Judge: Yolanda Orozco, Case: 22STCV12440, Date: 2022-12-16 Tentative Ruling
Case Number: 22STCV12440 Hearing Date: December 16, 2022 Dept: 31
DEMURRER IS SUSTAINED WITH LEAVE TO AMEND
TENTATIVE RULING
Defendant Calculated Risk Analytics, LLC’s demurrer to Plaintiffs’ Second Amended Complaint is SUSTAINED WITH 30 DAYS LEAVE TO AMEND.
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.
The Second Amended Complaint (SAC) alleges causes of action for:
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)
On November 03, 2022, Defendant Calculated Risk Analytics, LLC (“CRA”) filed a demurrer to the Plaintiffs’ SAC. The Plaintiffs filed opposing papers on December 02, 2022. CRA filed a reply on December 09, 2022.
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.)
Meet and Confer Requirement
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 has been met. (Sperber Decl. ¶¶ 2-7, Ex. 1.)
REQUEST FOR JUDICIAL NOTICE
Defendants request Judicial Notice of the following:
Notice of Ruling of the Court’s August 15, 2022 Order on CRA’s Demurrer to the Plaintiff’s First Amended Complaint, a copy of which is attached as Exhibit 1.
Defendants’ request for Judicial Notice is granted pursuant to Evidence Code section 452 subdivision (d).
Discussion
Allegations In Second Amended Complaint
Plaintiff NBZ Investments, LLC is the owner of the subject property located in Beverly Hills, California. (SAC ¶ 1.) Plaintiffs Neda and Behzad Zaman are husband and wife and the sole manager and members of NBZ Investments. (Id. ¶ 2.)
Defendants are mortgage lenders (SAC ¶ 10.) 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, 17.) The Plaintiffs’ refinance package identified NBZ as the owner of the subject property and Neda Zama and Behzad Zaman as borrowers. (Id. ¶ 16).
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. (SAC ¶ 17.)
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. (Id. ¶ 18.) These oral and written representations were made to Plaintiff’s broker between October 2021 and March 2022. (Id.) The Defendant’s agent, Ken, specifically told the Plaintiff’ broker in early 2022, that the loan was approved as set forth in the documents provided to the Plaintiffs. (Id. ¶ 19.) Ken was assisted by another employee of the Defendant, Humberto Cardenas. (Id. ¶ 20.)
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%. (¶ 21, Ex. 1.) Plaintiffs relied on the approval letter and the terms it set forth and did not seek credit elsewhere. (Id. ¶¶ 22, 23, 36.) 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. ¶ 24.) 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. ¶ 26.)
On February 9, 2022, Defendants sent Plaintiffs another Approval Certificate stating that the mortgage had been approved. (SAC ¶ 27, 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. ¶ 28.) On February 14, 2022, Defendants provide a Closing Disclosure, which detailed the loan terms, payments, and closing costs. (Id. ¶ 29). The disclosure was fully executed, and the loan was to be funded on February 17, 2022. (Id. Ex. 3.) Defendants failed to fund the loan. (Id. ¶ 30.)
Despite being told that the loan had been approved, including Plaintiffs’ income, and costs having been incurred for appraisal of the subject property, on March 1, 2022, Defendants issued a Statement of Credit Denial, Termination, or Change Letter signed by “J. Gatewood.” (SAC ¶ 31, Ex. 4.) The reason for the denial was “insufficient income for total obligations” despite the previous Approval Certificates specifically approving the loan. (Id. ¶ 34.) Plaintiffs’ income and financial status had not changed since the refinance application had been sent. (Id.) 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.)
The Plaintiffs filed this action based on the representations and omissions made to them by Defendants. (SAC ¶¶ 36 -46.)
Demurrer to Second Amended Complaint (SAC)
Defendant CRA now demurrers to Plaintiff’s SAC in its entirety. Specifically, CRA alleges that the Plaintiffs have not stated sufficient facts to show how or what relationship CRA had with the Plaintiffs that give rise to its liability.
i. 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.)
The SAC here does not allege that a contract exists between the Plaintiffs and CRA specifically or that CRA breached the contract. The only basis under which Plaintiffs justify imposing liability on CRA is that CRA and the other Defendants share the same address and are agents of each other. (SAC ¶¶ 4, 5.)
“Defendants, and each of them, are and were acting collectively as co-conspirators, aiders, abettors, agents, servants, employees, employers, partners, alter-egos, and/or joint venturers of the other Defendants, and in acting as described herein within the scope, course, and authority of their authority, agreement, agency, common enterprise, and/or employment, and with the permission and consent of the other Defendants and/or that each and every Defendant has ratified and approved of the acts of the other Defendants. Therefore each Defendant is jointly and severally liable to Plaintiffs.”
(SAC ¶ 6.)
Plaintiffs fail to state other facts to support their basis for believing CRA is an agent of the other Defendants, or how CRA ratified the other Defendants’ conduct. Moreover, Plaintiffs do not allege that Ken To and Humberto Cardenas were employees or agents of CRA or that CRA made statements or representations that led the Plaintiffs to believe CRA was acting in concert with the other Defendants. Without sufficient ultimate facts as to CRA’s relationship to the other Defendants or with Plaintiffs, Plaintiffs pleading that Defendants are agents and conspirators is a legal conclusion without a proper factual basis. “We treat the demurrer as admitting all material facts properly pleaded, but not contentions, deductions or conclusions of fact or law.” (Breneric Associates v. City of Del Mar (1998) 69 Cal.App.4th 166, 180.)
The SAC alleges that Plaintiffs entered into a written agreement for a loan with Defendants on the terms stated in the certificates and closing disclosure. (SAC ¶ 49.) “If the action is based on an alleged breach of a written contract, the terms must be set out verbatim in the body of the complaint or a copy of the written instrument must be attached and incorporated by reference.” (Otworth v. Southern Pac. Transportation Co. (1985) 166 Cal.App.3d 452, 459 [internal citations omitted].) Nothing in the Approval Certificates or Closing Disclosure show that CRA was a party to these agreements.
a. Standing of NBZ to Assert a Cause of Action for Breach of Contract as a Third-Party Beneficiary
“If the terms of the contract necessarily require the promisor to confer a benefit on a third person, then the contract, and hence the parties thereto, contemplate a benefit to the third person. The parties are presumed to intend the consequences of a performance of the contract.” (Johnson v. Holmes Tuttle Lincoln–Mercury, Inc. (1958) 160 Cal.App.2d 290, 296–297.) “The contract need not be exclusively for the benefit of the third party. He does not need to be the sole or the primary beneficiary.” (Prouty v. Gores Technology Group (2004) 121 Cal.App.4th 1225, 1233.)
The Court finds that the Plaintiffs have sufficiently pled that NBZ was the intended beneficiary of the loan contract with Defendants as the title holder of the subject property. (SAC ¶¶ 46, 49.) Accordingly, NBZ has standing to assert a cause of action for breach of contract as a third-party beneficiary. (Civ. Code, § 1559.)
However, since Plaintiffs have failed to allege sufficient facts to show that CRA was a party to the loan agreement or facts to support the assertion that CRA was an agent of the other Defendants, the demurrer to the first cause of action is SUSTAINED WITH LEAVE TO AMEND.
ii. COA 2, 3, 4, and 5: Fraud/Deceit, Concealment, and Intentional and Negligent 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.)
Without facts pleading that Ken To and Humberto Cardenas are agents of CRA or that CRA was a party to the loan agreement, or how CRA ratified the other Defendants’ conduct, Plaintiffs’ fraud-based causes of action against CRA fail for lack of particularity. Plaintiffs allege no facts that CRA specifically made misrepresentations to Plaintiffs or that the misrepresentations were made at the direction of CRA.
Accordingly, the demurrer is SUSTAINED WITH LEAVE TO AMEND, as to the second, third, fourth, and fifth causes of action.
Since the demurrer is sustained as to the second, third, fourth, and fifth causes of action, the Court need not address NBZ’s standing to assert violations for these causes of action.
iii. COA 6: Unfair Business Practices
The SAC alleges that the Defendants' unlawful, fraudulent, and unfair acts or practices were “( 1) Falsely advertising that they would make loans in accord with their issued written loan commitments and communications; (2) using bait and switch tactics to raise interest rates and fees on already issued loan commitments; (3) deliberately giving prospective borrowers false assurances of their intent to honor their loan commitments; (4) deterring consumers from seeking refinance and mortgages elsewhere in order to gain leverage to force borrowers to accept adverse modifications to the loan commitments.” Plaintiffs allege that “Defendants made each of the above representations to Plaintiffs with actual knowledge that it was false, in reckless disregard for the truth, or with deliberate ignorance of its truth or falsity. (SAC ¶ 23.)
Defendant demurs to the SAC on the basis that Plaintiffs have not factually alleged they are entitled to relief under the UCL because they have not alleged that CRA took money from Plaintiffs.
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 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.)
Plaintiffs fail to allege in the SAC that CLR wrongfully obtained monies or profits from Plaintiffs. Plaintiffs do not allege the fees and costs incurred in securing or obtaining the loan were paid to Defendants. The fact that Plaintiff suffered significant economic damages, does show that the Plaintiffs lost money or property to Defendants and are entitled to restitution from Defendants.
Accordingly, the 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. The demurrer is SUSTAINED WITH LEAVE TO AMEND the sixth cause of action.
Lastly, since Plaintiff NBZ has not alleged an economic injury, it does not have standing to assert a cause of action under the UCL. (See as Law Offices of Mathew Higbee v. Expungement Assistance Services (2013) 214 Cal.App.4th 544, 555 [“no private party has standing to prosecute a UCL action unless he or she ‘has suffered injury in fact and has lost money or property as a result of the unfair competition.’”].)
Conclusion
Defendant Calculated Risk Analytics, LLC’s demurrer to Plaintiffs’ Second Amended Complaint is SUSTAINED WITH 30 DAYS LEAVE TO AMEND.
Moving party to give notice.