Judge: Mark A. Young, Case: 23SMCV00841, Date: 2023-08-23 Tentative Ruling
Case Number: 23SMCV00841 Hearing Date: August 23, 2023 Dept: M
CASE NAME: Jalalian, v. DP007
16th Street LLC, et al.
CASE NO.: 23SMCV00841
MOTION: Demurrer
to the Complaint and Motion to Strike
HEARING DATE: 8/23/2023
Legal
Standard
A
demurrer for sufficiency tests whether the complaint states a cause of action.
(Hahn v. Mirda (2007)
147 Cal.App.4th 740, 747.) When considering demurrers, courts read the
allegations liberally and in context. 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 pleadings alone and not
the evidence or other extrinsic matters. Therefore, it lies only where the
defects appear on the face of the pleading or are judicially noticed. (CCP §§
430.30, 430.70.) At the pleading stage, a plaintiff need only allege ultimate
facts sufficient to apprise the defendant of the factual basis for the claim
against him. (Semole v. Sansoucie
(1972) 28 Cal. App. 3d 714, 721.) A “demurrer does not, however, admit
contentions, deductions or conclusions of fact or law alleged in the pleading,
or the construction of instruments pleaded, or facts impossible in law.” (S. Shore Land Co. v. Petersen (1964)
226 Cal.App.2d 725, 732, internal citations omitted.)
A
special demurrer for uncertainty is disfavored and will only be sustained where
the pleading is so bad that 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. (CCP § 430.10(f); 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.” (Ibid.)
Any party, within the time allowed
to respond to a pleading may serve and file a notice of motion to strike the
whole or any part thereof. (CCP § 435(b)(1); Cal. Rules of Court, Rule
3.1322(b).) The court may, upon a motion or at any time in its discretion and
upon terms it deems proper: (1) strike out any irrelevant, false, or improper
matter inserted in any pleading; or (2) strike out all or any part of any
pleading not drawn or filed in conformity with the laws of California, a court
rule, or an order of the court. (CCP §§ 436(a)-(b); Stafford v. Shultz (1954) 42 Cal.2d 767, 782 [“Matter in a
pleading which is not essential to the claim is surplusage; probative facts are
surplusage and may be stricken out or disregarded”].)
“Liberality in permitting amendment
is the rule, if a fair opportunity to correct any defect has not been given.” (Angie
M. v. Superior Court (1995) 37 Cal.App.4th 1217, 1227.) It is an abuse of
discretion for the court to deny leave to amend where there is any reasonable
possibility that plaintiff can state a good cause of action. (Goodman v.
Kennedy (1976) 18 Cal.3d 335, 349.) The burden is on plaintiff to
show in what manner plaintiff can amend the complaint,
and how that amendment will change the legal effect of the
pleading. (Id.)
Analysis
Request
for Judicial Notice
Defendants’
requests for judicial notice are GRANTED.
Plaintiff’s
request for judicial notice is GRANTED.
Discussion
Defendants Beacon Default Management,
Inc., Mountain West Debt Fund LP, Mountain West REIT, LLC and MWDF 830
Santa Monica, LLC demur to the First Amended Complaint (FAC) and, as to
Mountain West, move to strike the request for punitive damages.
Rescinded
Foreclosure
Defendants demur to each cause of
action on the grounds that the original foreclosure was invalid, fatally
defective, void, and properly rescinded. Plaintiff’s claims based on the rescinded
foreclosure process would therefore fail, including the quiet title,
declaratory relief and bid-rigging causes of action.
The elements of an action to quiet title include: (1) description
of the property; (2) Plaintiff’s title or interest and the basis of title; (3)
defendant’s asserting adverse claim or antagonistic property interest; (4) date
as of which the determination is sought; and (4) prayer for determination of
title. (CCP §761.020; see Lucas v. Sweet (1956) 47 Cal.2d 20, 22
[sufficient to plead that plaintiff is the owner of described property,
defendant wrongfully claims interest, unless complaint reveals a defect in
title]; Dreher v. Rohrmoser¿(1955) 134 Cal.App.2d 196, 198 [complainants can
specifically plead the invalidity of defendants’ legal title and courts may
enter such judgment as the equities require].) A complaint to quiet title must
be verified. (Lewis v. Superior Court (1994) 30 Cal.App.4th 1850, 1866.)
In
the first two causes of action, the FAC seeks to quiet title against Defendants
on the grounds that Plaintiff was the prevailing bidder at a non-judicial foreclosure
auction. Defendant Beacon was the trustee under the deed of trust (DOT) at the
time of the nonjudicial foreclosure that is the subject of this case. (FAC ¶
9.) At the time of the recording of the Notice of Trustee’s Sale that preceded
the foreclosure sale, the beneficiary of the DOT was Defendant Mountain West
REIT, LLC. At the time of the foreclosure sale, Defendant MWDF 830 Santa
Monica, LLC was the beneficiary under the DOT and held itself out as the owner
of the Subject Property by way of a Trustee’s Deed Upon Sale recorded on
February 7, 2023. (FAC ¶ 11.) The Trustee’s Deed Upon Sale was since
purportedly rescinded. (Id.)
On
September 28, 2022, Beacon and Mountain West REIT recorded a Notice of Default
concerning the DOT with the County of Los Angeles, as Document Number
20220943201. (FAC, ¶ 21.) On December 28, 2022, a Notice of Trustee’s Sale
under the DOT was executed by Beacon on behalf of Mountain West REIT concerning
the Subject Property, which was thereafter recorded in the County of Los
Angeles on December 29, 2022, as Document Number 20221204981. (FAC, ¶ 22.) The
foreclosure sale was held on January 31, 2023, by STOX Posting and Publishing,
LLC (“STOX”), serving as auctioneer agent for Defendants Beacon, Mountain West
REIT, and 830 Santa Monica. (FAC, ¶ 23.) On January 31, 2023, no bids were
received. (FAC ¶ 24.) Ownership of the Subject Property reverted “Back to
Beneficiary” for a bid of “$100,000.00.” (FAC ¶¶ 25-26.)
On
February 7, 2023, without allowing for the statutory periods to expire, Beacon
executed a Trustee’s Deed Upon Sale, and caused it to be recorded in the County
of Los Angeles, on February 7, 2023, as Document Number 20210377262, wherein
ownership of the Subject Property was purportedly granted to Defendant 830
Santa Monica. (FAC ¶ 27.) Within the 15-day time period set forth in Civil Code
section 2924m(a)(1) and (c)(2), Plaintiff delivered to Beacon her intent to bid
via Federal Express, US Post Delivery Confirmation, and electronic mail. (FAC ¶
29.) On advice of counsel, Beacon explained to Plaintiff that the Trustee’s
Deed Upon Sale was rescinded pursuant to Civil Code section 1058.5(b) because
they failed to comply with Civil Code sections 2923.3 and 2924f(b)(8)(A). (FAC
¶¶30-32.) Notably, this forms the basis of Defendants’ property interest. (FAC
¶ 43.)
Plaintiff
specifically pleads that the basis for the rescission, an alleged failure to
comply with Civil Code sections 2923.3 and 2924f(b)(8)(A), is “insufficient” to
rescind the sale as a matter of law. (FAC ¶ 44.) She alleges that she perfected
her title interest when she submitted a bid on March 17, 2023. (FAC ¶ 39.) Beacon
received from Plaintiff cashier’s checks aggregating $1,020,000.00. (FAC ¶¶ 33,
39.) Due to this bid, and the failure to properly rescind, Beacon is now
wrongfully withholding the Trustee’s Deed Upon Sale from Plaintiff and has no
basis to rescind. (FAC ¶ 34.) Plaintiff further claims that Beacon’s reasons
for rescission are pretext to set aside the sale due to their negligence in
opening the bid for the Property at $100,000.00. (FAC ¶37.)
As alleged, Defendants point to Civil
Code section 2933.3(a), which provides delivery requirements for notices of
default on certain types of real property:
With respect to residential real property containing
no more than four dwelling units, a mortgagee, trustee, beneficiary, or
authorized agent shall provide to the mortgagor or trustor a copy of the
recorded notice of default with an attached separate summary document of the
notice of default in English and the languages described in Section 1632, as
set forth in subdivision (c), and a copy of the recorded notice of sale with an
attached separate summary document of the information required to be contained
in the notice of sale in English and the languages described in Section 1632,
as set forth in subdivision (d)…
Failure
to provide these summaries to the mortgagor or trustor shall have the same
effect as if the notice of default or notice of sale were incomplete or not
provided. (Civ. Code § 2933.3(e).) Defendants
point out that the recorded instruments (including the Notice of Default
and the Notice of Sale) do not contain the required multi-language summaries.
(COE 7 (Notice of Default); RJN 7; COE 8 (Notice of Sale); RJN 8.) Code of Civil
Procedure section 1058.5 permits a trustee who has made a material error in a
foreclosure sale to unwind the sale.
Plaintiff
argues that Section 2923.3 does not apply to this mortgage because it only
applies to foreclosures on “residential real property containing no more
than four dwelling units.” (Civ. Code § 2923.3.) Plaintiff
contends that none of the units were “dwellings” because they were unoccupied
and without utilities. “At the time the Subject Property was acquired by 16th
Street LLC, the Property was unoccupied. Since 16th Street LLC obtained
ownership of the Subject Property, at no time was the Subject Property used as
a home, residence, or sleeping place of any person, nor did any number of
people maintain a common household therein. The Subject Property has not had
active utility services for electric, gas, or water in over four years. The
Property does not meet current building codes in the City of Santa Monica to be
inhabited.” (FAC ¶ 8.) Lastly, Plaintiff alleges that the Subject Property
would be “inhabitable” within 60 days of the trustee’s deed upon sale being
recorded. (FAC ¶ 8.) However, these facts would not establish
that the Property was not subject to section 2923.3.
The FAC
alleges that the Subject Property contained residential property from
one to four units of a size of approximately 2,191 square feet each. (FAC ¶
17.) The Subject Property is zoned as SMR2, which “is intended to provide areas
for a variety of lowdensity housing types. These include single-unit housing,
duplexes and triplexes, lowscale multi-unit housing, townhouses, and courtyard
housing…” (FAC ¶ 18.) Presently, the Subject Property contains/contained a two-unit
residential structure, unoccupied, and undergoing remodeling. (FAC ¶ 19,
emphasis added.)
Plaintiff relies on the definition
of dwelling unit provided in Civil Code section 1940, which states that a “Dwelling
unit” means “a structure or the part of a structure that is used as a home, residence,
or sleeping place by one person who maintains a household or by two or more
persons who maintain a common household.” (Civ. Code § 1940(c), emphasis added;
see also Civ. Code §1954.51 [“‘Residential real property’ includes any dwelling
or unit that is intended for human habitation.”].) Even using this definition,
the FAC evidences that the Subject Property’s units were residential units, and
thus dwelling units. To wit, the FAC alleges that the property units were “residential”
and less than four units. The statutes do not require that the dwelling unit
actually be vacant or owner-occupied. Accordingly, any omission of the notices required
by section 2923.3 would render the subject sale defective, void, and
rescindable. (Civil Code §2923.3(e).)
Beacon allegedly invoked the
statutory process for rescinding the foreclosure sale by recording a Notice of
Rescission of Trustee’s Deed Upon Sale (“Notice of Rescission”) pursuant to
California Civil Code Section 1058.5(b), in the Official Records of Los Angeles
County, as Document No. 20230119633 on February 24, 2023. This notice provides
that “the foreclosure sale which was conducted without completion of the
statutory notice requirements for one to four-unit residential property, a
condition which would have warranted a cancellation of the foreclosure which
did occur on 1/31/2023[.]” (COE, Ex. 11.)
Plaintiff has the burden of pleading
that she is entitled to the Subject Property’s title. Since the facts and
judicially noticeable documents demonstrate that Defendants rescinded their
sale prior to her bid, Plaintiff needs to allege facts that show the rescission
itself was invalid. Without further allegations of fact pertaining to Defendants’
notices, Plaintiff’s contention that the rescission was invalid is a legal
conclusion without any factual support. (FAC ¶ 31.) Indeed, Plaintiff alleges
that the Notice of Recission was invalid because the alleged failure to comply
with Civil Code sections 2923.3 is insufficient to rescind the sale. (FAC ¶
44.) However, as discussed above, it is sufficient to rescind the sale. Even
read liberally, the FAC does not reveal facts which show that the rescission
was invalid. Plaintiff does not otherwise proffer any facts which would show
that the rescission was invalid. For example, Plaintiff could plead that
Defendants, in fact, complied with Civil Code sections 2923.3. However,
Plaintiff did not and does not offer to allege such facts.
Accordingly, Defendants’ demurrers are
SUSTAINED. Leave to amend will only be granted if Plaintiff proffers facts
showing that the pled rescission was invalid.
Third Cause of Action
for Bid-Rigging
Defendants also argue that the
third cause of action pursuant to section 2924h(g) fails to allege any of its
required elements.
As with the first and second causes
of action, the third cause of action is also based on Civil Code section 2924m
and would fail for the same reasons discussed above. Moreover, there does not
appear to be any separately enforceable private right of action under either
section 2924m or 2924h(g). As noted by the FAC, the only remedies provided by
section 2924h are criminal in nature. The statute provides:
(g) It shall be unlawful for any person,
acting alone or in concert with others, (1) to offer to accept or accept from
another, any consideration of any type not to bid, or (2) to fix or restrain bidding
in any manner, at a sale of property conducted pursuant to a power of sale in a
deed of trust or mortgage. However, it shall not be unlawful for any person,
including a trustee, to state that a property subject to a recorded notice of
default or subject to a sale conducted pursuant to this chapter is being sold
in an “as-is” condition.
In addition to any other remedies, any person
committing any act declared unlawful by this subdivision or any act which would
operate as a fraud or deceit upon any beneficiary, trustor, or junior lienor
shall, upon conviction, be fined not more than ten thousand dollars
($10,000) or imprisoned in the county jail for not more than one year, or be
punished by both that fine and imprisonment.
(Civ. Code §
2924h(g), emphasis added.)
Plaintiff does not provide any authority showing that section 2924h is
independently actionable, or that any private right of action exists under Civil
Code section 2924m.
Accordingly, Defendants’ demurrers are SUSTAINED without leave to amend.
Defendant Mountain West’s motion to strike is MOOT.