Judge: Walter P. Schwarm, Case: 30-2022-01295326, Date: 2023-08-08 Tentative Ruling

Defendants’ (Microcredit Loan Fund, Inc. and Breaking Ground, LP) Demurrer to Plaintiff’s Complaint (Demurrer), filed on 2-24-23 under ROA No. 23, is OVERRULED in part and SUSTAINED in part as set forth below.   The Notice for this Demurrer (Notice) was filed on 2-24-23 under ROA No. 29.

The court GRANTS Defendant’s Request for Judicial Notice (RJN), filed on 2-24-23 under ROA No. 27, pursuant to Code of Civil Procedure section 452, subdivision (h). 

“A demurrer tests the pleading alone, and not the evidence or the facts alleged. . . . To the extent there are factual issues in dispute, however, this court must assume the truth not only of all facts properly pled, but also of those facts that may be implied or inferred from those expressly alleged in the complaint. [Citations.]” (City of Atascadero v. Merrill Lynch, Pierce, Fenner & Smith, Inc. (1998) 68 Cal.App.4th 445, 459.) Code of Civil Procedure section 452, states, “In the construction of a pleading, for the purpose of determining its effect, its allegations must be liberally construed, with a view to substantial justice between the parties.” Perez v. Golden Empire Transportation Transit District (2012) 209 Cal.App.4th 1228, 1238, provides, “This rule of liberal construction means that the reviewing court draws inferences favorable to the plaintiff, not the defendant. [Citations.]” C.A. v. William S. Hart Union High School District (2012) 53 Cal.4th 861, 872 (C.A.), provides, “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. [Citation.]”

CrossTalk Productions, Inc. v. Jacobson (1998) 65 Cal.App.4th 631, 635 (CrossTalk), provides, “Here, the demurrer was based upon an affirmative defense (unclean hands). In such a case, the affirmative defense must clearly appear on the face of the complaint in order to support a demurrer. A demurrer based on an affirmative defense cannot properly be sustained where the action might be barred by the defense, but is not necessarily barred. [Citation.]” (Italics in CrossTalk.)

The Demurrer challenges the first, second, third, fourth, fifth, sixth, and seventh causes of action contained in Plaintiff’s (Antar Investments, LLC) Complaint, filed on 12-2-22 under ROA No. 2, pursuant to Code of Civil Procedure section 430.10, subdivision (e). (Notice.)

Application of Civil Code section 2924m:

Defendants contends that all of the causes of action are subject to demurrer based on the application of Civil Code section 2924m.  Specifically, the Demurrer states, “All of these claims depend on the sale not being governed by Section 2924m.  Plaintiff was not an eligible bidder and did not submit a bid with other bidders at the sale after the sale.  Thus, nothing that happened in the sale after the sale affected Plaintiff because it did not participate.” (Demurrer; 4:18-22.)

Plaintiff’s Opposition to Demurrers of Defendants (Opposition), filed on 7-25-23 under ROA No. 50, contends that Civil Code section 2924m does not apply to the sale.  Relying on Civil Code section 5710, subdivision (a), the Opposition responds, “Contrary to DEFENDANTS’ assertion, Davis-Stirling does not incorporate all of the nonjudicial foreclosure statutes.  Significantly, omitted from section 5710 is any reference to section 2924m. . . . Bottom line, there is not legal authority establishing Civil Code §2924m applies to nonjudicial foreclosures involving HOA lien.” (Opposition; 7:1-16 (Italics in Opposition.).)

The sale at issue involves the sale of property located at 24877 Nueva Vista Dr. No. 23, Laguna Niguel, California, 92677. (Complaint, ¶ 9.)  At the foreclosure sale, Plaintiff “. . . was the highest bidder. . . .” (Complaint ¶ 10.)  After Plaintiff’s bid, “MLG wrongfully and without legal justification or basis accepted the post auction bid by BREAKING GROUND as though Civil Code section 2924m was applicable to foreclosure sales under a Homeowners Association Lien. Plaintiff . . . alleges that Civil Code section 2924m does not apply to the foreclosure of homeowners liens.” (Complaint, ¶ 12; Uppercase in Complaint.)

Assuming, without deciding, that Civil Code section 2924m applies to nonjudicial foreclosure sales based on a homeowners association lien, the Complaint adequately pleads that Defendant—Breaking Ground LP (BGL) was non an eligible bidder under Civil Code section 2924m.

Civil Code section 2924m, subdivision (c), states, “(c) A trustee's sale of property under a power of sale contained in a deed of trust or mortgage on real property containing one to four residential units pursuant to Section 2924g shall not be deemed final until the earliest of the following: . . . [¶] (4)(A) Forty-five days after the trustee's sale, except that during the 45-day period, an eligible bidder may submit to the trustee a bid in an amount that exceeds the last and highest bid at the trustee's sale . . . .”

Civil Code section 2924m, subdivision (a)(3) states in part, “ ‘Eligible bidder’ means any of the following: . . . [¶](C) A nonprofit association, nonprofit corporation, or cooperative corporation in which an eligible tenant buyer is a voting member or director. [¶] (D) An eligible nonprofit corporation with all of the following attributes: [¶] (i) It has a determination letter from the Internal Revenue Service affirming its tax-exempt status pursuant to Section 501(c)(3) of the Internal Revenue Code and is not a private foundation as that term is defined in Section 509 of the Internal Revenue Code. [¶] (ii) It has its principal place of business in California. [¶] (iii) The primary residences of all board members are located in California. [¶] (iv) One of its primary activities is the development and preservation of affordable rental or homeownership housing in California. [¶] (v) It is registered and in good standing with the Attorney General’s Registry of Charitable Trusts, pursuant to the Supervision of Trustees and Fundraisers for Charitable Purposes Act (Article 7 commencing with Section 12580) of the Chapter 6 of Part 2 of Division 3 of Title 2 of the Government code). [¶] (E) A limited liability company wholly owned by one or more eligible nonprofit corporations as described in subparagraph (C) or (D). . . .”

The Complaint alleges that BGL “. . . is a limited partnership formed in California but whose principal place of business is in the State of Florida. . . .” (Complaint, ¶ 3.) The Complaint pleads that Defendant—Microcredit Loan Fund, Inc. (Microcredit) “. . . is the general partner of BREAKING GROUND and was incorporated in the State of California purporting to be a non-profit educational and charitable corporation . . . .” (Complaint, ¶ 3; Uppercase in Complaint.)  The Complaint makes the following allegations: (1) The DECLARATION under penalty of perjury submitted by BREAKING GROUND provides that BREAKING GROUND is: [¶] ‘a limited partnership whose managing partner is an eligible nonprofit corporation based in California whose primary activity is the development and preservation of affordable housing.’ . . . [¶] MICROCREDIT was not based in California.  [¶] MICROCREDIT was not ‘an eligible’ nonprofit corporation; and [¶] MICROCREDIT’S primary activity was not the development and preservation of affordable housing.” (Complaint, ¶¶ 16, 16.1, 16.2, and 16.3.)

Paragraph 17 of the Complaint alleges, “. . . MICROCREDIT was formed approximately 1997 as a non-profit corporation for the purpose of making loans; that MICROCREDIT had made three minor loans in about 2010, and that from 2010-2020, MICROCREDIT was a dormant corporation. . . . Prior to the enactment of Section 2924m, MICROCREDIT had not ever owned real property for the purpose of the development or preservation of affordable rental housing or housing.” (Uppercase in Complaint.)  (Complaint, ¶ 17). Paragraph 19 of the Complaint alleges, “. . . MICROCREDIT and BREAKING GROUND have acquired over 16 properties from July 2021 through September 2022, by claiming to be an eligible bidder under Civil Code §2924m, while only one or two of the properties was purportedly used for the purpose of affordable rental housing. . . . BREAKING GROUND attempted to acquire the property at issue for the sole purpose of flipping it for a profit, and not for its use as an affordable housing or rental housing property. (Uppercase in Complaint.)

Based on the above, Plaintiff adequately pleads that BGL was not an eligible bidder because Microcredit was not an eligible nonprofit corporation because the Complaint pleads that Plaintiff alleges that Microcredit was not based in California. The Complaint also alleges that Microcredit’s primary activity was not the development and preservation of affordable housing.

Microcredit’s Articles of Incorporation (AOI) do not resolve this dispute as to Microcredit’s primary activity. (RJN, Exhibit 4.) The AOI only establishes that Microcredit was formed with numerous charitable purposes. (RJN, Exhibit 4 (AOI at Article IV.).) The AOI does not establish where Microcredit is based and its primary activity.  Further, under CrossTalk, the defense that Defendant was an “eligible bidder” does not clearly appear on the face of the Complaint or the judicially noticeable documents.

Therefore, the court finds that the Complaint adequately pleads that BGL was not an eligible bidder under Civil Code section 2924m, subdivision (a)(3).

Conclusive Presumption Regarding Validity of the Sale of the Property:

The Demurrer states, “Another global bar to all causes of action is the statutory conclusive presumption of the sale from delivery and recordation of a Trustees Deed Upon Sale. Section 2924m was enacted against a backdrop of decades of jurisprudence that strictly construes foreclosure litigation against invented of implied duties or remedies. (Demurrer; 9:20-24.)

I.E. Associates v. Safeco Title Insurance Co. (1985) 39 Cal.3d 281, 288 (I.E.), states, “Trustees, the middlemen, need to have clearly defined responsibilities to enable them to discharge their duties efficiently and to avoid embroiling the parties in time-consuming litigation.”  I.E. is inapplicable because it pertained to a lawsuit between I.E. Associates (the trustor on a deed of trust) and Safeco Title Insurance Company (the trustee on a deed of trust)the liability of the trustee. (Id., at pp. 283-284.)  I.E. involved the liability of the trustee.

The Demurrer also states, “The jurisprudence of non-judicial foreclosure sales is overlooked by the statutory conclusive presumption of validity of a sale by recordation of the Trustee’s Deed by a third party bona fide purchaser at sale.” (Demurrer; 10:9-11.) Code of Civil Procedure section 2924, subdivision (c), provides, “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.”

RNT Holdings, LLC v. United General Title Insurance Company (2014) 230 Cal.App.4th 1289, 1296 (RNT), explains, “Generally, to be a bona fide purchaser for value, the buyer must (1) purchase the property in good faith for value, and (2) have no knowledge or notice--actual or constructive--of the asserted rights of another. [Citations.]” 

Based on the allegations in the Complaint regarding Defendants’ noncompliance with Civil Code section 2924m, the Complaint sufficiently pleads that Defendants were not a bona fide purchaser without notice of Plaintiff’s alleged rights.

First Cause of Action (Violation of Civil Code section 5700):

The Demurrer states, “. . . the First Cause of Action for violation of Civil Code Section 5710 does not state a claim for relief as a matter of law.  A violation of statute does not necessarily give rise to a private cause of action.” (Demurrer; 6:22-24.)  The Opposition replies, “Since there is no enforcement mechanism in place of Civil Code §5700 . . . a private right of action should be implied . . . .” (Opposition; 10:14-15.)

Civil Code section 5710 states, “(a) Any sale by the trustee shall be conducted in accordance with Sections 2924, 2924b, and 2924c applicable to the exercise of powers of sale in mortgages and deeds of trust. ¶ (b) In addition to the requirements of Section 2924, the association shall serve a notice of default on the person named as the owner of the separate interest in the association's records or, if that person has designated a legal representative pursuant to this subdivision, on that legal representative. Service shall be in accordance with the manner of service of summons in Article 3 (commencing with Section 415.10) of Chapter 4 of Title 5 of Part 2 of the Code of Civil Procedure. An owner may designate a legal representative in a writing that is mailed to the association in a manner that indicates that the association has received it. ¶ (c) The fees of a trustee may not exceed the amounts prescribed in Sections 2924c and 2924d, plus the cost of service for either of the following: ¶ (1) The notice of default pursuant to subdivision (b). ¶ (2) The decision of the board to foreclose upon the separate interest of an owner as described in subdivision (d) of Section 5705.”

Mabry v. Superior Court (2010) 185 Cal.App.4th 208, 218 (Mabry), states, “A private right of action may inhere within a statute, otherwise silent on the point, when such a private right of action is necessary to achieve the statute's policy objectives. [Citation.]”  Civil Code section 5710 does not provide an enforcement mechanism.  Since Civil Code section 5710 is silent as to a means of enforcement, the court implies a cause of action at this early stage of the proceedings under Mabry.  Therefore, the court OVERRULES the Demurrer as to the first cause of action.

Second and Third Causes of Action (Interference with Prospective Economic Advantage and Negligent Interference with Prospective Economic Advantage):

CACI No. 2022 sets forth the elements necessary to establish a cause of action for interference with prospective economic advantage.  Roy Allan Slurry Seal, Inc. v. American Asphalt South, Inc. (2017) 2 Cal.5th 505, 512 (Roy Allan), states, “Intentional interference with prospective economic advantage has five elements: (1) the existence, between the plaintiff and some third party, of an economic relationship that contains the probability of future economic benefit to the plaintiff; (2) the defendant's knowledge of the relationship; (3) intentionally wrongful acts designed to disrupt the relationship; (4) actual disruption of the relationship; and (5) economic harm proximately caused by the defendant's action. [Citation.]”

Paragraphs 25-37 of the Complaint adequately alleges forth the facts necessary to plead the second cause of action.

The Demurrer also relies on Residential Capital v. Cal-Western Reconveyance Corporation (2003) 108 Cal.App.4th 807 (Residential), to contend, “. . . the uncertain outcome of bidding does not arise to an economic relationship with the auctioneer.”  (Demurrer; 9:14-16.)  Residential states, “We are convinced that it is unhelpful to analyze trust deed nonjudicial foreclosure sales issues in the context of common law contract principles. First, the foreclosure sale affects not only the two parties to the sale (the bidder and the trustee) but also the three parties to the trust deed (the trustor, trustee and beneficiary). It is difficult to apply two-party contract principles to a transaction involving the rights of parties to a trust deed foreclosure auction sale and different parties to the trust deed whose rights are affected by the sale. Second, trust deed nonjudicial foreclosure sales are comprehensively regulated by the detailed statutory scheme set forth in section 2924 et seq., which is not based on common law contract principles. We therefore decline the suggestion of Residential Capital and the defendants to base our decision on common law contract principles of voidness and its corollaries of voidability, enforceability, invalidity and illegality. Rather, we conclude the case should be decided on principles of interpretation of the statutory scheme setting forth the rules of trust deed nonjudicial foreclosure sales.” (Id., at pp. 820-821.)

Residential does not apply at this stage of the proceedings because it was in the context of a single bidding process. (Residential, supra, 108 Cal.App.4th at pp 811-812.)  Here, the there was a two-part process where Plaintiff was the highest bidder until Defendants used Civil Code section 2924m to place a bid.  The court also finds that Roy Allan does not apply at this stage of the proceedings because the plaintiffs in that case submitted a bid along with other bidders in response to a solicitation by public entities. (Roy Allan, supra, 2 Cal.5th at pp. 509-511.)

Based on the above, the court OVERRULES the Demurrer to the second and third causes of action.

Fourth Cause of Action (Cancellation of Instruments):

Thompson v. Ioane (2017) 11 Cal.App.5th 1180, 1193-1194 (Thompson), states, “ ‘Under Civil Code section 3412, “[a] written instrument, in respect to which there is a reasonable apprehension that if left outstanding it may cause serious injury to a person against whom it is void or voidable, may, upon his application, be so adjudged, and ordered to be delivered up or canceled.” To prevail on a claim to cancel an instrument, a plaintiff must prove (1) the instrument is void or voidable due to, for example, fraud; and (2) there is a reasonable apprehension of serious injury including pecuniary loss or the prejudicial alteration of one's position. [Citation.]’ [Citation.]”

The Demurrer contends, “Plaintiff’s two paragraph claim in its Fourth Cause of Action expressly depends on the First through Third Causes of Action. (Complaint, ¶¶ 44-45). Since the statutory and tort claims are fatally defective, this claims fails as a matter of law.” (Demurrer, 11:4-6.) 

Since the court has OVERRULED the Demurrer to the first, second, and third causes of action, the court OVERRULES the Demurrer to the fourth cause of action.

Fifth Cause of Action (Quiet Title):

Deutsche Bank National Trust Co. v. Pyle (2017) 13 Cal.App.5th 513, 524 (Deutsche), states, “The purpose of a quiet title action ‘is to finally settle and determine, as between the parties, all conflicting claims to the property in controversy, and to decree to each such interest or estate therein as he [or she] may be entitled to.’ [Citation.] Actions to quiet title are governed by section 761.010 et seq. The quiet title plaintiff must file a verified complaint including a description of the property, the basis for the plaintiff's claim of title, the adverse claims the plaintiff seeks to adjudicate, the date as of which the plaintiff seeks to adjudicate those claims, and a prayer for the determination of the plaintiff's title against the adverse claims. (§ 761.020.) A quiet title plaintiff must name as defendants “the persons having adverse claims that are of record or known to the plaintiff or reasonably apparent from an inspection of the property.” (§ 762.060, subd. (b).) Any person who has a claim to the property may appear as a defendant, whether or not they are named in the complaint. (§ 762.050.) ‘Immediately upon commencement of the action’ a quiet title plaintiff must record a lis pendens. (§ 761.010, subd. (b).) [¶] Before entering a judgment quieting title, ‘The court shall examine into and determine the plaintiff's title against the claims of all the defendants. The court shall not enter judgment by default but shall in all cases require evidence of plaintiff's title and hear such evidence as may be offered respecting the claims of any of the defendants, other than claims the validity of which is admitted by the plaintiff in the complaint. The court shall render judgment in accordance with the evidence and the law.’ (§ 764.010, italics added.)”

Code of Civil Procedure section 760.010 states, “As used in this chapter: [¶] (a) ‘Claim’ includes a legal or equitable right, title, estate, lien, or interest in property or cloud upon title. [¶] (b) ‘Property’ includes real property, and to the extent applicable, personal property.” Code of Civil Procedure section 760.020, subdivision (a), states, “An action may be brought under this chapter to establish title against adverse claims to real or personal property or any interest therein.”

The Complaint alleges sufficient facts to plead a cause of action for quiet title. (Complaint, ¶¶ 47-54.)  Therefore, the court OVERRULES the Demurrer to the fifth cause of action.

Sixth Cause of Action (Declaratory Relief):

Ludgate Ins. Co. v. Lockheed Martin Corp. (2000) 82 Cal.App.4th 592, 605 (Ludgate), states, “The existence of an ‘actual controversy relating to the legal rights and duties of the respective parties,’ suffices to maintain an action for declaratory relief. (Code Civ. Proc., § 1060.) Code of Civil Procedure section 1060 is clear: ‘Any person interested under a written instrument, . . .  or under a contract, or who desires a declaration of his or her rights or duties with respect to another, or in respect to, in, over or upon property, . . . may, in cases of actual controversy relating to the legal rights and duties of the respective parties, bring an original action or cross-complaint in the superior court ... for a declaration of his or her rights and duties in the premises, including a determination of any question of construction or validity arising under the instrument or contract.’ ”

“ ‘The fundamental basis of declaratory relief is the existence of an actual, present controversy over a proper subject.’ [Citation.]”  (City of Cotati v. Cashman (2002) 29 Cal.4th 69, 79 (Cotati); Italics in Cotati.) “ ‘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.” ’ [Citation.]  (Jolley v. Chase Home Finance, LLC (2013) 213 Cal.App.4th 872, 909.)

The Opposition states that Plaintiff “. . . seeks a determination of the controversy that has arisen because . . . PLAINTIFF was the high bidder, Civil Code §2924m did not apply to the nonjudicial foreclosure of the HOA lien, DEFENDANTS were not an eligible bidder and provided a false Declaration and Notice of Intent, all of which are relevant to determination of whether the Trustee’s Deed is valid.” (Opposition; 13:17-22 (Uppercase and Italics in Opposition.).)

Paragraphs 55-58 of the Complaint, the Complaint do not plead a controversy between Plaintiff and Defendants based on a written instrument or contract.  The Opposition’s theory is that the dispute involves the application of Civil Code section 2924m rather that a controversy between the parties regarding a written or instrument or contract between the parties.   Therefore, the court OVERRULES the Demurrer to the sixth cause of action.

Seventh Cause of Action (Unfair Competition Law):

Bernardo v. Planned Parenthood Federation of America (2004) 115 Cal.App.4th 322, 351-352 (Bernardo), states, “An ‘unlawful’ business practice or act within the meaning of the UCL ‘is an act or practice, committed pursuant to business activity, that is at the same time forbidden by law. [Citation.]’ [Citation.] The California Supreme Court has explained that ‘[b]y proscribing “any unlawful” business practice, “[Business and Professions Code] section 17200 ‘borrows’ violations of other laws and treats them as unlawful practices” that the unfair competition law makes independently actionable. [Citation.]’ [Citation.]” (Italics in Bernardo.)

As discussed above, the Complaint sufficiently alleges that Defendants violated Civil Code sections 2924m and 5710.  Further, the Demurrer does not make any argument regarding the seventh cause of action. California Rules of Court, rule 3.1113(b), states, “The memorandum must contain a statement of facts, a concise statement of the law, evidence and arguments relied on, and a discussion of the statutes, cases, and textbooks cited in support of the position advanced.” Quantum Cooking Concepts, Inc. v. LV Associates, Inc. (Quantum) (2011) 197 Cal.App.4th 927, 934, explains, “Rule 3.1113 rests on a policy-based allocation of resources, preventing the trial court from being cast as a tacit advocate for the moving party's theories by freeing it from any obligation to comb the record and the law for factual and legal support that a party has failed to identify or provide. On the record in this case, the trial court was justified in declining to look beyond that failure.”

Thus, the court OVERRULES the Demurrer to the seventh cause of action.

Based on the above, the court SUSTAINS Defendants’ (Microcredit Loan Fund, Inc. and Breaking Ground, LP) Demurrer to Plaintiff’s Complaint, filed on 2-24-23 under ROA No. 23, as to the sixth cause of action with 14 days leave to amend from the date of service of the notice of the court’s ruling.  (City of Stockton v. Superior Court (2007) 42 Cal.4th 730, 747.)  The court OVERRULES the Demurrer as to the remaining causes of action.  Before the hearing on 8-8-23, the court request the parties to meet and confer to determine if Plaintiff intends to file an amended complaint.

Defendants are to give notice.