Judge Kerry Bensinger, Case Number: 20STCV44166, Date: 2024-11-05 Tentative Ruling

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This is a bad faith action. Plaintiff Kumchai Miyahara (Miyahara or Plaintiff) alleges Wells Fargo Bank, N.A. (Wells Fargo or Defendant) failed to promptly investigate a fraudulent mortgage assignment and lien associated with a property owned by Miyahara.

Wells Fargo demurred to the operative pleading. Judge Orozco sustained the demurrer without leave to amend. Miyahara appealed. The Court of Appeal in Miyahara v. Wells Fargo Bank, N.A (2024) 99 Cal.App.5th 687 (Miyahara), affirmed the decision in part, and reversed the decision in part. The appellate court remanded the matter with directions.

Following remand, Miyahara’s operative pleading is the Second Amended Complaint.

According to the allegations in the operative complaint,[1] Kumchai Miyahara (Miyahara or Plaintiff) purchased real property located on Hercules Drive in Los Angeles in June 1988. At the time of the purchase, Miyahara “obtained a loan from World Savings Bank, FSB in the amount of $740,000. In March 2006, [Miyahara] obtained a [refinance] loan for the Property from World Savings Bank in the amount of $920,000.”

In 2013 and 2014 Miyahara became estranged from her husband “and he stopped supporting her.” Following the estrangement, “Plaintiff called Wells Fargo to request a loan modification [and] Wells Fargo told [her] to work with the U.S. Department of Housing and Urban Development.” Although Miyahara worked with the Department of Housing and Urban Development (HUD) “and other family members to secure a loan modification, ... her loan modification application was ultimately declined.” According to “[a] letter from HUD ... the property was valued by an outside appraisal at $2.5 million, a loan modification was not in Defendant's interest, and Defendant wanted to foreclose.” Miyahara “pawned all of her personal belongings to pay the outstanding balance of arrears to avoid foreclosure.”

In November 2016 Miyahara “again faced financial hardship and had trouble making her loan payments.” Miyahara again contacted Wells Fargo “to request a loan modification [and] was told by Wells Fargo that they would help her, and to simultaneously explore other options for refinancing. Plaintiff enlisted the services of Fritz Hoffman of South Bay Equity Lending, who was able to secure Plaintiff another loan.”

On April 5, 2017 “during the time that [Miyahara's] refinance was in process, a Notice of Default was recorded by Wells Fargo.” In June 2017 the loan secured by Hoffman went to escrow and “[a]t or around that time, Plaintiff first learned of a $920,000 lien on the property from West H&A LLC.” The assignment of deed of trust purported to assign the deed from Wells Fargo to West H&A LLC. The discovery of the lien “halted ... refinance.”

Upon learning of the lien, Miyahara sought assistance from Wells Fargo to clear title so she could refinance the property. But “conversations with Wells Fargo representatives did not result in any assistance with the lien.” On July 26 Hoffman contacted Wells Fargo on behalf of Miyahara. Wells Fargo informed Hoffman “the assignment should be viewed as invalid” and “there was nothing more they could do.” Although “Wells Fargo understood that the invalid lien ... would interfere with [Miyahara's] ability to refinance her mortgage ... [Wells Fargo] continued with foreclosure proceedings.”

On August 2 Miyahara hired attorney Robert E. Opera “to speak to Wells Fargo on her behalf to resolve the invalid mortgage assignment.” Since the foreclosure sale was set for September 20, however, Miyahara “was forced to hire” a bankruptcy attorney to file a chapter 13 bankruptcy petition on her behalf in order “to stay the foreclosure on the property.” Miyahara filed her bankruptcy petition on September 19.

In June 2018, while her bankruptcy was pending, Wells Fargo's mortgage fraud division contacted Miyahara to inform her a fraudulent lien was found on her account, and she should contact the police. In late 2018 Miyahara's bankruptcy attorney “received a letter from Wells Fargo stating that they were taking West H&A to court.” The bankruptcy attorney later “received a second letter from Wells Fargo, indicating that they won their case against West H&A” making Wells Fargo once again the first lienholder on Miyahara's property.

The following facts were judicially noticed by Judge Orozco. In August 2018 Wells Fargo filed a motion for relief from the automatic bankruptcy stay “so that title can be cleared to the subject property in the name of Ms. Miyahara and that Wells Fargo Bank, N.A. be named first lienholder on the property via Quiet Title, Declaratory Judgment and Cancellation of Instrument action in California state court.” According to the motion for relief, the lien filed by West H&A LLC “has been one of many fraudulent assignments in various locations across the United States as part of a conspiracy and scheme to collect mortgage payments from homeowners and to defraud and confuse lenders such as Wells Fargo Bank N.A.” Miyahara stipulated to the motion and the bankruptcy court granted it, but specifically ordered that “the automatic stay shall remain in effect with respect to any foreclosure proceedings on the subject real property. The relief sought by Wells Fargo does not affect or modify the Chapter 13 Plan.”

The fraudulent lien was removed from the property, but Miyahara was unable to make agreed-upon payments under her bankruptcy plan. “On December 24, 2019, Plaintiff received a letter that her Chapter 13 Bankruptcy Petition had been dismissed.”

“On January 21, 2020 a Notice of Trustee Sale was recorded on the Property.” Although Miyahara sought an extension, Wells Fargo would not extend the trustee sale date. In May 2020 Miyahara applied for another refinance loan but was only eligible for a loan with 9.5 percent interest. As a result of the stress caused by this process, Miyahara “has broken out in hives all over her body.”

Miyahara initiated this action against Wells Fargo on November 17, 2020. On June 24, 2021, Miyahara filed the First Amended Complaint (FAC) against Wells Fargo alleging causes of action for (1) Breach of the Implied Covenant of Good Faith and Fair Dealing; (2) Violation of Cal. Civ. Code § 1788.17; (3) Violation of Business and Professions Code §§ 17200, et seq.; and (4) Violation of Cal. Civ. Code § 2924.17.

Wells Fargo demurred to each cause of action in the FAC on two grounds: (1) judicial estoppel barred Plaintiff’s claims, and (2) the causes of action were insufficiently pleaded. Judge Orozco agreed the doctrine of judicial estoppel applied and sustained the demurrer without leave to amend. The court entered judgment in favor of Wells Fargo on November 29, 2021.

Plaintiff appealed. On April 18, 2024, the Court of Appeal issued a remittitur, affirming in part, and reversing in part, the court’s November 10, 2021, order. Specifically, the Court of Appeal (1) reversed the judgment, (2) affirmed Judge Orozco’s order sustaining the demurrer to each case of action, (3) affirmed the order sustaining as to the fourth cause of action without leave to amend, (4) reversed the order sustaining the demurrer to the first, second, and third causes of action without leave to amend, and (5) remanded the matter with instructions.

On June 17, 2024, Plaintiff filed the operative Second Amended Complaint (SAC) against Wells Fargo for 1) Breach of the Implied Covenant of Good Faith and Fair Dealing; (2) Violation of Cal. Civ. Code § 1788.17; and (3) Violation of Business and Professions Code §§ 17200, et seq.

On August 15, 2024, Defendant filed this Demurrer and Motion to Strike portions of the SAC.

“The primary function of a pleading is to give the other party notice so that it may prepare its¿case [citation], and a defect in a pleading that otherwise properly notifies a party cannot be said to affect substantial rights.” (Harris v. City of Santa Monica (2013) 56 Cal.4th 203, 240.)¿

“A demurrer tests the legal sufficiency of the factual allegations in a complaint.” (Ivanoff v. Bank of America, N.A. (2017) 9 Cal.App.5th 719, 725.) The Court looks to whether “the complaint alleges facts sufficient to state a cause of action or discloses a complete defense.” (Id.) The Court does not “read passages from a complaint in isolation; in reviewing a ruling on a demurrer, we read the complaint ‘as a whole and its parts in their context.’ [Citation.]” (West v. JPMorgan Chase Bank, N.A. (2013) 214 Cal.App.4th 780, 804.) The Court “assume[s] the truth of the properly pleaded factual allegations, facts that reasonably can be inferred from those expressly pleaded and matters of which judicial notice has been taken.” (Harris, supra, 56 Cal.4th at p. 240.) “The court does not, however, assume the truth of contentions, deductions or conclusions of law. [Citation.]” (Durell v. Sharp Healthcare (2010) 183 Cal.App.4th 1350, 1358.)

A demurrer may be brought if insufficient facts are stated to support the cause of action asserted.¿(Code Civ. Proc., § 430.10, subd. (e).)¿“A demurrer for uncertainty is strictly construed, even where a complaint is in some respects uncertain, because ambiguities can be clarified under modern discovery procedures.”¿ (Khoury v. Maly’s of California, Inc. (1993) 14 Cal.App.4th 612, 616.)¿¿¿

Where the complaint contains substantial factual allegations sufficiently apprising defendant of the issues it is being asked to meet, a demurrer for uncertainty will be overruled or plaintiff will be given leave to amend.¿ (Williams v. Beechnut Nutrition Corp. (1986) 185 Cal.App.3d 135, 139, fn. 2.)¿ Leave to amend must be allowed where there is a reasonable possibility of successful amendment.¿ (Goodman v. Kennedy (1976) 18 Cal.3d 335, 348.)¿ The burden is on the complainant to show the Court that a pleading can be amended successfully. (Ibid.)¿¿

Wells Fargo argues the first, second, and third causes of action fail to plead sufficient facts. Wells Fargo raised this argument in its previous demurrer. Judge Orozco did not reach this issue because she sustained on other grounds. On appeal, the Miyahara Court considered the argument and agreed with Wells Fargo that the causes of action were pleaded deficiently. However, the Court of Appeal also agreed Miyahara had made a sufficient showing that an amendment might be able to cure the defects. (See Part C, Miyahara, supra, 99 Cal.App.5th at p. 703 (unpublished portion of opinion).) Accordingly, the Court of Appeal remanded the matter granting Plaintiff leave to amend and provided instructions. The court now addresses the sufficiency of the allegations with due consideration of the Court of Appeal’s instructions.

“Under California law, every contract includes an implied covenant of good faith and fair dealing.” (Prager University v. Google LLC (2022) 85 Cal.App.5th 1022, 1039.) “The covenant is read into contracts and functions ‘ “as a supplement to the express contractual covenants, to prevent a contracting party from engaging in conduct which (while not technically transgressing the express covenants) frustrates the other party's rights to the benefits of the contract.” ’ ... A breach of the implied covenant of good faith is a breach of the contract [citation], and ‘breach of a specific provision of the contract is not ... necessary’ to a claim for breach of the implied covenant of good faith and fair dealing.” (Thrifty Payless, Inc. v. The Americana at Brand, LLC (2013) 218 Cal.App.4th 1230, 1244.)

Plaintiff alleges Wells Fargo breached the implied covenant of good faith and fair dealing “by continuing to foreclose on the Property after learning of the invalid lien, which Wells Fargo understood was preventing Plaintiff from refinancing her mortgage. Wells Fargo knew that the lien on Plaintiff's account was invalid yet refused to take any action to remedy the situation so that Plaintiff could avoid foreclosure. Instead, Wells Fargo forced Plaintiff to file for bankruptcy to stay the foreclosure proceedings, thereby impacting her ability to refinance her mortgage in the future.” (SAC, ¶ 35.)

Wells Fargo argued, and the Court of Appeal agreed, that Miyahara (1) “failed to specify an express contractual right that was allegedly interfered with, belying any breach of implied covenant claim;” and (2) Miyahara failed to allege how she was damaged by any alleged breach. However, the Miyahara Court stated “leave should be given in order to allow Miyahara to allege what clause of the contract was allegedly breached and whether the alleged provision upon which she relies is “ ‘reasonably susceptible’ to the meaning ascribed to it in the complaint,” and to allege what damages if any, Miyahara may have suffered. (Miyahara, supra, at p. 703.)

Upon review of the SAC, the court finds the first cause of action is still deficiently pleaded.

First, Plaintiff did not cite an express contractual right with which Wells Fargo interfered. Plaintiff contends she sufficiently alleged Wells Fargo’s conduct interfered with Plaintiff’s post-breach remedies under the terms of the Deed of Trust, and more specifically, Plaintiff’s right to pay all of the sums secured by the Deed of Trust to avoid foreclosure. (Opp., p. 6:25-28.) These contentions are unavailing. As mentioned above, Plaintiff does not allege any express contractual right with which Wells Fargo interfered. Further, Plaintiff’s inability to refinance her mortgage to avoid foreclsoure was “due to the invalid lien.” (SAC, ¶ 1.) In other words, West H&A, and not Wells Fargo, interfered with Plaintiff’s right to pay all of the sums to avoid foreclosure.

Second, because Plaintiff does not allege the particular contractual right with which Wells Fargo interfered, Plaintiff cannot allege any damages resulting from Wells Fargo’s conduct.

The Rosenthal Act is codified at Civil Code section 1788, et seq. “ ‘The Rosenthal Act was enacted “to prohibit debt collectors from engaging in unfair or deceptive acts or practices in the collection of consumer debts.” ’ ” (Young v. Midland Funding LLC (2023) 91 Cal.App.5th 63, 77.) The Act prohibits specified acts by debt collectors (Civ. Code, §§ 1788.10-1788.16), and requires them to comply with provisions of the federal Fair Debt Collection Practices Act (15 U.S.C. § 1692 et seq.). Miyahara alleges Wells Fargo's foreclosure in 2017 violated the Rosenthal Act.

Wells Fargo argued, and the Court of Appeal agreed, that (1) this cause of action is time-barred, and (2) Miyahara failed to allege facts constituting unfair or unconscionable debt collection attempts by Wells Fargo because it had a contractual right to pursue foreclosure to address the payment default, and Wells Fargo was under no obligation to remedy the third-party fraud. The Court of Appeal directed leave to amend be given to allow Miayhara the opporutnity to allege facts, if any, demonstrating how Wells Fargo engaged in a continuing violation that extended into the limitations period, and to identify what specific provision of the Fair Debt Collections Practice Act (incorporated into the Rosenthal Act) had been violated. (Miyahara, supra, at p. 703.)

Wells Fargo’s demurrer to the second cause of action focuses on the second point. It argues Plaintiff has not alleged what specific provision of the Fair Debt Collections Practice Act was violated. The court agrees. The SAC references generally to violations of 15 U.S.C. § 1692b-k but fails to identify which specific provision was violated. Indeed, Plaintiff does not allege any new facts that describe any “unfair or unconscionabe” debt collection activity by Wells Fargo.

Plaintiff contends the totality of the circumstances made Defendant’s actions an unfair and unconscionable means of attempting to collect the mortgage. Plaintiff refers the court to the allegations at paragraph 43, which states, “In or around July 2017, after learning that Plaintiff was foreclosed from refinancing herloan due to the invalid mortgage assistance on her account, WELLS FARGO continued to foreclose on the Property. WELLS FARGO’s failure to stay the foreclosure proceedings, makeany effort whatsoever to resolve the invalid mortgage assignment, or provide any assistance to Plaintiff, were patently unfair and unconscionable means to collect or attempt to collect on themortgage.” (SAC, ¶ 43, emphasis in original.) The contention is unavailing. This same allegation appeared in the FAC, (see FAC, ¶ 56), yet the Court of Appeal directed Plaintiff to allege the specific provision that had been violated. Plaintiff did not do so.

C. Violation of Business and Professions Code §§ 17200, et seq. (3^rd Cause of Action)

As the Court of Appeal noted, Plaintiff’s third cause of action is derivative of the previous causes of action. The same holds true in the SAC. (SAC, ¶ 56.) Because the court has concluded the preceding causes of action are insufficiently pled, the UCL claim likewise fails.

Plaintiff is ordered to file and serve a Third Amended Complaint within 20 days of the date of this order.

Kerry Bensinger

Judge of the Superior Court

[1] Because the factual allegations as set forth in the Miyahara decision are consistent with the operative pleading, the court draws liberally from the Court of Appeal’s factual background in Miyahara, supra, 99 Cal.App.5th 687.