Judge: Yolanda Orozco, Case: 22STCV12440, Date: 2022-08-15 Tentative Ruling

Case Number: 22STCV12440    Hearing Date: August 15, 2022    Dept: 31

DEMURRER IS SUSTANED, IN PART 

Background 

On March 13, 2022, Plaintiffs NBZ Investments, LLC; Neda Zaman; and Behzad Zaman 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. 

A First Amended Complaint (FAC) was filed on June 15, 2022. The FAC alleges: 

1.     Breach of Contract

2.     Fraud and Deceit: Inducement

3.     Fraud and Deceit: Concealment

4.     Intentional Misrepresentation

5.     Negligent Misrepresentation

6.     Unfair Competition Law (UCL)

7.     Breach of the Covenant of Good Faith and Fair Dealing 

On July 19, 2022, Defendant Calculated Risk Analytics, LLC (“CRA”) filed a Demurrer without a Motion to Strike. 

Plaintiff filed Opposition papers on August 02, 2022. Defendant CRA filed a Reply on August 08, 2022. 

Meet and Confer Requirement 

Defense counsel, Stephani A. Sperber, asserts that she tried to meet and confer with Plaintiff’s counsel to discuss the issues raised in Defendant’s demurrer. (Sperber Decl. ¶¶ 2-5.) No resolution was reached. Thus, the meet and confer requirement for filing a demurrer has been met. (Code of Civ. Proc., § 430.41.)  

Legal Standard 

A demurrer for sufficiency tests whether the complaint states a cause of action.¿ (Hahn v. Mirda (2007) 147 Cal.App.4th 740, 747.) In a demurrer proceeding, the defects must be apparent on the face of the pleading or via proper judicial notice. (Donabedian v. Mercury Ins. Co. (2004) 116 Cal.App.4th 968, 994.) A demurrer tests the pleadings alone and not the evidence or other extrinsic matters. Therefore, it lies only where the defects appear on the face of the pleading or are judicially noticed. (CCP §§ 430.30, 430.70.)¿  

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.) 

Discussion 

Plaintiffs’ Complaint arises out of allegations that Defendants failed to fund promised loan commitments to Plaintiff, despite allegedly approving the loan. 

Plaintiff alleges that Defendants are mortgage lenders who received Plaintiffs’ refinance package documents as requested. Defendants approved the refinance loan, including the income and credit score of the Plaintiffs for the refinance. Defendants even provided an unconditional approval letter in October 2021, stating that the mortgage loan had been approved at a guaranteed “locked in” interest rate of 3.5% after obtaining the refinance loan package from the Plaintiffs. (FAC Ex. 1.) Plaintiffs allege that the October 2021 letter along with other communications and conduct by Defendants evidences the nature of an agreement between the Parties. (See generally FAC ¶¶ 10-43, 44-48, and 95-98.) 

On February 9, 2022, the Defendants sent another Approval Certificate stating that the mortgage had been approved. (FAC ¶ 25, Ex. 2.) Additionally on February 14, 2022, Defendants sent Plaintiffs a Closing Disclosure (“CD”), a document detailing the loan terms, monthly payments, fees, and costs, which Plaintiffs signed. (FAC ¶ 27, Ex. 3.) 

Plaintiffs allege that these three documents along with Defendants conduct and actions evidence an agreement between the Defendants.

Plaintiffs assert that despite the “locked in” rate promised, Defendants increased the interest rate from 3.5% to 3.65%, contrary to the agreement between the parties. (FAC ¶ 26.) Moreover, the Defendants failed to fund the loan on February 17, 2022. (FAC ¶ 28, Ex. 4.) The reasoning provided by Defendants for failing to fund the loan was “insufficient income for total obligations” which Plaintiffs assert is false given the two certificates of approval for the loan. (FAC ¶ 31.) 

Defendant CRA demurrers to Plaintiffs first through seventh causes of action on the basis that Plaintiffs fail to state facts sufficient to constitute a cause of action and the claims are uncertain. (CCP § 430.10 subds. (e) and (f).) 

i.                 Defendant CRA’s Liability as Agent of Defendants 

Defendant CRA states that Plaintiffs failed to make specific allegations against it. Plaintiffs assert CRA is liable as an agent of Defendants because CRA are “co-conspirators, aiders, abettors, agents, servants, employees, employers, partners, alter-egos, and/or joint venturers of the other Defendants” and that are jointly and severally liable to Plaintiffs for the actions of the other Defendants. (FAC ¶ 6.) Thus, any allegations referencing Defendants, include CRA. 

Defendant CRA asserts that the mere fact it shares office space with Defendant Castle is insufficient to justify any claims by Plaintiffs. (Opp. at 3:6-8.) 

Defendant CRA further argues that Plaintiffs do not allege lack facts or present evidence to support the allegations that CRA is an agent, co-conspirator or has any other relationship with Defendants. However, CRA fails to cite any authority to support the proposition that CRA should be dropped as a defendant until discovery provides a specific basis for naming CRA as a defendant.  

When a defendant is in a position to know the circumstances alleged in a complaint, “[l]ess particularity is required when it appears that defendant has superior knowledge of the facts, so long as the pleading gives notice of the issues sufficient to enable preparation of a defense.” (Okun v. Superior Court (1981) 29 Cal.3d 442, 458.) Here, Defendant CRA has superior knowledge of what its exact relationship is to the other Defendants such that it would be unfair to require Plaintiffs to plead with particularity CRA’s relationship. At the pleading stage, it is enough that Plaintiffs allege CRA is an agent or co-conspirator, etc., of Defendants, thus providing ample notice as to the nature of their claims. 

Defendants also argue about the lack of evidence showing that CRA is involved with the other Defendants, but this is an improper argument for a demurrer. A demurrer tests the complaint on its face, and not evidence or other extrinsic matters. A demurrer lies only where the defects appear on the face of the pleading or are judicially noticed. (CCP §§ 430.30, 430.70.)¿¿Defendant CRA’s assertion that the Complaint does not specifically make allegations against it, is not a defect on the face of the Complaint when Plaintiffs have sufficiently articulated CRA’s relationship with Defendants and given CRA notice of the allegations against it. Furthermore, for purposes of a demurrer, Plaintiffs factual allegations are taken as true. 

Plaintiffs’ allegations that CRA is an agent, co-conspirator, etc., of the other Defendants is sufficient at the pleading stage to show that CRA may be liable to Plaintiffs and the Demurrer will not be sustained for this reason. 

ii.               Plaintiff NBZ Investments’ Standing 

Defendant CRA asserts that Plaintiff NBZ Investments, LLC (“NBZ”) lacks standing to assert claims for breach of contract, fraud, misrepresentation, and violation of UCL because NBZ is not referenced in any of the loan documents. 

According to Plaintiffs, NBZ Investments owns the property used to secure the loan. (FAC ¶ 1.) Plaintiffs Neda and Behzad Zaman are the sole managers and members of NBZ Investments, LLC. (Id., ¶ 2.) 

Defendant CRA points out that each of the causes of action alleged requires an injury and there is no allegation that NBZ suffered an injury or damage due to the loan being withdrawn. Plaintiffs rely on Kendall Yacht Corp. v. United California Bank (1975) for the position that lenders look to the corporation’s individual officers and shareholders to satisfy the obligations of the corporation. (50 Cal.App.3d 949, 956.) However, in Kendall it was the plaintiffs who suffered the injury and therefore the court found they had standing to sue. 

Unlike the plaintiffs in Kendall, NBZ does not allege it suffered an injury. (See id., [“Thus it was entirely foreseeable that the dishonoring of the Corporation's checks would reflect directly on the personal credit and reputation of the [plaintiffs] and that they would suffer the adverse personal consequences which resulted when the Bank reneged on its commitments.”].)  Here, no similar injury is alleged by NBZ due to Defendants’ actions. 

The Demurrer will be sustained on this ground with leave to amend. 

iii.             COA 1: Breach of Contract 

“To prevail on a cause of action for breach of contract, the plaintiff must prove (1) the contract, (2) the plaintiff’s performance of the contract or excuse for nonperformance, (3) the defendant’s breach, and (4) the resulting damage to the plaintiff.  [Citation.]”  (Richmond v. Hartley (2014) 224 Cal.App.4th 1182, 1186.) 

Plaintiffs allege that a contract existed between the parties as an implied-in-fact contract. “An implied contract is one, the existence and terms of which are manifested by conduct.” (Cal. Civ. Code, § 1261.) “Whether an implied contract exists is usually a question of fact for the trial court.” (Unilab Corp. v. Angeles-IPA (2016) 244 Cal.App.4th 622, 636 [internal citations omitted].) 

Plaintiffs allege that the Approval Certificates, the Closing Disclosure along with other communications and conduct by Defendants evidences an implied-in-fact contract between the parties. This conduct included compiling a refinance package of documents for Plaintiffs who then responded with the requested documents, opening escrow, and allegedly approving the refinance, and inducing Plaintiffs to obtain and pay for an appraisal report. (FAC 16, 17, 18, 22, 23.) Moreover, Defendants sent Plaintiffs two Certificates of Approval confirming the loan and a Closing Disclosure of the loan. (FAC Ex. 1-3.) Plaintiffs argue they have pled sufficient facts to show that an implied-in-fact contract existed between the Parties. 

Alternatively, Plaintiffs also allege the two Approval Certificates combined with the Closing Disclosure, should be read together of forming a single contract. (FAC Ex. 1-3.) “Several contracts relating to the same matters, between the same parties, and made as parts of substantially one transaction, are to be taken together.” (Cal. Civ. Code, § 1642.) 

“The rule that separate written documents between the same parties and relating to the same subject-matter as indicated by the language contained therein, or satisfactorily proved by the circumstances under which they were executed, are to be construed together as one transaction, has been determined by so many authorities there is no room for controversy regarding that principle. [Citations]. This rule applies even though the separate written instruments were not executed on the same date.”

( Lynch v. Bank of America Nat. Trust & Sav. Ass'n (1934) 2 Cal.App.2d 214, 223.) 

Because the Certificates of Approval along with the Closing Disclosure letter, relate to the same transaction, the documents can be read together as forming a single contract. 

Although a claim for an implied-in-fact or quasi-contract cannot “lie where there exists between the parties a valid express contract covering the same subject matter,” Plaintiffs are allowed to plead alternative theories. (Citing Lance Camper Manufacturing Corp. v. Republic Indemnity Co. (1996) 44 Cal.App.4th 194, 203, see 4 Witkin, Cal. Proc. (6th Ed.)  Contract Actions, §419(a)(1) [“One of the typical occasions for alternative pleading is uncertainty about the nature of a contractual obligation that the evidence may establish: Express, implied in fact, or quasi-contractual.”].) 

Pointing to the Lance case, Defendant CRA argues that “there can be no implied contractual term completely at variance with an express term of a contract.” (Wagner v. Glendale Adventist Medical Center (1989) 216 Cal.App.3d 1379, 1393.) On the face of the pleadings, there appears to be no variance between the alleged implied-in-fact contract and the express contract evidenced by the Certificates of Approval and the Closing Disclosure. (FAC Ex. 1-3.) 

As to Defendant CRA’s claim that any implied contract(s) would violate the statute of frauds, Plaintiffs asserts that emails may collectively constitute a memorandum that satisfies the statute of frauds. (See Piveg, Inc. v. General Star Indemnity Company (9th Cir. 2018) 710 Fed.Appx. 776, 778.) 

Moreover, Cal. Civ. Code Section 1264 provides: 

“A confirmation in writing sufficient to indicate that a contract has been made between the parties and sufficient against the sender is received by the party against whom enforcement is sought no later than the fifth business day after the contract is made (or any other period of time that the parties may agree in writing) and the sender does not receive, on or before the third business day after receipt (or the other period of time that the parties may agree in writing), written objection to a material term of the confirmation.”

Here, Plaintiffs allege that along with the written loan commitments sent to them, other communications exist memorializing the contract. (FAC 25, 43, 88.) Moreover, Plaintiffs providing all documents and completing all obligations may constitute full or partial performance under the alleged contract sufficient may take the contract out of the statute of frauds. 

For the reasons stated, the Court finds that Plaintiffs have pled sufficient facts to show that either an express or implied-in-fact contract existed between the parties. Plaintiffs have also alleged that they performed as required under the contract to obtain the loan, and that Defendants breached the contract when they refused to finance the loan, and that Plaintiffs were damaged because they forwent other opportunities to refinance the property, incurred costs in trying to obtain the loan, and did not receiving the loan as promised. (FAC ¶¶ 10-48.) 

Accordingly, Defendant CRA’s demurrer as to the first cause of action is OVERRULED. 

iv.             COA 7: Breach of the Covenant of Good Faith and Fair Dealing 

Defendant CRA asserts that Plaintiffs’ claim for breach of the implied convent of good faith and fair dealing and breach of contract claims are derivative and because the claims seek the same remedies and are based on the same conduct, the claim for breach of the implied covenant should “be disregarded as superfluous as no additional claim is actually stated.” (Citing Careau & Co. v. Security Pacific Business Credit, Inc. (1990) 222 Cal. App. 3d 1371, 1394.) Plaintiffs have not alleged that they seek damages or relief different from their claim for breach of contract. (FAC ¶ 99.) 

Defendant CRA is correct in alleging that Plaintiffs’ seventh cause of action is superfluous. The Court sustains the Demurrer to the seventh cause of action with leave to amend. 

v.               COA 2, 3, 4, and 5: Fraud/Deceit, Concealment and Intentional and Negligent Misrepresentation Claims 

Defendant alleges that Plaintiffs’ second to fifth causes of action based on fraud fail because they are not plead with the required specificity. 

“In California, fraud must be pled specifically; general and conclusory allegations do not suffice.” (Lazar v. Superior Court (1996) 12 Cal.4th 631, 645.) “Causes of action for intentional and negligent misrepresentation sound in fraud and, therefore, each element must be pleaded with specificity. (Daniels v. Select Portfolio Servicing, Inc. (2016) 246 Cal.App.4th 1150, 1166 [201 Cal.Rptr.3d 390, 406] disapproved on other grounds by Sheen v. Wells Fargo Bank, N.A. (2022) 12 Cal.5th 905.) Specificity “necessitates pleading facts which show how, when, where, to whom, and by what means the representations were tendered.” (Lazar, supra, 12 Cal.4th at 631.) 

The requirement of specificity is especially stringent when the Defendant is a corporation. “The requirement of specificity in a fraud action against a corporation requires the plaintiff to allege the names of the persons who made the allegedly fraudulent representations, their authority to speak, to whom they spoke, what they said or wrote, and when it was said or written.” (Tarmann v. State Farm Mut. Auto. Ins. Co. (1991) 2 Cal.App.4th 153, 157 [2 Cal.Rptr.2d 861, 863] However, “the requirement of specificity is relaxed when the allegations indicate that “the defendant must necessarily possess full information concerning the facts of the controversy or when the facts lie more in the knowledge of the opposite party.” (Id. at 158 [citations omitted].) 

Plaintiffs fail to state who made the representations to Plaintiffs, when the representations were made, and what authority the speaker or speakers have to speak on behalf of Defendants. Nor have Plaintiffs alleged that the facts are such that Defendants are necessarily in a position to better know the facts such that the lack of specificity in the Complaint is permissible. 

For the reasons stated, Defendant’s demurrer as to second, third, fourth, and fifth causes of action is sustained with leave to amend. 

vi.             COA 6: Unfair Business Practices 

Business and Professions Code section 17200 (“UCL”) prohibits “any unlawful, unfair or fraudulent business act or practice.” (Bus. & Prof. Code, § 17200; see Clark v. Superior Court (2010) 50 Cal.4th 605, 610.) To plead this statutory claim, the pleadings must state with reasonable particularity the facts supporting the statutory elements of the violation. (See Khoury v. Maly's of California, Inc. (1993) 14 Cal.App.4th 612, 619.) “An unlawful business practice or act is an act or practice, committed pursuant to business activity, that is at the same time forbidden by law.” (Klein v. Earth Elements, Inc. (1997) 59 Cal.App.4th 965, 969.) “A business practice is unfair within the meaning of the UCL if it violates established public policy or if it is immoral, unethical, oppressive or unscrupulous and causes injury to consumers which outweighs its benefits.” (McKell v. Washington Mutual, Inc. (2006) 142 Cal.App.4th 1457, 1473.) Lastly, a fraudulent business practice claim under section 17200 “is not based upon proof of the common law tort of deceit or deception, but is instead premised on whether the public is likely to be deceived.” (Pastoria v. Nationwide Ins. (2003) 112 Cal.App.4th 1490, 1499.) 

Defendant CRA alleges that Plaintiffs’ claim for UCL is uncertain because there is no indication if Plaintiffs’ claims based on the unlawful, unfair, or fraudulent prong. 

The Court finds that the FAC alleges sufficient facts to illustrate an unfair business practice within the meaning of the UCL. The FAC alleges that Defendants falsely advertised that they would make loans in accordance with the issued loan commitments and communications, used bait and switch tactics to raise interest rates and fees on already issued loans, deliberately gave prospective borrowers false assurances of their intent to honor their loan commitments, and deterred consumers from seeking refinance and mortgages elsewhere for the purpose of gaining leverage to force borrowers to accept adverse modifications to the loan commitments. (FAC ¶¶ 11, 88.) 

Accordingly, Defendant’s demurrer as to the sixth cause of action is OVERRULED. 

Conclusion 

Defendant Calculated Risk Analytics, LLC’s Demurrer is SUSTAINED with leave to amend as to:

1.     Plaintiff NBZ Investments lack of standing

2.     Second cause of action: Fraud and Deceit: Inducement

3.     Third cause of action: Concealment

4.     Fourth cause of action: Intentional Misrepresentation

5.     Fifth cause of action: Negligent Misrepresentation

6.     Seventh cause of action: Breach of the Covenant of Good Faith and Fair Dealing 

The Demurrer is OVERRULED as to: 

7.     First cause of action: Breach of Contract

8.     Sixth cause of action: Unfair Business Practices 

Moving Party to give notice. 

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