% and introduced the possibility of waiving more than $200,000 if plaintiff remained current on the loan.  See RJN, Exh. 11.

The court finds that the allegations are insufficient to show an unlawful, unfair, or fraudulent business act or practice.  Plaintiff does not allege any violation of an underlying law. Further, the allegations as to “injury” are insufficient.  The allegations are also conclusory and are not pled with particularity.  Plaintiff has not shown how she can amend.

            “2^nd cause of action for declaratory relief and quieting title to real property”

Plaintiff alleges that “MILA imposed unbargained and sticky loan terms because they knew that Plaintiff would have a hard time to perform.  Complaint, ¶33.  “In accordance to Civil Code Section 167.5 9b, Plaintiff contends that she is entitle[d] to judgment that her loan, notes, and trust deed should stand as outlawed. . . . PHH Mortgage is just continuing what MILA had been doing in the past.”  Complaint, ¶34. 

As defendants point out, there does not appear to be any such Civil Code section as plaintiff alleges.   Further, the claim is barred by the statute of limitations.  “A claim for declaratory relief is subject to the same statute of limitations as the legal or equitable claim on which it is based.”  Bank of New York Mellon v. Citibank, N.A. (2017) 8 Cal. App. 5^th 935, 943 (citation omitted).  Also, “where quiet title depends upon another claim, it must stand or fall on that claim.”  Id. (citation omitted).   Moreover, “[a] borrower may not, however, quiet title against a secured lender without first paying the outstanding debt on which the mortgage or deed of trust is based.”  Lueras v. BAC Home Loans Servicing LP (2013) 221 Cal. App. 4^th 49, 86 (citation omitted).  Plaintiff does not allege tender.

The court finds that the allegations are insufficient, and plaintiff has not shown how she can amend.

            “Negligence” cause of action

            Plaintiff alleges that defendants were negligent with respect to the foreclosure.  Plaintiff alleges that defendants “owed plaintiff a duty of care because the transaction was meant to affect plaintiff when it comes to pursuing a foreclosure procedure.  Public documents related to the subject property were robo signed.  The same person signed Assignment #2 and corrective assignment therefore, this is null and void.”  Complaint, ¶37.   Plaintiff cannot even refinance her loan or transfer the loan to another bank because the SAM program attached to the loan.  Id., ¶41.

            Negligence is not a cognizable cause of action because defendants owed no duty of care.  See Sheen v. Wells Fargo Bank, N.A. (2022) 12 Cal. 5^th 905, 927, 929 (“’a lender owes no duty of care to a borrower when the lender’s involvement in the loan transaction does not exceed its customary role in arms-length lending and servicing’” and “a lender owes no duty to a borrower in its processing of a loan modification application.”).

            The court finds that the allegations are insufficient, and plaintiff has not shown how she can amend.

            “Cancellation of instrument” cause of action

            Plaintiff alleges that the parent company of PHH Mortgage did not have authority under the DOT to cause NTS to be recorded.  Plaintiff alleges that Corrective Assignment was void because it was signed by a non-employee of MERS who did not have authority to transfer MERS interest in the DOT.  All documents recorded after that Assignment including the NOD, NTS, Substitution #2, and Corrective Assignment are also void for the same reasons.  Complaint, ¶45.

            As argued by defendants, the claim is barred by the statute of limitations.  The original assignment was in 2012, with corrective assignments in 2013 and 2018.  See Robertson v. Superior Court (2001) 90 Cal. App. 4th 1319, 1326 [citing to CCP §343 (4-year cause of action)].

            “Violation of Bus. & Prof. Code §17200” cause of action

            Plaintiff alleges that defendants violated the unfair, unlawful, and fraudulent prongs of the UCL because defendants were not competent enough to record the default NTS.  As a result, they are in violation of Civil Code §2924.17 [documents recorded in connection with a foreclosure “shall be accurate and complete and supported by competent and reliable evidence”] and defendants did not have authority with foreclosing the subject property and they are in violation of Civil Code §2924(a)(6) [“An entity shall not record or cause a notice of default to be recorded or otherwise initiate the foreclosure process unless it is the holder of the beneficial interest under the mortgage or deed of trust, the original trustee or the substituted trustee under the deed of trust, or the designated agent of the holder of the beneficial interest. . . .”].

The court finds that the allegations are insufficient to show an unlawful, unfair, or fraudulent business act or practice.  Plaintiff does not allege sufficiently any violation of an underlying law.  The allegations are also conclusory and are not pled with particularity.  Plaintiff has not shown how she can amend.

            Accordingly, the demurrer to the complaint and to each of the purported causes of action is SUSTAINED WITHOUT LEAVE TO AMEND.

            Defendants are ordered to give notice of ruling.