Judge: Michael J. Strickroth, Case: 2022-01285188, Date: 2023-08-14 Tentative Ruling
Demurrer to Complaint
Defendant HomeXpress Mortgage Corp. (erroneously sued as Home Express Mortgage Corp.)’s demurrer to the 3rd cause of action for negligence in the complaint is SUSTAINED WITH 30 DAYS LEAVE TO AMEND.
“To state a cause of action for negligence, a plaintiff must allege (1) the defendant owed the plaintiff a duty of care, (2) the defendant breached that duty, and (3) the breach proximately caused the plaintiff's damages or injuries. [Citation.]” Lueras v. BAC Home Loan Servicing, LP (2013) 221 Cal.App.4th 49, 62.
“‘Duty is not universal; not every defendant owes every plaintiff a duty of care. A duty exists only if “ ‘the plaintiff's interests are entitled to legal protection against the defendant's conduct.’ ” [Citation.] Whether a duty exists is a question of law to be resolved by the court.’ [Citation.] ‘A duty of care may arise through statute’ or by operation of the common law. [Citation.]” Sheen v. Wells Fargo Bank, N.A. (2022) 12 Cal.5th 905, 920 (Sheen).
Generally, a financial institution owes no duty of care to a borrower when the transaction does not exceed the scope of the mere lending of money. Nymark v. Heart Federal Savings & Loan Association. (1991) 231 Cal.App.3d 1089, 1096-1097; Sheen, supra, at 927.
Here, the 3rd cause of action for negligence against Defendant alleges: (1) Defendant had a duty to conduct a reasonably competent and diligent review of Plaintiffs’ loan application as to the property so that Plaintiffs would not be in breach of the purchase agreement; (2) Defendant breached that duty by failing to timely approve their loan application; (3) by acting or failing to act, Defendant actually and proximately caused damage to Plaintiffs. [Complaint, ¶ 32-36]
The allegations are insufficient to allege a duty of care against Defendant. They only allege a generic transaction involving the mere lending of money. Sheen, supra, at 915 [lender does not owe duty of care to borrower to process, review, and respond carefully and completely to borrower's loan modification application]; Wagner v. Benson (1980) 101 Cal.App.3d 27, 35 [bank owed no duty of care to borrower in approving loan; liability to a borrower for negligence in making a loan “arises only when the lender ‘actively participates’ in the financed enterprise ‘beyond the domain of the usual money lender’”].
Plaintiffs argue the court should use the factors from Biakanja v. Irving (1958) 49 Cal.2d 647 to determine whether a duty exists. They cite to a passage in Sheen, which stated the Biakanja factors are “commonly employed to ascertain whether a court should recognize a duty, but are useful and appropriate for that purpose only in situations involving parties that are not in privity with one another.” Sheen, supra, at 922.
In Biakanja, the California Supreme Court set forth factors for courts to “determine whether persons must exercise reasonable care to avoid negligently causing economic loss to others” when they are not in contractual privity with each other. Sheen, Id., at 937. Plaintiffs appear to assert that the general rule does not apply because they did not have a contract with Defendant and, therefore, this court should apply the Biakanja factors.
However, the “[r]ecognition of a duty to manage business affairs so as to prevent purely economic loss to third parties in their financial transactions is the exception, not the rule, in negligence law.” Quelimane Co. v. Stewart Title Guaranty Co. (1998) 19 Cal.4th 26, 58 (Quelimane). The crux of Plaintiffs’ argument is that it was foreseeable that Defendant’s failure to timely process their loan application would damage them. But, “[f]oreseeability of financial injury to third persons alone is not a basis for imposition of liability for negligent conduct.” Ibid.
Furthermore, although Plaintiffs do not allege a contract with Defendant, they allege that they attempted to enter into a standard mortgage transaction with it by applying for a loan. Other than the lack of contract, the situation alleged is essentially the same as the one in Sheen -- a mortgage loan application. Plaintiffs have not demonstrated why a duty of care should exist in a standard mortgage transaction solely due to the lack of a contract. Accordingly, the demurrer to the 3rd cause of action for negligence is SUSTAINED WITH 30 DAYS LEAVE TO AMEND.
Defendant to give notice.
Case Management Conference
Should the parties submit on the tentative, which becomes the order of the court, the Case Management Conference is continued to 03/18/2024 at 8:30 AM in Department C15. Should the parties not submit on the tentative, the parties are required to attend the Case Management Conference, either remotely or in person.