Judge: Serena R. Murillo, Case: 22STCV12440, Date: 2023-05-18 Tentative Ruling

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**Tentative rulings on Motions for Summary Judgment will only be available for review in the courtroom on the day of the hearing.

Case Number: 22STCV12440    Hearing Date: May 18, 2023    Dept: 31

TENTATIVE RULING

Defendants Castle Mortgage Corporation and Calculated Risk Analytics, LLC separate demurrers to Plaintiff NBZ Investments, LLC’s Third Amended Complaint are OVERRULED in their entirety.

Background

On April  13, 2022, Plaintiffs NBZ Investments, LLC; Neda Zaman; and Behzad Zaman (collectively, “Plaintiffs”) filed a Complaint against Calculated Risk Analytics, LLC d/b/a Excelerate Capital; Castle Mortgage; Corporation d/b/a Excelerate Capital; and Does 1 to 20 (collectively, “Defendants”). The operative complaint here is the Third Amended Complaint (TAC) which alleges six causes of action:

1.     Breach of Contract

2.     Fraud and Deceit: Inducement

3.     Fraud and Deceit: Concealment

4.     Intentional Misrepresentation

5.     Negligent Misrepresentation

6.     Unfair, Unlawful and Fraudulent Business Practices Under Section 17200 of California’s Business and Professions Code

On March 13, 2023, Defendant Castle Mortgage Corporation (“CMC”) filed a demurrer to Plaintiffs’ TAC.

On March 14, 2023, Defendant Calculated Risk Analytics, LLC (“CRA”) filed a demurrer to the Plaintiffs’ TAC.

On March 22, 2023, Plaintiff filed a combined opposition to CRA and CMC’s demurrers.

CMC and CRA each filed a separate reply on April 13, 2023.

MEET AND CONFER

Before filing a demurrer, the demurring party is required to meet and confer with the party who filed the pleading demurred, in person or telephonically, to determine whether an agreement can be reached through a filing of an amended pleading that would resolve the objections to be raised in the demurrer. (Code Civ. Proc. (CCP) § 430.41.) 

The meet and confer requirement have been met. (Sperber Decl. ¶ 5, filed on 03/14/23; Sperber Decl. ¶ 4, filed on 03/13/23)

LEGAL STANDARD

Where pleadings are defective, a party may raise the defect by way of a demurrer. (Coyne v. Krempels (1950) 36 Cal.2d 257, 262.) A demurrer tests the sufficiency of a pleading, and the grounds for a demurrer must appear on the face of the pleading or from judicially noticeable matters. (Code Civ. Proc., § 430.30(a); Blank v. Kirwan (1985) 39 Cal.3d 311, 318.) In evaluating a demurrer, the court accepts the complainant’s properly-pled facts as true, and ignores contentions, deductions, and conclusory statements. (Daar v. Yellow Cab Co. (1976) 67 Cal.2d 695, 713; Serrano v. Priest (1971) 5 Cal.3d 584, 591.) Moreover, the court does not consider whether a plaintiff will be able to prove the allegations, or the possible difficulty in making such proof. (Fisher v. San Pedro Peninsula Hospital (1989) 214 Cal.App.3d 590, 604.) 

Leave to amend must be allowed where there is a reasonable possibility of successful amendment. (Goodman v. Kennedy (1976) 18 Cal.3d 335, 348.) The burden is on the complainant to show the Court that a pleading can be amended successfully. (Id.) 

REQUEST FOR JUDICIAL NOTICE

The court may take judicial notice of “official acts of the legislative, executive, and judicial departments of the United States and of any state of the United States,” “[r]ecords of (1) any court of this state or (2) any court of record of the United States or of any state of the United States,” and “[f]acts and propositions that are not reasonably subject to dispute and are capable of immediate and accurate determination by resort to sources of reasonably indisputable accuracy.” (Evid. Code § 452, subds. (c), (d), and (h).)  However, the court may only judicially notice the existence of the record, not that its contents are the truth. (Sosinsky v. Grant (1992) 6 Cal.App.4th 1548, 1565.) 

Defendant Calculated Risk Analytics, LLC (“CRA”) requests judicial notice of the following:

1)                  Plaintiffs’ Third Amended Complaint (with exhibits to the Third Amended Complaint) filed in this action on January 13, 2023, a copy of which is attached as Exhibit 1.

2)                  Transcript excerpts from the deposition of Ken To taken on December 15, 2022, which is attached as Exhibit 2 and that were explicitly referenced by Plaintiffs in their Third Amended Complaint at page 5, Paragraph 8(H), lines 16-23.

CRA argues that judicial notice of the Ken To deposition transcript is appropriate pursuant to Joslin v. H.A.S. Ins. Brokerage (1986) 184 Cal.App.3d 369.

In Joslin, the Fourth District Court of Appeal found a Court could take judicial notice of the facts stated in a deposition transcript and could accept the truth of the facts stated only to the extent the facts were not or could not be disputed. (Id. at 374-375.) Thus, facts disclosed by the deposition and not disputed were properly considered in ruling on the demurrer, and facts disclosed by the deposition that was disputed could not be. (Id. at 375-376.)

Therefore, in ruling on the demurrer in Joslin, the Appeal Court properly noticed the plaintiff’s deposition and accepted as true the undisputed facts that the plaintiff received a brochure containing the name of the defendant when purchasing the vehicle in question and speaking on the telephone with a man who was an employee of defendant. (Joslin, supra, 184 Cal.App.3d 375.) What remained in dispute, was whether the plaintiff knew the person on the telephone was an employee of the defendant when she spoke with the employee or if she learned of his identity later such that the action was not barred by the statute of limitations. (Id. at 375.)

“Plaintiffs do dispute their knowledge, at any time before or during the filing of the complaint, of the man's status as an employee of H.A.S. After carefully examining the deposition testimony in question, we conclude that it does not undisputably [sic] establish plaintiff's knowledge, when the complaint was filed, of their having dealt with an employee of [defendant].”

(Id. [italics original].)

In contrast, the Second District Court of Appeal found that:

“Although the existence of statements contained in a deposition transcript filed as part of the court record can be judicially noticed, their truth is not subject to judicial notice. Consequently, the court could not conclude that any part of the defendant's answer was false based upon his allegedly conflicting deposition testimony.”

(Garcia v. Sterling (1985) 176 Cal.App.3d 17, 22.)

Pursuant to Joslin and Garcia, the Court will take judicial notice of the statements made in the deposition transcript of Ken To but reserves judgment as to whether the facts CRA wishes to establish as true are in fact judicially noticeable because they are not subject to dispute. “Taking judicial notice of a document is not the same as accepting the truth of its contents or accepting a particular interpretation of its meaning.” (Joslin, supra, 184 Cal.App.3d 374.)

Therefore, the Court GRANTS Defendant CRA’s request for judicial notice.

Defendant Castle Mortgage Corporation (“CMC”) requests Judicial Notice of the following:

1)                  Plaintiffs’ Third Amended Complaint (with exhibits to the Third Amended Complaint) filed in this action on January 13, 2023, a copy of which is attached as Exhibit 1.

Defendant CMC’s request for judicial notice is GRANTED.

DISCUSSION

Allegations in Third Amended Complaint (“TAC”)

Plaintiff NBZ Investments, LLC is the owner of the subject property located in Beverly Hills, California. (TAC ¶ 1.) Plaintiffs Neda and Behzad Zaman are husband and wife and the sole manager and members of NBZ Investments. (Id. ¶ 2.) 

The TAC alleges that Defendants Castle Mortgage Corporation (“CMC”) and Calculated Risk Analytics, LLC (“CRA”) are mortgage lenders. (TAC ¶ 13.) Through their broker, Plaintiffs allege they provided Defendants with their refinance package via the Defendants’ “document portal” where their refinance package was to be reviewed and either denied or approved. (Id. ¶¶ 14, 15.) Plaintiffs’ refinance package identified NBZ as the owner of the subject property and Neda Zama and Behzad Zaman as borrowers. (Id. ¶ 18).  

In or about October 2021, Plaintiffs’ broker and agent, Bernard Cohen, sent the refinance package to the Defendants, including all other documents requested by the Defendants, and escrow was opened on or about that time for refinance. (TAC ¶ 19.) 

Plaintiffs allege that the refinance, including the income and credit score of the Plaintiffs, was approved by the Defendants’ employee, Ken To, an authorized executive with authority to speak on behalf of the Defendants. (TAC. ¶ 20.)

The TAC alleges that Ken To made written and oral representations to Plaintiff’s broker and agent, Bernard Cohen, between October 2021 on or about March 2022. (Id.) Ken was assisted by another employee of the Defendants, Humberto Cardenas. (Id. ¶ 22.) The TAC alleges that other agents of Defendants, Kathleen Allen, Patrick Sheedy, Rachel To, and J. Gatewood, “were authorized to make decisions on Plaintiffs' refinance loan and speak on behalf of the Defendants and did make oral and/or written representations relating to Plaintiffs refinance loan application on dates 20 between October 2023 through on or about March 2022.” (Id. ¶ 22.)

Defendants provided Plaintiffs with an Approval Certificate on October 21, 2022, stating that the mortgage loan had been approved at a guaranteed “locked in” interest rate of 3.5%. (TAC ¶ 23, Ex. 1.) Plaintiffs relied on the approval letter and the terms it set forth and did not seek credit elsewhere to their detriment. (Id. ¶¶ 25, 38, 39, 40.) At the Defendants’ request, the Plaintiffs obtained and paid for an appraisal report of the subject property by a certified appraiser chosen by Defendants who appraised the value of the subject property at $16,000,000. (Id. ¶ 27.) Plaintiffs allege that Defendants intentionally delayed the funding to the loan, with the intent to increase fees and cost despite having already approved the refinance loan and a loan value ratio of less than ten percent (10%). (Id. ¶ 28.) 

On February 9, 2022, Defendants sent Plaintiffs another Approval Certificate stating that the mortgage had been approved. (SAC ¶ 29, Ex. 2.) Unbeknownst to Plaintiffs, without notice, Defendants had increased the interest rate on the loan to 3.625% instead of the guaranteed “locked in” interest rate of 3.5%. (Id. ¶ 30.) On February 14, 2022, Defendants provide a Closing Disclosure, which detailed the loan terms, payments, and closing costs. (Id. ¶ 31, Ex. 3). The disclosure was fully executed, and the loan was to be funded on February 17, 2022. (Id.) Defendants failed to fund the loan. (Id. ¶ 32.) 

Despite being told that the loan had been approved, including the Plaintiffs’ income, and costs incurred in appraising the subject property, on March 01, 2022, Defendants issued a Statement of Credit Denial, Termination, or Change Letter signed by “J. Gatewood.” (TAC ¶ 33, Ex. 4.) The reason for the denial was “insufficient income for total obligations” despite the previous Approval Certificates specifically approving the loan. (Id. ¶ 35.) The Plaintiffs’ income and financial status had not changed since the refinance application had been sent. (Id. ¶ 36) Since October 2021, Defendants had approved the Plaintiffs’ creditworthiness and income sufficiency and sent Approval Certificates in October 2021 and February 2022, and the Closing Disclosure in February 2022. (Id. ¶¶ 37, 38.) 

The Plaintiffs filed this action based on the representations and omissions made to them by Defendants. (TAC ¶¶ 44-49.)

I.                   CMC’s Demurrer to the TAC

Defendant Castle Mortgage Corporation (“CMC”) demurs to every cause of action in the TAC on the basis that the TAC is uncertain, fails to state sufficient facts to constitute a cause of action against Defendant CRA, and that Plaintiff NBZ Investments, LLC lacks standing.

1.            Demurrer Due to Uncertainty

A special demurrer to a complaint may be brought on the ground the pleading is uncertain, ambiguous, or unintelligible. (Code Civ. Proc., § 430.10, subd. (f); Beresford Neighborhood Assn. v. City of San Mateo (1989) 207 Cal.App.3d 1180, 1191.) “A demurrer for uncertainty is strictly construed, even where a complaint is in some respects uncertain, because ambiguities can be clarified under modern discovery procedures.” (Khoury v. Maly’s of California, Inc. (1993) 14 Cal.App.4th 612, 616.) A demurrer for uncertainty may only be sustained when a defendant cannot reasonably determine to what he or she is required to respond. (Id.) For example, where it is not reasonably certain what issues must be admitted or denied, or what counts or claims are directed against the defendant, the complaint will be uncertain. (Williams v. Beechnut Nutrition Corp. (1986) 185 Cal.App.3d 135, 139, fn. 2.)

The Court had little trouble in ascertaining the essence of plaintiff's claims from the matters alleged and cannot find that the complaint was so uncertain that Defendant CMC could not reasonably respond to it. Consequently, the demurrer for uncertainty is OVERRULED.

2.            Plaintiff NBZ’s Standing  

Defendant CMC asserts Plaintiff NBZ lacks standing to enforce the breach of contract cause of action and all other causes of action alleged in the SAC because NBZ was not an express beneficiary of the loan agreement with Defendants. “[A] person seeking to enforce a contract as a third party beneficiary ‘must plead a contract which was made expressly for his [or her] benefit and one in which it clearly appears that he [or she] was a beneficiary.’ (Citation.)” (The H.N. & Frances C. Berger Foundation v. Perez (2013) 218 Cal.App.4th 37, 43.) Defendant CMC asserts that NBZ was at most an incidental beneficiary rather than an express beneficiary with no standing to enforce the contract. (See Id. at 44.) 

The SAC alleges that Plaintiffs Neda and Behzad Zaman are the sole managers and members of NBZ. (TAC ¶ 2.) NBZ owns the subject property for which a refinance loan was sought. (TAC ¶ 1.) The SAC alleges that after learning about the Defendants’ loan program, the Plaintiffs’ broker, Bernard Cohen, compiled a refinance package of documents for the Plaintiffs and identified NBZ as the owner of the property and Neda Zaman and Behzad Zaman as the members, owners, and borrowers. (TAC ¶ 18) The SAC alleges that Plaintiff NBZ, as the title holder to the subject property, is a beneficiary of the loan contract between Defendants and individual Plaintiffs Neda Zaman and Behzad Zaman. (TAC ¶ 48.) NBZ suffered damages by paying mortgage payments substantially higher than the payment to refinance the loan amount, incurring costs in reliance on the agreement to fund the loan, and losing the benefit of the loan commitment and the opportunity to obtain a loan from a competitor of Defendants. (TAC ¶ 48.)

Plaintiffs assert that NBZ was the intended beneficiary of the loan refinance agreement with Defendants. In The H.N. & Frances C. Berger Foundation (2013), the Appeal Court stated that in ruling on a demurrer, the court is limited to interpreting whether the complaint and agreement are susceptible to the plaintiff’s interpretation. (The H.N. & Frances C. Berger Foundation, supra, 218 Cal.App.4th at 45 [“In reviewing the trial court's ruling on defendants' demurrers, this court is limited to evaluating whether the Agreements and Bonds are susceptible to plaintiff's interpretation, based on the pleaded facts and the documents attached to the operative complaint. “].) 

While it is true that NBZ’s name does not appear on the Approval Certificates and Closing Discourse, the February 08, 2022 Approval Certificates appear to reference NBZ: “Remaining Item for LLC: SOS Certificate of Status for the LLC (dated within the last 30 days)” and “Verify Vesting/ Correct borrower name for docs LLC -Set to PG 01/19/22.” (TAC Ex. 2).  Moreover, the Certificates of Approval appear to list as collateral the subject property which is owned by Plaintiff NBZ. (TAC Ex. 1, 2.) Without NBZ’s subject property, the loan could not have been made.  

A corporation is an artificial person that can only act through its members, officers, or agents. (AvalonBay Communities, Inc. v. County of Los Angeles (2011) 197 Cal.App.4th 890, 903.) Here, Plaintiffs Neda and Behzad Zaman appear to be acting on behalf of NBZ, since NBZ is the owner of the subject property and Defendants look to NBZ’s property as collateral to secure the loan. (TAC Ex. 1, 2.) Therefore, if Plaintiffs Neda and Behzad Zaman were acting as agents for NBZ when they tried to obtain a refinance loan, then the loan was for the benefit of NBZ, and NBZ was bound to the contract through agency principals. Courts have found that the acts of officers and employees of a corporation acting in the scope of the corporation’s business are the acts of the corporation itself. (See Transcontinental & Western Air v. Bank of America N.T. & S.A. (1941) 46 Cal.App.2d 708, 713; see also Kight v. CashCall, Inc. (2011) 200 Cal.App.4th 1377, 1392 [“Because a corporation is a legal fiction that cannot act except through its employees or agents, a corporation and its employees generally function as a single legal unit and are the same legal ‘person’ for purposes of applying various tort, agency, and jurisdiction principles.”].) Here, the SAC sufficiently alleges that Defendants knew NBZ was the owner of the subject property and that Plaintiffs Neda and Behzad Zaman were agents of NBZ and were the managing members and owners of NBZ. (TAC ¶ 18.)  

The Court finds that the Plaintiffs have pled sufficient facts to support a finding that the refinance loan was made for the express benefit of NBZ and NBZ has standing as a third-party beneficiary to assert a claim for breach of contract.

Therefore, the demurrer is OVERRULED as to NBZ’s standing to assert the causes of action alleged in the TAC.  

3.            COA 1: Breach of Contract

The elements of a claim for breach of contract are: “(1) the existence of the contract, (2) plaintiffs performance or excuse for nonperformance, (3) defendant's breach, and (4) the resulting damages to the plaintiff.” (Oasis West Realty, LLC v. Goldman (2011) 51 Cal. 4th 811, 821.)

Defendant CMC demurrer to the first cause of action on the basis that CMC owed no duty to fund the loan because the “approvals” were conditional, and Plaintiff failed to allege facts that the conditions were satisfied or excused.

The TAC asserts the Approval Certificate is unconditional and specifically approved the Plaintiffs creditworthiness and income to support the loan. (TAC ¶ 24, Ex. 1.) The Approval Certificate state: “This mortgage loan has been approved on behalf of the above-noted client with the following terms and conditions.” (TAC Ex. 1, 2.) The conditions listed on the Approval Certificate include:

• “Approval is subject to final review of all income documentation.”
• Submission of bank statements, with the notation that “Missing 10/28/2019 to 12/28/ 20.”
• Tax preparers license, number, name, wet signature, and attestation that they prepared or reviewed the borrower’s most recent 3-year tax returns.
• The notation “Very Incomplete application please make sure It Is completely filled out[.]”
• “Provide additional statements to compel 12 months . . .”
• “Internal – Pre-funding QC Review- Subject to additional conditions”
• Final 1—3 signed and dated by all parties.” 

(See TAC Ex. 1, 2.) The Closing Disclosure, which the Plaintiffs appear to have signed and consented to, lists the terms of the loan but does not state conditions that the Plaintiffs have failed to meet. (TAC Ex. 3.) The TAC asserts that “[s]ince the date Plaintiffs received the first certificate of approval on or about October 2021, Plaintiffs performed all of the conditions, covenants, and promises required on their part to be performed for the loan to be funded, including but not limited to, providing the requested financial documents to Defendants, opening escrow, paying for and having an appraisal of the property, and signing the closing disclosure for the loan.” (TAC ¶ 52.)

Whether the Plaintiffs failed to satisfy all conditions for the loan approval remains a disputed issue of fact and not the proper subject of a demurrer. “On a demurrer a court's function is limited to testing the legal sufficiency of the complaint. (Citation.) 'A demurrer is simply not the appropriate procedure for determining the truth of disputed facts.’ (Citation.)” (Fremont Indemnity Co. v. Fremont General Corp. (2007) 148 Cal.App.4th 97, 113-114.)

Since Defendant CMC fails to show that Plaintiff’s first cause of action is improperly pled, the demurrer to the first cause of action is OVERRULED.

4.            Demurrer to Fraud and Misrepresentation Claims

The second, third, fourth, and fifth causes of action for all fraud-based causes of action. “The elements of fraud that will give rise to a tort action for deceit are: ‘(a) misrepresentation (false representation, concealment, or nondisclosure); (b) knowledge of falsity (or “scienter”); (c) intent to defraud, i.e., to induce reliance; (d) justifiable reliance; and (e) resulting damage.’” (Engalla v. Permanente Medical Group, Inc. (1997) 15 Cal.4th 951, 974 [citations omitted].) “Each element of a fraud count must be pleaded with particularity so as to apprise the defendant of the specific grounds for the charge and enable the court to determine whether there is any basis for the cause of action, although less specificity is required if the defendant would likely have greater knowledge of the facts than the plaintiff.” (Chapman v. Skype Inc. (2013) 220 Cal.App.4th 217, 231.) 

Here, the Plaintiffs have sufficiently pled that Ken To and Humberto Cardenas are employees and agents of CMC and told the Plaintiffs’ broker, Bernard Cohen, in early 2002 that the loan was approved as set forth in the Certificates of Approval. (TAC ¶¶ 8(D)(H), 22, 46, Ex. 1-2.) The name of Defendant CMC and its alleged agents, Ken To and Humberto Cardenas appear on the Certificates of Approval, while Ken To and CMC names appear in the Closing Disclosure. (TAC Ex. 1-3.) Lastly, the Credit Denial, Termination, or Change notice bears CMC’s name and the person who gave the notice. Both the Approval Certificates, the Closing Disclosure, and the Termination Notice, state-specific facts of who, what, when, and how the misimpressions and the nondisclosures were made.  

Plaintiffs’ refinance package was sent in or about October 2021 via the Defendants document portal. (TAC ¶ 19.) In early 2022, Ken To told the Plaintiffs’ broker, Bernard E. Cohen, that the loan was approved, with the approval letter being sent on October 21, 2021, and stating the terms of the loan. (TAC ¶¶ 21, 23.) Defendants also required Plaintiffs to hire an appraiser of Defendant’s choosing to evaluate the subject property; with the appraisal taking place on or about December 2021. (TAC ¶ 26.) A second Approval Certificate was sent on February 9, 2022, and the Closing Disclosure letter on February 9, 2022, detailing the loan terms, payment, closing cost, and closing date of February 17, 2022. (TAC ¶ 29.) 

Accordingly, the Court finds that the Plaintiffs’ fraud-based causes of action are sufficiently pled to put Defendant CMC on notice of the allegations against it. The demurrer is OVERRULED as to the second, third, fourth, and fifth causes of action.

5.            6th COA: Unfair Business Practices

As outlined below in the demurrer to the sixth cause of action by Calculated Risk Analytics, LLC (“CRA”), the Court OVERRULES the demurrer to the sixth cause of action on the basis that the TAC request injunctive relief and Plaintiffs have alleged facts to show that the is a threat of future harm. (TAC ¶¶ 94, 104.)

Defendant CMC’s demurrer is OVERRULED in its entirety.

II.                CRA’s Demurrer to TAC

Defendant Calculated Risk Analytics, LLC (“CRA”) demurs to every cause of action in the TAC on the basis that the TAC fails to state sufficient facts to constitute a cause of action against Defendant CRA and that Plaintiff NBZ Investments, LLC lacks standing.

1.            Liability of CRA

CRA argues that the Plaintiffs’ allegations are insufficient to show that CRA is an alter-ego of CMC.

On December 16, 2022, the Court SUSTAINED CRA’s demurrer to the Second Amended Complaint with Leave to Amend on the basis that Plaintiff failed to state sufficient facts to support its belief the CRA was an agent of CMA and that nothing in the Approval Certificates or Closing Disclosure show that CRA was a party to these agreements between Plaintiffs’ and CMC. (Min. Or. 12/16/23.)

The TAC makes new allegations against CRA and the Plaintiffs’ belief that CMC and CRA are one and the same:

• CRA and CMS mixed and intermingled business affairs such that “Defendants are a shell and conduit for the conduct of the same business and are the alter egos of each other.” (TAC ¶ 8(A).)
• CRA and CMC acted in concert with one another under a joint enterprise for the unified financial benefit and are agents of one another for the joint enterprise. (TAC ¶ 8(B).) Both share profits for the work performed by the employees and superiors who are agenst of both. (TAC ¶ 8(F).
• Both CRA and CMS do business as “Excelerate Capital”, both do business out of the same business address, the same employees work out of the same principal business address. “Castle Mortgage Corporation was bought by Calculated Risk Analytics, LLC and is a subsidiary and under the control of Calculated Risk Analytics, LLC. After buying Castle Mortgage Corporation, Calculated Risk Analytics, LLC re-branded the business as “Excelerate Capital “and both entities use "Excelerate Capital" as a d/b/a in the course of their dealings.” (TAC ¶ 8(C).)
• “Both Calculated Risk Analytics, LLC and Castle Mortgage Corporation are registered with the State of California as a California Residential Mortgage Lender doing business with the same d/b/a “Excelerate Capital.” (TAC ¶ 8(D).) “Excelerate Capital is listed and named on all Approval Certificates, Plaintiffs Closing  Disclosure, and other loan documents relating to Plaintiffs' refinance loan.” (Id.)
• CRC and CMC are joint employers of Ken To, Humberto Cardenas, Kathleen Allen who work for the joint-enterprise, perform services for both CRC and CMA and “are authorized to speak and make written 3 representations on behalf of both Defendants (which they did in regards to Plaintiffs refinance loan application).” (TAC ¶ 8(E).)
• “Ken To, employee of the Defendants listed in approval documents, stated under oath in his deposition that he was hired and employed by Calculated Risk Analytics, LLC and his duties have been the same at all relevant times of his employment with the Defendants. Ken To also identified other joint employees who are and were authorized to act on behalf of Defendants (whom were authorized and made written representations and/or decisions relating to Plaintiffs refinance loan application) such as Kathleen Allen, Patrick Sheedy, Rachel To, and Humberto Cardenas, among others[.]” (TAC ¶ 8(H).)
• CRA ratified the conduct of CMA by confirming or adopting the acts of shared employees, principals, manages, superiors, and executives such as Ken To, Kathleen Allen, and Humberto Cardenas among many other. (TAC ¶ 8(I).)
• Employees of CRA and CMA use “‘@exceleratecapital.co for their email addresses, further showing no separateness of the entities (example is Ken To's email of KTO@ExcelerateCapital.com- "Excelerate Capital" and its email address and website is the same d/b/a used by Both Calculated Risk Analytics, LLC and Castle Mortgage Corporation’[.]”
• Both CRA and CMC “use and market ExcelerateCapital.com and EC-TPO.com to market themselves to the public and have brokers obtain forms, execute documents, order appraisals, submit applications, and also take payments on the same website - further evidencing that no separateness exists between the Defendants[.] (TAC ¶ 8(K).)
• Both CRA and CMC share the same executives and officer: “Chief Executive Officer, Secretary, and Chief Financial Officers in their filings with the Secretary of State of California is Michael Thompson and he is the CEO of both;” “Michael Thompson also is listed as the ‘Founder and Chairman’ of both Excelerate Capital[.]” (TAC ¶ 8(L-M).)

CRA argues that the facts as pled are insufficient to show that CRA should be held liable as an alter ego of CMC. The Court disagrees.

“To recover on an alter ego theory, a plaintiff need not use the words ‘alter ego,’ but must allege sufficient facts to show a unity of interest and ownership, and an unjust result if the corporation is treated as the sole actor. (Leek v. Cooper (2011) 194 Cal.App.4th 399, 415.) Although imposing alter-ego liability is an extreme remedy that should be sparingly used, Plaintiff is not required to prove alter ego liability at this pleading stage. (See Stevens v. Superior Court (1986) 180 Cal.App.3d 605, 609–610 [“Whether the plaintiff will be able to prove the pleaded facts is irrelevant to ruling upon the demurrer.”].)

Detailed pleading is not required to allege an alter ego theory of liability.  Indeed, “[i]t is not even essential, apparently, that ... the alter ego doctrine always be specifically pleaded in the complaint in order for it to be applied in appropriate circumstances. [¶] ... [Citation.] ... [C]ourts have followed a liberal policy of applying the alter ego doctrine where the equities and justice of the situation appear to call for it rather than restricting it to the technical niceties depending upon pleading and procedure. It is essential principally that a showing be made that both requirements, i.e., unity of interest and ownership, and the promotion of injustice by the fiction of corporate separate existence, exist in a given situation.” (First Western Bank & Trust Co. v. Bookasta (1968) 267 Cal.App.2d 910, 915  [italics omitted]; see Rutherford Holdings, LLC v. Plaza Del Rey (2014) 223 Cal.App.4th 221, 236 [stating “only ‘ultimate rather than evidentiary facts’” necessary to support alter ego theory].) 

Here, Plaintiffs have pled sufficient facts to allege that CRA and CMC are doing business as “Excelerate Capital” and have a unity of interest. (TAC 8(A)-(P).) Plaintiffs also state that injustice would result if CRA is not held liable because CRA could insulate itself from liability and the corporate form is being used for the sole purpose “of perpetrating fraud, circumventing statutes, or accomplishing some other wrongful and inequitable purpose[.]” (TAC ¶ 8(A), (N).)

Thus, the Court finds that Plaintiff has adequately pled facts for alter ego liability.

The Court notes that CRA does not dispute that certain employee made representations to Plaintiffs’ regarding their loan refinance. The deposition of Ken To revealed that he was previously employed by CRA, but it was unclear to the Court when he stopped being an employee of CRA. Moreover, it is unclear to the Court whether the Plaintiffs knew Ken To was not an employee of CRA at the time he made the representations.

The fact that both CRA and CMA did business and “Excelerate Capital” justifies Plaintiffs’ belief that CRA and CMA are agents to each other and not separate and distinct entities.  “Even when there is no written agency authorization, an agency relationship may arise by oral consent or by implication from the conduct of the parties.” (Flores v. Evergreen at San Diego, LLC (2007) 148 Cal.App.4th 581, 587–588.) The fact that CRA and CMA as principals allowed employees to use the same office space and same email address and do business under the same name is sufficient to allege that Ken To acted with apparent authority when he made representations to Plaintiffs such that CRA should be held liable under agency law.

The Demurrer on the above basis is OVERRULED.

2.            Plaintiff NBZ’s Investments LLC’s Standing

This Court previously found that Plaintiffs had sufficiently pled that NBZ was an intended beneficiary of the loan contract because it was the title holder of the subject property. (Min. Or. 12/16/23.) “Accordingly, NBZ has standing to assert a cause of action for breach of contract as a third-party beneficiary.” (Id. see also Civ. Code, § 1559.)

Nevertheless, the Court sustained the demurrer because Plaintiff had not pled facts to show that CRA was a party to the loan agreement with CMC. (Min. Or. 12/16/23.) Plaintiffs have now pled sufficient facts to hold CRA liable as an alter ego of CMC. Moreover, the name “Excelerate Capital” is listed and named on all Approval Certificates, the Closing Disclosure, and other loan documents. (TAC ¶ 8(D).)

CRA also asserts that under Hatchwell v. Blue Shield of California (1988) 198 Cal.App.3d 1027, Plaintiff NBZ as “an intended third-party beneficiary never has standing when the claim is based on the wrongful withholding of benefits to the contracting party.” (Mot. at 7:17-19 [bold and italic original].) Hatchwell held that an incidental beneficiary, rather than an express beneficiary, has no standing to assert a claim based on the wrongful withholding of benefits. (Id. at 1035.)

Since Plaintiff NBZ is alleged to be an express beneficiary of the loan contract, NBZ has standing to assert a claim against Defendants CRA and CMC. The demurrer is OVERRULED on the basis that Plaintiff NBZ lacks standing.

3.            Fraud and Misrepresentation Claims are Properly Pled

Defendant CRA argues that the Plaintiffs’ second, third, fourth, and fifth causes of action based on fraud are not properly pled with the requisite specificity.

The second, third, fourth, and fifth causes of action for all fraud-based causes of action. “The elements of fraud that will give rise to a tort action for deceit are: ‘(a) misrepresentation (false representation, concealment, or nondisclosure); (b) knowledge of falsity (or “scienter”); (c) intent to defraud, i.e. to induce reliance; (d) justifiable reliance; and (e) resulting damage.’” (Engalla v. Permanente Medical Group, Inc. (1997) 15 Cal.4th 951, 974 [citations omitted].) “Each element of a fraud count must be pleaded with particularity so as to apprise the defendant of the specific grounds for the charge and enable the court to determine whether there is any basis for the cause of action, although less specificity is required if the defendant would likely have greater knowledge of the facts than the plaintiff.” (Chapman v. Skype Inc. (2013) 220 Cal.App.4th 217, 231.) 

Plaintiffs sufficiently pled that Ken To as an employee or agent of Defendants, told the Plaintiffs’ broker, Bernard Cohen, in early 2002 that the loan was approved on the terms set forth in the confirming documents provided to Plaintiffs. (TAC ¶ 21.) The representations included the October 2021 Approval Certificated sent on October 21, 2021 describing the terms of the loan and the “locked in” interest rate of 3.5%. (TAC ¶ 23, Ex. 1.) A second Approval Certificate was sent on February 9, 2022, and the Closing Disclosure letter on February 9, 2022, detailing the loan terms, payment, closing cost, and closing date of February 17, 2022. (TAC ¶ 29.) 

Accordingly, the Court finds that Plaintiffs’ fraud-based causes of action are sufficiently pled to put Defendant CRA on notice of the allegations against it. The demurrer is OVERRULED as to the second, third, fourth, and fifth causes of action. 

4.            6th COA: Unfair Business Practices 

In a private unfair competition law action, the remedies are “‘generally limited to injunctive relief and restitution.’” (Kasky v. Nike, Inc. (2002) 27 Cal.4th 939, 950, 119; see Bus. & Prof. Code, § 17203.) For the Plaintiffs to recover under the UCL, they need to allege they are entitled to restitution for monies taken from the Plaintiffs or monies in which they had an ownership interest. “[A]n order for restitution is one ‘compelling a UCL defendant to return money obtained through an unfair business practice to those persons in interest from whom the property was taken, that is, to persons who had an ownership interest in the property or those claiming through that person.’ (Citation.)” (Korea Supply Co. v. Lockheed Martin Corp. (2003) 29 Cal.4th 1134, 1149.)

The Court previously SUSTAINED CRA’s demurrer to sixth cause of action because “Plaintiffs have failed to show they are entitled to restitution and cannot meet the elements to support a private cause of action for violations of the UCL.” (Min. Or. 12/16/22.) In other words, the Plaintiffs failed to allege that CRA took money or profits from the Plaintiffs such that Plaintiffs’ are entitled to restitution under the UCL.

Plaintiff’s opposing papers do not address the demurrer to the six causes of action. Plaintiff alleges that Defendants engaged in an unlawful, fraudulent, and unfair scheme of giving prospective borrowers false assurances of their intent to honor their loan commitment, thus deterring borrowers from seeking refinance and mortgages elsewhere in order to gain leverage and force borrowers to accept adverse modifications to the loan commitments. (TAC ¶ 94.) The Court also notes that the TAC was amended to add a prayer for injunctive relief rather than monetary relief. (TAC ¶ 104.)

Injunctive relief is appropriate only when there is a threat of continuing misconduct. (Code Civ. Proc., § 525.) In Madrid v. Perot Systems Corp. (2005) 130 Cal.App.4th 440, the Appeal Court affirmed the dismissal, on demurrer, of UCL punitive class claim because the Plaintiff failed to allege threat of future misconduct. (Id. at 463.)

“We conclude the current UCL has not altered the nature of injunctive relief, which requires a threat that the misconduct to be enjoined is likely to be repeated in the future.

Here, plaintiff's complaint did not allege any facts that another incident is likely to occur.”

(Id. at 465.)

The TAC alleges facts to support the finding that Defendants’ wrongful conduct of luring prospective consumers to seek refinance with them only to later change the terms of the loan is an ongoing practice capable of reoccurrence. There are no facts before the Court to suggest that Defendants have altered their alleged wrongful conduct such that Plaintiffs’ prayer of injunctive relief is moot. (See Caro v. Procter & Gamble Co. (1993) 18 Cal.App.4th 644, 22 Cal.Rptr.2d 419 a

The demurrer to the sixth cause of action is OVERRULED.

Based on the foregoing, CRA’s demurrer to the TAC is OVERRULED.

CONCLUSION

Defendants Castle Mortgage Corporation and Calculated Risk Analytics, LLC separate demurrers to Plaintiff NBZ Investments, LLC’s Third Amended Complaint are OVERRULED in their entirety.

Defendants to give notice.