Judge Ralph C. Hofer, Case 21GDCV01292 2022-08-19 Tentative Ruling

Plaintiff UHG I LLC brings this action to collect a sum allegedly due on a credit account. Plaintiff alleges that it is the successor in interest to the original creditor, WebBank, and that plaintiff is a debt buyer, the sole owner of the debt at issue, which purchased the debt after charge-off.

Plaintiff alleges that the charge-off creditor at the time of charge-off is Upgrade, Inc., and the name of the debtor as it appeared in the charge-off creditor’s records is defendant Naira Vatyan. The FAC alleges that defendant executed and delivered a credit application to the original creditor, or made such application over the telephone or internet, that WebBank provided defendant with a credit account, and that defendant agreed to comply with the terms governing the use of the account, including repaying WebBank or any successors in interest for charges on the account. The FAC alleges that defendant used the account, failed to make payments as agreed, and the debt balance at charge-off was $42,323.90.

The FAC also alleges that defendant has become indebted for a balance due on a book account for goods sold and delivered or services rendered by WebBank, and that although demand has been made for payment, the amount due has not been paid.

On March 17, 2022, at a CMC and OSC Re: Entry of Default Judgment/Default Prove-Up the court noted that plaintiff’s counsel had no opposition to a pending motion by defendant to vacate the default, and ordered the default vacated, and the motion to set aside/vacate was placed off calendar.

Defendant then filed a demurrer to the initial complaint, which was heard on April 29, 2022. The unopposed demurrer was overruled to the second cause of action and sustained with leave to amend as to the first cause of action. Plaintiff was permitted thirty days leave to amend.

To plead a cause of action for breach of contract, plaintiff must plead the following elements: Contract formed, and terms alleged verbatim or according to legal effect; plaintiff’s performance or excuse for nonperformance; defendant’s breach; and damage to plaintiff. Walsh v. Standart (1917) 174 Cal. 807.

“Demurrer to the first cause of action for breach of contract is SUSTAINED WITH LEAVE TO AMEND on the ground it cannot be ascertained whether the subject contract is written, oral, or implied by conduct, or whether it is some specified combination in its nature. In addition, due to the reliance on a purported written contract attached as Exhibit A, the nature of the contract, and the applicable terms of the alleged contract, are not clear, given that the writing applies to the repayment of a loan/note, not a credit account relationship.

Defendant argues that the cause of action remains unclear, as instead of clarifying what contract defendant is attempting to enforce, the FAC continues to allege that the cause of action is based on an alleged credit card agreement, the formation of and terms of which are not sufficiently alleged, but also attaches to the pleading a Loan Agreement and Promissory Note, which does not concern a credit account, but appears to be an outright loan agreement for repayment of $40,000. Defendant argues that plaintiff failed to clarify the previous inconsistency, and defendant cannot determine whether the operative agreement is the credit account, with its mysterious formation and terms, or the Loan Agreement attached as Exhibit A.

The FAC has not been significantly amended since the sustaining of the previous demurrer but does now allege in the first cause of action that defendant “entered into a written contract with WebBank, the material terms of which establish an account.” [FAC, para. 25]. It is also alleged in the cause of action that “WebBank extended a credit loan to the Defendant.” [FAC, para. 24]. The cause of action also alleges that “The Original Creditor thereafter advanced funds to Defendant(s), and each of them, pursuant to the terms of said Agreement.” [FAC, para. 25]. The cause of action does not refer to Exhibit A as being the agreement sought to be enforced.

It appears that plaintiff is pursuing the written agreement attached as Exhibit A, the Loan Agreement and Promissory Note for the lending to the borrower, defendant Vatyan, of $40,000, to be repaid according to that Agreement, as the cause of action itself refers to the extension of a credit “loan,” and that funds were “advanced” pursuant to the terms of the agreement. [FAC, paras. 24, 25]. The cause of action creates some confusion by alleging the material terms of the written agreement “establish an account.” [FAC, para. 25]. The Loan Agreement does not appear to make reference to the establishment of an “account,” or terms related to an account, but discusses payment in installments, and refers to the “Note” and the “loan,” not any account. [See, e.g., Ex. A, paras. 2 a-d, g].

The cause of action also creates confusion by its incorporation by reference of paragraphs 1 through 22 of the FAC, which general allegations continue to allege that pursuant to a credit application, WebBank “provided Defendant with a credit account,” that defendant agreed to “comply with the terms governing the use of the Account,” including repaying any charges on the account, and that defendant “used the account to make purchases and/or to take cash advances and/or make balance transfers.” [FAC, paras. 9, 11, 12]. This account appears to be a separate agreement from the Loan Agreement, and there is no allegation that this credit agreement was written, oral or implied by conduct. The FAC’s general allegations do not clearly state that Exhibit A is the “agreement” upon which the allegations are based, alleging that:

“Plaintiff has attached hereto as Exhibit A and incorporated herein by reference a copy of Billing Statement and/or Loan File provided to the Defendant while the account was active, demonstrating that the debt was incurred by the Defendant.”

The FAC now alleges that Defendant entered into “a written agreement” with WebBank. [FAC, para. 25]. Under such circumstances it is required that a copy of the written contract be attached to the pleading, or the terms set forth verbatim. Otworth v. Southern Pacific Transportation Co. (1985) 166 Cal.App.3d 452, 459. In Otworth, the Second District stated:

It is not clear why plaintiff has not clarified the agreement or agreements it is pursuing, despite being permitted leave to amend to do so, and it is not clear why plaintiff has not filed written opposition to the demurrer to further clarify its intention, or to explain how further amendment could provide the requested clarity.

However, it appears that to the extent liability is being pursued under the Loan Agreement and Promissory Note attached as Exhibit A, which names defendant and the assignor as parties, the pleading does not show on its face it could not be successfully amended. The court accordingly sustains the demurrer with one final opportunity to amend to clarify whether the credit account agreement or the Loan Agreement, or both, are the subject of plaintiff’s breach of contract claim, and to provide the necessary detail to support a claim under either or each of those agreements.

Demurrer to the first cause of action for breach of contract is SUSTAINED WITH ONE FINAL OPPORTUNITY TO AMEND. The pleading remains uncertain, as plaintiff has again made allegations concerning the existence of a traditional credit account, without specifying its nature, but also alleges what appears to be a separate “written” agreement based on a loan agreement, without expressly stating that the agreement is attached to the FAC.

If plaintiff is relying on a credit account agreement, the pleading must clearly so state, and plaintiff must clearly specify whether such an agreement was written, oral, or implied by conduct, and its terms must be alleged verbatim or according to legal effect. If the credit card agreement was written, plaintiff must attach a copy of that agreement to the pleading or allege the terms appropriately and explain why plaintiff cannot attach a copy of the agreement to the pleading.

If plaintiff intends to rely on a loan agreement, the pleading must clearly so state, and plaintiff must attach a copy of the written agreement to the pleading, and expressly state in the cause of action itself that the attached agreement is the agreement which is the subject of the cause of action, or allege the terms of that agreement verbatim or according to legal effect, and explain why plaintiff cannot attach a copy of the agreement to the pleading.

If plaintiff is relying on both agreements, plaintiff must state two separate breach of contract causes of action, and make all allegations specified above as to each agreement in the separate cause of action directed to that agreement.

The Court notes the filing on August 15, 2022 of a timely reply in support of the unopposed demurrer to plaintiff’s First Amended Complaint. Defendant points out that on August 10, 2022, after the statutory time for plaintiff to file opposition to the demurrer, plaintiff filed a Second Amended Complaint. There was no stipulation for permission to file this pleading, and no court order obtained in advance to further amend the pleading after plaintiff had been permitted leave to amend to file the First Amended Complaint.

“(a) A party may amend its pleading once without leave of the court at any time before the answer or demurrer is filed, or after a demurrer is filed but before the demurrer is heard if the amended complaint, cross-complaint, or answer is filed and served no later than the date for filing an opposition to the demurrer….”

The Second Amended Pleading is not a pleading permitted to be filed once without leave of court, and was also not timely, as it was not filed no later than the date for filing an opposition to the demurrer, but was seven court days late, after the Court had already considered the demurrer unopposed.

The Court has also reviewed the SAC and finds that the SAC does not sufficiently address the concerns raised in the demurrer, and in the Court’s tentative ruling, in addition to being filed without authorization. The Court on its own motion strikes the Second Amended Complaint filed on August 10, 2022 pursuant to CCP§ 436 (“The court may, … at any time in its discretion, and upon terms it deems proper:…(b) Strike out all or any part of any pleading not drawn or filed in conformity with the laws of this state, a court rule, or an order of the court.”).

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