Judge: Ralph C. Hofer, Case: 23GDCV00444, Date: 2023-09-15 Tentative Ruling
Case Number: 23GDCV00444 Hearing Date: September 15, 2023 Dept: D
TENTATIVE RULING
Calendar: 13
Date: 09/15/2023
Case No: 23 GDCV00444 Trial Date: None set
Case Name: Odet Ayvazyan v. U.S. Bancorp
DEMURRER TO FIRST AMENDED COMPLAINT
MOTION TO STRIKE
Moving Party: Defendant U.S. Bank National Association (sued herein as U.S. Bancorp d/b/a U.S. Bank National Association
Responding Party: Plaintiff Odet Ayvazyan
RELIEF REQUESTED:
CAUSES OF ACTION: from First Amended Complaint
1) Negligent Misrepresentation
2) Intentional Misrepresentation
3) Promissory Estoppel
4) Breach of Implied Contract
5) Breach of Implied Covenant of Good Faith and Fair Dealing
6) Violation of Business & Professions Code § 17200
SUMMARY OF FACTS:
Plaintiff Odet Ayvazyan alleges that she has an ownership interest in property on Chestnut Street in Glendale and has used the property as her primary residence. Plaintiff alleges that in 2011 plaintiff took out a loan mortgage against the property from PMC Bancorp, and a Deed of Trust was recorded. In May of 2018, plaintiff took out a Home Equity Line of Credit (HELOC) against the property from defendant US Bank. In May of 2020, plaintiff’s partner lost his business due to the COVID-19 pandemic, causing a reduction in household income, and plaintiff fell behind on her HELOC payments. In June of 2020, US Bank offered plaintiff a forbearance plan during her time of hardship.
Plaintiff alleges that after the expiration of the 2020 forbearance plan, she made several attempts to contact US Bank to inquire about loss mitigation options but was not able to reach an agent.
In April of 2022, plaintiff, through her counsel, submitted a loss mitigation application to US Bank. US Bank notified plaintiff it had received the application and in May of 2022 requested documents. In June 2022, a US Bank agent confirmed that the April 2022 application was complete, but a decision had not been rendered. In June of 2022 US Bank sent a letter to plaintiff stating the completed application had been received on June 10, 2022, and requesting additional documents. Plaintiff submitted the documents and was told in July that no additional documents were needed, and that the April 2022 application was being reviewed. In July of 2020, a US Bank agent stated that the April 2022 application was denied, but a letter had not yet been sent.
In August of 2022, plaintiff submitted another loss mitigation application, more documents were requested, which plaintiff submitted, and in October of 2022, plaintiff was informed that because additional documents requested were not received, the August 2022 application was closed, and a new application would have to be submitted.
In November of 2022, plaintiff submitted a third loss mitigation application, which was denied, as verification of disability was needed.
In December of 2022, plaintiff submitted a fourth loss mitigation application, additional documents were requested, which plaintiff submitted, and in February of 2023, a US Bank agent stated to plaintiff that the property was not in foreclosure and that plaintiff was not in active loss mitigation. Plaintiff alleges that to date, she is still waiting for a written determination regarding the April 2022 application, August 2022 application, November 22, 2022 application, and the December 2022 application.
ANALYSIS:
First Cause of Action—Negligent Misrepresentation
The elements of a claim for negligent misrepresentation are: 1) assertion of a false statement; (2) honest belief by the speaker that the statement is true, but without reasonable ground for such belief, (3) justifiable reliance by the plaintiff; and (4) resulting damage. See Anderson v. Deloitte & Touche (1997) 56 Cal.App.4th 1468, 1474-1476.
Defendant US Bank argues that Plaintiff fails to plead a misrepresentation by U.S. Bank because Plaintiff admits that U.S. Bank never offered any loan modification, U.S. Bank’s request that Plaintiff submit a Mortgage Assistance Application and supporting documents such as a third party contribution letter do not constitute misrepresentations, and U.S. Bank’s statement that she would receive a written determination of an Loan Modification Applications (“LMA”) in the future is a false promise of future action which cannot form the basis of a negligent misrepresentation claim. Defendant also argues that Plaintiff fails to allege justifiable reliance in believing that she would receive a written decision because she does not provide any facts as to how each of her LMAs were not reviewed in good faith since U.S. Bank did not owe a duty to provide Plaintiff with loss mitigation options at the conclusion of the LMA review and she knew the results of the reviews of all four LMAs regardless of receiving a written denial letter. Finally, Defendant asserts that Plaintiff has not alleged any resulting damages from any representation since there are no alleged facts that U.S. Bank prohibited Plaintiff from curing the default, or that if she had known about the purported misrepresentations by U.S. Bank, she would have behaved differently; that she would have qualified for a loss mitigation option; that she was prevented from seeking other non-foreclosure alternatives, such as refinancing or curing her default in some other way; and that foreclosure proceedings have commenced.
In opposition, Plaintiff argues that the FAC sufficiently alleges that US Bank made a material representation when it states that the April 2022 application was incomplete (FAC ¶ 53), which was untrue because Plaintiff submitted an entirely complete packet. Plaintiff states that US Bank intended that Plaintiff rely on this misrepresentation, which she reasonably relied upon since she assumed that US Bank would not lose her documents. Plaintiff claims she changed her position by resubmitting the entirely complete packet again rather than seeking other foreclosure options, and as a result she suffered harm as she has still not been able to make a single payment on her mortgage since she started the loan modification process. (FAC ¶¶ 55, 78, 81.)
In reply, Defendant states that Plaintiff admits she was eventually told by US Bank that the First LMA was deemed complete, but she fails to explain how this “misrepresentation” was material as US Bank never offered any loan modification and told her that the First LMA was denied.
The FAC identifies some misrepresentations made by US Bank concerning the status of Plaintiff’s loan modification, offers for illusory modification proposals, and promise that a permanent loan modification would be forthcoming. (FAC ¶ 47.) The FAC also states that US Bank made a material misrepresentation by requesting that she submit a Mortgage Assistance Application. The FAC provides that Plaintiff changed her position based on these representations by resubmitting a complete packet rather than seeking other foreclosure options, and that as a result of these misrepresentations, she suffered damages by way of failure to pay her loan payments.
In the June 23, 2023 Minute Order, the Court stated: “There does not appear to be any allegation of a misrepresentation, how plaintiff changed her position based on any such representation, or how a negligent misrepresentation resulted in damage.”
The Court finds that this deficiency is remedied. Although Plaintiff fails to show how some of the alleged representations constitute misrepresentations since it appears that US Bank simply requested that Plaintiff submit certain documents and claims of false promises of future action cannot form the basis of a negligent misrepresentation claim, Plaintiff identifies specific misrepresentations to support this cause of action. “[A]n action based on a false promise is simply a type of intentional misrepresentation, i.e., actual fraud. The specific intent requirement also precludes pleading a false promise claim as a negligent misrepresentation, i.e., ‘The assertion, as a fact, of that which is not true, by one who has no reasonable ground for believing it to be true.’ (Civ.Code, § 1710, subd. (2).) Simply put, making a promise with an honest but unreasonable intent to perform is wholly different from making one with no intent to perform and, therefore, does not constitute a false promise.” Tarmann v. State Farm Mut. Auto. Ins. Co. (1991) 2 Cal.App.4th 153, 159. Plaintiff states that US Bank’s misrepresentation that the April 2022 Application was incomplete is a material misrepresentation upon which she justifiably relied, and that the misrepresentation resulted in damages. Defendant argues that Plaintiff fails to show that this alleged misrepresentation resulted in damages since Plaintiff was eventually told that the first LMA was denied and that it never offered any loan modification. However, the Court finds this is to be testing the sufficiency of the allegations, rather than determining whether there are actually allegations to support a cause of action. The demurrer accordingly is overruled.
Second Cause of Action—Intentional Misrepresentation
To state a cause of action for fraud, plaintiff must plead the following elements: A false representation, actual or implied, or concealment of a matter of fact material to the transaction which defendant had a duty to disclose, or a promise made without intent to perform; defendant’s knowledge of the falsity; defendant’s intent to induce another into relying on the representation; plaintiff’s justifiable reliance thereon; and resulting damage to plaintiff. Pearson v. Norton (1964) 230 Cal.App.2d 1, 7-12.
Generally, in a fraud cause of action, a plaintiff must allege specifically how, what, where, to whom and by what means a defendant made a misrepresentation. Stansfield v. Starkey (1990, 2nd Dist.) 220 Cal.App.3d 59, 73, citation omitted. When such a claim is made against a corporation, the level of specificity required is even higher. Under Lazar v. Superior Court (1996) 12 Cal.4th 631, 645, in fraud complaints against a corporation, a plaintiff must allege all of the following:
-the names of the persons who made the misrepresentation;
-their authority to speak for the corporation;
-to whom they spoke;
-what they said or wrote; and
-when it was said or written.
The Court previously stated:
The only representations which appear to be claimed to be untrue are alleged as follows, “US BANK intentionally misrepresented to PLAINTIFF that her applications were being reviewed in good-faith, and that PLAINTIFF would receive written determination of her many applications for assistance.” [Complaint, para. 95].
These representations, that the applications would be reviewed in good-faith and that plaintiff would receive written determinations, are not alleged with the required specificity. It is not alleged who made these representations, where, when, by what means (oral or written), the names of the persons who spoke on behalf of US Bank, and their authority to speak for the corporate entity.
Plaintiff in opposition argues that fraud may arise from conduct that it designed to mislead, but such a theory is not what is alleged in the pleading, and the authorities cited focus on “false representations.” See Engalla v. Permanente Medical Group, Inc. (1997) 15 Cal.4th 951, 974. The opposition argues that “Defendants lied about each of the following…” without specifying the “following” facts about which there were false statements. [Opposition, p. 8]. The opposition seems to argue that the cause of action is based on the completed loss mitigation applications which have not been resolved, and in connection with plaintiff never having received a written response as to the outcome. The opposition does not point to an allegation in the pleading which alleges the representation that there would be a written response with the requisite specificity. The demurrer will accordingly be sustained on the ground the cause of action is not alleged with the requisite specificity.
(6/23/23 Minute Order.)
The Court finds these defects to be remedied as the FAC alleges with specificity as to how, what, where, to whom and by what means a US Bank made a misrepresentation as the FAC identifies US Bank agents by name and identification number which establishes their authority to speak on behalf of the Defendant. Further, the FAC identifies statements made, when they were made, that the statements were false, and that Plaintiff relied upon them and suffered harm. The demurrer accordingly is overruled.
Third Cause of Action—Promissory Estoppel
A person may not ordinarily recover in tort for the breach of duties that merely restate contractual obligations. BFGC Architects Planners, Inc. v. Forcum/Mackey Construction, Inc. (2004) 119 Cal. App. 4th 848, 853. The breach of a contractual promise is enforced via contract law, except when the actions that constitute the breach violate a social policy that merits the imposition of tort remedies. Id.
The promissory estoppel cause of action is grounded in US Bank’s alleged breach of its promise of a “genuine and honest review process for loan modification,” which Plaintiff contends is clear and unambiguous.
This cause action will be stricken given that Plaintiff was not granted leave to add a new cause of action. Accordingly, the demurrer is overruled as moot as to this cause of action.
Fourth Cause of Action—Breach of Implied Contract
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.
Defendant argues that this cause of action must fail due to the statute of frauds as an agreement to modify a contract that is subject to the statute of frauds is also subject to the statute of frauds. Plaintiff argues that the implied contract was “wholly separate and apart from any written agreement” and did not aim to modify the existing loan agreement, but to ensure an honest review process such that it falls outside the purview of the statute of frauds.
The Court previously stated:
Plaintiff here does not claim to have given any consideration for US Bank’s alleged promises and fails to allege any value or benefit US Bank received from reviewing plaintiff for a loan modification.
Plaintiff in the opposition argues, without legal analysis, the that cause of action is not barred by the statute of frauds, and argues that there were numerous breaches, many of which are not actually alleged in the cause of action and are not connected to an alleged term of the contract. The demurrer accordingly is sustained.
(6/23/23 Minute Order.)
Plaintiff does not claim to have given any consideration for US Bank’s alleged promises and fails to allege any value or benefit US Bank received from reviewing plaintiff for a loan modification. The demurrer accordingly is sustained.
Fifth Cause of Action—Breach of Implied Covenant of Good Faith and Fair Dealing
It is recognized that “Every contract imposes upon each party a duty of good faith and fair dealing in its performance and its enforcement.” Carma Developers (Cal.), Inc. v. Marathon Development California, Inc. (1992) 2 Cal.4th 342, 371, quoting Restatement 2nd Contracts, §205.
The elements of a claim for breach of the implied covenant of good faith and fair dealing are:
1) That plaintiff and defendant entered into a contract;
2) That plaintiff did all, or substantially all of the significant things that the contract required plaintiff to do or that plaintiff was excused from having to do those things;
3) That all conditions required for defendant’s performance had occurred;
4) That defendant unfairly interfered with plaintiff’s right to receive the benefits of the contract; and
5) That plaintiff was harmed by defendant’s conduct.
See CACI 325.
It is recognized that the covenant is implied “as a supplement to the express terms of the contractual covenants, to prevent a contracting party from engaging in conduct which (while not technically transgressing the express covenants) frustrates the other party’s rights to the benefits of the contract.” Racine & Laramie, Ltd. v. Department of Parks & Recreation (1992) 11 Cal.App.4th 1026, 1031-1032.
Defendant argues that this cause of action must fail as Plaintiff has not alleged that she performed all of the conditions of the express terms of the subject contract, the HELOC Deed of Trust. Defendant points out that plaintiff admits in her complaint that she has defaulted on her HELOC payments. (FAC ¶¶ 16-17.) Plaintiff has also attached to the complaint the HELOC Deed of Trust, which includes the following language:
“Deed of Trust Covenants. Trustor agrees that the covenants in this section are material obligations under the Secured Debt and Security Instrument.
Payments. Trustor agrees that all payments under the Secured Debt will be paid when due and in accordance with the terms of the Secured Debt and this Security Instrument.”
(FAC, Ex. B, p. 2.)
Defendant also argues that plaintiff cannot point to any contract provision in the HELOC Deed of Trust which requires US Bank to approve plaintiff for a loss mitigation option and send her a written determination letter and cannot use the implied covenant to create a contract that does not exist. As the Supreme Court has observed, the covenant “cannot impose substantive duties or limits on the contracting parties beyond those incorporated in the specific terms of their agreement.” Guz v. Bechtel National, Inc. (2000) 24 Cal.4th 317, 349-350. As stated in CACI, “the implied promise of good faith and fair dealing cannot create obligations that are inconsistent with the terms of the contact.” CACI, 325.
Defendant also argues that to the extent plaintiff is attempting to claim that US Bank orally agreed to review her loss mitigation applications or provide a written determination as a term of the HELOC Deed of Trust, any such agreement would be subject to the statute of frauds. It is held that a forbearance agreement which alters a lender’s ability to exercise a right to foreclose is subject to the statute of frauds and must be in writing. See Secrest v. Security National Mortgage Loan Trust 2002-2 (2008) 167 Cal.App.4th 544, 553.
In opposition, Plaintiff asserts the implied covenant is specifically related to the manner in which US Bank handled the LMAs, separate from the issues of default. Plaintiff alleges that US Bank’s failure to review the LMAs and to send a written determination constitutes a breach of the Covenant. (FAC ¶ 141.) Such actions demonstrate a lack of good faith and fair dealing specifically in the context of loan modification review and foreclosure prevention, thereby further exacerbating Plaintiff’s financial situation. Plaintiff maintains that due to this bad faith, she was left in a perpetual state of review, which increased her default amount and resulted in other consequential damages. While a deed of trust is generally subject to the statute of frauds, Plaintiff's cause of action for breach of the implied covenant is not seeking to modify the original terms of the Deed. Rather, it is highlighting US Bank’s misconduct in the handling of the LMAs, separate from the Deed itself.
The Court previously stated:
Plaintiff also argues that plaintiff contends that the oral agreement in question was to review the loan modification agreement in good faith and in a timely manner, and failing to pay the original loan was not required of such an agreement. The pleading, however, clearly alleges that the implied covenant, “is included within any loan agreement between a lender and a borrower.” [Complaint, para. 106]. The complaint accordingly is expressly based on the loan agreement and fails for the various reasons stated above.
If this separate contract is plaintiff’s theory, plaintiff has either failed to sufficiently allege that this separate contract exists, without which there could be no implied covenant, or failed to allege the breach of some implied covenant, as opposed to the alleged breach of the actual terms of the alleged contract.
To the extent plaintiff intends to rely on the fourth cause of action to support the third cause of action, the allegations of that cause of action are not incorporated by reference into the third cause of action. [See Complaint, para. 102, incorporating previous allegations through para. 102 only].
To the extent the opposition appears to suggest that the agreement included an agreement that plaintiff would default on the HELOC and then submit financial documentation in exchange for US Bank reviewing plaintiff for a loss modification, as pointed out in the reply, these allegations do not appear in the complaint.
(6/23/23 Minute Order)
The Court finds these allegations to be insufficient for this cause of action. Even though the FAC alleges that the parties entered into a separate agreement, Plaintiff fails to sufficiently allege the existence of such a contract, and that Defendant breached the terms of an implied covenant of such contract. For example, the FAC offers no facts as to the consideration exchanged between the parties for the alleged agreement to “participate in an honest review process for loan modification.” (FAC ¶ 137.) The demurrer accordingly is sustained.
Sixth Cause of Action—Violation of Business & Professions Code Section 17200 et seq.
Defendant argues that this cause of action is entirely derivative of the other causes of action, and since plaintiff’s underlying claims against defendant are not sufficient, the unfair business practices cause of action fails as well. Defendant also states that Plaintiff fails to plead, with particularity, that U.S. Bank engaged in such “unfair” practices, she fails to state a claim under the “unfair” prong. Defendant also states that Plaintiff’s conclusory statement that US Bank engaged in acts which misled the Plaintiff and other “other borrowers and the public in general” are conclusory and fail to show how the general public would likely be deceived by events occurring in connection with Plaintiff’s private loan transaction and related, non-public loss mitigation option discussions. Finally, Defendant asserts that Plaintiff cannot attribute alleged potential loss of equity and other purported losses to U.S. Bank’s alleged actions, as any alleged losses were caused by her own default.
In opposition, Plaintiff asserts that the UCL claim is not merely a restatement of other causes of action as the UCL was explicitly designed to cover a broad range of conduct, including “any unlawful, unfair, fraudulent or deceptive business act or practice,” which Plaintiff asserts. Cal. Bus. & Prof. Code § 17200. Plaintiff also states that she has explicitly alleged in the FAC that Defendant’s violations have added thousands of dollars in attorney’s fees, late fees, and other costs, thereby demonstrating the economic injury suffered. (FAC ¶¶ 156, 157.)
Under Business & Professions Code §17204: “Actions for any relief pursuant to this chapter shall be prosecuted exclusively in a court of competent jurisdiction by the Attorney General or any district attorney...or upon the complaint of any board, officer, person, corporation or association or by any person who has suffered injury in fact and has lost money or property as a result of such unfair competition.”
The Court previously stated:
Here, the complaint alleges that plaintiff defaulted on her HELOC payments. [Complaint, para. 17]. This is also not a case where foreclosure proceedings have even been initiated or are alleged to have been initiated. The complaint alleges that plaintiff has been informed that the property is “not in foreclosure…” [Complaint, para. 41].
Plaintiff in the opposition does not explain how she has suffered injury in fact and lost money or property but argues that she faces the imminent loss of her home, and the compounding of fees and penalties. Plaintiff does not allege such facts in the complaint, or that she has paid any such fees or penalties, and it would appear that she continues to face a causation problem with respect to her standing due to having defaulted, as discussed above. The demurrer will be sustained on this ground as well.
(6/23/23 Minute Order)
Given the sufficiency of allegations for Plaintiff’s misrepresentation claims, the Court finds that the FAC sufficiently alleges facts to support the “unfair” and “fraudulent” prongs. However, Plaintiff fails to allege economic injury to state a UCL claim as she relies only on attorney’s fees and costs, which are not the type of loss that gives standing. This claim is not injury in fact as a result of US Bank’s conduct. Accordingly, the demurrer is sustained.
Motion to Strike
Defendant seeks to strike the claims for Plaintiff’s third cause of action and request for attorney’s fees. Defendant argues that the third cause of action for promissory estoppel should be stricken as she was not granted leave to add new causes of action. Defendant also states that Plaintiff is not entitled to attorney’s fees on her UCL claim as they are not recoverable under Cel-Tech Commc'ns, Inc. v. Los Angeles Cellular Tel. Co., 20 Cal. 4th 163, 179 (1999), which states that “Plaintiffs may not receive damages, much less treble damages, or attorney fees” under the UCL.
Plaintiff has not provided an opposition. Moreover, the Court finds Defendant’s arguments to have merit. Thus, the Court grants Defendant’s requests to strike in full.
RULING:
U.S. Bank National Association’s Demurrer to Complaint is OVERRULED in part as to the first, second, and third causes of action, and SUSTAINED WITHOUT LEAVE TO AMEND as to the fourth, fifth, and sixth causes of action.
U.S. Bank National Association’s Motion to Strike Portions of the Complaint is GRANTED.
DEPARTMENT D IS CONTINUING TO CONDUCT AND ENCOURAGE
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