Judge: Helen Zukin, Case: 22SMCV00096, Date: 2022-10-12 Tentative Ruling
Case Number: 22SMCV00096 Hearing Date: October 12, 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).
Defendants’ demurrer came on for hearing on September 22. At
the hearing, the Court ordered the parties to submit supplemental briefing on
Plaintiff’s first cause of action for quiet title. The parties timely filed
their supplemental briefs on September 30.
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 the general rule that “the
holder of equitable title cannot maintain a quiet title action against the
legal owner.” (Lewis
v. Sup. Ct. (1994) 30 Cal.App.4th 1850, 1866.) Rather,
Plaintiff argues an exception to this general rule exists where legal title has
been acquired by fraud. Plaintiff relies on Warren v. Merrill (2006) 143
Cal.App.4th 96 in support of its argument. Defendants acknowledge Warren
case in their supplemental brief, but argue it is inapposite as that case
involved an alleged fraud committed by an individual who owed a fiduciary duty
to the plaintiff. (Defendants’ Supp. at. 3-4.) Defendants stress the fiduciary
duty owed by defendant in Warren, but the Court is not convinced such a
fiduciary relationship is required to trigger the fraud exception under Warren.
As the Warren Court explained:
On the other hand, Merrill
correctly notes that as a general matter an action to quiet title cannot be maintained
by the owner of equitable title as against the holder of legal title. However, because
of her fraud Merrill through Charmaine acquired only bare legal title which she
held as constructive trustee for Warren, who, based on the equities, held superior
title.
Finally, when legal title
has been acquired through fraud any number of remedies are available and appropriate.
These remedies include quieting title in the defrauded equitable title holder's
name and making the legal title holder the constructive trustee of the property
for the benefit of the defrauded equitable titleholder. “[W]here, as here, the facts
upon which plaintiff's claim is based, are alleged, there is authority to grant
any proper relief [within the strictures of the Code of Civil Procedure]. And appropriate
remedies, such as cancellation, reconveyance, or decrees quieting title, or establishing
or enforcing trusts, or determining the priorities of opposing equities, may be
had, as between proper parties under our system, whenever they are required upon
equitable considerations and are justified by the pleadings and proof in the case.
[Citations.]”
(Id. 113-114.) The Warren
Court thus acknowledged that a showing of fraud on its own was sufficient to
warrant an exception to the general rule that the holder of equitable title
cannot bring an action to quiet title as against the holder of legal title.
Indeed, Warren found the exception applied where the property was
acquired by fraud or where the property was acquired by a breach of fiduciary
duty: “A constructive trust
may be imposed when a party has acquired property to which he is not justly
entitled, if it was obtained by actual fraud, mistake or the like, or by
constructive fraud through the violation of some fiduciary or confidential
relationship.” (Id. at 113.) The Court
thus finds the fraud exception in Warren applies to Plaintiff’s claims
even in the absence of an alleged breach of fiduciary by Defendants.
Defendants argue Plaintiff cannot take
advantage of the fraud exception because the FAC does not assert a cause of
action for fraud. The Court finds this argument unconvincing. As set forth
above, it is undisputed that each of Plaintiff’s causes of action in the FAC
are premised on allegations of fraud by Defendants. Defendants cannot seek to
hold Plaintiff to the heightened pleading requirements to allege fraud on the
one hand, and assert Plaintiff has not alleged fraud in the other. Defendants
provide no authority for their attempt to draw a line between allegations that
legal title to the property was acquired by fraud and a cause of action for
fraud in acquiring legal title to the property. Plaintiff has alleged legal
title was acquired by fraud. The Court finds this is sufficient at the pleading
stage to trigger the fraud exception under Warren.
However, this does not mean the Court is
overruling Defendants’ demurrer to Plaintiff’s cause of action to quiet title.
As set forth above, the Court has found the allegations of fraud which underpin
Plaintiff’s causes of action to be insufficiently pled and has granted
Plaintiff leave to amend to add specific factual allegations necessary to plead
fraud. The same result follows here with respect to Plaintiff’s cause of action
for quiet title. Accordingly, the Court SUSTAINS Defendants’ demurrer to
Plaintiff’s first cause of action for quiet title with leave to amend for the
same reasons set forth above.
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 with leave to amend as to every
cause of action asserted in the First Amended Complaint.