Judge: Stephen P. Pfahler, Case: 20CHCV00283, Date: 2022-10-21 Tentative Ruling

Case Number: 20CHCV00283    Hearing Date: October 21, 2022    Dept: F49

Dept. F-49

Date: 10-21-22 c/f 9-22-22

Case # 20CHCV00283

Trial Date: 12-5-22

SUMMARY JUDGMENT

MOVING PARTY: Plaintiff, Dyek-O’Neal, Inc.

RESPONDING PARTY: Defendant, Omotayo Omotunde

RELIEF REQUESTED

Motion Summary Judgment

SUMMARY OF ACTION

On October 16, 2006, Defendant Omotayo Omotunde executed a $513,600 note with third party America’s Wholesale Lender secured by certain real property located in Washington DC. On October 16, 2006, Defendant executed a second note with America’s Wholesale Lender for $128,400 again secured by deed of trust on the property.

On July 1, 2008, Defendant defaulted on the second note. On July 2, 2008, third party Bank of America acquired America’s Wholesale Lender via its acquisition Countrywide Home Loans.

On September 24, 2009, a foreclosure sale occurred yielding a sum of $336,000. The sale proceeds were insufficient to cover either the primary or secondary notes. Bank of America discharged the remaining balance on the primary note, and sold the second note to Plaintiff Dyck-O’Neal, Inc.

On May 6, 2020, Plaintiff filed a verified complaint for breach of contract. On August 10, 2020, the clerk entered a default against Defendant. On December 24, 2020, the court entered judgment against Defendant for $347,744.25. On March 30, 2020, the clerk issued a writ of execution.

On June 25, 2021, the court granted the motion to vacate the default judgment. On June 28, 2021, Defendant answered the complaint. On August 12, 2021, the court granted the motion for judgment on the pleadings. On September 8, 2021, Plaintiff filed a first amended complaint for breach of contract. On December 2, 2021, Defendant answered the first amended complaint.

RULING: Denied.

Request for Judicial Notice: Granted.

·         The court takes judicial notice of the pleadings, but only as to the existence of the documents, and not the content for the truth of the matter asserted.

·         The court also takes judicial notice of its prior orders.

·         The court can take judicial notice of out of district sources as persuasive authority.

Evidentiary Objections

·         Declaration of Omotayo Omotunde: Overruled (and not relied upon in ruling on the motion under Code of Civil Procedure section 437c, subd. (q).)

·         Declaration of Christian Oronsaye: Overruled (and not relied upon in ruling on the motion under Code of Civil Procedure section 437c, subd. (q).).

Plaintiff Dyek-O’Neal, Inc. moves for summary judgment on the breach of contract cause of action seeking to collect on a principal balance of 4121,196.45, plus late fees, costs and attorney fees. Defendant Omotayo Omotunde in opposition challenges the motion on grounds that the Note is governed under Washington DC law, and barred by the three year statute of limitations. Defendant next argues the court lacks subject matter jurisdiction to the location of the property in Washington DC. Even if the case is subject to California law, Defendant maintains the case is barred by California statutes of limitations. Plaintiff in reply reiterates the elements for breach of contract, maintains the court holds subject matter jurisdiction, and denies any bar under the statute of limitations.

The law of summary judgment provides courts “a mechanism to cut through the parties’ pleadings in order to determine whether, despite their allegations, trial is in fact necessary to resolve their dispute.”  (Aguilar v. Atlantic Richfield Co. (2001) 25 Cal.4th 826, 843 (Aguilar).)  In reviewing a motion for summary judgment, courts employ a three-step analysis: “(1) identify the issues framed by the pleadings; (2) determine whether the moving party has negated the opponent’s claims; and (3) determine whether the opposition has demonstrated the existence of a triable, material factual issue.” (Hinesley v. Oakshade Town Center (2005) 135 Cal.App.4th 289, 294.)

The pleadings frame the issues for motions, “since it is those allegations to which the motion must respond. (Citation.)”  (Scolinos v. Kolts (1995) 37 Cal. App. 4th 635, 640-641; FPI Development, Inc. v. Nakashima (1991) 231 Cal.App.3d 367, 382-383; Jordan-Lyon Prods., LTD., v. Cineplex Odeon Corp. (1994) 29 Cal.App.4th 1459, 1472.) The seventh cause of action specifically alleges claims regarding the obligation for payment of rent, including: force majeure, excused performance, frustration, impracticality, impossibility, proportionate reduction and/or full abatement of rents, and anticipatory repudiation.

A plaintiff or cross-complainant has met his or her burden of showing that there is no defense to a cause of action if that party has proved each element of the cause of action entitling the party to judgment on the cause of action.” (Code Civ. Proc., § 437c, subd. (p)(1).) Plaintiff need not disprove all defenses, if the elements of a cause of action are made. (Oldcastle Precast, Inc. v. Lumbermens Mutual Casualty Co. (2009) 170 Cal.App.4th 554, 564; WRI Opportunity Loans II, LLC v. Cooper (2007) 154 Cal.App.4th 525, 532.) “When deciding whether to grant summary judgment, the court must consider all of the evidence set forth in the papers (except evidence to which the court has sustained an objection), as well as all reasonable inference that may be drawn form that evidence, in the light most favorable to the party opposing summary judgment.”  (Avivi, 159 Cal.App.4th at 467; see also Code Civ. Proc., § 437c, subd. (c).)  “An issue of fact can only be created by a conflict in the evidence.  It is not created by speculation, conjecture, imagination or guesswork.”  (Lyons v. Security Pacific National Bank (1995) 40 Cal.App.4th 1001, 1041 (citation omitted).) 

Plaintiff moves for summary judgment on grounds that Defendant admits the existence and authenticity of the Note, the default on the note, and lack of excuse for repayment on the note. [Declaration of Steven Snow, Ex. A; Declaration of Katrina Brown, Ex. 1-5.] Defendant first challenges collection on the note on grounds of jurisdiction and application of Washington D.C. law.

Subject matter jurisdiction is a fundamental requirement for judicial consideration of claims. ‘The California Supreme Court has defined subject matter jurisdiction thusly: “Subject matter jurisdiction ... is the power of the court over a cause of action or to act in a particular way.” [Citations.] By contrast, the lack of subject matter jurisdiction means the entire absence of power to hear or determine a case; i.e., an absence of authority over the subject matter. [Citations.]’” (Saffer v. JP Morgan Chase Bank, N.A. (2014) 225 Cal.App.4th 1239, 1248.)

The verified first amended complaint alleges a foreclosure sale occurred on the senior note. The sale proceeds were insufficient towards any payment of the senior note, which meant the junior note also remained completely unpaid.

The language of Code of Civil Procedure section 726—the one form of action rule—distinguishes primary versus secondary notes. “The term ‘sold-out junior lienor’ refers to the situation in which a senior lienholder forecloses its lien, eliminating the junior lienor's security interest. ‘A senior foreclosure sale conveys the property free of all junior liens .... Thus, the junior no longer has a lien on the property, and the security has been entirely destroyed. A sold-out junior thus holds security that has “become valueless” and is permitted to sue directly on the note.’” (Bank of America v. Graves (1996) 51 Cal.App.4th 607, 611–612 accord Roseleaf Corp. v. Chierighino (1963) 59 Cal.2d 35, 41.)

Upon the loss of secured rights, the aggrieved party may still pursue collection directly on the note, and is not barred by the “one form or action” rule of Code of Civil Procedure section 726. (Id. at p. 612; Roseleaf Corp. v. Chierighino (1963) 59 Cal.2d at p. 41 [“Equitable considerations favor placing this burden on the debtor, not only because it is his default that provokes the senior sale, but also because he has the benefit of his bargain with the junior lienor who, unlike the selling senior, might otherwise end up with nothing”].)

Section 5 of the Note states in part: “In addition to the protections given to the Note Holder… a Deed of Trust dated October 16, 2006 protects the Note Holder from possible losses which might result if I do not keep the promises which I made in this Note.” [Snow Dec., Ex. A.] The plain language of Section 5 certainly identifies the deed of trust as a source of payment, but the court finds the words “possible losses” renders the secured interest contingent rather than absolutely binding. Even if the language was unqualified, the court finds no legal support for the finding of extinguishment of both the senior and junior notes upon the foreclosure. A contingency is not an exception to the one form of action rule.

Given the finding of an unsecured note, the court considers the subject action as a breach of contract, and therefore reviews Code of Civil Procedure section 395 for further determination of subject matter jurisdiction. The section states in relevant part:

“Subject to the power of the court to transfer actions or proceedings as provided in this title, in an action arising from .. loans or extensions of credit intended primarily for personal, family or household use, … the superior court in the county where the buyer or lessee in fact signed the contract, where the buyer or lessee resided at the time the contract was entered into, or where the buyer or lessee resides at the commencement of the action is the proper court for the trial of the action. In the superior court designated in this subdivision as the proper court, the proper court location for trial of a case is the location where the court tries that type of case that is nearest or most accessible to where the buyer or lessee resides, where the buyer or lessee in fact signed the contract, where the buyer or lessee resided at the time the contract was entered into, or where the buyer or lessee resides at the commencement of the action.”

(Code Civ. Proc., § 395, subd. (b).)

The case was properly filed in district where Defendant resides. Nothing in the motion contends Defendant lives outside the court district. The court therefore finds no support for the lack of subject matter jurisdiction argument. Nothing in the plain language of the Note otherwise presents any choice of law clause requiring adherence to Washington D.C. law. Defendant presents no other supported argument regarding the application of Washington D.C. law.

The court therefore applies California law regarding the statute of limitations, and argument regarding the failure to timely file any action for collection on the note. Defendant relies on Code of Civil Procedure section 337 and Commercial Code section 3118 for the contention that the action should have been initiated within three months of the foreclosure and/or any claim for breach of written contract is barred by the four year statute of limitations. Defendant has presented this argument to the court in prior motions. The court once again addresses the legal standard, and evidentiary considerations required for the subject motion.

Code of Civil Procedure section 337, subdivision (a) provides for accrual of a four year statute of limitations upon the time of “obligation for the payment of which a deed of trust or mortgage with power of sale upon real property or any interest therein was given as security, following the exercise of the power of sale in such deed of trust or mortgage, may be brought shall not extend beyond three months after the time of sale under such deed of trust or mortgage.”

The property sold in 2009 and the second position Note was acquired by Plaintiff at a later date. As stated above, the foreclosure sale terminated the secured interest via the Deed of Trust, thereby rendering the Note an unsecured instrument. The court finds the three month initiation requirement therefore not applicable, but the four year statute of limitations applies.

The complaint was not filed until May 2020, which is more than 10 years after the first payment was rendered due and owing. The court therefore finds any claim under Code of Civil Procedure section 337, subdivision (a) barred by the four year statute of limitations based on payments owed more than four years prior to the due to date. Nevertheless, section 3 of the Note provides for payments due up until November 21, 2021, which renders at least a portion of the contract still collectible. (White v. Moriarty (1993) 15 Cal.App.4th 1290, 1299 [Statute of limitations accrues on unpaid installment following the date the installment is due].) Furthermore, Plaintiff states the acceleration right under the note was only exercised on January 14, 2020—prior to the complaint filing date. [Snow Dec., ¶ 15, Ex. B.]

The court also considers the arguments under the Commercial Code negotiable instrument rules. Commercial Code section 3118 provides in relevant part: “(a) Except as provided in subdivision (e), an action to enforce the obligation of a party to pay a note payable at a definite time shall be commenced within six years after the due date or dates stated in the note or, if a due date is accelerated, within six years after the accelerated due date.” (Cal. U. Com. Code, § 3118, subd. (a).)

Application of the statute of limitations requires a determination of whether the note constitutes a negotiable instrument under the code section: Commercial Code section 3104, which provides the following definition:

(a) Except as provided in subdivisions (c) and (d), “negotiable instrument” means an unconditional promise or order to pay a fixed amount of money, with or without interest or other charges described in the promise or order, if it is all of the following:

(1) Is payable to bearer or to order at the time it is issued or first comes into possession of a holder.

(2) Is payable on demand or at a definite time.

(3) Does not state any other undertaking or instruction by the person promising or ordering payment to do any act in addition to the payment of money, but the promise or order may contain (i) an undertaking or power to give, maintain, or protect collateral to secure payment, (ii) an authorization or power to the holder to confess judgment or realize on or dispose of collateral, or (iii) a waiver of the benefit of any law intended for the advantage or protection of an obligor.

(b) “Instrument” means a negotiable instrument.

(c) An order that meets all of the requirements of subdivision (a), except paragraph (1), and otherwise falls within the definition of “check” in subdivision (f) is a negotiable instrument and a check.

(d) A promise or order other than a check is not an instrument if, at the time it is issued or first comes into possession of a holder, it contains a conspicuous statement, however expressed, to the effect that the promise or order is not negotiable or is not an instrument governed by this division.

(e) An instrument is a “note” if it is a promise and is a “draft” if it is an order. If an instrument falls within the definition of both “note” and “draft,” a person entitled to enforce the instrument may treat it as either.

…

Cal. U. Com. Code, § 3104

In examining the statutory language, Defendant offers further definition:

a) Except as provided in this section, for the purposes of subdivision (a) of Section 3104, a promise or order is unconditional unless it states (1) an express condition to payment, (2) that the promise or order is subject to or governed by another writing, or (3) that rights or obligations with respect to the promise or order are stated in another writing. A reference to another writing does not of itself make the promise or order conditional.

(b) A promise or order is not made conditional (1) by a reference to another writing for a statement of rights with respect to collateral, prepayment, or acceleration, or (2) because payment is limited to resort to a particular fund or source.

…

Cal. U. Com. Code, § 3106

Based on the case law addressed above regarding the loss of a secured interest only undermining the negotiability of the first/senior note holder, thereby rendering the second note collectible as an unsecured instrument, plus the plain language of section Commercial Code section 3104, the court finds the subject note a valid instrument under the Commercial Code. The transfer of the note to Plaintiff, the payment terms of the note, including the November 2021 due date, and the loss of the secured interest, renders the note by definition a negotiable instrument. The loss of the secured interest also compromises any contingency exceptions in Commercial Code section 3106.

On the statute of limitations itself, the plain language allows for the accrual of the statute of limitations on the basis of the last payment due date or upon the acceleration clause. The first amended complaint specifically alleges accrual upon the exercise of the acceleration clause, which is allowed up until the last payment due on the note in November 2021. With required payments due until November 1, 2021, and the complaint filed in 2020, the court finds the complaint is also timely under Commercial Code section 3118.

Thus, the court therefore finds at least part of the debt remains subject to collection and not barred under Code of Civil Procedure section 337, subdivision (a) or Commercial Code section 3118. The court however disputes Plaintiff’s representation of the entire balance due given the lapsed portions of the claims. Nothing in the motion or reply establishes a revival of any sums due and owing, yet without any prior effort to invoke the acceleration clause or file an earlier complaint. (White v. Moriarty (1993) 15 Cal.App.4th at p. 1299.)

“The standard elements of a claim for breach of contract are: ‘(1) the contract, (2) plaintiff's performance or excuse for nonperformance, (3) defendant's breach, and (4) damage to plaintiff therefrom. [Citation.]’” (Wall Street Network, Ltd. v. New York Times Co. (2008) 164 Cal.App.4th 1171, 1178.) Nothing in the motion or reply in any way accounts for the lapsed, uncollectible payments. The court declines to make the argument for plaintiff regarding the determination of the proper statute of limitations (the four or six year), or to calculate the exact dates and balances for purposes of determining a proper amount subject to collection. The court therefore denies the motion for summary judgment on grounds of the failure to present a calculated, collectible balance and therefore the exact amount of damages as required in a breach of contract action. Code Civ. Proc., § 437c, subd. (p)(1).)

The court additionally denies the motion on grounds that any calculations on the interest sought and costs remains directly derivative of the accrual date. The motion also lacks support for the imposition of attorney fees, which is generally addressed in a post-judgment motion under most circumstances.

The December 1 Final Status Conference and December 5, 2022 trial date remain set.

Plaintiff is ordered to give notice.