Judge: Michael Shultz, Case: TC029030, Date: 2023-01-17 Tentative Ruling
Case Number: TC029030 Hearing Date: January 17, 2023 Dept: A
TC029030
Philip Alvarez, Successor Trustee of the Evangelina Alvarez Living Trust 2015
v. Westland Architecture and Development Corporation, et al.
[TENTATIVE] ORDER
I.
BACKGROUND
Plaintiff commenced
this action on January 18, 2018. The Second Amended Complaint (SAC), filed on
August 29, 2018, alleges that Plaintiff owns residential real property located
at 925 E. Stockton Avenue in Compton (the Compton Property). Defendants
allegedly engaged in fraudulent acts to fund three separate loans secured by
the real property at issue. In pertinent part, Plaintiff alleges that moving
party and Defendant, Western Capital 26, LLC (Western), a real estate
investment company, funded a high-cost mortgage loan for $90,000 secured by the
Compton property in September 2016.
Plaintiff alleges that Western knew Plaintiff was unable to pay given his fixed
income and that Defendant presented the loan as a non-owner-occupied
transaction, although Plaintiff resided at the home. Western failed to make
required disclosures and included terms that were not permitted by either
federal or state law. Plaintiff alleges claims for fraud, constructive fraud,
breach of fiduciary duty, unjust enrichment, and unfair business practices
(Bus. & Prof. Code, section 17200) against Western (third through seventh
causes of action).
II.
ARGUMENTS
Western argues that the claims
alleged against it are all without merit based on the undisputed facts as
discussed in more detail below chiefly because Plaintiff signed all required documents
for the loan representing to the lender (Western) that the loan was for a
business purpose only. Plaintiff is estopped from arguing that Western engaged
in misrepresentations with respect to the loan where there is no dispute that Plaintiff
represented that the loan was for a business purpose. The doctrine of unclean
hands also applies to bar Plaintiff’s claims since he repeatedly engaged in
“business purpose” loans to fund remodeling on his principal residence.
Plaintiff argues that the
Defendant’s separate statement of undisputed facts suffers from procedural
defects since the statement does not separately identify each cause of action
to be adjudicated. Defendant also does not negate necessary elements of each cause
of action to meet its threshold burden of proof. Western’s principals, Hersel Myers,
and his son Jason, who is the owner of Western, also acted as brokers.
Western argues in reply that the
undisputed facts establish that Plaintiff represented that he lived at 1801 E.
Ocean Blvd. in Long Beach, and that the business loan funded by Western was
going to be used for Plaintiff’s investment property located at 925 E. Stockton
Avenue in Compton.
III.
LEGAL STANDARDS
Summary judgment is proper “if all
the papers submitted show that there is no triable issue as to any material
fact and that the moving party is entitled to judgment as a matter of law.” Code Civ. Proc. §437c subd. (c).
In pertinent part, a party may move for summary adjudication as to one or more
claims for damage if that party contends that there is no merit to the claim as
specified in Section 3294 of the Civil Code governing imposition of punitive
damages. A motion for summary adjudication shall be granted only if it
completely disposes of a cause of action, an affirmative defense, a claim for
damages, or an issue of duty.” Code Civ. Proc., § 437c subd. (c).
Where a defendant seeks summary
judgment or adjudication, defendant must show that either “one or more elements
of the cause of action, even if not separately pleaded, cannot be established,
or that there is a complete defense to that cause of action.” Id. at §437c subd. (p)(2). The moving
party can satisfy this burden by showing that the claim “cannot be established”
because of the lack of evidence on some essential element of the claim. Union Bank v. Superior Court (1995) 31 Cal.App.4th 574, 583. Once the defendant meets this
burden, the burden shifts to the plaintiff to show that a “triable issue of one
or more material facts exists as to that cause of action or defense
thereto.” Id.
Until the moving party has
discharged its burden of proof, the opposing party has no burden to come
forward with any evidence. Once the moving party has discharged its burden as
to a particular claim, however, the opposing party may defeat the motion by
producing evidence showing that a triable issue of one or more material facts
exists as to that cause of action. Code
Civ. Proc., §437c subd. (p)(2).
The court strictly construes the
moving party's supporting evidence while the opposing party’s evidence is
liberally construed. Doubts as to the propriety of the motion should be
resolved against granting the motion. D’Amico v. Board of Medical Examiners (1974) 11 Cal.3d 1, 20. The court does not evaluate the credibility of testimony. Binder v. Aetna Life Ins. Co.
(1999) 75 Cal. App. 4th 832, 840.
The court applies the three-step
analysis to motions for summary judgment or adjudication: (1) identify the
issues framed by the pleading, (2) determine whether the moving party
established facts which negate the opponents’ claim, (3) if a defendant meets its
threshold burden of persuasion and the burden shifts, determine whether the
opposing party has controverted those facts with admissible evidence. Torres v. Reardon (1992) 3 Cal.App.4th 831, 836.
IV.
DISCUSSION
A.
Western’s separate statement.
Plaintiff
argues that Defendant’s separate statement does not comply with the California
Rules of Court requiring the moving party to “separately identify each cause of
action, claim, issue of duty, or affirmative defense, and each supporting
material fact claimed to be without dispute with respect to the cause of action
… .” California
Rules of Court, rule 3.1350 subd. (b). If summary adjudication is sought,
“the specific cause of action, … must be stated specifically in the notice of
motion and be repeated, verbatim, in the separate statement of undisputed
material facts.” California
Rules of Court, rule 3.1350 subd. (b). Western asserts 43 material
facts without reference to any particular cause of action to be adjudicated.
Plaintiff’s
procedural argument, however, elevates form over substance. As the Court construes the moving papers,
Defendant contends it did not engage in fraud, constructive fraud, or a breach
of a fiduciary duty resulting in unjust enrichment or an unfair business
practice, because the documents Plaintiff signed expressly affirmed that the
loan was for a business purpose and not for an owner-occupied residence
primarily for personal, family, or household purposes. In other words,
Plaintiff expressly made these affirmations. Accordingly, all 43 facts are
relevant to adjudicate these claims. Where the motion for adjudication is made
in the alternative, as Defendant does here, the motion “may make reference to
and depend on the same evidence submitted in support of the summary judgment
motion.” Cal
Rules of Court, rule 3.1350 subd. (b).
B.
Fraud and constructive fraud
(third and fourth cause of action, respectively)
To
support the fraud claims, Plaintiff identifies Western as the creditor/lender
for the purpose of the September 2016 loan and that other Defendants, Westland,
Valentine, and Better Loans were the “mortgage originators/brokers.” SAC ¶
38-39. The SAC alleges that Western and others, “actively prepared documents such
that Plaintiff’s residency and income would not prevent qualification and
funding.” SAC ¶ 42. Defendants avoided federal regulations by “preparing and
presenting” the hard money loan as a non-owner-occupied transaction because
Plaintiff could not otherwise qualify. SAC ¶¶ 43-44. Plaintiff further alleges
that the loans were “verbally explained as being proper for Plaintiffs need to
repair [his] residence.” SAC ¶ 113.
A claim for fraud arises from: (1)
a misrepresentation, (2) made with knowledge of its falsity, (3) Defendant
intended to defraud Plaintiff, i.e., induce Plaintiff’s reliance, (4) and Plaintiff
justifiably relied on the misrepresentation, (5) causing damage. Nagy v. Nagy (1989) 210 Cal.App.3d 1262, 1268.
Constructive fraud arises where a
person in a confidential or fiduciary relationship with another breaches that
duty without fraudulent intent and gains an advantage by misleading another
person to his or her prejudice. Civ. Code, § 1573; Tyler v. Children's Home
Society (1994) 29 Cal.App.4th 511, 548. Like an action
for fraud, constructive fraud must be alleged with specificity. Tindell v. Murphy (2018) 22
Cal.App.5th 1239, 1250.
The particularity requirements
necessitate pleading facts showing “how, when, where, to whom, and by what
means the representations were tendered." Stansfield v. Starkey (1990) 220 Cal.App.3d 59, 73. The
requirement “applies not only to the alleged misrepresentation, but also to the
elements of causation and damage." Moncada v. West Coast Quartz Corp. (2013) 221 Cal.App.4th 768, 776.
Where fraud is alleged against a
corporation, the pleading standards are even greater. Plaintiff must allege
“the names of the persons who made the allegedly fraudulent representations,
their authority to speak, to whom they spoke, what they said or wrote, and when
it was said or written." Lazar v. Superior Court (1996) 12 Cal. 4th 631, 645.
As previously stated, “materiality”
depends on the issues in the case which is determined by “the pleadings, the
rules of pleadings, and the substantive law. [Citation.] ‘The complaint
measures the materiality of the facts tendered in a defendant's challenge to
the plaintiff's cause of action.’ [Citation.]” Eriksson v. Nunnink (2011) 191
Cal.App.4th 826, 848.
In the first instance, the fraud
claim against Western is not alleged with particularity regarding the
misrepresentations allegedly made to Plaintiff, who made them and when, or by
what means and on which Plaintiff justifiably relied. The only
misrepresentation alleged is that Defendants collectively and verbally explained
that the loans were proper for Plaintiffs need to repair [his] residence
although Plaintiff did not understand the loans or the terminology, but he
trusted defendants and their representations. SAC ¶ 113.
Plaintiff disputes his own
allegations by declaring that Defendant, Ester Perez dba Better Loans &
Realty (Perez), offered him a $90,000 loan on the property to finance
construction work. Decl of Alvarez, ¶ 6. Perez gave Plaintiff all of the loan
documents. Id., ¶ 7. Ester Perez allegedly told him that he needed to
sign a document that checked an option for investment property, although he did
not understand the term. Decl of Alvarez, ¶ 8. Accordingly, the alleged representation that
the documents were “proper” was made by someone other than Western.
Plaintiff then admits that he thought
that the loan documents were reasonable and for a business purpose since he was
renting out a portion of his home, which was a business purpose, “although no
one asked him if the property had four or more units.” Alvarez ¶ 18. If
Plaintiff is now contending that Western breached a duty to disclose that he
did not qualify for the business loan because he did not have a sufficient
number of units, that claim is not alleged.
Assuming that Western’s
explanation of the loan as “proper” was a misrepresentation, Plaintiff must
show justifiable reliance, i.e., that Defendant made the statement to induce
Plaintiff to sign the loan papers. Reasonable reliance is shown with facts
demonstrating that (1) the matter was material in the sense that a reasonable
person would find it important in determining how he or she would act (Charpentier
v. Los Angeles Rams Football Co. (1999) 75 Cal.App.4th 301, 313, 89
Cal.Rptr.2d 115); and (2) it was reasonable for the plaintiff to have relied on
the misrepresentation." Hoffman v. 162 North Wolfe
LLC (2014) 228 Cal.App.4th 1178, 1194. However, if Plaintiff’s conduct "in the light of
his own intelligence and information was manifestly unreasonable ... he will be
denied a recovery." Hoffman at 1194.
Plaintiff argues that Western’s
representation that the 2016 loan or loan papers were “proper” was a material
misrepresentation since Defendant knew that Plaintiff resided at the Compton
real property and therefore, the loans were not for a business purpose
(although that was what he admittedly believed). These undisputed facts do not
establish that (1) there was a misrepresentation to begin with by Western and
(2) that Plaintiff reasonably relied on a misrepresentation that the loans were
proper if Plaintiff knowingly affirmed facts that were not true (i.e. his
residence address and the purpose for the loan).
Plaintiff signed a loan application
representing that he lived in Long Beach and acknowledged that knowingly making
false statements constituted a federal crime punishable by fine or
imprisonment. Myers decl. Ex. 1, p. 7. Plaintiff
represented on the loan application that the purpose of the loan was for
investment property located in Compton. Id., Ex. 1, p. 1. He further represented
that he did not intend to occupy the property as his primary residence although
he declares he has lived at the property since 1975. Id., Ex. 1, page 5,
¶ VIII, ¶ l; Alvarez Decl. ¶ 3.
Plaintiff does not dispute that he
signed the Certificate of Business Purpose of Loan (UF 6, Myers Decl. Ex. 2).
Plaintiff attempts to dispute Fact 6 by arguing that the Certificate was not
“filled” in at the time he signed it. However, this fact does not create a
dispute as the pre-printed parts of the Certificate expressly state that
Plaintiff represented to the loan originator that the primary purpose of the
loan was for a business purpose (Myers Decl. Ex. 2, ¶¶ 2-3).
There is no dispute that the
Certificate states that “no part of the loan proceeds are intended to be used
for the non-business (i.e. consumer) purpose … “(UF 8). Plaintiff does not
dispute signing this document and does not dispute that the Compton property
was not a rental or investment property (UF 10). Plaintiff does not dispute
signing a notarized Affidavit of Occupancy and Financial Status expressly
stating that the Compton property was investment property which he did not
occupy or use, nor had any present intention to occupy or use in the future
either as a residence or second home (UF 11-16, Myers decl., Ex.3).
Accordingly, Plaintiff represented the Compton real property as investment
property, although Plaintiff admits that his residence at the time was 925 E.
Stockton Avenue, Compton contrary to any of the representations he made in the
documents identified above. (UF 1, Decl. of Alvarez, ¶3).
The question of justifiable
reliance is ordinarily a question of fact unless reasonable minds “can come to
only one conclusion based on the facts.” Hoffman, supra at 1194. Where the absence of justifiable
reliance is one of law, summary judgment or adjudication is an appropriate
vehicle. Id. These facts support
only one conclusion, that Plaintiff did not reasonably rely on the
representations that the documents were “proper” if he admittedly signed
documents that were contrary to the true facts.
C.
Dodd-Frank
Act/TILA and CA Finance Code
The non-viability of the fraud
claims against Western renders any claim based on alleged violations of the
Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act),
which are lending laws pertaining to consumer credit transactions and loans
secured by a borrower’s principal residence. 15 U.S.C.A. § 1639 (West). The claims are also premised on
alleged violations of the Finance Code governing consumer loans. Fin. Code, § 4970, Fin. Code, § 4995. Defendant argues that neither of
these statutes apply here since there is no dispute that the loan funded by
Western was “clearly a business purpose loan to be secured by non-owner-occupied
real estate, (the Compton property).” Motion, 8:19-9:4.
The Dodd-Frank Act applies to credit
transactions characterized “as one in which the party to whom credit is offered
or extended is a natural person, and the money, property, or services which are
the subject of the transaction are primarily for personal, family, or household
purposes." 15 U.S.C.A. § 1602 (West). It expressly excludes “[c]redit
transactions involving extensions of credit primarily for business, commercial,
or agricultural purposes, or to government or governmental agencies or
instrumentalities, or to organizations." 15 U.S.C.A. § 1603 (West); Weber v. Langholz (1995) 39
Cal.App.4th 1578, 1583
[Truth in Lending Act applies to loans “primarily for personal, family or
household purposes.”].
Similarly, a “covered loan” under the
California Finance Code is a "consumer credit transaction that is secured
by real property located in this state used, or intended to be used or
occupied, as the principal dwelling of the consumer that is improved by a
one-to-four residential unit. “Consumer loan” does not include a reverse
mortgage, an open line of credit as defined in Part 1026 of Title 12 of the
Code of Federal Regulations (Regulation Z), or a consumer credit transaction
that is secured by rental property or second homes." Fin. Code, § 4970.
As previously stated, the
undisputed facts establish, by Plaintiff’s own admission, that he believed the
loan documents were “proper” and reasonable since “in [his] mind, renting out a
portion of my home is a “business purpose.” Alvarez decl, ¶ 18. Accordingly,
any claim based on violations of the foregoing statutes is without merit,
because the business loan at issue is not covered by Dodd-Frank Act/TILA or CA
Finance Code.
D.
Breach of fiduciary duty (fifth
cause of action)
A claim for
breach of fiduciary duty requires facts to support the following elements:
Existence of a fiduciary relationship, breach of that duty,
causation and damages caused by the breach. Mosier v. Southern California Physicians Ins. Exchange (1998)
63 Cal.App.4th 1022, 1044. Defendant’s
case authority establishes that a fiduciary duty does not exist between a
borrower and lender in an arm's length transaction. Ragland v. U.S. Bank National Assn. (2012) 209 Cal.App.4th
182, 206 [citing Oaks Management
Corporation v. Superior Court (2006) 145 Cal.App.4th 453,
466, 51 Cal.Rptr.3d 561; Union Bank v. Superior Court (1995)
31 Cal.App.4th 573, 579, 37 Cal.Rptr.2d 653; Price v. Wells
Fargo Bank (1989) 213 Cal.App.3d 465, 476, 261 Cal.Rptr.
735.) “[A]s a general rule, a financial institution owes no duty of care
to a borrower when the institution's involvement in the loan transaction does
not exceed the scope of its conventional role as a mere lender of
money.” (Nymark v. Heart Fed. Savings & Loan Assn. (1991)
231 Cal.App.3d 1089, 1096, 283 Cal.Rptr. 53.)"]. Plaintiff’s case
authority supporting the contention that mortgage brokers are fiduciaries of
their borrowers is inapposite. This motion is brought by Western Capital, who
Plaintiff alleges is a creditor/lender. SAC ¶ 38. Plaintiff identifies,
Westland, Valentine, and Better Loans as mortgage originators/brokers. SAC ¶
39. As there is no dispute that Western, as a lender, does not owe a fiduciary
duty to Plaintiff as borrower, this claim also fails.
By the same
token, the absence of a fiduciary relationship undermines the claim for
constructive fraud which requires the existence of a fiduciary relationship. Tyler v. Children's Home Society (1994) 29 Cal.App.4th 511,
548.
E.
Unjust enrichment (sixth cause of
action).
The elements of a claim for unjust
enrichment requires evidence demonstrating “receipt of a benefit and unjust
retention of the benefit at the expense of another." Lectrodryer v. SeoulBank (2000) 77 Cal.App.4th 723, 726. To support this claim, Plaintiff alleges that Western was the
creditor of a high-cost mortgage and received proceeds from the loan in an
amount not less than $5,850.00 in violation of both federal and state law. SAC
¶ 146.
As previously demonstrated, the
undisputed facts negate Plaintiff’s claims for fraud, constructive fraud,
breach of fiduciary duty, and violations of Dodd-Frank Act/TILA and the
California Finance Code. As there is no underlying basis for this remedy,
summary adjudication is warranted.
F.
Unfair business practices (Bus.
& Prof. Code § 17500) (seventh cause of action).
As defined by statute, “unfair competition” includes “any unlawful,
unfair or fraudulent business act or practice.” Bus. & Prof. Code, § 17200. Its purpose is to protect both consumers and
competitors by promoting fair competition in commercial markets for goods and
services.” Gutierrez v. Carmax Auto Superstores
California (2018) 19 Cal.App.5th 1234, 1265. A plaintiff alleging unfair business practices
under the UCL must state with “reasonable particularity” the facts supporting
the statutory elements of the violation. Khoury v. Maly's of California, Inc. (1993) 14
Cal.App.4th 612, 619 [Where Plaintiff
did not identify the statutory scheme which was allegedly violated and the
particular facts supporting the violation].
The
UCL claim alleged here is predicated on Western’s alleged acts as previously described.
Thus, this claim depends on establishing the viability of the fraud claims,
breach of fiduciary duty, and violations of the Dodd-Frank Act/TILA and the
California Finance Act. As previously explained, Defendant has demonstrated
that the undisputed facts negate all of Plaintiff’s underlying claims.
V.
CONCLUSION
Based on the foregoing, Defendant
Western has met its burden of establishing that the undisputed facts entitle
Defendant to judgment of all claims asserted against it, namely, the claims for
fraud, constructive fraud, breach of fiduciary duty, unjust enrichment, and
unfair business practices (third through seventh causes of action). Code Civ.
Proc., § 437c(p)(2). Plaintiff has not proffered evidence controverting the
material facts cited above. Accordingly, the Motion for Summary Judgment is
GRANTED.