Judge Edward B. Moreton, Jr., Case Number: 24SMCV02338, Date: 2024-08-08 Tentative Ruling

Judge: Edward B. Moreton, Jr., Case: 24SMCV02338, Date: 2024-08-08 Tentative Ruling

Superior Court of California

County of Los Angeles – West District

Beverly Hills Courthouse / Department 205

PACIFIC PANORAMA, LLC,

Plaintiff,

KWALA, LLC, et al.,

Defendants.

Case No.: 24SMCV02338

Hearing Date: August 8, 2024

[TENTATIVE] ORDER RE:

DEFENDANT KWALA, LLC’S MOTION

TO EXPUNGE LIS PENDENS

This case arises from protracted litigation relating to the foreclosure of a residential property located at 17000 W Sunset Blvd in Pacific Palisades (the “Property”).

The relevant facts are as follows. Gregg Corlyn (“Corlyn”) acquired title to the Property pursuant to a Grant Deed recorded on June 29, 2001 (the “Grant Deed”). (Request for Judicial Notice (“RJN”) No. 1; Dicecca Decl. ¶ 5, Exh. 1.)

In 2007, Corlyn borrowed and promised to repay the amount of $3,697,500 pursuant to an Adjustable Rate Note dated April 6, 2007 (the “Note”) secured by a Deed of Trust dated April 6, 2007 (the “1st Deed of Trust”) against the Property. (RJN Nos. 3-5; Dicecca Decl. ¶ 6, Exh. 2; Compl. ¶ 14.a, Exh. 3.) He also entered into a revolving credit agreement secured by a Deed of Trust and Assignment of Rents dated April 6, 2007 (the “2nd Deed of Trust”). (RJN No. 9; Compl. ¶ 14.b, Exh. 4.) The Deeds of Trust have the same legal description as the Grant Deed. (RJN Nos. 6 & 9.)

In 2009, the 1st Deed of Trust was assigned to Wells Fargo Bank, National Association as Trustee for the Certificate holders of Structured Asset Mortgage Investments II Inc. Trust 2007-AR4, Mortgage Pass-Through Certificates, Series 2007-AR-4 (“WF Bank”). (RJN No. 10; Dicecca Decl. ¶ 7, Exh. 3; Compl. ¶ 15.)

Corlyn quitclaimed title of the Property to Plaintiff Pacific Panorama LLC on October 10, 2008 by way of a Quitclaim Deed that sets forth the same exact legal description as the Grant Deed. (RJN No. 11; Dicecca Decl. ¶ 8, Exh. 4; Compl. ¶ 11, Exh. 1.) The Quitclaim Deed identifies that title was quitclaimed to Pacific as a “GIFT.” The Quitclaim Deed did not include any provision for the assumption of the Note or 1st Deed of Trust by Pacific. (RJN No. 12.)

Two days after recording the Quitclaim Deed, on January 29, 2010, Pacific filed its first Chapter 11 bankruptcy in Nevada, with Case No. BK-S-10-11464-MKN, to delay WF Bank’s foreclosure. In that case, the court granted WF Bank’s motion for relief from the automatic stay. The court eventually dismissed the case on April 19, 2012. (RJN No. 13; Dicecca Decl. ¶ 35, Exh. 30 (Memorandum Decision, at p. 3).)

On June 12, 2014, a notice of default and then, on October 3, 2014, a notice of trustee’s sale, each identifying only Corlyn as the borrower, were recorded against the Property based on the 1st Deed of Trust. (RJN Nos. 14-15; Dicecca Decl. ¶¶ 9-10, Exhs. 5-6.)

On October 17, 2014, Corlyn filed a lawsuit against WF Bank and its loan servicer Select Portfolio Servicing, Inc. (“SPS”), with Case No. SC123281, to enjoin the foreclosure. (RJN No. 16; Dicecca Decl. ¶ 11, Exh. 7.) Corlyn’s complaint asserted claims based on the borrower-protection statutes and alleged he submitted several “loan modification applications” between February 2013 and July 2014, but they were repeatedly denied or ignored by WF Bank and SPS. (RJN No. 17; Dicecca Decl. ¶ 11, Exh. 7 (Corlyn’s 2014 Compl. ¶¶ 17-50).)

Then, on June 28, 2019, Corlyn filed another lawsuit against WF Bank and SPS, with Case No. 19SMCV01180, to again enjoin the foreclosure, in which he asserted: “Gregg Corlyn was and is an individual and the borrower on all liens on the property” and “Mr. Corlyn has standing to sue because, though he does not live at the subject property, he is still the borrower on the loan.” (RJN Nos. 18-19; Dicecca Decl. ¶ 12, Exh. 8 (Corlyn’s FAC ¶¶ 1 & 36).)

After another notice of default and sale were published, Pacific filed its second Chapter 11 bankruptcy on June 28, 2021, with Case No. 2:21-bk-15239, to again stop the foreclosure. The U.S. Trustee moved to dismiss the case for bad faith, as evidenced by the filing on the eve of a foreclosure sale and Pacific having only one asset and no income. The court granted the lender’s motion for relief from stay and the U.S. Trustee’s motion to dismiss, with a 180-day bar to refiling, finding the case was filed in bad faith “just to delay the secured creditor from enforcing its rights.” (RJN Nos. 21-23; Dicecca Decl. ¶¶ 13-14 & 35, Exhs. 9-10 & 30 (Memorandum Decision, at p. 5).)

On April 4, 2022, the 1st and 2nd Deeds of Trust were assigned to Defendant KWALA LLC (“Kwala”). (RJN Nos. 24-26; Dicecca Decl. ¶¶ 15-16, Exhs. 11-12; Compl. ¶ 16, Exh. 7.) Five months later, in September 2022, Plaintiff and Corlyn sought Kwala’s consent for Pacific to assume Corlyn’s loans. (Doss Decl. ¶¶ 4-5.) Kwala denied the request. (Doss Decl. ¶ 5, Exh. A.) Thus, Corlyn remained the sole borrower on the loans.

On October 3, 2022, a notice of default (“NOD”) was recorded against the Property based on the 1st Deed of Trust. (RJN No. 28; Dicecca Decl. ¶ 18, Exh. 14; Compl. ¶ 18, Exh. 9 (NOD).) On December 2, 2022, Pacific filed an action against Kwala entitled Pacific Panorama, LLC v. KWALA, LLC et al., with Case No. 22STCV37755 (the “Prior Action”), seeking to enjoin foreclosure, despite the fact that Plaintiff had never assumed the loan. (RJN No. 29; Dicecca Decl. ¶¶ 19-20, Exhs. 15-16.) That complaint asserted the same legal description for the Property as set forth in the Grant Deed and Quitclaim Deed. (RJN No. 30; Dicecca Decl. ¶ 20, Exh. 16.)

In response to a demurrer, Pacific filed a first amended complaint (“FAC”) alleging the “NOD falsely represents that as of September 30, 2022 there were unpaid payments due Defendants and each of them in the sum of $208,394.55, when in fact that representation was materially false and misleading and was burdened with claims which were not due and not supported.” (RJN No. 32; Dicecca Decl. ¶ 22, Exh. 18; see Compl. ¶ 25.b, at 10:6-9.)

On or about January 4, 2023, Kwala caused its foreclosure trustee California TD Specialists to record a notice of trustee’s sale and scheduled the sale for January 31, 2023. (RJN No. 31; Dicecca Decl. ¶ 21, Exh. 17.) Following an ex parte application, the court issued a temporary restraining order (“TRO”) on January 23, 2023 enjoining the sale and setting an OSC Re Preliminary Injunction. On March 29, 2023, the preliminary injunction hearing went forward, and on April 17, 2023, the court denied Pacific’s request for preliminary injunction and dissolved the TRO, finding that Pacific had no standing to challenge the amounts owed under the 1st Deed of Trust and that Kwala’s accounting as to the default amount owed was otherwise “accurate.” (RJN No. 33; Dicecca Decl. ¶ 24, Exh. 19 (Order Denying Request for Preliminary Injunction, 04-17-23).)

Kwala filed a motion for judgment on the pleadings arguing that Pacific lacked standing to assert any cause of action in the FAC because it was not the borrower on the loans and had not assumed the loans in any writing approved by the lenders. (Dicecca Decl. ¶ 23.) On April 25, 2023, the court granted Kwala’s motion for judgment on the pleadings on Pacific’s FAC with leave to amend, finding that Pacific “has no standing to assert any of the contractual or statutory claims in the First Amended Complaint (‘FAC’) because Pacific is not a borrower under the two security interests held by Kwala.” (RJN Nos. 36-37; Dicecca Decl. ¶ 25, Exh. 20 (04-25-23 Minute Order, p. 1).)

On May 12, 2023, Pacific filed its second amended complaint (“SAC”) and Kwala filed another demurrer challenging standing. (RJN Nos. 39-40; Dicecca Decl. ¶¶ 19 & 26, Exh. 15.) Pacific did not file an opposition, and instead filed a notice of withdrawal of the SAC and then dismissed the action on June 8, 2023. (RJN Nos. 41-42; Dicecca Decl. ¶ 26, Exhs. 21-22.)

The very next day after the court dissolved the TRO, on April 18, 2023, Pacific filed its third Chapter 11 bankruptcy, with Case No. 23-11599-mkn, seeking to stop the foreclosure. (RJN No. 38; Dicecca Decl. ¶¶ 27-28, Exhs. 23-24.) Then, the day after the voluntary dismissal of the Prior Action, on June 9, 2024, Pacific removed the Prior Action to the bankruptcy court. (RJN No. 43; Dicecca Decl. ¶¶ 19 & 27, Exhs. 15 (Civil Docket, at p. 1) & 23 (BK Docket, Doc 35 at p. 5).) Kwala filed a motion for relief from stay and a motion to remand the Prior Action back to the state court, which were both granted. (RJN Nos. 44-48; Dicecca Decl. ¶¶ 29-31, Exhs. 25-27.)

In its ruling on the motions, the bankruptcy court found that Pacific engaged in quintessential “forum shopping” to avoid the adverse rulings from the Prior Action and that Pacific would be unable to effect a reorganization with Kwala’s loans because “it’s not their debt” and because “they have no money.” (RJN No. 46; Dicecca Decl. ¶ 29, Exh. 25 (Transcript at pp. 59-60 & 62-64, italics added).) The bankruptcy court’s order granted Kwala “leave to foreclose on the Property and to enforce the security under the First Deed of Trust.” (RJN No. 47; Dicecca Decl. ¶ 30, Exh. 26.)

Kwala’s trustee then scheduled the foreclosure sale for October 17, 2023. (Dicecca Decl. ¶ 32). The day before the sale, however, a notice of a new bankruptcy case filed by 17K West Sunset, LLC (“17K West”), with Case No. 23-15559-GS, was served on Kwala’s counsel. (RJN No. 51; Dicecca Decl. ¶¶ 32 & 34, Exh. 29.) 17K West was formed after Kwala was granted relief from stay and was assigned the junior deeds of trust before filing bankruptcy. (RJN Nos. 49-50; Dicecca Decl. ¶ 33, Exh. 28.) In response, Kwala moved for in rem bar relief in the Pacific bankruptcy and to dismiss the 17K West bankruptcy. Both motions were granted, and the bankruptcies were dismissed. (RJN Nos. 52-58; Dicecca Decl. ¶¶ 35-39, Exh. 30-34.) In granting in rem bar relief, the court found that Pacific and 17K West engaged in a “scheme to hinder, delay or defraud Kwala and thwart its efforts to foreclose.” (RJN No. 53; Dicecca Decl. ¶ 35, Exh. 30 (Memorandum Decision, at p. 16).)

After this ruling, the foreclosure sale was scheduled for March 27, 2024 pursuant to a newly-issued Notice of Trustee’s Sale. (RJN No. 59; Dicecca Decl. ¶ 40, Exh. 35.) On March 4, 2024, Pacific filed an appeal in the bankruptcy and, on March 18, 2024, filed an emergency motion to stay the foreclosure sale, which was denied on March 19, 2024. (RJN Nos. 60-61; Dicecca Decl. ¶¶ 41-42, Exh. 36-37.) The next day, on March 20, 2024, Pacific filed another emergency motion for stay in the district court, and on March 26, 2024, the district court denied that motion and instructed “the foreclosure sale that is set for tomorrow may proceed.” (RJN No. 62; Lin Decl. ¶ 5, Exh. B (Transcript at p. 19:18-19).) In its ruling, the court noted: “It is, I’ll say, troubling to this Court that this proceeding is being held here today after what appears to be over 12 years of abuse of process and an attempt to manipulate court proceedings.” (RJN No. 63; Lin Decl. ¶ 5, Exh. B (Transcript at p. 18:17-25).)

The foreclosure sale took place the next day on March 27, 2024. The opening bid amount was $5,403,655.84. Kwala made a “full credit bid” for that amount plus an additional $1,174,577.24 for the highest bid of $6,578,233.08. No one for Pacific appeared at the sale or bid. No one other than Kwala bid at the sale. Kwala was the winning bidder. (RJN No. 64; Snyder Decl. ¶ 8; Dicecca Decl. ¶ 43, Exh. 38.)

After the sale, the trustee received “notices of intent to bid” pursuant to Civil Code § 2924m. Pacific did not submit a notice. Ultimately, no bids were received, and the sale became final on May 13, 2024. (Snyder Decl. ¶ 8.) A Trustee’s Deed Upon Sale was recorded on May 20, 2024 in favor of Kwala. (RJN No. 68; Snyder Decl. ¶ 8; Dicecca Decl. ¶ 44, Exh. 39.)

On April 17, 2024, 17K West filed a civil action with Case No. 24SMCV01839, which alleged that Kwala had rejected its tender of “all amounts due and owing” under the 1st Deed of Trust. On April 30, 2024, the court denied 17K West’s ex parte application for a TRO to enjoin the recording of the Trustee’s Deed Upon Sale, and on May 14, 2024, 17K West dismissed the action. (RJN Nos. 65-67; Dicecca Decl. ¶¶ 46-49, Exhs. 41-44.)

Two days later, on May 16, 2024, Pacific filed the present action, asserting wrongful foreclosure and related causes of action all based on the same alleged statutory violations as the Prior Action. Pacific also recorded a lis pendens on the Property.

This hearing is on Kwala’s motion to expunge lis pendens. Kwala argues Pacific cannot establish the probable validity of any claim in the Complaint because it lacks standing. Kwala also seeks attorney’s fees and costs in the amount of $35,810. There was no opposition filed as of the posting of this tentative ruling.

Any party¿or a non-party having an interest in the property affected by a notice of lis pendens¿may move for expungement¿any time after the lis pendens is recorded.¿ (Code Civ. Proc., § 405.30.)¿ A lis pendens must be removed for being improper on account of the claimant not being able to establish by a preponderance of the evidence the probable validity of the real property claim.¿ (Code Civ. Proc., §§ 405.31, 405.32;¿Ziello v. Superior Court¿(1995) 36 Cal.App.4th¿321, 331-32; Urez Corp. v. Superior Court¿(1987) 190 Cal.App.3d 1141, 1149.)¿¿¿

When questioning the evidentiary merit of a claim, the claimant who filed the lis pendens bears the burden of proof.¿ (Code Civ. Proc., § 405.30.)¿ Thus, that claimant, in opposing the motion to expunge the lis pendens, must demonstrate the probable validity of the real property claim by a preponderance of the evidence.¿ (Hunting World, Inc. v. Superior Court (1994) 22 Cal.App.4th 67, 70; see also Code Civ. Proc., §405.30, et seq.)¿ Only admissible evidence is permitted on the motion.¿ (Burger v. Superior Court¿(1984) 151 Cal.App.3d 1013, 1019.)¿¿

Code Civ. Proc. § 405.38 provides “[t]he court shall direct that the party prevailing on any motion under this chapter be awarded the reasonable attorney’s fees and costs of making or opposing the motion unless the court finds that the other party acted with substantial justification or that other circumstances make the imposition of attorney’s fees and costs unjust.”¿ (Code Civ. Proc., § 405.38.)¿

REQUEST FOR JUDICIAL NOTICE

Kwala requests judicial notice of recorded instruments, facts that can be adduced from the recorded instruments, and orders, findings of fact and conclusions of law in court records. There is no opposition to the request for judicial notice. The Court grants the request pursuant to Cal. Evid. Code §§ 452(c), 452(d), 452(h), and 453.

Defendants argue that Pacific’s first claim for violation of Cal. Bus. & Prof. Code §§ 10130 and 10131.1 fails because WF Bank is expressly exempt from the licensing requirements of the statute. The Court agrees.

Bus. & Prof. Code § 10130 provides that “It is unlawful for any person to engage in the business of . . . a real estate broker . . . within this state without first obtaining a real estate license from the department . . . ”. Section 10131.1(a) defines real estate broker to include a person “in the business of . . . selling to, or exchanging with the public, . . . promissory notes secured directly or collaterally by liens on real property.” The Complaint alleges Coryln’s loan was sold in violation of those provisions because WF Bank did not have a real estate broker license. (Compl. ¶¶ 16 & 25.a). As a result, the Complaint alleges the assignment should be declared “void” pursuant to Finance Code § 22750(b). (Compl. ¶ 25.a).

Under Bus. & Prof. Code § 10133.1(a)(1), WF Bank is expressly exempt from the licensing requirements of Section 10130. (Bus. & Prof. Code § 10133.1(a) (“Subdivisions (d) and (e) of Section 10131 . . . do not apply to any of the following: (1) Any person or employee thereof doing business under any law of this state . . . relating to banks.”) & § 10006 (“‘Person’ includes corporation, company or firm.”); see also Arzamedi v. Wells Fargo Bank, N.A., (E.D. Cal. March 8, 2018) 2018 WL 1210978, at *4 (“Federal banks are explicitly excluded from the definition of ‘real estate licensee’ . . . .” (citing Section 10133.1(a)(1))).

And if it was not exempt, then the claim would be preempted by federal law, which governs bank’s rights to sell mortgages. (See 12 U.S.C. § 371(a) (“Any national banking association may make, arrange, purchase or sell loans or extensions of credit secured by liens on interests in real estate.”); 12 C.F.R. § 34.4(a) (“A national bank may make real estate loans under 12 U.S.C. § 371 and § 34.3 without regard to state law limitations concerning: (1) Licensing . . . (10) Processing, origination, servicing, sale or purchase of, or investment or participation in, mortgages.”); see also Akopyan v. Wells Fargo Home Mortg., Inc. (2013) 215 Cal. App. 4th 120, 151-158 (state law claims against WF Bank based on violations of Bus. & Prof. Code were preempted by the National Bank Act, 12 U.S.C. § 21 et seq.).)

Moreover, no authority supports that the sale or assignment is “void” because it was made by a non-licensed party in violation of Section 10130. Rather, the consequences for violating Section 10130 simply subject the non-licensed party to fines or citations (Sections 10139 & 10080.9) and bars that party from recovering compensation from the transaction (Section 10136).

While the Complaint alleges the assignment should be declared void under Finance Code § 22750(b), no violation of the Finance Code is alleged based on the assignment, nor could there be since WF Bank is expressly exempt from its provisions pursuant to Finance Code § 22050(a). In relevant part, § 22050(a) states “this division [Finance Code §§ 22000-22780.1] does not apply to any person doing business under¿any law of any state . . . relating to banks.”

Aside from the claim that the assignment is void, the Complaint’s eight causes of action are all based on alleged statutory violations relating to the Note and 1st Deed of Trust. However, as the court in the Prior Action repeatedly ruled, Plaintiff lacks standing to assert those claims because it is not the borrower and never assumed the loan in any writing approved by the lender, as required by both the 1st Deed of Trust and the statute of frauds (Civ. Code §§ 1624(a)(6) & 2922). (RJN Nos. 3-5; Doss Decl. ¶ 5, Exh. A; see also Green v. Cent. Mortg. Co. (N.D. Cal. Sept. 2, 2015) 2015 WL 5157479, at *5 (“[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.”); Anolik v. Bank of Am. Loans (E.D. Cal. Apr. 21, 2011) 2011 WL 1549291, at *1, *3 (property owner lacked standing as he “was not the borrower on the loan and had not assumed the obligations under the loan in writing and with lender’s consent, as required by the Deed of Trust”).) As such, Pacific will not be able to establish the probable validity of any of its claims. (See Green, 2015 WL 5157479, at *4 (“Courts thus have dismissed foreclosure-based claims—like Ms. Green’s negligent misrepresentation, fraud, wrongful foreclosure, UCL, cancellation of deed, and declaratory relief claims—by persons who were not parties to mortgage loans.”).)

Moreover, even if Pacific has standing, its claims must otherwise fail based on “the tender rule.” In a wrongful foreclosure action, the plaintiff must plead and prove that it “tendered the amount of the secured indebtedness or was excused from tendering.” (Chavez v. Indymac Mortg. Servs. (2013) 219 Cal. App. 4th 1052, 1062.) “[T]he rationale behind the tender rule is that if [the borrower] could not have redeemed the property had the sale procedures been proper, any irregularities in the sale did not result in damages to the [borrower].” (Turner v. Seterus, Inc. (2018) 27 Cal. App. 5th 516, 528.) While no tender is required as to a challenge that an assignment is void, the rule applies to challenges based on other alleged irregularities, as here. (See Yvanova v. New Century Morg. Corp. (2016) 62 Cal.4th 919, 929 n.4.)

The Complaint seeks an equitable declaration that the foreclosure sale is void as a result of a number of alleged irregularities beyond the claim that the alleged assignment is void, and as to each of those claims, the tender rule applies. (Compl. ¶ 25.b-f). But the Complaint does not allege that Pacific tendered the total indebtedness or that it was excused from doing so based on a recognized exception to the rule. Pacific never tendered, or offered to tender, any amount to Kwala prior to the sale. (Dicecca Decl. ¶ 50). Thus, even assuming Pacific has standing, its claims otherwise fail based on the tender rule.

The Court next considers Kwala’s request for attorneys’ fees. The award of attorneys’ fees is mandatory when a party prevails on a motion to expunge lis pendens unless the court finds that the other party acted with substantial justification or that other circumstances make the imposition of attorney’s fees and costs unjust.¿ (Code Civ. Proc. § 405.38.) The Court concludes there is no substantial justification for Pacific’s opposition, and indeed, Pacific has manipulated court proceedings to initially forestall foreclosure of the Property and now to set aside the assignment of the Property.

As to the amount of fees expended, the Court starts with the lodestar which is the reasonable hourly rate multiplied by reasonable hours spent. Here, counsel has been practicing for 17 years, and his hourly rate of $650 is comparable to rates of attorneys with similar experience in the prevailing legal market. Counsel has also spent 45 hours in researching the relevant authority, reviewing the filings and rulings from all of the prior lawsuits and bankruptcies involving these parties, preparing and assembling the relevant documents, and drafting this motion, the request for judicial notice, and the corresponding declarations. Further, counsel projected he would spend an additional 10 hours to review the opposition, prepare a reply and prepare for the hearing on the motion. However, there is no opposition filed, and so the Court reduces the number of hours Kwala expects to spend by 8 hours, leaving 2 hours to prepare for and attend the hearing. Court concludes these hours are reasonable given the protracted nature of the litigation between the parties and the extensive record it produced. Kwala has also paid a $60 filing fee for this motion. Accordingly, in total, the Court awards $34,510.