Judge Kerry Bensinger, Case Number: 22STCV32548, Date: 2024-07-25 Tentative Ruling

MOVING PARTY: Defendants PLM Lender Services, Inc., and Secured Income Fund-II, LLC

On October 4, 2022, Plaintiff, Bay Area Development Co., filed this action against Defendants Secured Income Fund-11, LLC (“Secured Income”); PLM Lender Services, Inc. (“PLM Lender”); Mo Taxon; and Fedora Taxon. Plaintiff later filed a First Amended Complaint (FAC) which alleged causes of action for (1) Intentional Interference with Contract, (2) Breach of Implied Covenant of Good Faith and Fair Dealing, (3) Declaratory Relief, (4) Unjust Enrichment, (5) Breach of Implied Terms of Written Forbearance, (6) Breach of Implied Covenant of Good Faith and Fair Dealing, (7) Interference with Contract, and (8) Declaratory Relief. The Fifth, Sixth, Seventh, and Eighth Causes of Action are asserted against Secured Income and PLM Lender only.

On October 27, 2023, PLM Lender and Secured Income (collectively, “Defendants”) filed a demurrer to the FAC. On March 14, 2024, the court sustained Defendants’ demurrer with leave to amend.

On April 8, 2024, Plaintiff filed the Second Amended Complaint (SAC). The SAC asserts the same causes of action as the FAC, and alleges as follows:

Plaintiff obtained a loan in the amount of $725,000 from Secured Income, the repayment of which was secured by a Deed of Trust recorded against the real property located at 419 North Highland Ave., Los Angeles, CA. Within two years, Plaintiff defaulted on its obligations owing on the loan. In August 2021, Plaintiff, Secured Income, through its agent, PLM Lender, entered into a forbearance agreement whereby the latter agreed to refrain from foreclosing for a period of ninety (90) days. On July 13, 2022, the parties entered into another forbearance agreement providing for the foreclosure to remain on hold until at least August 1, 2022.

Later in July 2022, Plaintiff entered into a written agreement with a third-party buyer of the Property, which would have resulted in the balance owing on the Loan being paid in full. In order to buy time for the sale to close before the foreclosure sale, Plaintiff negotiated a further postponement on the foreclosure sale by offering to immediately pay down the balance due by $100,000. PLM Lender accepted the agreement. Pursuant to the agreement, the parties executed a new (third) forbearance agreement which provided in relevant part that (1) PLM Lender must be in receipt of the (third) signed forbearance agreement before August 2, 2022; and (2) PLM must be in receipt of the sum of $100,475 on or before August 2, 2022. Satisfaction of both terms would trigger a postponement of the foreclosure sale. However, Plaintiff did not return the signed forbearance agreement nor tender the payment before the forbearance deadline. On August 4, 2022, Secured Income and PLM Lender proceeded with the foreclosure sale and sold the subject property for half its value. Plaintiff alleges the failure to tender the $100k payment was due to Secured Income and PLM Lender proceeding to foreclosure before Plaintiff could convince the buyer/escrow to release $100,000 to Plaintiff. As a result, Plaintiff lost equity of approximately one million dollars.

A demurrer tests the legal sufficiency of the pleadings and will be sustained only where the pleading is defective on its face.¿ (City of Atascadero v. Merrill Lynch, Pierce, Fenner & Smith, Inc. (1998) 68 Cal.App.4th 445, 459.)¿ “We treat the demurrer as admitting all material facts properly pleaded but not contentions, deductions or conclusions of fact or law.¿ We accept the factual allegations of the complaint as true and also consider matters which may be judicially noticed.¿ [Citation.]”¿ (Mitchell v. California Department of Public Health (2016) 1 Cal.App.5th 1000, 1007; Del E. Webb Corp. v. Structural Materials Co. (1981) 123 Cal.App.3d 593, 604 [“the facts alleged in the pleading are deemed to be true, however improbable they may be”].)¿ Allegations are to be liberally construed.¿ (Code Civ. Proc., § 452.)¿ In construing the allegations, the court is to give effect to specific factual allegations that may modify or limit inconsistent general or conclusory allegations.¿ (Financial Corporation of America v. Wilburn (1987) 189 Cal.App.3rd 764, 769.)¿¿

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.)¿¿

Defense counsel has complied with the meet and confer requirement.¿ (See Declaration of Demurring or Moving Party Regarding Meet and Confer, 4/29/24.)

The SAC alleges the Fifth, Sixth, Seventh, and Eighth Causes of Action against Defendants only. Defendants base their demurrer to the SAC on the same grounds raised against the FAC: the allegations asserted against them are uncertain. The court agrees. In sustaining the demurrer to the FAC, the court stated:

“The gravamen of Plaintiff’s claims against Defendants is that Defendants frustrated the third-party sale of the subject property by proceeding with the foreclosure sale before Plaintiff could secure $100,000 from the third-party sale so that Defendants could provide the money to satisfy the forbearance agreement. As alleged, return of a signed forbearance agreement and payment of the $100,000 by August 2, 2022 was required to postpone the foreclosure sale long enough to permit the pending third-party sale of the subject property. (FAC, ¶ 49.) Plaintiff did not return a signed forbearance agreement by August 2, 2022. (FAC, ¶ 51.) Plaintiff did not tender the $100,000 payment by August 2, 2022. (Id.) Plaintiff did not satisfy the terms of the agreement. Under these allegations, any defendant would be hard-pressed to understand what allegations they are called to answer. Plaintiff does not explain how Defendants frustrated the satisfaction of the forbearance agreement if Plaintiff intended to obtain the $100,000 from escrow but the house was to close after the expiration of the forbearance agreement. Hence, the uncertainty.”

In an effort to address this uncertainty, Plaintiff adds only one new allegation, Paragraph 54, in the SAC. Paragraph 54 does not clarify Plaintiff’s claims against Defendants. Paragraph 54 states, in full:

Plaintiff's prior attorney, Jeffrey A. Slott, described Plaintiff's position in "Opposition of Plaintiff to Defendants' [Taxon] Motion to Expunge Lis Pendens" filed January 24, 2023 at page 5,

"Plaintiff and the Lender, Secured Income Fund-I 1, LLC and its loan servicing agent PLM Lender Services, Inc. had a long standing relationship for many years, much of which was contentious. Nevertheless, during the many years of the lending relationship they developed a course of dealing which included great flexibility when it came to meeting payment deadlines. On several occasions prior to the foreclosure in August, 2022 the lender would accept payments made a day or two late. There were communications between Plaintiff's counsel and the lender the day before the foreclosure and Plaintiff's counsel had every reason to believe that since money was being released to the Lender directly from the purchase escrow, the Lender would have no problem receiving it on August 3 or 4, 2022.

The Lender had agreed to extend the foreclosure date in exchange for payment of approximately $100,000 as a loan forbearance fee for 30 days, and although the agreement required payment of the fee by August 2, 2022 the Lender never notified Plaintiff again that it was proceeding with the foreclosure based on any claim that the agreement had not been complied with. Plaintiff will generate admissible evidence to support the above through discovery."

In other words, Plaintiff alleges time was not of the essence because of the parties’ course of dealing, notwithstanding the requirements that Plaintiff return a signed forbearance agreement and payment of $100,000 by a date and time certain. In support, Plaintiff cites Leiter v. Eltinge (1966) 246 Cal.App.2d 306 (Leiter) and Magic Carpet Ride LLC v. Rugger Investment Group LLC 2019) 41 Cal.App.5th 357 (Magic Carpet Ride) in its opposition. However, Leiter and Magic Carpet Ride are legally and factually inapposite. For instance, Plaintiff relies on Leiter and Magic Carpet Ride for the proposition that “performance at a time later than that specified in the contract is ‘substantial performance.’” (See Opposition, p. 2.) But there are no allegations in the SAC showing that Plaintiff performed at a time later than specified in the forbearance agreement. This silence cannot be construed as anything close to substantial performance.

Further, as the court noted in sustaining Defendants’ demurrer to the FAC, Plaintiff did not comply with the terms of the forbearance agreement. The court repeats that observation here. Plaintiff does not plead anything new to avoid demurrer.

Ultimately, the SAC remains uncertain. Plaintiff fails to adequately address or explain how the sale was going to allow Plaintiff to pay the $100,000 forbearance, which was due prior to the close of the sale. The lack of any explanation ends the inquiry.

Defendants PLM Lender’s and Secured Income’s demurrer to the Second Amended Complaint is SUSTAINED. Leave to amend is DENIED.

Kerry Bensinger

Judge of the Superior Court