Judge Mark A. Young, Case Number: 23SMCV03468, Date: 2023-10-31 Tentative Ruling

Judge: Mark A. Young, Case: 23SMCV03468, Date: 2023-10-31 Tentative Ruling

Case Number: 23SMCV03468 Hearing Date: October 31, 2023 Dept: M

CASE NAME: La Verne Rambla, LLC, v. Jayco Premium Finance of California Inc.

CASE NO.: 23SMCV03468

MOTION: OSC Re: Preliminary Injunction

HEARING DATE: 10/31/2023

Legal Standard

Under Code of Civil Procedure section 526(a), a preliminary injunction may be issued in the following cases:

1) When it appears by the complaint that the plaintiff is entitled to the relief demanded, and the relief, or any part thereof, consists in restraining the commission or continuance of the act complained of, either for a limited period or perpetually.

2) When it appears by the complaint or affidavits that the commission or continuance of some act during the litigation would produce waste, or great or irreparable injury, to a party to the action.

3) When it appears, during the litigation, that a party to the action is doing, or threatens, or is about to do, or is procuring or suffering to be done, some act in violation of the rights of another party to the action respecting the subject of the action, and tending to render the judgment ineffectual.

4) When pecuniary compensation would not afford adequate relief.

5) Where it would be extremely difficult to ascertain the amount of compensation which would afford adequate relief.

6) Where the restraint is necessary to prevent a multiplicity of judicial proceedings.

7) Where the obligation arises from a trust.

In determining whether to issue a preliminary injunction, the trial court considers two factors: 1) the reasonable probability that the plaintiff will prevail on the merits at trial (CCP §526(a)(1)); and 2) a balancing of the “irreparable harm” that the moving party is likely to sustain if the injunction is denied compared to the harm that the non-moving party is likely to suffer if the court grants a preliminary injunction. (CCP §526(a)(2); 14859 Moorpark Homeowner’s Assn. v. VRT Corp. (1998) 63 Cal.App.4th 1396, 1402.) “A preliminary injunction is an interim remedy designed to maintain the status quo pending a decision on the merits.” (MaJor v. Miraverde Homeowners Assn. (1992) 7 Cal.App.4th 618, 623.) “[A] cause of action must exist before injunctive relief may be granted.” (Id.)

The court’s ruling on a preliminary injunction is not an adjudication of the merits, is not a trial, and does not require a statement of decision. (Cohen v. Board of Supervisors, (1985) 40 Cal.3d 277, 286.) The judge is not required to state her reasons for granting or denying a preliminary injunction; a cursory statement is sufficient. (City of Los Altos v. Barnes, (1992) 3 Cal.App.4th 1193, 1198.) A proposed order must be presented to the judge for signature, with any required undertaking, within one day after the preliminary injunction is granted, or other time ordered by the judge. (CRC 3.1150(f).)

Request for judicial notice

Plaintiff’s evidentiary objection is SUSTAINED as to the declaration of Kathy Cole. Cole does not lay foundation or personal knowledge as to the mailing of the February 28, 2023, demand letter.

Plaintiff’s evidentiary objections are OVERRULED as to the declaration of Janino Hoak, paragraphs 3-7. As an initial matter, the Court agrees that Ms. Hoak’s declaration is vague as to whether she has any independent recollection of the events described in those paragraphs, or if her testimony is based upon a past recorded recollection as set forth in Evidence Code § 1237. If a past recorded recollection, then the written notes, etc. would be the admissible evidence and not Ms. Hoak’s testimony. While the declaration is vague, for the purpose of this hearing, the Court will consider the evidence.

Defendant’s evidentiary objections are SUSTAINED as to the reply declaration of Dominick Sarno.

The requests for judicial notice are GRANTED.

Analysis

Plaintiff requests a preliminary injunction against Defendants, enjoining them from proceeding with the trustee’s sale or from otherwise selling, assigning, conveying, or transferring the Subject Property during the pendency of this suit. Plaintiff demonstrates grounds for injunctive relief regarding the real property dispute at issue in the complaint. In its complaint, Plaintiff alleges a single claim for declaratory relief regarding the cure of an alleged technical default on its mortgage.

On December 16, 2022, Plaintiff borrowed $5,500,000 from Jayco. (Compl., ¶ 8.) The loan documents called for an interest rate of 11.875% which Plaintiff prepaid in its entirety by writing a check for $674,895.84. (Id.) The loan was secured by a Deed of Trust for the Subject Property located at 3229 Rambla Pacifico, Malibu, CA 90265. (¶ 7.) The loan was also personally guaranteed by LVR’s only member, Bernhard Fritsch. (¶ 8.)

On February 9, 2023, the trustee recorded a notice of default against the Subject Property. (Compl., ¶ 9.) Upon learning of the notice, Plaintiff immediately called to inquire why the notice had been recorded. Plaintiff was told that the default was due to a transfer of the property from LVR to Mr. Fritsch on December 22, 2022. (Id.) Plaintiff explained that Fritsch was the sole owner of LVR, and that there had not been a change in beneficial ownership. (Id.) Plaintiff alleges that Jayco’s representative apologized for its mistake and promised to rescind the notice of default. (Id.) According to the complaint, Jayco’s representative never suggested or otherwise implied that the Subject Property needed to be transferred from Fritsch back to LVR, nor did Jayco’s representative state or otherwise imply that LVR would be required to pay default interest to cure any technical default. (Id.) The next day, the notice of default was officially rescinded. (Id., Ex. 1.) Following this, Plaintiff and Fritsch assumed that there were no complications with the loan. (Id.)

However, a second notice of default was recorded against the Subject Property on March 23, 2023. (Compl., ¶ 10, Ex. 2.) LVR discovered the second notice of default in April and immediately reached out to Jayco to inquire what the issue was and was informed that second notice of default was based on the same transfer of title from LVR to Mr. Fritsch in December 2022. (Id.) In May 2023, Defendants informed Plaintiff that Jayco would not provide a reinstatement demand until LVR provided evidence that Fritsch had transferred the Subject Property back to LVR. (¶ 11.) Mr. Frisch immediately complied with the request and asked for a reinstatement demand. (Id.) Jayco did not provide a reinstatement demand until May 24, 2023. (Compl., ¶ 12, Ex. 3.) The reinstatement demand called for $149,722.22 in default interest for the time period of December 22, 2022, to May 31, 2022. (Id.) Thus, Jayco took the position that LVR owed default interest of 18% for the entire time period, despite the fact that Jayco had previously apologized for the original notice of default and had not asked that the Subject Property be transferred back to LVR. (Id.) On or about July 3, 2023, LVR was provided with an unsigned notice of sale indicating that the Subject Property would be sold on August 3, 2023, by the Geraci Firm acting as the Trustee. (Id., ¶13, Ex. 4.) The amount stated in the notice of sale was $5,707,771.15, indicating that Jayco was seeking $207,771.15 for an alleged technical default that was both “waived and cured.” (Id.)

Defendants contend that Plaintiff breached the “Due-on-Sale” clause and that the operative notice of default and subsequent notice of sale gives them the legal right to sell the Subject Property at a trustee’s sale on August 3, 2023, and LVR contends that it did not breach the Due-on-Sale clause, the operative notice of default does not identify a legitimate breach, and the sale of the Subject Property at a trustee’s sale would be improper and illegal. (Compl., ¶ 22.) Plaintiff requests a judicial declaration of the respective rights, duties, and obligations of LVR and Defendants under the parties’ agreements, specifically, LVR requests a Court decree that:

(1) LVR did not breach the Due-on-Sale clause, (2) the operative notice of default is of no legal effect, and (3) any attempts by Defendants to sell the Subject Property are illegal. LVR is informed and believes and, based thereon, alleges that it has no adequate remedy at law, that such decree is necessary and appropriate at this time in order that LVR may ascertain its rights and duties with respect to the matter herein in controversy.

(Compl., ¶ 23.)

Based upon the submitted evidence, Plaintiff may be entitled to a favorable declaration on the second and third grounds provided. Specifically, Plaintiff may be entitled to a declaration that the operative notice of default is of no legal effect and, thus, any attempts by Defendants to sell the Subject Property under the operative notice of default are illegal. Critically, if the operative notice of default is of no legal effect, a resulting foreclosure would be invalid. The statutory requirements for foreclosure must be strictly complied with, and a trustee's sale based on a statutorily deficient notice of default is invalid. (Anderson v. Heart Federal Sav. & Loan Assn. (1989) 208 Cal.App.3d 202, 211.)

Civil Code section 2924c provides the procedures for curing defaults under a deed of trust. This section provides that whenever there is a curable default, reinstatement is accomplished by tendering performance of the entire amount then due under the terms of the deed of trust or mortgage and the obligation secured thereby, including reasonable costs and expenses actually incurred in enforcing the terms of the obligation, deed of trust or mortgage, and trustee's or attorney's fees, but excluding the portion of the principal that would not then be due had no default occurred. (Civ. Code § 2924c(a)(1).) The consequence of such a cure is that “all [foreclosure] proceedings theretofore had or instituted shall be dismissed or discontinued and the obligation and deed of trust . . . shall be reinstated . . ..” (Anderson, supra, 208 Cal.App.3d at 212; see Taniguchi v. Restoration Homes LLC (2019) 43 Cal. App. 5th 478 [a borrower can cure a default and reinstate a mortgage loan by paying the amount of the default, including fees and costs resulting from the default, rather than the entire accelerated balance; the mortgage lender must inform the borrower of the correct amount due to reinstate the loan].) These provisions embody the “good public policy” that homeowners have the right to make up payments in default and avoid calling the entire loan and sale under a trust deed. (Magnus v. Morrison (1949) 93 Cal.App.2d 1.)

Plaintiff presents evidence consistent with the allegations of the complaint. Plaintiff argues that the record demonstrates that the demand for cure incorrectly stated the sum of money owed, and that Defendants’ agent’s actions led to a waiver of their rights. “Waiver is an intentional relinquishment of a known right.” (Gould v. Corinthian Colleges, Inc. (2011) 192 Cal.App.4th 1176, 1179.) A waiver may be implied by a party's conduct that is inconsistent with the right being asserted. (Id. at 1179-80.)

The Court also notes the potential for equitable estoppel. “The doctrine of equitable estoppel is based on the theory that a party who by his declarations or conduct misleads another to his prejudice should be estopped from obtaining the benefits of his misconduct.” (Stillwell v. The Salvation Army (2008) 167 Cal. App. 4th 360, 368.) The four elements for the application of equitable estoppel are that (1) the party to be estopped must be apprised of the facts; (2) he must intend that his conduct shall be acted upon, or must so act that the party asserting the estoppel had a right to believe it was so intended; (3) the other party must be ignorant of the true state of facts; and (4) he must rely upon the conduct to his injury. (Id.)

The record shows that Defendants’ agent(s) made representations to plaintiff’s principal that reasonably led Fritsch to believe that he needed to do nothing further to correct the alleged technical default. After Plaintiff received notice of the first attempt at default on February 9, 2023, Plaintiff immediately called Jayco’s loan servicer. Critically, Jayco’s representative apologized and promised to rescind the notice of default. (Fritsch Decl., ¶ 3.) Consistent with Plaintiff’s version of events, Jayco rescinded the notice of default the next day, on February 10, 2023. (RJN, Ex. 2.) Plaintiff relied on these representations and actions to conclude that nothing further was required of it for curing the purported default at that time.

Yet, on March 30, 2023, Jayco recorded a second notice of default based on the same December 2022 transfer. (RJN, Ex. 3.) Jayco claims to have mailed the demand letter on February 28, 2023. (Mortorella Decl., ¶3.) However, Fritsch claims that he never received the letter and that he was unaware of the problem until the second notice of default was recorded. (Supp. Fritsch Decl., ¶ 3.) Moreover, the Court sustained the objection to Ms. Martorella’s testimony that the demand letter was placed into the mail. When Mr. Fritsch learned about the second notice of default he called Jayco’s servicer again. (Fritsch Decl., ¶5.) Fritsch then had his counsel reach out to Jayco’s counsel, the Geraci Law Firm, to try and resolve the dispute. (Fritsch Decl., ¶6.) On May 4, 2023, the Geraci Firm told LVR’s counsel that Mr. Fritsch needed to transfer the property back to Plaintiff. (See Mortorella Decl., Ex. 2.) Mr. Fritsch immediately complied with the request that same day. (Fritsch Decl., ¶ 6, Ex. 5.)

Defendants do not adequately dispute the material points of this claim. Jayco has submitted the declaration of Dyanna Pelayo who claims that she never talked to Mr. Fritsch. (Pelayo Decl.) Jayco also submits the declaration of Joanina Hoak, who claims that she was the person who talked to Mr. Fritsch, that the conversation took place on February 17, 2023, that she told Mr. Fritsch the transfer was a default, but concedes that she did inform Mr. Fritsch that the foreclosure trustee “would be rescinding” the original notice of default without further elaboration. (Hoak Decl.) On the other hand, Fritsch declared that he talked to someone on February 9, 2023, and Jayco rescinded the Notice of Default the next day. This Fritsch version of events is far more plausible and supported by extrinsic evidence. According to Ms. Hoak, she informed Mr. Fritsch that the trustee “would be rescinding” the original notice of default, yet the rescission notice is dated a week prior: on February 10, 2023. (Hoak Decl., ¶¶5-6, see RJN Ex. 2.) Hoak also does not affirmatively state that she has an independent recollection of the conversation with Mr. Fritsch, as she admits that Ms. Hoak’s testimony is “based upon [her] review” of her files. Mr. Fritsch’s account, however, is based upon his independent recollection. The undisputed evidence also shows that when Defendants eventually asked Fritsch to transfer the property back to Plaintiff, Fritsch immediately complied and transferred the property on the same day he was asked. (Mortorella Decl., Ex. 2; Fritsch Decl., ¶6, Ex. 5.) Given the technical nature of the default, and that it was not a default in payment, the Court sees no reason why Fritsch would not have attempted to cure the default earlier if he were aware of the need to cure.

Based on the above record, Plaintiff is more likely than not to prevail on the judicial declaration claim. The record is sufficient to find that Defendants’ actions led to a waiver of their rights to call up the loan for the transfer. At a minimum, Plaintiff justifiably relied on the representations to its detriment, and as such, Defendants should be estopped from claiming excessive default interest. If not for the above-noted statements, Plaintiff’s principal would have immediately made further efforts to cure the default by transferring the property back to Plaintiff. This would have limited the reasonable costs and expenses actually incurred in enforcing the default. Unfortunately, Defendants now claim hundreds of thousands of dollars in increased default interest, despite the fact they caused the default interest to be incurred after February 9, 2023. Equitably, Defendants cannot claim this amount of default interest, as they caused the default to continue after February 9, 2023. This failure infects Defendants’ second default attempt.

Following a notice of default, a trustor may request a statement from the beneficiary showing the payment required for cure and reinstatement. (Civ. Code § 2943.) In response to an inquiry for reinstatement, Defendants were required to provide, within 21 days, accurate information regarding the sums for reinstatement. (Civ. Code § 2924c(b)(1); Anderson, supra, 208 Cal.App.3d at 212; see Taniguchi, supra, 43 Cal. App. 5th 478.) On May 24, 2023, Jayco informed Plaintiff that in addition to having Fritsch transfer the property, Jayco wanted an additional $168,433.24 to have the loan reinstated. (Cornejo Decl., Ex. 4.) On July 3, 2023, Jayco recorded a Notice of Sale. (RJN, Ex. 4.) The Notice of Sale states that the unpaid balance is $5,707.771.15, which is $207,771.15 more than the principal amount and the prepaid interest. On August 11, 2023, Jayco sent a new payoff demand, this time demanding $5,835,278.52, which is $333,278.20 more than the principal amount and prepaid interest. (Sarno Decl., ¶3, Ex. 1.) However, as explained, Defendants either waived the default or should be equitably estopped from claiming these amounts. Plaintiff should have been afforded the opportunity to tender the amounts due. At a minimum, Defendants should be enjoined from the foreclosure until a proper demand is made by the beneficiary.

Defendants also are unlikely to experience significant harm if the Court issues an injunction. Beyond the technical default at issue, Defendants do not show that Plaintiff has defaulted on any payments. Further, Defendants interest is already pre-paid for the entire term. Defendants are unlikely to be harmed by the issuance of a preliminary injunction.

Given the strict construction of the foreclosure statutes, the evidence of waiver and equitable estoppel, and that the foreclosure threatens irreparable injury to Plaintiff, the Court grants the injunction. The Court also modifies the preliminary injunction to preclude Defendants from listing the property for sale.

Bond

The amount of bond is fixed by the court based on the probable damage the enjoined party may sustain because of the injunction (CCP § 529; Hummell v. Republic Fed. Savings & Loan Assn. (1982) 133 Cal.App.3d 49, 51.) Here, an appropriate bond would be $62,078.58. This is the reasonable amount of damages sustained by Defendants in light of the record, which includes the default interest rate through February 9, 2023, and late/service fees.