Judge: Helen Zukin, Case: 22SMCV00096, Date: 2022-09-22 Tentative Ruling

Case Number: 22SMCV00096    Hearing Date: September 22, 2022    Dept: 207

Background

Plaintiff Awal Investments, LLC, (“Plaintiff”) brings this action against Judith Alessi (“Alessi”), Athas Capital Group, Inc. (“Athas”), Wilmington Savings Fund Society, FSB, not in its individual capacity but solely as trustee for Verus Securitization Trust 2020-NPL1 (“Wilmington”), and California TD Specialists. This is one of several actions currently pending concerning the property located at 9635 Cedarbrook Drive, Beverly Hills, California 90210.

In its operative First Amended Complaint (“FAC”) Plaintiff alleges it acquired the property on January 13, 2021, through a deed in lieu of foreclosure executed by the prior owner, Alessi. Plaintiff claims the owners of the adjacent properties—Grace Carelli, Michael Bernstein, and Marion Bernstein—separately filed actions against Alessi alleging the structures erected on the subject property encroached onto their own. Plaintiff asserts counsel for Carelli and the Bernsteins did not record a notice of pendency of those actions against the property. Plaintiff alleges Carelli and the Bernsteins wanted to obtain a substantial monetary settlement of their respective claims which Alessi could not afford, and Carelli and her attorney advised Alessi to obtain a loan against the property without disclosing either of the lawsuits brought by Carelli and the Bernsteins. Plaintiff argues Alessi did so, and in April 2018 applied for a $100,000 loan from Plaintiff’s predecessor in interest, Lion Solar, LLC (“Lion Solar”) to be secured against the property, claiming she was not a party to any lawsuit. Lion Solar issued the loan to Alessi secured by a deed of trust recorded on May 29, 2018.

Plaintiff further alleges Alessi obtained a second loan, this time from Athas, in the amount of $2,100,000, also secured by deed of trust for the property recorded on July 3, 2018. Alessi had previously obtained a loan from Athas in the amount of $2,015,000, which was secured by a deed of trust recorded on September 1, 2017. On or about June 19, 2018, Lion Solar and Alessi entered into a Subordination Agreement under which Lion Solar agreed to subordinate the 2018 Lion Solar deed of trust to the 2018 Athas deed of trust.

Plaintiff claims Alessi defaulted on the 2018 Lion Solar and Athas loans shortly after they were recorded. Athas recorded a notice of default and election to sell the property in December 2018 and Lion Solar recorded a similar notice in April 2019. Wilmington became the holder of the Athas deed of trust by virtue of an assignment recorded on December 27, 2021. A notice of trustee’s sale pertaining to the Athas notice of default was recorded on January 7, 2022. A trustee’s sale followed on March 9, 2022, and as a result title of the property reverted to Wilmington by credit bid.

Plaintiff alleges the Subordination Agreement was obtained through fraud and is therefore void. Plaintiff argues Plaintiff’s deed of trust should be restored to a senior position. Plaintiff’s FAC asserts six causes of action: (1) quiet title, (2) recission, (3) unfair business practices pursuant to Business & Professions Code § 17200, (4) cancellation of the Subordination Agreement, (5) cancellation of the foreclosure sale under the Athas deed of trust, and (6) wrongful foreclosure. Athas and Wilmington (collectively “Defendants”) bring this demurrer to each of these causes of action, arguing they fail to state sufficient facts to constitute a cause of action against them under Code Civ. Proc. § 430.10(e). Defendants also demur to the first cause of action on the basis of uncertainty under Code Civ. Proc. § 430.10(f).

Request for Judicial Notice

Defendants request the Court take judicial notice of seven documents filed with the Los Angeles County Recorder’s Office as well as the March 1, 2022, order of this Court. Defendants’ request is unopposed. Courts can take judicial notice of the existence of Court records. (Arce ex rel. Arce v. Kaiser Found. Health Plan, Inc. (2010) 181 Cal.App.4th 471, 483; Schmidlin v. City of Palo Alto (2007) 157 Cal.App.4th 728, 790 n.10.) This includes the records of any Court of record in the United States. (Salazar v. Upland Police Dept.¿(2004) 116 Cal.App.4th 934, 946.) However, while Courts may take judicial notice of official acts and public records, they cannot take judicial notice of the truth of the matters stated therein. (In re Joseph H.¿(2015) 237 Cal.App.4th 517, 541.) Accordingly, the Court will take judicial notice of the existence of these documents but does not take judicial notice of the truth of the matters asserted or stated therein.

Demurrer Standard

When considering demurrers, courts read the allegations liberally and in context. (Wilson v. Transit Authority of City of Sacramento (1962) 199 Cal.App.2d 716, 720-21.) In a demurrer proceeding, the defects must be apparent on the face of the pleading or via proper judicial notice. (Donabedian v. Mercury Ins. Co. (2004) 116 Cal.App.4th 968, 994.) “A demurrer tests the pleading alone, and not on the evidence or facts alleged.” (E-Fab, Inc. v. Accountants, Inc. Servs. (2007) 153 Cal.App.4th 1308, 1315.) As such, the court assumes the truth of the complaint’s properly pleaded or implied factual allegations. (Id.) However, it does not accept as true deductions, contentions, or conclusions of law or fact. (Stonehouse Homes LLC v. City of Sierra Madre (2008) 167 Cal.App.4th 531, 538.)

A special demurrer for uncertainty under Section 430.10(f) is disfavored and will only be sustained where the pleading is so unintelligible that a defendant cannot reasonably respond—i.e., cannot reasonably determine what issues must be admitted or denied, or what counts or claims are directed against him/her. (Khoury v. Maly’s of Calif., Inc. (1993) 14 Cal.App.4th 612, 616.) Moreover, even if the pleading is somewhat vague, “ambiguities can be clarified under modern discovery procedures.” (Id.)

Analysis

            1.         Meet and Confer Requirement

The Court finds that Defendant has complied with the meet and confer requirements set forth under Code of Civil Procedure §§ 430.41. (McElroy Decl. at ¶¶ 2-8.)

            2.         Tender

Defendants assert the general rule that to obtain equitable remedies following a trustee’s sale, including quieting title, cancelling instruments, and wrongful foreclosure, a plaintiff must allege tender of the full amount of the debt for which the real property served as security. Defendants argue the FAC does not allege tender and this failure to allege tender is fatal to each of Plaintiff’s causes of action. Plaintiff acknowledges the general rule asserted by Defendants but argues there are several exemptions recognized at law to this general rule which hold, for example, tender is not required where a loan was made in violation of substantive law or where an instrument is alleged to be void as the result of fraud. Defendants argue Plaintiff’s fraud allegations are insufficiently pled. The Court agrees.

Where a plaintiff seeks to obtain equitable remedies of the kind sought in the FAC, and those remedies are based on allegations of fraud, the heightened pleading requirement for fraud claims applies. (See, e.g., Moss Estate Co. v. Adler (1953) 41 Cal.2d 581, 584.) Under these rules, the facts constituting the alleged fraud must be alleged factually and specifically as to every element of fraud, as the policy of “liberal construction” of the pleadings will not ordinarily be invoked. (Lazar v. Superior Court (1996) 12 Cal.4th 631, 645.) To properly allege fraud against a corporation, the plaintiffs must plead the names of the persons allegedly making the false representations, their authority to speak, to whom they spoke, what they said or wrote, and when it was said or written. (Tarmann v. State Farm Mut. Auto. Ins. Co. (1991) 2 Cal.App.4th 153, 157.)

Plaintiff’s causes of action here are premised on two theories of fraud. The first alleges Alessi, Carelli, and Carelli’s attorney fraudulently misrepresented Alessi was not a party to any pending lawsuit and concealed the actions filed by Carelli and the Bernsteins to quiet title. Plaintiff separately seeks to attack the validity of the 2018 Athas loan, arguing Athas and Alessi misrepresented the purpose of the loan and the location of Alessi’s residence to issue a loan which violates the Federal Truth in Lending Act. Plaintiff argues Alessi and Athas intentionally concealed the improper nature of the 2018 Athas loan from Lion Solar and Plaintiff.

The Court finds Plaintiff’s first theory of fraud, by Alessi and Carelli (FAC at ¶¶ 15-25), are sufficiently pled. The FAC alleges Carelli and her attorney orchestrated a scheme with Alessi by which Alessi would obtain a loan to pay off Carelli without disclosing the pending litigation to the potential lenders. The FAC further contends Plaintiff was induced to enter into the loan agreement with Alessi by virtue of her misrepresentation regarding her involvement in pending litigation and the concealment of the pending quiet title actions by Carelli and her attorney. The Court finds these allegations are sufficient “to allow defendant to understand fully the nature of the charge made” with respect to this theory of fraud. (Roberts v. Ball, Hunt, Hart, Brown & Baerwitz (1976) 57 Cal.App.3d 104, 109.)

However, the same is not true as to Plaintiff’s second theory of fraud concerning Alessi and Athas. Plaintiff’s allegations of fraud relating to Athas (FAC at ¶¶30-32, 36) are pled in conclusory fashion and attribute knowledge and actions to Athas without providing any such factual basis for such claims. As set forth above, a plaintiff alleging fraud by a corporation must identify the persons who made the representations, their authority, and what they said or did and when. No such specificity has been provided with respect to the allegations of fraud concerning the 2018 Athas loan. Furthermore, Plaintiff attributes fraud generally to several defendants without providing specific allegations showing the involvement of each of them. For example, paragraph 79 suggests Wilmington and others engaged in fraudulent concealment relating to the 2018 Athas loan but sets forth no specific allegations showing the who, what, where, when, or why of Wilmington’s supposed involvement. (See also FAC at ¶¶ 82, 87.)

Plaintiff does not dispute these fraud claims form the basis of the six causes of action asserted against Defendants in the FAC. As the Court has determined Plaintiff’s allegations of fraud are insufficiently pled, it will SUSTAIN Defendants’ demurrer to each cause of action.

            3.         Quiet Title

Defendants argue Plaintiff cannot assert a cause of action for quiet title because it no longer possesses title to the property. Plaintiff does not dispute this requirement, but argues it holds equitable title to the property by virtue of its claims. As shown by Defendants, courts have rejected such attempts to create standing to quiet title. (Pac. States Sav. & Loan Co. v. Warden (1941) 18 Cal.2d 757, 759; De Leonis v. Hammel (1905) 1 Cal.App. 390, 394.) As Plaintiff does not have a recognized legal interest in the property sufficient to confer Plaintiff with standing to assert a cause of action for quiet title, the Court SUSTAINS Defendants’ demurrer to this cause of action for failure to state a claim under Code Civ. Proc. § 430.10(e). As Plaintiff does not argue it can cure this defect through further amendment, and the Court cannot discern of a way for Plaintiff to do so without violating the sham pleading rule, the Court SUSTAINS Defendant’s demurrer without leave to amend. Defendants’ demurrer to the first cause of action on the basis of uncertainty is OVERRULED as Defendants have not shown the first cause of action is unintelligible or ambiguous.

            4.         Rescission, Unfair Competition, Cancellation, and Wrongful Foreclosure

Defendants’ demurrer to the remaining causes of action are premised primarily on the insufficiency of the fraud allegations which underpin them. The Court addressed this argument above in and found Plaintiff’s allegations of fraud concerning the 2018 Athas loan to be insufficiently pled and SUSTAINED Defendants’ demurrer to each cause of action on this basis. Plaintiff has requested leave to amend these fraud allegations and the Court will grant this request and allow Plaintiff to attempt to support its fraud allegations with factual assertions.

As to the ancillary arguments raised by Defendants, the Court finds Plaintiff has sufficiently alleged standing to bring its claim for unfair competition under Business & Professions Code § 17200. As to Defendants’ argument that Plaintiff lacks standing to assert both causes of action for cancellation because Plaintiff does not have an ownership interest in the property, the Court finds this was raised for the first time in Defendants’ reply and is thus not properly before the Court at this time as Plaintiff was not given opportunity to address this point in its opposition. (Maleti v. Wickers (2022) 82 Cal.App.5th 181, 227-228.)

With regard to Athas’ argument that Plaintiff cannot assert a cause of action for wrongful foreclosure against it because Athas was not the trustee or mortgagee at the time of the foreclosure sale, the Court agrees with Athas’ general statement of the law. However, from a review of the FAC it appears Plaintiff seeks to hold Athas liable for wrongful foreclosure on a theory of conspiracy. If this is true, Plaintiff must plead factual allegations establishing the elements of a civil conspiracy: “(1) the formation of a group of two or more persons who agreed to a common plan or design to commit a tortious act; (2) a wrongful act committed pursuant to the agreement; and (3) resulting damages.” (City of Industry v. City of Fillmore (2011) 198 Cal.App.4th 191, 211-212.) The FAC does not assert factual allegations establishing a conspiracy by which Athas can be held liable for a wrongful foreclosure committed by a separate party. This serves as a separate and independent basis for the Court to SUSTAIN Athas’ demurrer to the sixth cause of action for wrongful foreclosure. As with Plaintiff’s allegations of fraud, Plaintiff will have leave to amend to sufficiently allege a basis upon which Athas can be held liable for wrongful foreclosure.

Defendants argue Plaintiff’s cause of action for rescission must fail because Athas “would not have issued the Loan to Alessi unless the Athas DOT was a first-position lien with priority over the Lion Solar DOT.” (Demurrer at 8.) However, such an argument is beyond the four corners of the FAC or any matter which may be judicially noticed by the Court. (In re Joseph H., supra, 237 Cal.App.4th at 541 [the Court cannot take judicial notice of the truth of the matters stated in official or public records].) As set forth above, the Court cannot take judicial notice of the truth of the matters asserted in the Subordination Agreement, and thus cannot assume it is true that Athas would not have issued the loan to Alessi without the Subordination Agreement for the purpose of ruling on Defendants’ demurrer.

Conclusion

Defendants’ demurrer is SUSTAINED without leave to amend as to the first cause of action for quiet title and SUSTAINED with leave to amend as to the remaining causes of action.