Judge: Teresa A. Beaudet, Case: 23STCV22953, Date: 2025-03-05 Tentative Ruling

Case Number: 23STCV22953    Hearing Date: March 5, 2025    Dept: 50

Superior Court of California

County of Los Angeles

Department 50

Background

Plaintiff Denise Wheeler (“Plaintiff”) filed this action on September 21, 2023 against Defendant Center Street Lending Corporation.

Plaintiff filed a First Amended Complaint (“FAC”) on January 8, 2024 against Defendants Center Street Lending Corporation and Center Street Lending Fund IV SPE, LLC. The FAC alleged causes of action for (1) violation of Civil Code section 2923.55 and

(2) violation of Business and Professions Code section 17200, et seq.

Center Street Lending Corporation and Center Street Lending Fund IV SPE, LLC demurred to both causes of action of the FAC and moved to strike portions of the FAC. On May 23, 2024, the Court issued an Order sustaining the demurrer to the first and second causes of action of the FAC, with leave to amend. The Court also granted the motion to strike, without leave to amend.

On June 12, 2024, Plaintiff filed a Second Amended Complaint (“SAC”) against Defendants Center Street Lending Corporation and Center Street Lending VIII SPE, LLC. The SAC alleged causes of action for (1) violation of Civil Code section 2923.55 and

(2) violation of Business and Professions Code section 17200, et seq.

Center Street Lending Corporation, Center Street Lending Fund IV SPE, LLC, and Center Street Lending VIII SPE, LLC demurred to both of the causes of action of the SAC and moved to strike portions of the SAC. On September 4, 2024, the Court issued an order sustaining the demurrer to the first and second causes of action of the SAC, with leave to amend. The Court also granted the motion to strike.

On September 24, 2024, Plaintiff filed the operative Third Amended Complaint (“TAC”) against Center Street Lending Corporation. The TAC alleges causes of action for (1) violation of Civil Code section 2923.55 and (2) violation of Business and Professions Code section 17200, et seq.

Center Street Lending Corporation (“Defendant”) now demurs to both causes of action of the TAC. Plaintiff opposes.

Requests for Judicial Notice

The Court grants Defendant’s request for judicial notice filed in support of Defendant’s demurrer. The Court denies Defendant’s supplemental request for judicial notice filed on February 26, 2025. The Court notes that “[t]he general rule of motion practice…is that new evidence is not permitted with reply papers.” (Jay v. Mahaffey¿(2013) 218 Cal.App.4th 1522, 1537.) 

Discussion

A.    Legal Standard  

A demurrer can be used only to challenge defects that appear on the face of the pleading under attack or from matters outside the pleading that are judicially noticeable. ((Blank v. Kirwan (1985) 39 Cal.3d 311, 318.) “To survive a demurrer, the complaint need only allege facts sufficient to state a cause of action; each evidentiary fact that might eventually form part of the plaintiff’s proof need not be alleged.” ((C.A. v. William S. Hart Union High School Dist. (2012) 53 Cal.4th 861, 872.) For the purpose of testing the sufficiency of the cause of action, the demurrer admits the truth of all material facts properly pleaded. ((Aubry v. Tri-City Hospital Dist. (1992) 2 Cal.4th 962, 966-967.) A demurrer “does not admit contentions, deductions or conclusions of fact or law.” ((Daar v. Yellow Cab Co. (1967) 67 Cal.2d 695, 713.)

B.     Allegations of the TAC 

In the TAC, Plaintiff alleges that at all relevant times, she owned the property located at 637 E 29th Street, Los Angeles California 90011 (the “Property”). (TAC, ¶ 7.) Plaintiff alleges that “[t]he Property has been in Plaintiff’s family since 1993, but she was not on title until August 2015. The property has served as her personal and principal residence for all times referenced herein. Plaintiff lived in one unit, while her family members resided in the other unit.” (TAC, ¶ 8.) “In mid-2015, a fire virtually destroyed most of the Property and left it in severe disrepair. As a result, Plaintiff received insurance proceeds to fix the Property so that she and her family could continue residing therein…Plaintiff alleges that the Property is Security for a loan made for purposes of personal, family, or household purposes. This is also when Plaintiff was put on title to the Property.” (TAC, ¶ 9.)

            “On August 20, 2015, Plaintiff received a refinance from Defendant CENTER STREET in the amount of $350,000.00.” (TAC, ¶ 11.) “In the loan origination process and knowing Plaintiff lived in the Property, Plaintiff was told to use a different address for her personal residence.” (TAC, ¶ 12, emphasis omitted.) Plaintiff alleges that “CENTER STREET knew Plaintiff’s only residence was the property but was told to use a different address to fund the loan.” (TAC, ¶ 12.) “Plaintiff, as an ordinary consumer, did not know the implications of doing so and executed the documents with a different address.” (TAC, ¶ 13.) “In February 2016, the loan came due, and Plaintiff was unable to pay the balloon amount.” (TAC, ¶ 14.)

            “In September 2017, CENTER STREET filed a Notice of Default. On December 26, 2017, CENTER STREET filed a Notice of Trustee’s Sale.” (TAC, ¶ 15.) “On January 18, 2018, Plaintiff filed for Chapter 11 Bankruptcy. Plaintiff made payments throughout the bankruptcy until early 2023 when CENTER STREET filed a Motion for Relief from stay.” (TAC, ¶ 16.)

“The Bankruptcy court granted the Motion for Relief from stay and CENTER STREET recorded a new Notice of Default on May 31, 2023.” (TAC, ¶ 17.)

            Plaintiff alleges that she “lived in the Property as her principal residence when the Notice of Default was recoded [sic] on May 31, 2023.” (TAC, ¶ 19.) Plaintiff alleges that “[o]n September 5, 2023, Defendant recorded a Notice of Trustee’s Sale and set the property for auction on October 3, 2023. Despite the fact that Defendant failed to contact Plaintiff to ‘assess her financial situation and explore options to avoid foreclosure’ as required by Civil Code 2923.55, Defendant intends to proceed the sale [sic]…” (TAC, ¶ 21.)

C.     First Cause of Action for Violation of Civil Code Section 2923.55

In the first cause of action, Plaintiff alleges, inter alia, that “Defendant recorded the NOD without sending the NOD to Plaintiff or contacting Plaintiff ‘in person or by telephone’ to assess her financial situations and explore options to avoid foreclosure. Additionally, the Notice of Trustee’s Sale (‘NOTS’) also fails to include the above required declaration and is not appropriately executed, thus Defendants violated Cal. Civ. Code § 2923.55.” (TAC, ¶ 26.)

Plaintiff also alleges that “[s]ince Defendant also failed to notify or correspond with Plaintiff in writing concerning her options regarding the NOD and alleged default, Defendants recorded the NOD in violation of Cal. Civ. Code § 2923.55.” (TAC, ¶ 27.) In addition, Plaintiff alleges that “[s]ince Defendant also failed to include a declaration that the mortgage servicer has

contacted the borrower, Defendants recorded the NOD in violation of Cal. Civ. Code § 2923.55.” (TAC, ¶ 28.)

            In the demurrer, Defendant asserts, inter alia, that “Plaintiff cannot allege a viable claim against Defendant because there was no material violation.” (Demurrer at p. 5:7.) Defendant cites to Civil Code section 2924.12, subdivision (b), which provides in pertinent part that “[a]fter a trustee’s deed upon sale has been recorded, a mortgage servicer, mortgagee, trustee, beneficiary, or authorized agent shall be liable to a borrower for actual economic damages pursuant to Section 3281, resulting from a material violation of Section 2923.55, 2923.6, 2923.7, 2924.9, 2924.10, 2924.11, or 2924.17 by that mortgage servicer, mortgagee, trustee, beneficiary, or authorized agent where the violation was not corrected and remedied prior to the recordation of the trustee’s deed upon sale...” Defendant cites to Billesbach v. Specialized Loan Servicing LLC (2021) 63 Cal.App.5th 830, 837, where the Court of Appeal noted that “[f]irst, by its terms, the HBOR creates liability only for material violations that have not been remedied before the foreclosure sale is recorded.”

Defendant argues that here, “the fact that Plaintiff and Center Street IV agreed to modify the terms of the Loan prior to the recording of the pending NOD satisfies the requirements under section 2923.55.” (Demurrer at p. 6:6-7.) Defendant cites to Exhibit F to its request for judicial notice, which is a “Stipulation for Chapter 11 Plan Treatment and Order Dismissing Objection to Proof of Claim with Prejudice” filed in in the U.S. Bankruptcy Court for the Central District of California in the matter the matter In re: Denise Latrice Wheeler, Case No. 2:18-bk-10597, on August 27, 2019. (Defendant’s RJN, ¶ 6, Ex. F.) Defendant appears to note that the Stipulation provides, inter alia, “New Loan Terms. Monthly payments on the new secured loan of $500,000.00 shall be payable monthly, at the interest rate of 8.0% fixed, all due and payable 24 months after the date the first payment is due, with payments to commence November 1, 2019.” (Defendant’s RJN, ¶ 6, Ex F, p. 4.) The Stipulation provides that “[t]he original loan amount was $350,000.00, and the Note provided for a non-default interest rate of 11% and a default interest rate of 30%. The original maturity date on the Note was February 8, 2016, which was later extended by mutual agreement to August 8, 2016.” (Id. at p. 2.)

Defendant cites to Schmidt v. Citibank, N.A. (2018) 28 Cal.App.5th 1109, 1121, where the Court of Appeal noted as follows:

“We further conclude that SPS complied with the requirements of former section 2923.55, subdivision (b)(2) by fully reviewing and processing the Schmidts’ loan modification application before recording the notice of default. (See, e.g., Hutchful v. Wells Fargo Bank, N.A. (9th Cir. 2012) 471 Fed. Appx. 693, 694 [trial court had “properly construed the notice requirement of California Civil Code § 2923.5 as having been met by [the borrower’s] extensive discussions with [the lender] regarding loan modification”]; Bell v. Wells Fargo Bank, N.A. (C.D.Cal., Oct. 28, 2014, No. CV 14-4316-JFW(MRWx)) 2014 WL 12611283, p. *3 [loan modification review satisfies the requirement that the lender assess the borrower’s financial situation and explore alternatives to foreclosure]; Keng Hee Paik v. Wells Fargo Bank, N.A. (N.D.Cal., Aug. 3, 2011, No. C 10-04016 WHA) 2011 WL 3359697, p. *3 [lender’s review of two loan modification applications demonstrated “conclusive[] compli[ance]” with former § 2923.5, predecessor statute to former § 2923.55].).”

In the opposition, Plaintiff asserts that “[s]ome courts have found that materiality is a factual question inappropriate for disposition at this stage of the pleadings,” and that “[o]ther courts have found that very [sic] violation that undermines the HBOR is a material violation.” (Opp’n at p. 6:1-2; 6:7-8.) But Plaintiff cites to non-binding federal district court cases to support such arguments. (See Opp’n at p. 6:2-10.)

Plaintiff also notes that the TAC alleges that “Defendants’ actions were material violations of Civil Code § 2923.55 because Plaintiff was not contacted for, or considered for, an option to avoid foreclosure. Plaintiff alleges that if she had been contacted to discuss the loan and Plaintiff’s financial circumstances, she could have been considered for foreclosure prevention alternatives offered by and through Civic for owner-occupied, residences. Defendants, thus, interfered with Plaintiffs’ ability to be considered for a foreclosure prevention alternative or apply for the same, thus constituting a material violation of Civil Code § 2923.55.” (TAC, ¶ 30.) Plaintiff cites to Billesbach v. Specialized Loan Servicing LLC, supra, 63 Cal.App.5th at page 837, where the Court of Appeal noted that “[a] material violation is one that affected the borrower’s loan obligations, disrupted the borrower’s loan-modification process, or otherwise harmed the borrower.”

But as discussed in further detail below, the Billesbach Court also noted that “by its terms, the HBOR creates liability only for material violations that have not been remedied before the foreclosure sale is recorded.” (Billesbach v. Specialized Loan Servicing LLC, supra, 63 Cal.App.5th at p. 837.) As discussed, the TAC alleges that “[t]he Bankruptcy court granted the Motion for Relief from stay and CENTER STREET recorded a new Notice of Default on May 31, 2023,” and that “[o]n September 5, 2023, Defendant recorded a Notice of Trustee’s Sale and set the property for auction on October 3, 2023.” (TAC, ¶¶ 17, 21, emphasis added.) The subject “Stipulation for Chapter 11 Plan Treatment and Order Dismissing Objection to Proof of Claim with Prejudice” was filed on August 27, 2019, before the alleged May 31, 2023 notice of default and September 5, 2023 notice of trustee’s sale. (Defendant’s RJN, ¶ 6, Ex F.) In Billesbach v. Specialized Loan Servicing LLC, supra, 63 Cal.App.5th at pages 837-838, cited by Plaintiff, the Court of Appeal noted that as follows:

“First, by its terms, the HBOR creates liability only for material violations that have not been remedied before the foreclosure sale is recorded. A material violation is one that affected the borrower’s loan obligations, disrupted the borrower’s loan-modification process, or otherwise harmed the borrower. Based on these principles, we hold that where a mortgage servicer[’]s violations stem from its failure to communicate with the borrower before recording a notice of default, the servicer may cure these violations by doing what respondent did here: postponing the foreclosure sale, communicating with the borrower about potential foreclosure alternatives, and fully considering any application by the borrower for a loan modification. Following these corrective measures, any remaining violation relating to the recording of the notice of default is immaterial, and a new notice of default is therefore not required to avoid liability. We do not endorse respondent’s conduct in failing to communicate with appellant before initiating foreclosure 

proceedings and failing to comply with other statutory requirements. Mortgage servicers should take care to comply with their statutory obligations in the first instance, rather than seek to cure violations after a borrower has sued them. We conclude only that appellant has provided no basis for liability under the HBOR.” (Emphasis added.)

Plaintiff also argues that “the Stipulation for Chapter 11 Plan Treatment and Order Dismissing Objection To Proof of Claim was not a formal foreclosure workout option.” (Opp’n at p. 7:3-5.) But Plaintiff does not appear to cite any legal authority to support the proposition that the subject Stipulation was “not a formal foreclosure workout option,” or explain what a “formal foreclosure workout option” purportedly means. (Opp’n at p. 7:4-5.) Plaintiff appears to cite to Civil Code section 2920.5, subdivision (b), which provides that “[f]oreclosure prevention alternative” means “a first lien loan modification or another available loss mitigation option.” The Court does not see how this definition is relevant to the question of whether the alleged material violation of Civil Code section 2923.55 has been remedied. As discussed above, the Schmidt Court “conclude[d] that SPS complied with the requirements of former section 2923.55, subdivision (b)(2) by fully reviewing and processing the Schmidts’ loan modification application before recording the notice of default.” ((Schmidt v. Citibank, N.A., supra, 28 Cal.App.5th at p. 1121.) Here, Plaintiff does not appear to dispute that the terms of the subject loan were modified before the May 21, 2023 notice of default was recorded. (TAC, ¶ 19.)

Plaintiff also argues that “the workout option in the Chapter 11 bankruptcy occurred in 2019, four years before the Notice of Default at issue was recorded. Defendant has offered no judicially noticeable facts or argument that other options were not available. Thus, if Defendant offered other programs for which Plaintiff could not apply or be considered because Defendant failed to contact Plaintiff to assess her financial circumstances prior to recording the Notice of Default, then Defendant’s violation of Civil Code 2923.55 was, in fact, material.” (Opp’n at p. 7:16-22.) This hypothetical argument is confusing to the Court. It is unclear how such argument is relevant to whether Defendant’s alleged “material violations” of Civil Code section 2923.55 were remedied. Plaintiff does not appear to dispute that Plaintiff “agreed to modify the terms of the Loan prior to the recording of the pending NOD…” (Mot. at p. 6:6-7; see Defendant’s RJN, ¶ 6, Ex. F.)

Based on the foregoing, the Court sustains Defendant’s demurrer to the first cause of action of the TAC, without leave to amend. The Court previously sustained Defendant’s demurrer to the cause of action for violation of Civil Code section 2923.55 in the SAC on the same grounds (see September 4, 2024 Order). In addition, Plaintiff has not demonstrated any way that she could amend this cause of action to alleviate the problems discussed above. Accordingly, the Court finds that it is appropriate to sustain the instant demurrer to the first cause of action without leave to amend.

D.    Second Cause of Action for Violation of Business and Professions Code Section 17200, et seq.  

“The UCL does not proscribe specific activities, but broadly prohibits any unlawful, unfair or fraudulent business act or practice and unfair, deceptive, untrue or misleading advertising. The UCL governs anti-competitive business practices as well as injuries to consumers, and has as a major purpose the preservation of fair business competition. By proscribing any unlawful business practice, section 17200 borrows violations of other laws and treats them as unlawful practices that the unfair competition law makes independently actionable. Because…section 17200 is written in the disjunctive, it establishes three varieties of unfair competition—acts or practices which are unlawful, or unfair, or fraudulent.” ((Puentes v. Wells Fargo Home Mortgage, Inc. (2008) 160 Cal.App.4th 638, 643-644 [internal quotations and citations omitted].)

Defendant asserts that “[h]ere, Plaintiff’s second cause of action is derivative of her first cause of action…For the reasons discussed above, the first cause of action fails and it follows that Plaintiff’s derivative second cause of action also fails.” (Demurrer at pp. 6:27-7:1.) In paragraph 34 of the TAC, cited by Defendant, Plaintiff alleges that “Defendant’s violation of California Civil Code § 2923.55 constitute [sic] unfair business practices in violation of California Business and Professions Code § 17200 et seq.” (TAC, ¶ 34.) Defendant cites to AMN Healthcare, Inc. v. Aya Healthcare Services, Inc. (2018) 28 Cal.App.5th 923, 950, where the Court of Appeal noted that “[b]y proscribing any unlawful business practice, section 17200 borrows violations of other laws and treats them as unlawful practices that the unfair competition law makes independently actionable…Thus, when the underlying legal claim fails, so too will a derivative UCL claim. Because all of AMN’s other claims fail as a matter of law, as discussed ante, so too must its derivative UCL claim.” (Internal quotations and citations omitted.) In the opposition, Plaintiff asserts that “[s]ince Plaintiff has sufficiently alleged her underlying claims, her claim for violation of Civil Code § 17200 is also sufficiently alleged.” (Opp’n at p. 9:9-10.) As set forth above, the Court sustains Defendant’s demurrer to the first cause of action of the TAC.

Defendant also argues that “Plaintiff must show that the allegedly wrongful conduct caused economic injury. While she provides a generic list of alleged injuries, she fails to allege

facts showing how the alleged misconduct caused these purported injuries.” (Demurrer at p. 7:11-13.) Plaintiff does not appear to respond to or dispute this argument in the opposition. Defendant cites to Business and Professions Code section 17204, which provides in pertinent part that “[a]ctions for relief pursuant to this chapter shall be prosecuted exclusively in a court of competent jurisdiction…by a person who has suffered injury in fact and has lost money or property as a result of the unfair competition.” The second cause of action alleges that “Plaintiff was injured and suffered actual damages including but not limited to, loss of money and property, loss of reputation and goodwill, and severe emotional distress, according to proof at trial but within the jurisdiction of this Court[.]” (TAC, ¶ 39.) However, as noted by Defendant, Plaintiff does not appear to allege facts showing how the alleged misconduct caused these purported injuries.

Based on the foregoing, the Court sustains Defendant’s demurrer to the second cause of action of the TAC, without leave to amend. The Court previously sustained Defendant’s demurrer to the cause of action for violation of Business and Professions Code Section 17200, et seq. on the same grounds (see September 4, 2024 Order). In addition, Plaintiff has not demonstrated any way that she could amend this cause of action to alleviate the problems discussed above. Accordingly, the Court finds that it is appropriate to sustain the instant demurrer to the second cause of action without leave to amend.

Conclusion

Based on the foregoing, the Court sustains Defendant’s demurrer to first and second causes of action of the TAC, without leave to amend.

The Court orders Defendant to file and serve a proposed judgment of dismissal within 30 days of the date of this order. (¿Donald v. Cafe Royale, Inc. (1990) 218 Cal.App.3d 168, 186 [“An order sustaining a demurrer without leave to amend is not a final judgment; a judgment of dismissal follows such an order as a matter of course.”]¿.)¿ 

Defendant is ordered to give notice of this Order.¿¿

DATED:  March 5, 2025                          ________________________________

Hon. Teresa A. Beaudet

Judge, Los Angeles Superior Court