Case Number: BC656673 Hearing Date: February 28, 2018 Dept: 46

Case Number: BC656673
LEYLA MARTINEZ ET AL VS 1865 97TH STREET LLC ET AL

Filing Date: 04/06/2017
Case Type: Other Real Property Rights Case

02/28/2018
Hearing on Demurrer
Motion to Strike

TENTATIVE RULING

Bank of New York Mellon fka Bank of New York as Trustee (CWALT 2007-24)’s (“BONY”) Demurrer to the First Amended Complaint is SUSTAINED WITHOUT LEAVE TO AMEND pursuant to CCP §430.10(e) and (f). BONY to lodge in Dept. 46 and serve a proposed order of dismissal within 10 days. See discussion.

DISCUSSION

BONY’s Request for Judicial Notice is GRANTED.

The parties agree that none of Ps’ claims can be sustained if BONY is not Plaintiffs’ landlord. They further agree that Defendant BONY acquired the property pursuant to foreclosure proceedings and then resold it. Plaintiffs’ argue that this transfer rendered BONY their landlord for all purposes ‘by operation of law.’ BONY argues that it is in no way Plaintiffs’ landlord. Neither party is entirely correct.

1st COA: Untenantable Dwelling

Civ. Code § 1942.4 reads in relevant part:

“(a) A landlord of a dwelling may not demand rent, collect rent, issue a notice of a rent increase, or issue a three-day notice to pay rent or quit pursuant to subdivision (2) of Section 1161 of the Code of Civil Procedure, if all of the following conditions exist prior to the landlord’s demand or notice…

(b)(1) A landlord who violates this section is liable to the tenant or lessee for the actual damages sustained by the tenant or lessee and special damages of not less than one hundred dollars ($100) and not more than five thousand dollars ($5,000)….

(c) Any court that awards damages under this section may also order the landlord to abate any nuisance at the rental dwelling and to repair any substandard conditions of the rental dwelling, as defined in Section 1941.1, which significantly or materially affect the health or safety of the occupants of the rental dwelling and are uncorrected. If the court orders repairs or corrections, or both, the court’s jurisdiction continues over the matter for the purpose of ensuring compliance.”

There is no allegation that BONY performed any of the actions triggering liability under this section. The original complaint asserted this Cause of Action (“COA”) against Defendant 1865 only, and the court’s prior grant of leave to amend did not include permission to assert this COA against BONY. Plaintiffs do not defend the demurrer to this COA, and it appears that the assertion of this COA against “all Defendant [sic]” is either a typographical error or an amendment without leave of court. Either way, this COA may not be asserted against BONY without leave of court.

For clarity’s sake, the demurrer to this COA is SUSTAINED, without leave.

Contract Claims: 2nd and 3rd COAs for Breach of Implied Warranty of Habitability and Covenant of Quiet Enjoyment, Respectively

A deed of trust conveys title to the trustee as of the date of execution of the deed of trust. Aviel v. Ng (2008) 161 C.A.4th 809, 816. Thus, when a senior deed of trust is foreclosed upon, it wipes out all junior liens. Id. A lease is held subordinate to a deed of trust if it was created after the deed of trust was recorded, or if it is expressly subordinated to the deed of trust by an agreement between the parties. Dover Mobile Estates v. Fiber Form Products, Inc. (1990) 220 C.A.3d 1494, 1498. Subordinate leases receive the same treatment as junior liens. Miscione v. Barton Development Co. (1997) 52 C.A.4th 1320, 1326. Thus, “[a] lease which is subordinate to the deed of trust is extinguished by the foreclosure sale.” Dover, supra, 220 C.A.3d at 1498; see also Aviel, supra, 161 C.A.4th at 816.

The deed of trust on which BONY foreclosed was recorded on 7/30/07. (RJN Exhibit 1). Plaintiffs began their tenancy no earlier than 2013. (FAC ¶2-4). Their tenancy was thus formally extinguished by operation of law as soon as BONY completed the foreclosure proceedings. BONY cannot have become Plaintiffs’ landlord by operation of law at the same time as their tenancies were extinguished by operation of law.

Plaintiffs point to various tenant protections which exist in statutory provisions to argue that BONY became their landlord by operation of law. However, the fact that these provisions protect residents does not create, eo ipso, a landlord-tenant relationship under contract law. Civ. Code § 1161b gives tenants in possession certain rights to remain in possession for certain periods of time. In the case of a fixed-term residential lease, Civ. Code §1161b(b) does provide that all rights and obligations under the lease survive foreclosure, subject to certain exceptions. However, here there is no allegation that Plaintiffs were party to fixed-term leases; therefore, the provision does not apply. Further, the policy reason behind these provisions is obvious: people should not be rendered instantaneously homeless because their landlords could not pay the mortgage. However, the fact that a bank cannot add to the homeless population does not mean that it is instantly in the landlord business once it forecloses on a leased home, particularly where, as here, the leases are oral. (Complaint ¶ 12).

Gross v. Superior Court (1985) 171 C.A.4th 265 is not to the contrary. In that case, the real party in interest had foreclosed on a condominium, purchased the property itself, and served the tenants with a three-day eviction notice. Id. at 269. The tenants defended on the ground that the San Francisco rent control ordinance only allowed eviction under a specified set of circumstances. Id. After ruling that the local rent control ordinance was not preempted by the Civil Code unlawful detainer provisions, the court held that the new owner of the property was the tenants’ landlord within the meaning of the San Francisco rent control ordinance, and thus could not evict the tenants. Id. at 273-275. The Court of Appeal based its holding upon the policy consideration that eviction prevention was critical to the functioning of rent control provisions; once a unit was vacated there were no limitations on the rent a new tenant could be charged. Id. at 275. Thus, Gross addressed issues of statutory construction and preemption to prevent an eviction; it did not make the real party in interest affirmatively liable for the breach of a contract made by another party.

BONY completed foreclosure on May 31, 2016, and recorded its deed upon sale on June 2, 2016. (RJN Exhibit 2). BONY sold the property to a property management company in October 2016. (FAC ¶17). There are no allegations of a written or oral contract between the parties in that brief interval. However, following the guidance of this court in the previous ruling, Plaintiffs have attempted to plead a contract implied in fact. Civ. Code § 1621 states that “[a]n implied contract is one, the existence and terms of which are manifested by conduct.” The FAC alleges the following relevant conduct:

“14. On or about May, 2016, [the previous] owner lost the property through foreclosure, at which time the Defendant BANK OF NEW YORK obtained title to the Subject Property. Defendant BANK OF NEW YORK, through its agents, contacted Plaintiffs about their tenancy and the conditions of their units and the Subject Property. Defendant BANK OF YORK requested information on their respective tenancies from Plaintiffs, inspected Plaintiffs’ units and the Subject Property, and inquired of Plaintiffs about the problems with their respective units and the Subject Property.

15. Defendant BANK OF NEW YORK’s agents informed Plaintiffs they would have to pay rent to Defendant BANK OF NEW YORK, stating they would provide the information for Plaintiffs to forward their rent. Additionally, Defendant BANK OF NEW YORK’s agents inquired of Plaintiffs whether they would be willing to relocate. Plaintiffs agreed, and requested the relocation amount mandated by the Los Angeles Rent Stabilization Ordinance.

16. Defendant BANK OF NEW YORK’s agents also undertook management of the Subject Property, inspecting the property, accepting complaints from Plaintiffs of the various problems with Plaintiffs’ units and Subject Property, including notices of utility shut-offs. Defendant BANK OF NEW YORK’s agent’s also accompanied City of Los Angeles inspectors on inspections of the property, ordered some, although minimal, repairs and were the Plaintiffs and

City’s contact when utilities at the Subject Property were discontinued. Plaintiffs are informed and believe, and thereon allege, Defendant BANK OF NEW YORK also reinstituted utilities on at least one occasion when they were discontinued. As such, Defendant BANK OF NEW YORK was acted and was Plaintiffs landlord.” (FAC ¶¶ 14-16).

What is not alleged here, and what Plaintiffs tacitly concede never happened, was the actual payment of rent. A contract must have two sides, and even if Plaintiffs allege that BONY was behaving like a landlord, to establish a contract implied in fact, Plaintiffs must behave like tenants. Plaintiff’s performance or excuse for non-performance is an element of every contract claim. Rutherford Holdings, LLC v. Plaza Del Rey (2014) 223 C.A.4th 221, 228. Since Plaintiffs have not alleged, nor does it appear that Plaintiffs can allege, payment of rent to BONY, Plaintiffs will not be able to properly allege a contractual relationship with BONY. Since Breaches of the Warranty of Habitability and Covenant of Quiet Enjoyment are contract actions (Fairchild v. Park (2001) 90 C.A.4th 919, 925-926),(Fairchild, supra, 90 C.A.4th at 925 acknowledges that Breach of the Implied Warranty of Habitability may also be pled on a tort theory. To the extent that Plaintiffs so plead, the analysis set forth in connection with the other tort claims has equal application to the Habitability claim) and there is no contractual landlord-tenant relationship here.

Plaintiffs have not pled and cannot plead sufficient facts to support these COAs.

The demurrer is therefore SUSTAINED, without leave as to these COAs.

Tort Claims: 4th and 5th COAs for Nuisance and Negligence, Respectively

BONY is not Plaintiffs’ landlord for tort purposes, for much the same reasons that it is not Plaintiffs’ landlord for contract purposes. BONY has no agreement with Plaintiffs which creates a relationship between them, and Ps’ cited authority, discussed above, does not provide a basis for imposing a duty on BONY. BONY has taken no affirmative act to assume a duty to Plaintiffs; Plaintiffs have alleged that BONY inspected the premises, heard their complaints, and asked them if they would be willing to move. None of that is sufficient to establish a duty.

Plaintiffs also allege that some minor repairs were made, and that BONY kept the utilities on. It is true that the authorities discussed above do lay out a strong policy in favor of keeping former tenants in their housing during transitional periods such as this one. This policy may include an implied obligation to maintain payment for utilities and other basic services to the property. However, Plaintiffs have only alleged that BONY discharged that duty; Plaintiffs have not alleged that any of the minor repairs themselves caused problems, and there can certainly be no complaints about the utilities remaining on.

Therefore, the demurrer is SUSTAINED, without leave as to these COAs.

Plaintiffs have failed to plead that BONY took some affirmative action or failed to pay some basic charge which could form the basis of a tort duty.

Statutory Claims: 6th COA for Violation of LAMC § 151.09

While Gross, supra, provides no authority for imposing affirmative tort or contract duties on BONY, and the other statutes provided are likewise inapplicable in those contexts, this COA alleges a direct violation of a municipal code section which is part of the LA rent control ordinance. Gross is directly on point to the interpretation of rent control ordinances:

““Landlord” is defined in section 37.2(h) of the San Francisco rent control ordinance as follows: “An owner, lessor, sublessor, who receives or is entitled to receive rent for the use and occupancy of any residential rental unit or portion thereof in the City and County of San Francisco, and the agent, representative or successor of any of the foregoing.” A purchaser of property, as successor to the “landlord,” is subject to the ordinance and thus the municipal court recognizes that the “voluntary purchaser … would step into the shoes of the seller and would have to comply with the Rent Ordinance.” The ordinance does not require that the landlord-tenant relationship be initiated by the parties for such a relationship to exist.

Real party maintains that a purchaser at foreclosure is not within the scope of landlord as set out in the San Francisco ordinance. Real party argues that it is not a “successor” to the landlord but a “predecessor,” apparently on the theory that its interest as beneficiary under the deed of trust “preceded” in time and priority the tenancy of petitioners. Real party appears to be mixing concepts. It is not real party’s “priority” to the tenant which is relevant. The relevant positioning of parties for purposes of the ordinance is that of real party and the defaulting landlord. Real party’s position as “owner” “succeeded” rather than “preceded” that of the defaulting landlord. The defaulting landlord of the premises was entitled to receive rent. Real party succeeded him as owner and was likewise entitled to receive rent if it chose to do so. It became a “landlord” by operation of law. The fact that it was not a “voluntary purchaser” in the sense that purchase was necessary to protect a security interest is not an exception recognized on the face of the ordinance.” Gross, supra, 171 C.A.3d at 274.

LAMC § 151.02 defines landlord as “an owner, lessor, or sublessor, (including any person, firm, corporation, partnership, or other entity) who receives or is entitled to receive rent for the use of any rental unit, or the agent, representative or successor of any of the foregoing.” The definition is almost word-for-word identical to the definition at issue in Gross, and no good reason appears for this court to deviate in interpretation from the ruling of the Court of Appeal. Therefore, for the purposes of the Municipal Code, BONY is a landlord.

LAMC § 151.09(G) states in relevant part as follows:

“If a termination of tenancy is required due to a governmental agency order to vacate or comply, and the subject property has an approved use as a single family home and the structure containing the single family home contains two dwellings, the landlord shall pay a relocation fee in accordance with Section 151.09 G. of this Code to the tenant(s) of the affected rental unit(s) within 15 days of receiving notice from the tenant(s) of their intention to terminate the tenancy.”

Plaintiffs allege that BONY received a notice and order to comply from the Los Angeles Housing & Community Investment Department on August 29, 2016. (FAC ¶23). Plaintiffs allege that the subject property was a single family home improperly converted into 6 units. (Id. ¶13). What Plaintiffs did not allege in the original complaint, and still do not allege in the FAC is that they gave BONY notice of their intention to terminate the tenancy. By the plain terms of the code section, it is the notice from the tenants of intent to vacate which triggers the obligation to pay relocation costs. Plaintiffs have not pled that they gave such notice, so they cannot state a claim under subsection (G). The remainder of the subsection concerns payments which must be made pursuant to an eviction; yet there is no allegation whatever that BONY even attempted to evict Plaintiffs.

Plaintiffs have alleged in a general fashion that BONY asked them if they were willing to leave. But Plaintiffs have not alleged when this was, or whether it was responsive to the notice and order to comply. And even if so, BONY’s general inquiry is not the same as firm notice from Plaintiffs that they intend to leave.

For the foregoing reasons, though D BONY is Plaintiffs’ landlord for the purposes of LA’s rent control ordinances, Plaintiffs have not stated and cannot state a claim under that ordinance.

Therefore, the demurrer is SUSTAINED, without leave as to this COA.

Conclusion

The procedural situation here is an unusual one, and neither party here is at fault in creating it. Plaintiffs’ original landlord defaulted on his mortgage, and so Plaintiffs found themselves in the uncomfortable position of living in someone else’s house without an agreement to govern them. BONY’s borrower failed to pay what he owed, and so BONY found itself in the uncomfortable position of owning already-occupied real property. Neither party sought this ambiguous relationship; it simply happened.

The question currently before the court is essentially the apportionment of responsibility in this anomalous situation. Neither party has provided the court with particularly on-point authorities for the non-statutory claims. Without such authority, the court is left to infer what it can from the more general doctrines which apply. Since the lease was terminated as a matter of law by the foreclosure, and there is no conduct from which to imply a contract between the parties, there is no contract between the parties and Plaintiffs cannot state a claim for contract violations. Since Plaintiffs have not pled an affirmative act by BONY which was directed towards them, or a significant omission which caused direct harm, BONY has no duty to Plaintiffs, and they cannot state a claim sounding in tort.

By contrast, in the context of rent control, it is clear that the county of Los Angeles has affirmatively placed the responsibility of a landlord even upon those who did not necessarily seek to become landlords. However, the specific code section to which Plaintiffs refer does not apply to this situation. It applies to evictions or other terminations of a tenancy, and there is no pleading whatever that either BONY attempted to evict Plaintiffs, or that Plaintiffs attempted to terminate their tenancy. In short, even though this situation cries out for legislative guidance and determination, none is readily available.

For these reasons, Ps have failed to properly state any COAs against BONY, and have shown no likelihood of doing so.

The demurrer is SUSTAINED, without leave to amend.

MOTION #2—MTS

Per the ruling above, Defendants’ motion is TAKEN OFF-CALENDAR as MOOT.

IT IS SO ORDERED:

Frederick C. Shaller, Judge