Judge: Salvatore Sirna, Case: 21PSCV00617, Date: 2023-05-04 Tentative Ruling

The Court may change tentative rulings at any time. Therefore, counsel are advised to check this website periodically to determine whether any changes or updates have been made to the tentative ruling. Counsel may submit on the tentative rulings by calling the clerk in Department G at (909) 802-1104 prior to 8:30 a.m. the morning of the hearing.

Case Number: 21PSCV00617    Hearing Date: May 4, 2023    Dept: G

Defendants Fleet Capital, Inc., Inco Builders, and Sam Ostayan’s Demurrer to Plaintiff’s Second Amended Complaint

Respondent: Plaintiff Diana Culkin

Defendants Fleet Capital, Inc., Inco Builders, and Sam Ostayan’s Motion to Strike Portions of Second Amended Complaint

Respondent: Plaintiff Diana Culkin

TENTATIVE RULING

Defendants Fleet Capital, Inc., Inco Builders, and Sam Ostayan’s Demurrer to Plaintiff’s Second Amended Complaint is SUSTAINED IN PART and OVERRULED IN PART.

Defendants Fleet Capital, Inc., Inco Builders, and Sam Ostayan’s Motion to Strike Portions of Plaintiff’s Second Amended Complaint is GRANTED without leave to amend.

BACKGROUND

This action arises from an alleged wrongful foreclosure. On July 30, 2021, Plaintiff Diana Culkin, also known as Diana Jannette Marmolejo Corona, filed a complaint against Fleet Capital, Inc. (Fleet Capital), Best Alliance Foreclosure and Lien Services Corp. (Best Alliance), Inco Builders (Inco), and Does 1-25, alleging the following causes of action: (1) violation of California's non judicial foreclosure statutes, (2) wrongful foreclosure, (3) conversion, (4) unfair business practices, and (5) declaratory relief.

On February 9, 2022, Inco filed a cross-complaint against Plaintiff, Michael Culkin, and Roes 1-10, alleging the following causes of action: (1) trespass and (2) slander of title.

On February 23, 2022, Fleet Capital and Inco filed a motion for judgment on the pleadings as to Plaintiff’s complaint. On August 4, the court granted the motion with leave to amend.

On October 7, 2022, Plaintiff filed a First Amended Complaint (FAC) against the same defendants as well as Sam Ostayan (Ostayan), alleging the following causes of action: (1) violation of California's nonjudicial foreclosure statutes, (2) wrongful foreclosure, (3) quiet title, (4) unfair business practices, and (5) declaratory relief. On January 5, 2023, the court sustained a demurrer by Fleet Capital, Inco, and Ostayan (collectively, Defendants).

On February 24, 2023, the court denied Fleet Capital and Inco’s motion to dismiss Plaintiff’s action for failure to file a timely amended complaint and deemed Plaintiff’s Second Amended Complaint (SAC) filed as of that date. The SAC is against the same defendants and alleges the following causes of action: (1) violation of California's nonjudicial foreclosure statutes, (2) wrongful foreclosure, (3) quiet title, (4) promissory estoppel, (5) breach of the covenant of good faith and fair dealing, (6) violation of the Rosenthal Fair Debt Collection Practices Act, (7) unfair business practices, and (8) declaratory relief.

On March 24, 2023, Defendants filed the present demurrer and motion to strike. Prior to filing, Defendants’ counsel met and conferred telephonically with Plaintiff’s counsel and was unable to reach a resolution. (Meleski Decl., ¶ 4.)

A hearing on the demurrer and motion to strike as well as a case management conference is set for May 4, 2023.

REQUESTS FOR JUDICIAL NOTICE

Defendants ask the court to take judicial notice of five documents: (1) this court’s January 5, 2023 ruling on Defendants’ demurrer to Plaintiff’s FAC, (2) a grant deed recorded May 2, 2018, (3) a notice of default and election to sell under deed of trust recorded February 17, 2021, (4) a notice of trustee sale recorded May 20, 2021, and (5) a trustee’s deed upon sale recorded June 22, 2021.

The existence and factual contents of documents including recorded deeds of trust, notices of default and trustee’s sale, and trustee’s deeds upon sale can be noticed under Evidence Code sections 452, subdivisions (c) and (h), and 453. (Yvanova v. New Century Mortgage Corp., 62 Cal.4th 919, 924, fn. 1.) Because the court may consider judicially noticeable matters while reviewing a demurrer, the court GRANTS Defendants’ request while noting “judicial notice of matters upon demurrer will be dispositive only in those instances where there is not or cannot be a factual dispute concerning that which is sought to be judicially noticed.” (Cruz v. County of Los Angeles (1985) 173 Cal.App.3d 1131, 1133-1134.)

ANALYSIS

Defendants demur to Plaintiff’s first cause of action (violation of California's non-judicial foreclosure statutes), second cause of action (wrongful foreclosure), third cause of action (quiet title), seventh cause of action (unfair business practices), and eighth cause of action (declaratory relief).

For the following reasons, the court SUSTAINS Fleet Capital’s demurrer to Plaintiff’s third cause of action and Defendants’ demurrer to Plaintiff’s eighth cause of action with leave to amend.

The court OVERRULES Inco’s demurrer to Plaintiff’s third cause of action and Defendants’ demurrer to Plaintiff’s first, second, and seventh causes of action. Last, the court GRANTS Defendants’ motion to strike Plaintiff’s fourth, fifth, and sixth causes of action without leave to amend.

Legal Standard

A party may demur to a complaint on the grounds that it “does not state facts sufficient to constitute a cause of action.” (Code Civ. Proc., § 430.10, subd. (e).) A demurrer tests whether the complaint states a cause of action. (Hahn v. Mirda (2007) 147 Cal.App.4th 740, 747 (Hahn).) When considering demurrers, courts accept all well pleaded facts as true. (Fox v. JAMDAT Mobile, Inc. (2010) 185 Cal.App.4th 1068, 1078.) In a demurrer proceeding, the defects must be apparent on the face of the pleading or via proper judicial notice. (Donabedian v. Mercury Ins. Co. (2004) 116 Cal.App.4th 968, 994.) “A demurrer tests the pleadings alone and not the evidence or other extrinsic matters. Therefore, it lies only where the defects appear on the face of the pleading or are judicially noticed.” (SKF Farms v. Superior Court (1984) 153 Cal.App.3d 902, 905.) “The only issue involved in a demurrer hearing is whether the complaint, as it stands, unconnected with extraneous matters, states a cause of action.” (Hahn, supra, at p. 747.)

California’s Non-Judicial Foreclosure Statutes (First Cause of Action)

Defendants argue Plaintiff’s first cause of action for violation of California’s non-judicial foreclosure statutes fails as a matter of law. The court disagrees.

Plaintiff’s Default

Plaintiff alleges the notice of default and subsequent actions are invalid because no default occurred, and Defendants failed to provide proper notice pursuant to Civil Code section 2966. (SAC, ¶ 52-53, 55, 58-60, 63-64, 68.) The court previously found Civil Code section 2966 inapplicable as the notice of default was based on Plaintiff’s failure to make installment payments, not a balloon payment. (1/5/2023 Ruling, p. 2.)  The court also noted that failure to provide notice pursuant to Civil Code section 2966 “does not extinguish any obligation of payment by the trustor” (Civ. Code, § 2966, subd. (b)) or “affect the validity of a sale in favor of a bona fide purchaser or the rights of an encumbrancer for value and without notice” (Civ. Code, § 2966, subd. (c)).

Plaintiff’s SAC also alleges the existence of a forbearance agreement between M.L. Culkin Construction Company, Inc. (Culkin Construction) and the original holders of the promissory note in which parties agreed the accruing interest on the note would become part of the principal until the property was resold or financed. (SAC, ¶ 11-15.) Defendants argue the forbearance agreement is unenforceable or void.

First, Defendants contend Plaintiff was not a party to the forbearance agreement because the agreement was between Culkin Construction and the original holders of the promissory note, not Plaintiff and Defendants. (This argument ignores the fact that Culkin Construction transferred its interest in the subject property to Plaintiff, including the promissory note obligations and forbearance agreement. (SAC, ¶ 17.) Defendants’ argument does not address this issue and fails to cite any authority establishing how such a transfer or assignment is invalid. Thus, the court finds the argument is without merit.

Second, Defendants maintain the forbearance agreement is illusory because Plaintiff was free to perform or not perform at Plaintiff’s discretion. “A contract is illusory if performance is ‘conditional on some fact or event that is wholly under the promisor's control and bringing it about is left wholly to the promisor's own will and discretion.’” (Forecast Homes, Inc. v. Steadfast Ins. Co. (2010) 181 Cal.App.4th 1466, 1483, quoting Asmus v. Pacific Bell (2000) 23 Cal.4th 1, 15.) Here, Plaintiff’s payment of the principal and interest pursuant to the loan agreement is only required if Plaintiff sells or refinances the subject property. Plaintiff’s opposition does not address this argument or provide any authority to refute it. Thus, the court finds the alleged forbearance agreement is illusory and unenforceable. Furthermore, Plaintiff’s SAC does not establish the notice of default was in error.

Notice

Plaintiff alleges (1) Defendants were required to contact Plaintiff in person or via telephone prior to filing notice of default to avoid foreclosure pursuant to Civil Code section 2923.5 (SAC, ¶ 54); (2) Defendants failed to provide adequate notice of assignment prior to notice of default and notice of sale pursuant to Civil Code section 2932.5 (SAC, ¶ 66); (3) Defendants failed to provide proper notice of default pursuant to Civil Code section 2924b, subdivisions (b) and (c) (SAC, ¶ 65, 67, 72-78); and (4) Defendants failed to record notice of sale against APN 8448-007-040 and provide adequate notice (SAC, ¶ 69).

Civil Code Section 2923.5

First, Plaintiff claims Civil Code section 2923.5 required Defendants to contact Plaintiff in person or by telephone on at least three occasions prior to filing a notice of default. (SAC, ¶ 54.) Defendant argues this code section does not apply to vacant land. (Dem, p. 11:15-18.) In response, Plaintiff generally argues this code section is part a statutory scheme to protect borrowers but does not address Defendant’s argument that this code section is inapplicable to Plaintiff. (Opp., p. 8:26-9:6.)

The provisions of Civil Code section 2923.5 only apply to mortgages or deeds of trust secured by “owner-occupied residential real property containing no more than four dwelling units” or “residential real property that is occupied by a tenant and that contains no more than four dwelling units.” (Civ. Code, §§ 2923.5, subd. (f), citing Civ. Code, § 2924.15, subd. (a)(1)-(2).) In this case, Plaintiff’s SAC alleges the subject property was undeveloped and that Plaintiff was in the process of developing it. (SAC. ¶ 8, 16.) Thus, because Plaintiff does not allege the subject property met the criteria of being an owner-occupied or tenant-occupied residential property pursuant to Civil Code section 2924.15, subdivision (a), Plaintiff’s reliance on Civil Code section 2923.5 is misplaced.

Second, Plaintiff alleges Defendants failed to provide adequate notice of assignment prior to notice of default and notice of sale pursuant to Civil Code section 2932.5. (SAC, ¶ 66.) In its ruling on the demurrer to Plaintiff’s FAC, the court already rejected this allegation because Civil Code section 2932.5 merely requires the assignment of the power of sale to be signed and recorded and mentions nothing about notice being required. (1/5/2023 Ruling, p. 3.) Thus, the court’s position that this allegation is without merit remains unchanged.

Civil Code Section 2924b

Third, Plaintiff alleges Defendants failed to provide proper notice of default pursuant to Civil Code section 2924b, subdivisions (b) and (c). (SAC, ¶ 65, 67, 72-78.) Defendants contend Plaintiff still fails to rebut the presumption of proper notice provided by Civil Code section 2924, subdivision (c). (Dem., p. 6-7.) In relevant part, the code section states as follows:

“A recital in the deed executed pursuant to the power of sale of compliance with all requirements of law regarding the mailing of copies of notices or the publication of a copy of the notice of default or the personal delivery of the copy of the notice of default or the posting of copies of the notice of sale or the publication of a copy thereof shall constitute prima facie evidence of compliance with these requirements and conclusive evidence thereof in favor of bona fide purchasers and encumbrancers for value and without notice.” (Civ. Code, § 2924, subd. (c).)

The court previously found the trustee’s deed upon sale complied with Civil Code section 2924, subdivision (c), and created a rebuttable presumption that notice was proper. (1/5/2023 Ruling, p. 3.) Plaintiff’s SAC alleges Defendants did not mail the notice of default to Plaintiff pursuant to Civil Code section 2924b, subdivision (c)(1), which requires notice to be mailed within one month from when the notice of default is recorded. (SAC, ¶ 67, 75.) Plaintiff’s SAC also alleges Plaintiff did not have actual notice of the default until April 28, 2021, which was less than two months from the trustee’s sale date on June 10, 2021. (SAC, ¶ 67, 77; RJN, Ex. 4.) Because “a demurrer accepts as true all well pleaded facts,” the court finds Plaintiff has successfully rebutted the presumption of compliance by alleging Defendants’ noncompliance. (See Morris v. JPMorgan Chase Bank, N.A. (2022) 78 Cal.App.5th 279, 313 (Morris).)

In addition to alleging Defendants did not comply with non-judicial foreclosure procedure, Plaintiff must also establish “how any technical defect resulted in prejudice.” (Debrunner v. Deutsche Bank National Trust Co. (2012) 204 Cal.App.4th 433, 443.) Put another way, Plaintiff must demonstrate “plaintiff’s ability to contest or avert foreclosure was impaired.” (Id., at p. 444.) Here, Plaintiff’s SAC alleges Plaintiff did not receive at least 90 days’ notice pursuant to Civil Code section 2924b and was accordingly denied adequate time to act. (SAC, ¶ 25, 28-29, 89.) In Morris, the plaintiff was prejudiced where plaintiff received actual notice of a trustee’s sale after it had already occurred. (Morris, supra, 78 Cal.App.5th at p. 313-314.)

Here, Defendants suggest that Plaintiff was not prejudiced because Plaintiff was aware of the default and impending trustee’s sale for about a month. (Dem., p. 7-8.) However, based on the allegations in Plaintiff’s SAC, the court agrees that reducing Plaintiff’s notice of the impending default to one-third of the time required by statute is prejudicial to Plaintiff’s ability to contest or avert foreclosure. Thus, because Plaintiff has alleged Defendants did not provide proper notice pursuant to Civil Code section 2924b and that the lack of notice prejudiced Plaintiff, the court finds Plaintiff has stated a cause of action for violation of California’s non-judicial foreclosure statutes. To the extent Plaintiff also alleges Defendants failed to record notice of sale against APN 8448-007-040 and violated Government Code section 8224, the court notes these allegations were already rejected in the court’s ruling on Defendant’s previous demurrer. (1/5/2023 Ruling, p. 3-4.)

Accordingly, Defendants’ demurrer to Plaintiff’s first cause of action is OVERRULED.

Wrongful Foreclosure (Second Cause of Action)

Defendants contend Plaintiff cannot state a cause of action for wrongful foreclosure as a matter of law. The court disagrees.

The elements of a cause of action for wrongful foreclosure are: “‘(1) the trustee or mortgagee caused an illegal, fraudulent, or willfully oppressive sale of real property pursuant to a power of sale in a mortgage or deed of trust; (2) the party attacking the sale (usually but not always the trustor or mortgagor) was prejudiced or harmed; and (3) in cases where the trustor or mortgagor challenges the sale, the trustor or mortgagor tendered the amount of the secured indebtedness or was excused from tendering.’” (Miles v. Deutsche Bank National Co. (2015) 236 Cal.App.4th 394, 408, quoting Lona v. Citibank, N.A. (2011) 202 Cal.App.4th 89, 104 (Lona).)

As detailed above, the court has already found the SAC sufficiently alleged Defendants violated Civil Code section 2924b by failing to provide timely notice of default and that their violation prejudiced Plaintiff. Thus, the court considers whether Plaintiff tendered the amount of secured indebtedness or was excused. Plaintiff’s responsibility is excused (1) “if the borrower's action attacks the validity of the underlying debt,” (2) if “the person who seeks to set aside the trustee's sale has a counterclaim or setoff against the beneficiary,” (3) “it would be inequitable to impose such a condition on the party challenging the sale,” and (4) “the trustor is not required to rely on equity to attack the deed because the trustee's deed is void on its face.” (Lona, supra, 202 Cal.App.4th at p. 112-113.)

First, as noted above, Plaintiff has not alleged sufficient allegations to attack the validity of the debt and default in this action. Second, Plaintiff’s SAC fails to establish how the trustee’s deed is facially void. Third, Plaintiff does not identify a counterclaim against Defendants that it is equal to or greater than the amount due. Last, Plaintiff fails to argue it is inequitable to require tender.

Instead, Plaintiff contends Plaintiff did in fact tender an offer to pay and that Defendants rejected Plaintiff’s offer. (Opp., p. 12:11-18.) Defendant argues Plaintiff has made conflicting allegations about whether Plaintiff had or had not been able to offer a full repayment of the secured debt. (Dem., p. 9-10.) However, on June 9, 2021, Plaintiff alleges Plaintiff informed Best Alliance that the funds for payoff of the loan were ready to be wired even though Plaintiff maintained objections to the amount. (SAC, ¶ 42.) Even though Plaintiff still had objections to the amount owed and requested extensions, Defendants cannot ignore the fact that Plaintiff also offered to wire the payoff amount to Defendants on June 9. Thus, Plaintiff has alleged sufficient allegations to state a cause of action for wrongful foreclosure.

Accordingly, Defendants’ demurrer to Plaintiff’s second cause of action is OVERRULED.

Quiet Title (Third Cause of Action)

Defendants maintain Plaintiff cannot state a cause of action for quiet title as a matter of law because (1) Plaintiff has no legal title to the subject property and (2) Plaintiff failed to tender payment of debt. The court disagrees.

In arguing Plaintiff may not maintain a cause of action because Plaintiff is not the legal owner of the subject property, Defendants cite to Santana v. BSI Financial Services, Inc. (S.D. Cal. 2020) 495 F.Supp.3d 926. In that case, court found “[o]nce the property has been sold in a foreclosure sale, quiet title is not a viable claim to undo the foreclosure because ‘claim to title has already been extinguished’ and there is no adverse claim to the property.” (Id., at p. 949.) However, while the court held the plaintiff could not assert a cause of action against the loan servicer, the court did hold the plaintiff could bring a cause of action against the third-party purchaser since the purchaser is the one holding adverse claim to the title. (Ibid.)

Thus, while Plaintiff cannot assert an action for quiet title against Fleet Capital, Plaintiff can assert a cause of action against Inco as the third-party purchaser of the subject property. To the extent Defendants argue Plaintiff failed to tender payment of debt, the court has already rejected that argument.

Accordingly, Fleet Capital’s demurrer to Plaintiff’s third cause of action is SUSTAINED, while Inco’s demurrer is OVERRULED.

Unfair Business Practices (Seventh Cause of Action)

Defendants argue Plaintiff cannot state a cause of action for unfair business practices because Plaintiff’s cause of action “rises and falls with the success of the other causes of action” in Plaintiff’s SAC. However, since the court has overruled Defendants’ demurrer as to the other causes of action, Defendants’ argument fails here as well.

Defendants also argue Plaintiff has no ability seek restitution of the subject property and cite Kwikset Corp. v. Superior Court (2011) 51 Cal.4th 310, while failing to provide any further reasoning or argument. Restitution “requires both that money or property have been lost by a plaintiff, on the one hand, and that it have been acquired by a defendant, on the other.” (Id., at p. 336.) In this case, Plaintiff alleges Plaintiff lost the subject property and its improvements to Defendants. Thus, the court finds no merit to Defendants’ argument.

Accordingly, Defendants’ demurrer to Plaintiff’s seventh cause of action is OVERRULED.

Declaratory Relief (Eighth Cause of Action)

Defendants contend Plaintiff cannot state a cause of action for declaratory relief as a matter of law. The court agrees.

First, Defendants argue Plaintiff’s cause of action fails because it is derivative of Plaintiff’s other claims. Because the court rejected Defendants’ other grounds for demurrer, the court rejects this ground as well.

Second, Defendants contend there is no present controversy between the parties. “To qualify for declaratory relief, a party would have to demonstrate its action presented two essential elements: (1) a proper subject of declaratory relief, and (2) an actual controversy involving justiciable questions relating to the party’s rights or obligations.” (Jolley v. Chase Home Finance, LLC (2013) 213 Cal.App.4th 872, 909, quotation marks and brackets omitted.) When a plaintiff or cross-complainant seeks a remedy for a past wrong, such as a foreclosure sale, the party fails to allege an actual, present controversy and fails to state a claim for relief. (Orcilla v. Big Sur, Inc. (2016) 244 Cal.App.4th 982, 1014 (Orcilla).)

Here, as in Orcilla, Plaintiff seeks remedy for past wrongs in the form of a wrongful foreclosure that has already occured, not a present controversy. Thus, Plaintiff cannot state a cause of action for declaratory relief against Defendants. Accordingly, Defendants’ demurrer to Plaintiff’s eighth cause of action is SUSTAINED.

Leave to Amend SAC

The court will hear from Plaintiff as to grounds for leave to amend cause of action three (Quiet Title) as to Defendant Fleet Capital and cause of action eight (Declaratory Relief) as to Defendants.

Motion to Strike

Defendants move to strike Plaintiff’s fourth cause of action for promissory estoppel, fifth cause of action for breach of the covenant of good faith and fair dealing, and sixth cause of action for violation of the Rosenthal Fair Debt Collection Practices Act on the grounds that Plaintiff did not have leave to add these causes of action. For the following reasons, the court GRANTS Defendants’ motion.

Legal Standard

Upon a party’s motion or the court’s own motion, the court may strike any irrelevant, false, or improper matter inserted in any pleading. (Code Civ. Proc., § 436, subd. (a).) The court may also “[s]trike 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.” (Code Civ. Proc., § 436, subd. (b).) “The grounds for a motion to strike shall appear on the face of the challenged pleading or from any matter of which the court is required to take judicial notice.” (Code Civ. Proc., § 437, subd. (a).)

When the court sustains a demurrer with leave to amend, “the plaintiff may amend [their] complaint only as authorized by the court’s order.” (Harris v. Wachovia Mortgage, FSB (2010) 185 Cal.App.4th 1018, 1023.) “The plaintiff may not amend the complaint to add a new cause of action without having obtained permission to do so, unless the new cause of action is within the scope of the order granting leave to amend.” (Ibid.)

Discussion

In this case, the court’s January 5, 2023 ruling gave Plaintiff leave to amend as to the first cause of action for violations of California’s non-judicial foreclosure statutes, second cause of action for wrongful foreclosure, third cause of action for quiet title, fourth cause of action for unfair business practices, and fifth cause of action for declaratory relief. The court did not give Plaintiff leave to amend the FAC with additional causes of action. Accordingly, Defendants’ motion to strike the unauthorized additions is GRANTED. Absent a showing by Plaintiff at the hearing that establishes why Plaintiff should be allowed to add three additional causes of action to a complaint that has already been amended twice, the court will deny leave to amend.

CONCLUSION

Based on the foregoing, Fleet Capital’s demurrer to Plaintiff’s third cause of action and Defendants’ demurrer to Plaintiff’s eighth cause of action is SUSTAINED.  Inco’s demurrer to Plaintiff’s third cause of action and Defendants’ demurrer to Plaintiff’s first, second, and seventh causes of action is OVERRULED.

Defendants’ motion to strike Plaintiff’s fourth, fifth, and sixth causes of action is GRANTED without leave to amend.

Absent the grant of leave by the court for Plaintiff to file a Third Amended Complaint, Defendants are ordered to file their answer to the Second Amended Complaint in ten (10) days.