Judge Randolph M. Hammock, Case 19STCV40350 2022-09-16 Tentative Ruling

Plaintiff Hasmik Yaghobyan alleges that on 6/29/12, Aurora Bank FSB, assigned and transferred to Defendant Nationstar Mortgage, LLC, the deed of trust dated 7/17/2006, in the amount of $1,000,000, for the subject property located at 2241 Flintridge Dr., Glendale, CA 91206. After the assignment, Plaintiff alleges her first monthly statement showed an $800 increase. Plaintiff sought answers from Nationstar but to no avail.

Nationstar then posted a notice of trustee sale; before the sale, Plaintiff obtained a loan modification. The modification resulted in a near doubling of Plaintiff’s monthly payments. Plaintiff then defaulted and Nationstar posted another trustee sale for April 4, 2014. Around the same time, Plaintiff filed for Chapter 11 bankruptcy.

On May 21, 2014, Nationstar assigned and transferred the deed of trust dated 7/17/2006 to Defendant Deutsche Bank Trust Company Americas. Plaintiff alleges this happened in violation of the 362 11 U.S.C. automatic stay. Plaintiff then filed another application for loan modification, which was denied. Plaintiff now brings this action for (1) breach of contract, (2) fraud, (3) intentional misrepresentation, and (4) IIED.

Generally speaking, leave to amend must be allowed where there is a reasonable possibility of successful amendment. Goodman v. Kennedy (1976) 18 Cal.3d 335, 348. Plaintiff must demonstrate this possibility at the hearing. If he doesn’t, no leave to amend will be given.

The court takes judicial notice of the exhibits without assuming the truth of the assertions contained therein. (Evid. Code, § 452, subd. (h).) (See Seelig v. Infinity Broad. Corp. (2002) 97 Cal. App. 4th 798, 808.)

The rules applicable to demurrers also apply to motions for judgment on the pleadings. (County of Orange v. Association of Orange County Deputy Sheriffs (2011) 192 Cal.App.4th 21, 32.) A motion for judgment on the pleadings is properly granted when the “complaint does not state facts sufficient to constitute a cause of action against that defendant.” (Code Civ. Proc., § 438, subd. (c)(1)(B)(ii).) The grounds for the motion must appear on the face of the challenged pleading or from matters that may be judicially noticed. (Code Civ. Proc., § 438, subd. (d).) The trial court must accept as true all material facts properly pleaded, but does not consider conclusions of law or fact, opinions, speculation, or allegations contrary to law or facts that are judicially noticed. (Stevenson Real Estate Services, Inc. v. CB Richard Ellis Real Estate Services, Inc. (2006) 138 Cal.App.4th 1215, 1219-20.) “A motion for judgment on the pleadings may be made at any time either prior to the trial or at the trial itself.” (Stoops v. Abbassi (2002) 100 Cal.App.4th 644, 650.)

Defendants raise a series of arguments in their motion for judgment on the pleadings. This court begins with the issue it finds dispositive in this matter, that being, Plaintiff’s current lack of standing to bring her claims. (See paragraph “a”, infra.) As that issue is enough to grant the motion, this court then continues with Defendants’ remaining arguments only for purposes of discussion.

Defendants argue that Plaintiff does not have standing to bring these claims. To bring a claim, the plaintiff must be the real party in interest. (Code Civ. Proc., § 367; Cloud v. Northrop Grumman Corp. (1998) 67 Cal.App.4th 995, 1004. Defendants point to “[t]he widely accepted rule is that after a person files for bankruptcy protection, any causes of action previously possessed by that person become the property of the bankrupt estate.” (Id. at 1001; See 11 U.S.C. §§ 541(a)(1).)

When a person prosecutes a petition for chapter 7 bankruptcy, the bankruptcy trustee, as the representative of the bankruptcy estate, becomes the real party in interest over the debtor's “pre-petition” causes of actions or claims. That is because those causes of actions or claims, upon the debtor's filing for bankruptcy, “bec[a]me [the] property of the bankruptcy estate.” (Bostanian v. Liberty Savings Bank (1997) 52 Cal.App.4th 1075, 1081.)

Accordingly, only the trustee has standing to assert any pre-petition claims, at least until the claims are abandoned. (Id. at 1081-82.) One way for the trustee to abandon the claim is to disclose the claim(s) in the bankruptcy petition. (See 11 USC § 554(c).) When they are not disclosed, however, those claims are not abandoned and do not revert back to the debtor. Here, Plaintiff did not disclose these causes of action in the bankruptcy proceeding. (D’s RJN Exhs. E&F.) Accordingly, the estate never abandoned the claims.

Plaintiff’s only argument in opposition is that this case is distinguishable from Bostonian “because the Plaintiff was not in an active bankruptcy at the time of filing her complaint on 11/8/2019.” (Opp. 5: 4-5.) But Plaintiff provides no authority that this distinction makes any interference. Rather, it appears the relevant inquiry is whether the claims had been “abandoned” by the estate in the bankruptcy proceeding.

It appears then that Plaintiff has two options: (1) reopen her bankruptcy case to secure an abandonment of the claim through the enumerated options in 11 USC § 554 (see, e.g., Bostanian, supra, 52 Cal. App. 4th at 1087), or (2) insert the bankruptcy trustee into this case as real party in interest. (see, e.g., Cloud, supra, 67 Cal.App.4th at 1011 [when motion for judgment on the pleadings is granted for lack of standing, plaintiff generally should be given leave to amend to insert trustee as real party in interest].)

Defendants next argue that Plaintiff is judicially estopped from asserting her claims. The doctrine of judicial estoppel precludes a party from taking inconsistent positions in separate judicial proceedings. “It is invoked to prevent a party from changing its position over the course of judicial proceedings when such positional changes have an adverse impact on the judicial process.... ‘The policies underlying preclusion of inconsistent positions are general consideration[s] of the orderly administration of justice and regard for the dignity of judicial proceedings.’ ... Judicial estoppel is ‘intended to protect against a litigant playing ‘fast and loose with the courts.’” [Citation.] (The Swahn Grp., Inc. v. Segal (2010) 183 Cal. App. 4th 831, 841.) Unlike equitable estoppel, “[t]he gravamen of judicial estoppel is not privity, reliance, or prejudice. Rather, it is the intentional assertion of an inconsistent position that perverts the judicial machinery.’ [Citations.]” (Id.)

The elements of judicial estoppel are “(1) the same party has taken two positions; (2) the positions were taken in judicial or quasi-judicial administrative proceedings; (3) the party was successful in asserting the first position (i.e., the tribunal adopted the position or accepted it as true); (4) the two positions are totally inconsistent; and (5) the first position was not taken as a result of ignorance, fraud, or mistake.” (Aguilar v. Lerner (2004) 32 Cal.4th 974, 986–987.)

“The trial court may sustain a demurrer on the ground of judicial estoppel where the facts pleaded and judicially noticed indicate as a matter of law the doctrine should be applied, i.e., that a court has adopted or accepted as true the inconsistent position.” (The Swahn Grp., supra, 183 Cal. App. 4th at 844.) [FN 1]

Defendants argue all elements of judicial estoppel are met here because: [1] Plaintiff was the debtor in the bankruptcy action and is the plaintiff in this case; [2] The bankruptcy was clearly a prior judicial proceeding; [3] Plaintiff was successful in asserting the first position, as she received a discharge; [4] The two positions are inconsistent; and [5] The concealment of Plaintiff’s claims was not due to ignorance, fraud, or mistake by somebody other than Plaintiff. (MJOP 3: 15-23.)

The court disagrees. Here, at least the final element is missing it cannot be determined as a matter of law by means of the instant motion for judgment on the pleadings that Plaintiff’s position (or omissions) in the bankruptcy proceeding was taken with “fraud or mistake.” (Cloud v. Northrop Grumman Corp. (1998) 67 Cal. App. 4th 995, 1019 [“nondisclosure in bankruptcy filings, standing alone, is insufficient to support the finding of bad faith intent necessary for the application of judicial estoppel”].)

This argument fails. The Complaint alleges that “Nationstar Mortgage, LLC assigned and transferred to Deutsche Bank Trust Company Americas … all interest under the deed of trust dated 7/17/2006.” (Compl. ¶ 16.) After that, the Defendants apparently acted in concert to cause Plaintiff’s harm. Whether Defendants did, in fact, do so is not relevant for pleading purposes.

Defendants next argue the economic loss rule bars the claims here. “The economic loss rule requires a purchaser to recover in contract for purely economic loss due to disappointed expectations, unless he can demonstrate harm above and beyond a broken contractual promise. [Citation.] Quite simply, the economic loss rule ‘prevent[s] the law of contract and the law of tort from dissolving one into the other.’ [Citation.] (Robinson Helicopter Co., Inc. v. Dana Corp. (2004) 34 Cal.4th 979, 988). Thus, tort claims “are barred when they arise from — or are not independent of — the parties’ underlying contracts.” (Sheen v. Wells Fargo, N.A. (2022) 12 Cal. 5th 905, 923.)

Defendants analogize this case to the California Supreme Court’s decision in Sheen v. Wells Fargo, N.A. (2022) 12 Cal. 5th 905, 919, in which the Court addressed whether a lender owes a tort duty sounding in general negligence principles to “process, review and respond carefully and completely to” a borrower's application. (Id. at 948.) The Court answered in the negative, holding that the borrower’s claim was barred by the economic loss rule “because it [was] based on an asserted duty that [was] contrary to the rights and obligations clearly expressed in the loan contract.” (Id. at 925.) Sheen focused on duty in the limited context of the borrower’s attempt to renegotiate her mortgage. Because the loan agreement, however, did not expressly require the lender to do so, the borrower could not bring tort claims.

Here, the situation is different. Unlike Sheen, Plaintiff is not asserting that Plaintiff owed it a duty to provide a loan modification. Rather, Plaintiff’s tort claims are based on allegations that Defendants falsely represented to Plaintiff that her monthly payments were higher than they actually were (Compl. ¶ 47); that Defendants then “put[] her though a foreclosure and attempt in selling her house” (Id. ¶ 57); and that Defendants did so intentionally or with reckless disregard. (Id. ¶ 61.) This is an obligation that is wholly separate from the breach of contract claim. There is also no argument that maintaining the tort claims here would be “contrary to the rights and obligations clearly expressed” in the contract. (Sheen, supra at 925.) Accordingly, this argument fails.

Defendants next argues that Plaintiff has not (and cannot) show damages for her claims, because her remedies are limited to solely injunctive relief. As this court understands Defendants’ argument, Defendants contend that Plaintiff’s common law causes of action are effectively “preempted” by California’s Homeowners’ Bill of Rights, Cal. Civ. Code § 2920.5 et seq. (“HBOR”). Put differently, Defendants say “permitting Plaintiff to seek damages would improperly circumvent the Legislature’s express decision to grant only limited injunctive relief for preforeclosure HBOR violations.” (Mtn. 6: 24-26.)

Defendants cite numerous cases for the general rule that the Legislature may preempt or modify common law doctrines. But Defendant provides no authority suggesting that Plaintiff’s rights are limited to HBOR in this case. Under Defendants’ view, it appears nearly all common law torts are completely eliminated in the mortgage context. This court finds no authority for such a sweeping proposition.

“A cause of action for breach of contract requires proof of the following elements: (1) existence of the contract; (2) plaintiff's performance or excuse for nonperformance; (3) defendant's breach; and (4) damages to plaintiff as a result of the breach.” (Miles v. Deutsche Bank National Trust Co. (2015) 236 Cal.App.4th 394, 402.)

Defendants argue Plaintiff’s claim is time-barred under the four-year statute of limitations set by CCP section 337(a). Plaintiff alleges that the $800 increase in her monthly payments occurred in 2012. (Compl. ¶ 37.) She also alleges that Nationstar breached her loan contract when it offered her a modification in April 2013 that increased her monthly payments. (Id. ¶¶ 8, 13, 40-42.)

Plaintiff’s only argument in opposition is that her bankruptcy stayed the limitations period. The automatic stay of bankruptcy, however, applies only to actions against the debtor. Bankruptcy filings do not stay actions by the debtor against others. (See ECC Construction, Inc. v. Oak Park Calabasas Homeowners Assn. (2004) 118 Cal.App.4th 1031, 1037, fn. 3 (ECC Construction); In re Palmdale Hills Property, LLC (9th Cir. 2011) 654 F.3d 868, 875.) Thus, Plaintiff’s causes of action were not tolled by her pending bankruptcies.

On these facts, Defendants appear correct that the limitations period expired in 2016 and 2017 for the breaches allegedly committed in 2012 and 2013, respectively. Plaintiff did not file this complaint until November 8, 2019. Thus, her claim is untimely.

Defendants argue the fraud claim is time-barred under the three-year statute of limitations of CCP section 338(d). Plaintiff alleges that the purported false representation was made by Defendants in its motion for relief filed in her bankruptcy. (Compl. ¶¶ 47-48.) The court takes judicial notice of the motion for relief from the bankruptcy court’s automatic stay, which was filed on September 30, 2016. (D’s RJN Ex. H.) Thus, it appears Plaintiff became aware of the misrepresentation as of this date. Because the purported misrepresentation occurred over three years before Plaintiff filed this action, it is time-barred. Thus, based on the Complaint and items of which this court may take judicial notice, it appears as a matter of law that Plaintiff’s fraud claim is also untimely.

Plaintiff argues, however, that the delayed discovery rule applies. But “[i]n order to invoke [delayed discovery] to the statute of limitations, the plaintiff must specifically plead facts which show (1) the time and manner of discovery and (2) the inability to have made earlier discovery despite reasonable diligence.” (Saliter v. Pierce Bros. Mortuaries (1978) 81 Cal. App. 3d 292, 297.) Plaintiff has not done so here. Plaintiff cannot invoke delayed discovery, or some other equitable doctrine, without pleading when the purported discovery actually occurred.

Defendant again argues this claim is untimely under the applicable statute of limitations period. First, this court notes that the claim is captioned as one for “intentional misrepresentation,” but the elements stated are for “negligent misrepresentation,” which is a “separate and distinct” tort. (Oakland Raiders v. Oakland-Alameda Cnty. Coliseum, Inc. (2006) 144 Cal. App. 4th 1175, 1184.) Because Plaintiff already has a claim for fraud seemingly based on the same underlying facts, this court assumes Plaintiff intends negligent misrepresentation.

The statute of limitations for negligent misrepresentation is 2 or 3 years, depending on the nature of the right sued upon. (Ventura Cnty. Nat’l Bank v. Macker (1996) 49 Cal. App. 4th 1528, 1531.) In either case, as discussed above, the claim here is again untimely.

Finally, Defendants argue the IIED claim is time-barred. IIED has a two-year statute of limitations. (Code Civ. Proc., § 335.1; Pugliese v. Superior Court (2007) 146 Cal.App.4th 1444, 1450.) “A cause of action for intentional infliction of emotional distress accrues, and the statute of limitations begins to run, once the plaintiff suffers severe emotional distress as a result of outrageous conduct on the part of the defendant.” (Cantu v. Resolution Trust Corp. (1992) 4 Cal.App.4th 857, 889.)

It is not clear from the Complaint when the facts giving rise to this cause of action occurred. In large part, however, it appears Plaintiff relies on Defendants “[h]aving notices of default…posted as public records.” (Compl. ¶ 63.) Defendants provide evidence, of which this court takes judicial notice, that the notice of default was recorded in February 2017. (RJN Ex. D.) Under the two-year limitations period, the claim is also untimely.

As expressed herein, there are numerous defects with the Complaint. As an initial (and most important matter), Plaintiff lacks standing to bring her claims. Plaintiff would generally be given leave to amend to insert the trustee as the real party in interest, or, to reopen the bankruptcy case to abandon the claims.

However, that general option does not appear to be a viable one. The bankruptcy case has been closed for many years, and it appears unlikely to be reopened by the bankruptcy court to allow the Trustee to pursue (or abandon) this claim of behalf of any creditors.

Bottom line: Unless the Plaintiff can demonstrate a reasonable probability that he can amend his Complaint to successfully address the statute of limitations issue as to any of the causes of action, granting leave to obtain proper standing would be futile.

Judge of the Superior Court

FN 1 -- The court notes here that a motion for judgment on the pleadings is the “functional equivalent” of a general demurrer, and the same standard applies. (Dudley v. Dep't of Transp. (2001) 90 Cal. App. 4th 255, 259.)

Any party may submit on the tentative ruling by contacting the courtroom via email at Smcdept49@lacourt.org by no later than 4:00 p.m. the day before the hearing. All interested parties must be copied on the email. It should be noted that if you submit on a tentative ruling the court will still conduct a hearing if any party appears. By submitting on the tentative you have, in essence, waived your right to be present at the hearing, and you should be aware that the court may not adopt the tentative, and may issue an order which modifies the tentative ruling in whole or in part.