Judge Michael P. Linfield, Case 22STCV29109 2023-05-05 Tentative Ruling

Judge: Michael P. Linfield, Case: 22STCV29109, Date: 2023-05-05 Tentative Ruling

Case Number: 22STCV29109 Hearing Date: May 5, 2023 Dept: 34

SUBJECT: Demurrer to Plaintiff’s First Amended Complaint

Moving Party: Defendants Newrez, LLC and The Bank of New York Mellon

Resp. Party: Plaintiff Haverstock Bly, LLC

SUBJECT: Motion for Leave to File a Second Amended Complaint

Moving Party: Plaintiff Haverstock Bly, LLC

Resp. Party: Defendants Newrez, LLC and The Bank of New York Mellon

Defendants’ Demurrer is OVERRULED.

Plaintiff’s Motion for Leave to File a Second Amended Complaint is GRANTED.

BACKGROUND:

On September 7, 2022, Plaintiff Haverstock BLY, LLC filed its Complaint against Newrez LLC, The Bank of New York Mellon, and ZBS Law, LLP on causes of action arising from issues with real property.

On December 8, 2022, Plaintiff filed its First Amended Complaint.

On March 27, 2023, Defendants Newrez LLC and The Bank of New York Mellon (“Defendants”) filed their Demurrer to Plaintiff’s First Amended Complaint. Defendants concurrently filed: (1) Memorandum of Points and Authorities (“Memorandum”); (2) Declaration of C. Nicole Pelcic; and (3) Request for Judicial Notice.

On March 29, 2023, Plaintiff filed its Motion for Leave to File a Second Amended Complaint (“Motion for Leave”). Plaintiff concurrently filed its POS-050/EFS-050, Proof of Electronic Service.

On April 11, 2023, Defendants filed their Opposition to Plaintiff’s Motion for Leave. Defendants concurrently filed Declaration of Paula Gonzales.

On April 11, 2023, Plaintiff filed its Opposition to Defendants’ Demurrer. Plaintiff concurrently filed its POS-050/EFS-050, Proof of Electronic Service.

On April 17, 2023, Defendants filed their Reply to the Demurrer.

On April 28, 2023, Plaintiff filed its Reply to the Motion for Leave. Plaintiff concurrently filed its POS-050/EFS-050, Proof of Electronic Service.

ANALYSIS:

I. Demurrer

A. Request for Judicial Notice

Defendants request that the Court take judicial notice of nine items.

The first seven items are documents (e.g., deeds and notices) filed in the Official Records of the County of Los Angeles. The Court GRANTS judicial notice of these items.

The last two items are the Complaint and the Court Docket in Los Angeles Superior Court Case No. EC064750. The Court GRANTS judicial notice of these items.

B. Legal Standard

A demurrer is a pleading used to test the legal sufficiency of other pleadings. It raises issues of law, not fact, regarding the form or content of the opposing party’s pleading. It is not the function of the demurrer to challenge the truthfulness of the complaint; and for purpose of the ruling on the demurrer, all facts pleaded in the complaint are assumed to be true, however improbable they may be. (Code Civ. Proc., §§ 422.10, 589.)¿

A demurrer can be used only to challenge defects that appear on the face of the pleading under attack; or from matters outside the pleading that are judicially noticeable. (Blank v. Kirwan (1985) 39 Cal.3d 311.) No other extrinsic evidence can be considered (i.e., no “speaking demurrers”). A demurrer is brought under Code of Civil Procedure section 430.10 (grounds), section 430.30 (as to any matter on its face or from which judicial notice may be taken), and section 430.50(a) (can be taken to the entire complaint or any cause of action within).¿

A demurrer may be brought under Code of Civil Procedure section 430.10, subdivision (e) if insufficient facts are stated to support the cause of action asserted. A demurrer for uncertainty (Code of Civil Procedure section 430.10, subdivision (f)), 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. (Khoury v. Maly's of Cal., Inc. (1993) 14 Cal.App.4th 612, 616.) Moreover, even if the pleading is somewhat vague, “ambiguities can be clarified under modern discovery procedures.” (Id.)¿

C. Discussion

Defendants demur to all five of the causes of action in Plaintiff’s First Amended Complaint (FAC).

Plaintiff’s only argument in its Opposition is that the Demurrer should be moot if the Motion for Leave is granted. (Opposition to Demurrer, p. 2:4–5.)

The Court disagrees with Plaintiff’s argument. A demurrer is not automatically mooted by the filing of a motion for leave to amend a pleading. Moreover, such a demurrer would not be moot at all if the proposed amendments do not change the items to which the opposing party demurs. That is the case here, where the proposed amended pleading simply adds a new cause of action and certain allegations related to that cause of action but does not otherwise change any of the earlier causes of action or the allegations supporting them. To rule otherwise would entail a waste of judicial resources, particularly when this is not the first amended pleading.

The Court proceeds to consideration of the Demurrer without further arguments in opposition from Plaintiff.

1. Breach of Written Contract

a. Legal Standard

To state a cause of action for breach of contract, Plaintiff must be able to establish “(1) the existence of the contract, (2) plaintiff’s performance or excuse for nonperformance, (3) defendant’s breach, and (4) the resulting damages to the plaintiff.” (Oasis W. Realty, LLC v. Goldman (2011) 51 Cal.4th 811, 821.)¿¿

If a breach of contract claim “is based on alleged breach of a written contract, the terms must be set out verbatim in the body of the complaint or a copy of the written agreement must be attached and incorporated by reference.” (Harris v. Rudin, Richman & Appel (1999) 74 Cal.App.4th 299, 307.) “In an action based on a written contract, a plaintiff may plead the legal effect of the contract rather than its precise language.” (Constr. Prot. Serv., Inc. v. TIG Specialty Ins. Co. (2002) 29 Cal.4th 189, 198–99.)¿¿

b. Discussion

Defendants argue that the first cause of action for breach of contract fails as a matter of law because: (1) Plaintiff failed to timely perform and fails to allege facts evidencing modification of term requiring performance by December 29, 2020; (2) Plaintiff alleges its own failure to perform and lack of intention to perform; and (3) Plaintiff does not allege facts evidencing a breach by Defendants. (Demurrer, pp. 7:20–21, 8:3–4, 8:21–22, 10:10.)

Among other things, Plaintiff alleges: (1) that Plaintiff and Defendant Newrez LLC entered into a short sale agreement; (2) that Plaintiff performed its obligations under the short sale agreement or was excused from performance by the bad faith conduct of Defendant Newrez LLC; (3) that Defendant Newrez LLC refused to perform under the short sale agreement, denied promised extensions, negotiated in bad faith, created a sham appraisal, and tried to force Plaintiff to pay more; and (4) that Plaintiff has been harmed by Defendant Newrez LLC’s breaches of the short sale agreement. (FAC, ¶¶ 51–55.)

Assuming as true these allegations for the purposes of the Demurrer, this cause of action is sufficient to withstand a demurrer.

The Court OVERRULES the Demurrer to the first cause of action for breach of contract.

2. Breach of the Covenant of Good Faith and Fair Dealing

a. Legal Standard

“A breach of the implied covenant of good faith and fair dealing involves something beyond breach of the contractual duty itself and it has been held that bad faith implies unfair dealing rather than mistaken judgment.” (Careau & Co. v. Sec. Pac. Bus. Credit, Inc. (1990) 222 Cal.App.3d 1371, 1394.)¿¿

“If the allegations do not go beyond the statement of a mere contract breach and, relying on the same alleged acts, simply seek the same damages or other relief already claimed in a companion contract cause of action, they may be disregarded as superfluous as no additional claim is actually stated … [T]he only justification for asserting a separate cause of action for breach of the implied covenant is to obtain a tort recovery.” (Id. at pp. 1394–95.)¿¿

To recover in tort for breach of the implied covenant, the defendant must “have acted unreasonably or without proper cause.” (Id. at p. 1395, citations and italics omitted.)

b. Discussion

Defendants argue that the second cause of action for breach of the covenant of good faith and fair dealing fails as a matter of law because: (1) Plaintiff did not perform; (2) Plaintiff did not have an excuse for its non-performance; and (3) Plaintiff had no intention of performing with the express terms of the short sale agreement. (Demurrer, p. 11:11–15.)

The Court reiterates here the allegations discussed for the cause of action for breach of contract. (FAC, ¶¶ 51–55.) These allegations include that Plaintiff either performed or was excused from performance.

Assuming as true these allegations for the purposes of the Demurrer, this cause of action is sufficient to withstand a demurrer.

The Court OVERRULES the Demurrer to the second cause of action for breach of the covenant of good faith and fair dealing.

3. Negligent Misrepresentation

a. Legal Standard

The elements of a cause of action for negligent misrepresentation include “[m]isrepresentation of a past or existing material fact, without reasonable ground for believing it to be true, and with intent to induce another’s reliance on the fact misrepresented; ignorance of the truth and justifiable reliance on the misrepresentation by the party to whom it was directed; and resulting damage.” (Hydro-Mill Co., Inc. v. Hayward, Tilton & Rolapp Ins. Associates, Inc. (2004) 115 Cal.App.4th 1145, 1154, quotation marks omitted.)¿¿

The facts constituting the alleged fraud must be alleged factually and specifically as to every element of fraud, as the policy of “liberal construction” of the pleadings will not ordinarily be invoked. (Lazar v. Super. Ct. (1996) 12 Cal.4th 631, 645.)¿¿

To properly allege fraud against a corporation, the plaintiff must plead the names of the persons allegedly making the false representations, their authority to speak, to whom they spoke, what they said or wrote, and when it was said or written. (Tarmann v. State Farm Mut. Auto. Ins. Co. (1991) 2 Cal.App.4th 153, 157.)¿

b. Discussion

Defendants argue that the third cause of action for negligent misrepresentation fails as a matter of law because it was not reasonable for Plaintiff to have relied upon the alleged oral representation.

Plaintiff alleges in the FAC that it did reasonably rely on Defendants’ representations and that Plaintiff had every reason to believe the truth of such representations. (FAC, ¶¶ 67, 74.)

Assuming as true these allegations for the purposes of the Demurrer, this cause of action is sufficient to withstand a demurrer.

The Court OVERRULES the Demurrer to the third cause of action for negligent misrepresentation.

4. Intentional Misrepresentation

a. Legal Standard

“The elements of a cause of action for intentional misrepresentation are (1) a misrepresentation, (2) with knowledge of its falsity, (3) with the intent to induce another’s reliance on the misrepresentation, (4) actual and justifiable reliance, and (5) resulting damage.” (Daniels v. Select Portfolio Servicing, Inc. (2016) 246 Cal.App.4th 1150, 1166.)¿¿¿

¿¿

To properly allege fraud against a corporation, the plaintiffs must plead the names of the persons allegedly making the false representations, their authority to speak, to whom they spoke, what they said or wrote, and when it was said or written. (Tarmann v. State Farm Mut. Auto. Ins. Co. (1991) 2 Cal.App.4th 153, 157.)¿

b. Discussion

Defendants demur on the exact same grounds to the fourth cause of action for intentional misrepresentation as they did for the third cause of action for negligent misrepresentation.

The Court reiterates here the allegations discussed for the cause of action for negligent misrepresentation. (FAC, ¶¶ 67, 74.)

Assuming as true these allegations for the purposes of the Demurrer, this cause of action is sufficient to withstand a demurrer.

The Court OVERRULES the Demurrer to the fourth cause of action for intentional misrepresentation.

5. Violation of California Business and Professions Code Section 17200 et seq.

a. Legal Standard

To set forth a claim for a violation of Business and Professions Code section 17200 (“UCL”), Plaintiff must establish Defendant was engaged in an “unlawful, unfair or fraudulent business act or practice and unfair, deceptive, untrue or misleading advertising” and certain specific acts. (Bus. & Prof. Code, § 17200.) A cause of action for unfair competition “is not an all-purpose substitute for a tort or contract action.” (Cortez v. Purolator Air Filtration Products Co. (2000) 23 Cal.4th 163, 173.)¿

b. Discussion

Defendants argue that the fifth cause of action for violation of the UCL fails as a matter of law because Plaintiff did not suffer any actual economic injury. (Demurrer, p. 12:9–24.)

Among other things, Plaintiff alleges that as a direct and proximate result of Defendants’ unlawful, unfair, and fraudulent conduct, Defendants are wrongfully foreclosing on the property at issue, causing Plaintiff to lose title to and interest in that property, including any equity in the property. (FAC, ¶ 105.)

Assuming as true these allegations for the purposes of the Demurrer, this cause of action is sufficient to withstand demurrer.

The Court OVERRULES the Demurrer to the fifth cause of action for violation of the UCL.

D. Conclusion

Defendants’ Demurrer is OVERRULED.

II. Motion for Leave

A. Legal Standard

The court may, in furtherance of justice and on any proper terms, allow a party to amend any pleading. (Code Civ. Proc., § 473, subd. (a)(1); Branick v. Downey Savings & Loan Association (2006) 39 Cal.4th 235, 242.)

The court may also, in its discretion and after notice to the adverse party, allow, upon any terms as may be just, an amendment to any pleading or proceeding in other particulars; and may upon like terms allow an answer to be made after the time limited by this code. (Code Civ. Proc., § 473, subd. (a); Branick, supra, 39 Cal.4th at 242.)

“This discretion should be exercised liberally in favor of amendments, for judicial policy favors resolution of all disputed matters in the same lawsuit.” (Kittredge Sports Co. v. Super. Ct. (1989) 213 Cal.App.3d 1045, 1047.) Leave to amend is thus liberally granted, provided there is no statute of limitations concern. (Kolani v. Gluska (1998) 64 Cal.App.4th 402, 411.) The Court may deny the plaintiff’s leave to amend if there is prejudice to the opposing party, such as delay in trial, loss of critical evidence, or added costs of preparation. (Id.)

Under California Rules of Court, rule 3.1324, a motion to amend a pleading before trial must (1) include a copy of the proposed amendment or amended pleading, which must be serially numbered to differentiate it from previous pleadings or amendments; (2) state what allegations in the previous pleading are proposed to be deleted, if any, and where, by page, paragraph and line number, the deleted allegations are located; and (3) state what allegations are proposed to be added to the previous pleading, if any, and where, by page, paragraph, and line number, the additional allegations are located. (Cal. Rules of Court, rule 3.1324(a).) A separate supporting declaration specifying (1) the effect of the amendment; (2) why the amendment is necessary and proper; (3) when the facts giving rise to the amended allegations were discovered; and (4) the reason why the request for amendment was not made earlier must accompany the motion. (Id., rule 3.1324(b).)

B. Discussion

1. The Parties’ Arguments

Plaintiff moves the Court for leave to file its Second Amended Complaint (SAC). (Motion for Leave, p. 8:8–11.)

Defendants oppose the Motion for Leave, arguing: (1) that the SAC does not plead sufficient facts to establish a cause of action for wrongful foreclosure as a matter of law; (2) that Plaintiff lacks standing to assert improper notice on behalf of borrowers; (3) that Plaintiff will not be prejudiced if it is not granted leave to filed the SAC; and (4) that Defendants will be prejudiced if Plaintiff is granted leave to file the SAC. (Opposition to Motion for Leave, p. 6:25–26, 8:8, 8:22–23, 9:8–9.)

Plaintiff solely makes arguments in its Reply that regard the Demurrer. (Reply, pp. 2–3.)

2. Rules of Court

Plaintiff complied with California Rules of Court, rule 3.1324.

First, Plaintiff submits a copy of the proposed amended pleading. (Motion for Leave, Exh. B.)

Second, Plaintiff submits a red-lined version of the pleading, demonstrating exactly all the items that would be deleted and added, as well as exactly where those deletions and additions are located. (Motion for Leave, Exh. A.)

Finally, the Declaration of Jason K. Smith describes the effect of the amendment (to add a cause of action for wrongful foreclosure, with supporting allegations), why the amendment is necessary and proper (to allow Plaintiff to litigate all of its claims that arise from the same related set of facts in one case), when the facts giving rise to the amendments were discovered (on March 9, 2023, after the foreclosure), and the reason why the request for amendment was not made earlier (because the foreclosure only occurred on March 9, 2023). (Motion for Leave, Decl. Smith, ¶¶ 2–7.)

3. Prejudice

There is minimal prejudice to Defendants if the Court were to grant the requested leave. Rhe only changes are additional allegations and a new cause of action, all of which stem from the foreclosure of the property already at issue. Thus, there will be minimal additional discovery necessary. Furthermore, trial is not scheduled until April 2024 in this matter — 11 months from the date of the hearing on the Motion for Leave.

4. Irrelevant Arguments

Defendants’ arguments regarding whether the new cause of action is appropriate as a matter of law are irrelevant to the analysis for whether leave should be granted. Such arguments are more appropriate for a motion for judgment on the pleadings.

C. Conclusion

Plaintiff’s Motion for Leave to File a Second Amended Complaint is GRANTED