Case Name: Swaminath, et al. v. The Wolf Firm, et al.
Case No.: 17-CV-317695

This is a wrongful foreclosure action initiated by plaintiffs Jayanthi Swaminath (“Jayanthi”) and Venkatraraman Swaminath (“Venkatraraman”) (collectively “Plaintiffs”) against defendants The Wolf Firm (“Wolf”), Franklin Credit Management Corporation (“Franklin”), Cal State 9 Credit Union (“Cal State”), Bosco Credit LLC (“Bosco”), and 20Coconut Trust.

Currently before the Court is Franklin and Bosco’s demurrer to the first amended complaint (“FAC”). As a preliminary matter, the Court notes the FAC goes into substantial detail regarding three loans, particularly two mortgages and a home equity line of credit (“HELOC”). While it is not especially clear, it appears this action is actually only predicated on events pertaining to the HELOC, and the parties’ papers filed in connection with the demurrer are in confirmation as they only discuss the HELOC. The Court will only describe the allegations relating to the HELOC.

According to the allegations of the FAC, Plaintiffs were granted property located at 17520 Blanchard Dr., Monte Sereno, CA (“Subject Property”) by grant deed. (FAC, ¶¶ 1, 19.) On January 18, 2007, Plaintiffs executed the HELOC with Cal State, obtaining a $500,000.00 equity line of credit secured by the Subject Property (“DOT”). (Id. at ¶ 22.) The DOT was subsequently assigned to Bosco and Wolf was substituted as trustee. (Id. at Exhs. B, C.)

In 2015, a notice of default was recorded and in 2016 a notice of trustee sale was recorded. (FAC, Exhs. D, E.) The sale presumably never took place and, thereafter, on March 6, 2017, Plaintiffs sent a loan modification application to Franklin. (Id. at ¶ 44.) On March 15, Plaintiffs called to check the status of their application, which was then verbally denied. (Ibid.) Plaintiffs never received a written notice of the denial of their application as required by Civil Code section 2923.6. (Ibid.) Although Franklin provided Plaintiffs a single point of contact to help them, she was not willing and/or able to actually help them, which is tantamount to not having a single point of contact. (Id. at ¶ 45.)

Until September 2017, Plaintiffs tendered payment as required. (FAC, ¶ 37.) However, they were then late tendering payment because they were “caught in the aftermath of the destruction of Hurricane Irma.” (Ibid.) Despite this exigent circumstance, defendants moved forward with the sale of the Subject Property, without providing Plaintiffs an adequate opportunity to cure the default. (Ibid.) Plaintiffs were unaware of their debt because defendants did not give them notice of the transfer of their indebtedness or contact them as required under Civil Code section 2923.55. (Id. at ¶¶ 38-39.) Plaintiffs had the funds to tender their indebtedness and attempted to do so. (Id. at ¶¶ 42-43.) As a result of Defendants’ refusal to accept the tendered debt, Wolf recorded a trustee’s deed upon sale on October 19, 2017, conveying “interested in the property without warranted to Bosco.” (Id. at ¶ 36.)

Plaintiffs assert eight causes of action for: (1) violation of Civil Code section 2937; (2) breach of contract; (3) breach of the implied covenant of good faith and fair dealing; (4) negligence; (5) negligent infliction of emotional distress; (6) unfair business practices in violation of Business and Professions Code section 17200, et. al. (“UCL”); (7) fraud; and (8) quiet title. The demurrer is directed to each cause of action.

I. Request for Judicial Notice

In support of their demurrer, Defendants request judicial notice of: (1) ten documents recorded in connection with the Subject Property; (2) five documents filed in connection with Plaintiffs’ bankruptcy proceedings; and (3) the complaint filed on January 20, 2016 in Jayanthi Swaminath v. Franklin Credit Management Co., Santa Clara Superior Court, Case No. 16-CV-290310 (“2016 Complaint”) and the court order sustaining a demurrer to that pleading.

Plaintiffs object to the request for judicial notice on two bases. First, they assert Defendants have not provided any information to support their request in contravention of Evidence Code section 453, subdivision (b), which provides that the court shall take judicial notice of any matter if the requesting party furnishes it with sufficient information to enable it to take judicial notice of the matter. Here, Defendants provide sufficient information to enable the Court to judicially notice the documents. Defendants provide physical copies of the documents of which they seek judicial notice and cite relevant authority stating such documents may be judicially noticed.

As aptly argued by Defendants, the property records may be judicially noticed pursuant to Evidence Code section 452, subdivision (h), which allows a court to take judicial notice of facts and propositions that are not reasonably subject to dispute and are capable of immediate and accurate determination by resort to sources of reasonably indisputable accuracy. (See Fontenot v. Wells Fargo Bank, N.A. (2011) 198 Cal.App.4th 256, 264-265, disapproved of on other grounds in Yvanova v. New Century Mortg. Corp. (2016) 62 Cal.4th 919.) The remaining documents are proper subjects of judicial notice pursuant to Evidence Code section 452, subdivision (d), which authorizes the judicial notice of court records.

Plaintiffs next argue the documents concerning the transfer of the DOT are not relevant to any issue in the FAC, which is a precondition to judicial notice. (See People ex rel. Lockyer v. Shamrock Foods Co. (2000) 24 Cal.4th 415, 422, fn. 2 [any matter to be judicially noticed must be relevant to a material issue].) This argument is not well-taken as Defendants discuss the documents in connection with numerous arguments advanced in support of their demurrer, such as their argument that Venkataraman lacks standing to sue. These documents, as well as the remaining documents that are the subject of the request, are relevant to issues raised herein.

In light of the above, Defendants’ request for judicial notice is GRANTED.

II. Merits of the Demurrer

Defendants demur to each cause of action on the grounds of uncertainty and failure to state sufficient facts to constitute a cause of action.

A. Uncertainty

In the notice of demurrer and demurrer, Defendants indicate they are demurring to each cause of action on the ground of uncertainty. However, they neglect to discuss that ground in their supporting memorandum of points and authorities. As there are no arguments advanced on this ground, the demurrer is not substantiated. (See Cal. Rules of Court, rule 3.1113(b) [memorandum must contain statement of law, arguments relied on, and discussion of law cited in support of position advanced].)

To the extent Defendants intended to argue the pleading is uncertain for the same reasons it argues each cause of action fails to state a viable claim, they appear to conflate that ground with the ground of failure to state sufficient facts to constitute a cause of action. “A special demurrer for uncertainty is not intended to reach the failure to incorporate sufficient facts in the pleading but is directed at the uncertainty existing in the allegations actually made.” (Butler v. Sequeira (1950) 100 Cal.App.2d 143, 145–146.) Uncertainty is a disfavored ground for demurrer and is typically sustained only where the pleading is so unintelligible and uncertain the responding party cannot reasonably respond or recognize the claims against it. (See Khoury v. Maly’s of Cal., Inc. (1993) 14 Cal.App.4th 612, 616 (“Khoury”).) Here, the allegations in each challenged cause of action are reasonably certain and apprise Defendants of the issues they must meet.

Accordingly, the demurrer to the each cause of action on the ground of uncertainty is OVERRULED.

B. Failure to State Sufficient Facts

Defendants advance arguments applicable to all causes of action in addition to arguments applicable to individual causes of action. The Court will first address Defendants’ global arguments.

1. Global Arguments

i. Venkataraman’s Standing

Defendants assert Venkataraman lacks standing because the pleading reflects he was not a party to the DOT. In support, Defendants point to the DOT, which indicates it was executed only in Jayanthi’s name. Plaintiffs do not address this argument in opposition.

“Standing is a threshold issue, because without it no justiciable controversy exists. Standing goes to the existence of a cause of action. Pursuant to Code of Civil Procedure section 367, ‘[e]very action must be prosecuted in the name of the real party in interest, except as otherwise provided by statute.’” (Saterbak v. JPMorgan Chase Bank, N.A. (2016) 245 Cal.App.4th 808, 813, internal citations and quotation marks omitted.)

Generally, a person who is not a party to a contract does not have standing either to seek its enforcement or to bring tort claims based on the contractual relationship. (Mega Life & Health Ins. Co. v. Superior Court (2009) 172 Cal.App.4th 1522, 1528–32.) In the foreclosure context, a plaintiff who is not a party to the deed of trust, i.e. the contract at issue, cannot state a claim for breach of contract, any torts based on that contractual relationship, or other statutory claims arising from the borrower-lender relationship. (Ambers v. Wells Fargo Bank, N.A. (N.D. Cal., Mar. 3, 2014, No. 13-CV-03940 NC) 2014 WL 883752, at *4 [granting motion to dismiss for lack of standing where plaintiffs were husband and wife and deed of trust was only executed by husband]; Bianchi v. Bank of America, N.A. (S.D. Cal. 2012) 2012 WL 11946982, at p. *1 [wife did not have standing to sue for fraud when she did not sign the mortgage loan]; Cleveland v. Deutsche Bank Nat. Trust Co. (S.D. Cal. 2009) 2009 WL 250017, at p. *2 [where the plaintiff’s wife, and not the plaintiff, was the borrower on the loan, the plaintiff did not have standing to assert his claims, such as fraud, accounting, and declaratory relief]; Aldana v. Bank of America, N.A. (C.D. Cal., Nov. 26, 2014, No. CV 14-7489-GHK FFMX) 2014 WL 6750276, at *6 [plaintiff who was not a borrower had no standing to assert Civil Code section 2937 claim].)

Here, although Plaintiffs explicitly allege they both executed the DOT, the DOT reflects that only Jayanthi executed it. The fact that the DOT indicates Venkataraman was not a party to the agreement is given precedence over the inconsistent allegations in the pleading, and the Court will thus treat the FAC as alleging that only Jayanthi is a party thereto. (See Holland v. Morse Diesel Int’l, Inc. (2001) 86 Cal.App.4th 1443, 1447 [facts which appear in exhibits attached to the complaint are given precedence over inconsistent allegations in the pleading].) Because only Jayanthi allegedly executed the DOT, Venkataraman lacks standing to sue and the demurrer is sustained as to only him on that basis.

ii. Estoppel

Defendants contend Plaintiffs are estopped from asserting any cause of action arising from their respective bankruptcies because they did not raise any claim relating to the foreclosure in their bankruptcy proceedings. Plaintiffs do not address this argument.
For context, as stated above, the Court judicially noticed numerous bankruptcy-related documents. These documents reflect that Jayanthi filed for bankruptcy on December 2, 2010, which was discharged in January 2012 and dismissed in March that year. (RJN, Exh. 10.) Jayanthi thereafter filed for bankruptcy a second time in April 2012, which was dismissed in September 2012. (Id. at Exh. 11.) Jayanthi filed for bankruptcy a third time in March 2016, which was dismissed in September 2016 due to her failure to file certain required reports and confirm a plan. (Id. at Exh. 14.) On October 31, 2016, Jayanthi filed for bankruptcy a fourth time. (Id. at Exh. 15.) In connection with the fourth bankruptcy, Bosco filed a motion for relief from automatic stay, which was denied as moot on the basis the automatic stay was terminated 30 days after Jayanthi initiated the bankruptcy action due to her multiple bankruptcy filings. (Ibid.) The fourth bankruptcy proceeding was subsequently dismissed and closed in March 2017. (Ibid.)

Shortly thereafter, Venkataraman filed for bankruptcy, in connection with which Bosco filed a motion for relief from the automatic stay. (RJN, Exh. 16.) Prior to the hearing on the motion, the parties entered into an adequate protection agreement (“APA”), which stated Plaintiffs owed Bosco $337,056.67 in pre-bankruptcy arrearages and failed to make any payments after filing for bankruptcy. (Ibid.) Pursuant to the APA, Venkataraman agreed to tender $353,000.00 to Bosco on or before October 2, 2017 and thereafter make monthly payments of $4,078.37. (Ibid.) Venkataraman subsequently defaulted under the terms set forth in the APA and the bankruptcy court terminated the automatic stay, permitting Bosco to initiate foreclosure proceedings. (Ibid.)

Turning to the merits of Defendants’ argument, judicial estoppel is an equitable doctrine that “prevents a party from asserting a position in a legal proceeding that is contrary to a position previously taken in the same or some earlier proceeding.” (Jackson v. County of Los Angeles (1997) 60 Cal.App.4th 171, 181.) The doctrine applies when “(1) the same party has taken two positions; (2) the positions were taken in judicial or quasi-judicial administrative proceedings; (3) the party was successful in asserting the first position (i.e., the tribunal adopted the first position or accepted it as true); (4) the two positions are totally inconsistent; and (5) the first position was not taken as a result of ignorance, fraud, or mistake.” (Id. at p. 183.)

Particular to actions filed subsequent to bankruptcy proceedings, “a party is judicially estopped from asserting a cause of action not raised in a reorganization plan or otherwise mentioned in the debtor’s schedules or disclosure statements.” (Hamilton v. State Farm Fire & Casualty Company (9th Cir. 2001) 270 F.3d 778, 783 (“Hamilton”).) The underlying premise is that debtors are required under bankruptcy statutes to disclose all of their personal property, including actual and potential claims or causes of action, and that such property is part of the bankruptcy estate. (Gottlieb v. Kest (2006) 141 Cal.App.4th 110, 132-133, 136-137 (“Gottlieb”).) “Courts of various jurisdictions have held that a debtor’s assertion [in a civil action] of legal claims not disclosed in earlier bankruptcy proceedings constitutes an assumption of inconsistent positions” because “[t]he omission of a cause of action or claim ‘from . . . mandatory bankruptcy filings is tantamount to a representation that no such claim existed.’” (Id. at p. 137, citations omitted.) Thus, courts will not allow debtors to obtain relief by first representing in bankruptcy court that no claims exist and then benefit from that silence by subsequently asserting those claims in another court. (Hamilton, supra, 270 F.3d at p. 785.)

Defendants’ argument that Plaintiffs are judicially estopped from now asserting any claims is problematic for numerous reasons. First, the bankruptcy documents submitted by Defendants do not actually reveal the contents of any schedules, plans, or disclosure statements wherein Plaintiffs disclose their assets; it is therefore impossible to discern whether Plaintiffs actually identified any potential causes of action in connection with the bankruptcy proceedings.

Next, the doctrine of judicial estoppel does not apply “when the prior position was taken because of a good faith mistake rather than as part of a scheme to mislead the court.” (Haley v. Dow Lewis Motors (1999) 72 Cal.App.4th 497, 509-510 (“Haley”).) “An inconsistent argument sufficient to invoke judicial estoppel must be attributable to intentional wrongdoing.” (Ibid.) “[N]ondisclosure in bankruptcy filings, standing alone, is insufficient to support the finding of bad faith intent necessary for the application of judicial estoppel.” (Cloud v. Northrop Grumman Corp. (1998) 67 Cal.App.4th 995, 1019 (“Cloud”).) The determination of whether a debtor acted in bad faith generally cannot be resolved on demurrer since it is not an evidentiary motion and consideration of evidence is required for such determination. (Haley, supra, 72 Cal.App.4th at p. 510 [“[W]hether judicial estoppel should be applied is a factual question.”].) Thus, whether Plaintiffs’ failure to include these claims in the plan was intentional or the result of ignorance, fraud, or mistake is a factual issue that cannot be decided on demurrer. (See Cloud, supra, 67 Cal.App.4th at p. 1019 [cases involving judicial estoppel have generally been decided after a fact-finding or evidence-reviewing proceeding].)

Last, it is not apparent from the face of the pleading that all causes of action existed during the bankruptcy proceedings. Debtors are only required to identify known claims; they are not required to disclose hypothetical claims. (Gottlieb, supra, 141 Cal.App.4th at p. 133.) Numerous causes of action are predicated on the sale of the Subject Property without proper notice. For instance, several causes of action are predicated on Defendants’ failure to provide certain information prior to the sale of foreclosure and/or the failure to adequately review Plaintiffs’ March 2017 loan modification application. Therefore, the pleading does not reflect Plaintiffs necessarily knew their claims existed prior to filing for bankruptcy.
In light of the above, the demurrer is not sustained on the basis Plaintiffs are judicially estopped from asserting any causes of action herein.

iii. Tender

Defendants contend the entire FAC is barred on the basis Plaintiffs fail to plead they tendered the amount due. Plaintiffs do not address this contention.
As a general rule, a debtor cannot set aside a foreclosure without also alleging he or she paid the secured debt before the action is commenced. (Lona v. Citibank, N.A. (2011) 202 Cal.App.4th 89, 112 (“Lona”); Lueras v. BAC Home Loans Servicing, LP (2013) 221 Cal.App.4th 49, 86-87 (“Lueras”).) A plaintiff is required to allege tender “to maintain any cause of action for irregularity in the sale procedure.” (Abdallah v. United Savings Bank (1996) 43 Cal.App.4th 1101, 1109, italics added; see also Adesokan v. U.S. Bank, N.A. (E.D. Cal., Feb. 7, 2012, No. 1:11-CV-01236-LJO) 2012 WL 395969, at *6 [granting motion to dismiss fraud claim and all other claims that were “implicitly integrated” with foreclosure process because the plaintiff failed to plead he tendered amount due]; Saldate v. Wilshire Credit Corp. (E.D. Cal. 2010) 686 F.Supp.2d 1051, 1059 [granting motion to dismiss fraud, UCL, and negligence claims on the basis the plaintiff failed to plead he tendered the amount due].) This is often referred to as the “tender rule.” (See Lona, supra, 202 Cal.App.4th at p. 115.)

As aptly argued by Defendants, Plaintiffs fail to plead they complied with the tender rule. To plead compliance with the tender rule, plaintiffs must allege they either paid the amount due or they are ready, willing, and able to pay the amount due as determined by the court assuming they are otherwise entitled to set aside the foreclosure sale. (Fonteno v. Wells Fargo Bank, N.A. (2014) 228 Cal.App.4th 1358, 1372.) Generally pleading that the plaintiffs were ready, willing, and able to make certain payments prior to the foreclosure sale is insufficient to plead tender. (Ibid.) Here, Plaintiffs only allege that at some undetermined time they offered to tender the amount due and fail to plead they are currently able to do so. (FAC, ¶ 42.) As such, they fail to plead compliance with the tender rule.

Accordingly, the demurrer is sustained as to every cause of action on the basis Plaintiffs fail to plead they tendered the amount due as they are all predicated on irregularities in the foreclosure process.

2. Arguments Applicable to Individual Causes of Action

i. First Cause of Action

The first cause of action for violation of Civil Code section 2937 (“Section 2937”) arises from Defendants’ purported failure to notify Plaintiffs that there was a different servicing agent. Plaintiffs specifically allege Defendants violated subdivisions (a) and (b). Subdivision (a) provides that “a borrower or subsequent obligor [must] be given written notice when a person transfers the servicing of the indebtedness on notes, bonds, or other instruments secured by a mortgage or deed of trust on real property[.]” Subdivision (b) similarly requires that any “person transferring the servicing of indebtedness as provided in subdivision (a) to a different servicing agent and any person assuming from another responsibility for servicing the instrument evidencing indebtedness, shall give written notice to the borrower or subsequent obligor before the borrower or subsequent obligor becomes obligated to make payments to a new servicing agent.”

Defendants first contend this cause of action is time-barred. Defendants maintain the applicable statute of limitations is set forth in Code of Civil Procedure section 338, subdivision (a), which provides that a plaintiff must initiate an action arising from a liability created by statute within three years. Defendants argue the judicially noticed documents show Plaintiffs were aware Franklin was their loan servicer as early as 2010, meaning they should have initiated this action prior to 2013.
A general demurrer will lie where a statute of limitations defense appears clearly and affirmatively from the face of the complaint. (E-Fab., Inc. v. Accountants, Inc. Services (2007) 153 Cal.App.4th 1308, 1315-16 (“E-Fab”).) In determining whether a claim is time-barred, a court must determine (1) which statute of limitations applies and (2) when the plaintiff’s claim accrued. (Id. at p. 1316.)

As this is a statutory cause of action, the applicable limitations period is governed by Code of Civil Procedure section 338, subdivision (a), which Plaintiffs do not dispute. Defendants do not expressly identify when this cause of action accrued. A cause of action accrues “when [the cause of action] is complete with all of its elements[,]” which are “wrongdoing, harm, and causation.” (Nguyen v. Western Digital Corporation (2014) 229 Cal.App.4th 1522, 1538.) As discussed above, the cause of action for violation of Section 2937 arises from a servicer or lender’s failure to notify a plaintiff of a change in servicers. Thus, the cause of action accrued when Franklin became servicer and Defendants failed to notify Plaintiffs when their first payment was due.

It cannot be established from the face of the pleading or the documents subject to judicial notice when Franklin became the servicer and when the first payment was due. While the 2016 Complaint alleges Franklin became the loan servicer in 2008 and Plaintiffs contacted it to receive a loan modification in 2012 (RJN, Exh. 12, ¶¶ 14-16), the Court cannot judicially notice those facts. A court may only take judicial notice of the existence of court records and may not judicially notice the truth of matters asserted therein. (Arce v. Kaiser Foundation Health Plan, Inc. (2010) 181 Cal.App.4th 471, 482 (“Acre”); Richtek USA, Inc. v. uPI Semiconductor Corporation (2015) 242 Cal.App.4th 651, 660 [improper to use facts alleged in one action to infer knowledge to determine whether statute of limitations has tolled in a second action].) Consequently, the Court may not rely on the purported fact that Franklin was the loan servicer in 2008 to determine if this cause of action is time-barred. The face of the FAC does not otherwise indicate when Franklin became the servicer of the loan. Because the date Franklin became the servicer cannot be determined from the face of the FAC or the matters which are subject to judicial notice, there is no basis to conclude the statute of limitations has elapsed.

Next, Defendants assert Plaintiffs fail to state a claim because the allegations in the FAC “are directly contrary to established facts.” (Mem. Ps. & As., p. 12:27-28.) Defendants maintain the judicially noticed documents show Plaintiffs were aware that Bosco was the beneficiary and Franklin was the servicer because the 2016 Complaint alleges Jayanthi communicated to Franklin as early as 2010 and 2011 and the bankruptcy documents show Plaintiffs knew the loan was transferred to Franklin and were offered the opportunity to tender payment to Franklin.

These documents do not necessarily establish Plaintiffs were given the required statutory notice of the transfer of the loan. The fact Franklin was a party to the bankruptcy proceedings and was listed on the APA does not mean Plaintiffs were timely notified that it was the new loan servicer. Moreover, the allegations in the 2016 Complaint concerning Plaintiffs’ discussions with Franklin cannot be treated as facts here. As stated above, a court may only take judicial notice of the existence of court records and may not judicially notice the truth of matters asserted therein. (Arce, supra, 181 Cal.App.4th at p. 482.) The Court cannot treat the allegation that Franklin was the loan servicer in 2008 as a fact in ruling on this demurrer simply because Plaintiffs allege as much in a different lawsuit.

Even so, as argued by Defendants, Plaintiffs were given the opportunity to cure their default after Franklin became the loan servicer. The judicially noticed documents reveal Plaintiffs were aware of where they should tender their payment and were given multiple opportunities to do so as late as October 2017. In order to state a claim under Section 2937, a plaintiff must allege damage resulted from the statutory violation. (Amaral v. Wachovia Mortg. Corp. (E.D. Cal., Mar. 29, 2011, No. 1:09-CV-00937) 2011 WL 1205250, at *3.) Plaintiffs fail to do so here as the pleading does not reflect there is any connection between Defendants’ purported failure to notify them that Franklin was loan servicer and any harm.

Accordingly, the demurrer to the first cause of action is sustained on the basis Plaintiffs fail to allege they suffered damage as a result of any purported failure to notify of the change in servicer.

ii. Second and Third Causes of Action

The second cause of action for breach of contract pleads paragraph 15 of the DOT provides that Defendants were required to give Plaintiffs notice in the event of default and any intent to accelerate the loan prior to acceleration. (FAC, ¶ 58.) Plaintiffs plead the notice should specify the default, the action required to cure it, a date by which the default must be cured, and that failure to cure the default may result in acceleration. (Ibid.) Defendants allegedly did not send Plaintiffs an acceleration notice or notice to cure after their first missed payment. (Id. at ¶ 59.) The third cause of action for breach of the implied covenant of good faith and fair dealing is predicated on the same facts. (Id. at ¶ 66.) In addition, Plaintiffs allege Defendants breached the covenant by never intending or offering to modify their loan, failing to contact them to discuss foreclosure alternatives, and refusing to accept tender. (Id. at ¶¶ 71-75.)

Defendants first contend both causes of action are time-barred. As argued by Defendants, the applicable limitations period for both causes of action is set forth in Code of Civil Procedure section 337, subdivision (1), which provides that there is a four-year limitations period for actions based on a breach of contract. (See Frazier v. Metropolitan Life Ins. Co. (1985) 169 Cal.App.3d 90, 102 [Code of Civil Procedure section 337, subdivision (1) governs causes of action for breach of the implied covenant of good faith and fair dealing].) Plaintiffs do not dispute as much. Defendants assert the statute of limitations began to run when Plaintiffs missed their first purported payment, which occurred in April 2009. Defendants insist the action is time-barred because Plaintiffs only filed the original complaint more than four years later in 2017.

Defendants’ argument is misguided as to the cause of action for breach of the implied covenant of good faith and fair dealing. That cause of action is not solely predicated on the first breach of contract allegedly occurring in April 2009; it is also based on Defendants’ failure to modify the loan, contact Plaintiffs to discuss foreclosure activities, and accept tender. (See FAC, ¶¶ 71-75.) As such, Defendants fail to address the entirety of this cause of action and only address one portion thereof. Even if the cause of action were time-barred to the extent it is predicated on Defendants’ failure to provide the required notices, the demurrer would not be sustainable because it only lies to a portion of the cause of action. (See PH II, Inc. v. Superior Court (1995) 33 Cal.App.4th 1680, 1682 (“PH II”) [demurrer may not lie to a portion of a cause of action].) Accordingly, the pleading and documents subject to judicial notice do not reflect that this cause of action is time-barred.

In contrast, the breach of contract cause of action is solely predicated on the first purported breach of contract, i.e. failure to provide the required notices after Plaintiffs’ first default. As aptly stated by Defendants, the APA states that “in or about April of 2009, [Jayanthi] defaulted under the terms of [the DOT] by failing to make the monthly mortgage payments due to [Bosco] thereunder.” (RJN, Exh. 16, p. 2, ¶ 4.) As stated above, while court records are subject to judicial notice, the truth of matters asserted in such documents is not subject to judicial notice. (Arce, supra, 181 Cal.App.4th at p. 482.) There are, however, several exceptions to this rule. For example, the court may judicially notice the truth of facts asserted in orders, findings of fact, and judgments. (Bach v. McNelis (1989) 207 Cal.App.3d 852, 865.) Here, the APA is a stipulation, which the court granted by issuing an order. (RJN, Exh. 16.) The Court may thus judicially notice the facts set forth therein, i.e. that Plaintiffs first defaulted in April 2009. Therefore, absent any applicable exceptions, the documents subject to judicial notice reflect the four year limitations period expired in April 2013.

Plaintiffs do not dispute that the cause of action accrued in April 2009. They argue the limitations period did not elapse because of the automatic stay that was in place in connection with their bankruptcy cases. In support, Plaintiffs rely on Code of Civil Procedure, section 356, which provides that where “the commencement of an action is stayed by injunction or statutory prohibition, the time of the continuance of the injunction or prohibition is not part of the time limited for the commencement of the action.” A bankruptcy stay qualifies as a statutory prohibition and the limitations period is tolled during the time the stay is in place. (Kertesz v. Ostrovsky (2004) 115 Cal.App.4th 369, 378.)

Although Plaintiffs assert the limitations period was tolled due to the stay, they do not identify the duration of the limitations period or judicially noticeable documents they rely upon. Their argument is therefore unsubstantiated.

In any event, the bankruptcy documents do not suggest the statute of limitations were tolled for so long that this cause of action would be timely. As the APA establishes Plaintiffs first defaulted in April 2009, the latest potential date of accrual is April 30, 2009. The bankruptcy documents reveal there was an automatic stay in place in connection with Jayanthi’s bankruptcy proceedings for less than three years. (See RJN, Exhs. 10, 11, 14, 15.) Plaintiffs did not file this action within seven years of April 30, 2009, which includes the four-year limitations period and the duration of any automatic stays. Thus, even inferring the most generous time the limitations period began and the longest possible time the limitations period could have been tolled due to the automatic stays, this cause of action is still time-barred as to Jayanthi. With respect to Venkataraman, an automatic stay was only in place for little more than six months, which is nowhere near long enough to toll the statute of limitations so that it has not yet elapsed.

Next, relative to only the breach of contract cause of action, Defendants assert Plaintiffs fail to state a claim because they did not perform their contractual obligations since they defaulted. An element of a breach of contract cause of action is that the plaintiff performs his or her duties or has an excuse for nonperformance. (Rutherford Holdings, LLC v. Plaza Del Rey (2014) 223 Cal.App.4th 221, 228.)

Though not clearly stated, Plaintiffs appear to argue in opposition that they plead their performance was excused because Defendants failed to comply with the terms of the DOT by neglecting to provide the required notices. Plaintiffs do not contend that they actually performed the terms of the DOT. Plaintiffs’ argument is misplaced because an excuse of performance must be pleaded specifically. (Durell v. Sharp Healthcare (2010) 183 Cal.App.4th 1350, 1367.) Plaintiffs do not expressly allege that failure to provide them notice excused them for performance. In fact, Plaintiffs do not allege that they either performed the terms of the contract or were excused from performance in even the most general of terms. It is not otherwise evident from the face of the pleading that Plaintiffs rely upon a theory that they were excused from performance. Accordingly, the demurrer may be sustained on the basis Plaintiffs fail to plead they performed or were excused from performance.

Last, it is unclear whether Defendants advance another argument relative to only the breach of the implied covenant of good faith and fair dealing cause of action. They cite legal authority providing that “[t]he prerequisite for any action for breach of the implied covenant of good faith and fair dealing is the existence of a contractual relationship between the parties, since the covenant is an implied term in the contract” and that it imposes no other substantive duties on contracting parties beyond those set forth in the contract. (Smith v. City and County of San Francisco (1990) 225 Cal.App.3d 38, 49.) After reciting the legal standard, Defendants offer no argument. To the extent Defendants intended to advance an argument, that argument is unclear and unsubstantiated. It does not appear to have merit as Defendants do not challenge whether Plaintiffs actually the allegations as to the existence of a contract, but rather whether such contract was breached. Defendants’ argument therefore does not support sustaining the demurrer.

In light of the above, the demurrer to the second cause of action may be sustained on the bases it is time-barred and Plaintiffs fail to plead the element of performance or excuse for nonperformance. Defendants do not advance any successful arguments particular to the third cause of action; the demurrer is only sustainable on the basis Plaintiffs fail to plead tender and Venkatraraman lacks standing.

iii. Fourth Cause of Action

The fourth cause of action for negligence alleges Defendants had a duty to notify Plaintiffs of their default and how to cure it, fairly review the loan modification documents prior to moving forward with a foreclosure sale, and accept tender of a late payment, all of which they breached. (FAC, ¶¶ 78-83.)

Defendants first argue this cause of action is time-barred. Defendants assert the judicially noticed documents reveal they defaulted in April 2009, and the instant action was initiated more than two years after the applicable limitations period set forth in Code of Civil Procedure section 335.1 elapsed. Defendants’ argument is unpersuasive because, as discussed above in connection with the cause of action for breach of the implied covenant of good faith and fair dealing, even if the subject documents established the breach occurred in April 2009, this cause of action is also predicated on events occurring thereafter. For example, Plaintiffs allege they attempted to apply for a loan modification on March 6, 2017, which was not given proper consideration. (FAC, ¶ 44.) Because the cause of action is predicated on events occurring within two years of the filing of this action, the demurrer would only lie to a portion of the cause of action and cannot be sustained. (See PH II, supra, 33 Cal.App.4th at p. 1682.)
Defendants next argue Plaintiffs fail to allege the element of duty. (See Lueras, supra, 221 Cal.App.4th at p. 62 [reciting the elements of negligence].) It is settled under California law that “as a general rule, a financial institution owes no duty of care to a borrower when the institution’s role in the loan transaction does not exceed the scope of its conventional role as a mere lender of money.” (Nymark v. Heart Fed. Savings & Loan Ass’n (1991) 231 Cal.App.3d 1089, 1096 (“Nymark”).)

In the foreclosure context, there is a split of authority as to whether the general rule that no duty of care exists extends to plaintiffs who have sought loan modifications. On one hand, multiple courts followed Nymark and declined to consider an exception to the general rule in this circumstance because loan modifications fall squarely within a lending institution’s conventional role as a money lender. (See Lueras, supra, 221 Cal.App.4th at p. 68.) These courts typically did not apply six factors set forth in Biakanja v. Irving (1958) 49 Cal.3d 647 (“Biakanja”), which are evaluated to determine whether a duty exists. (Daniels v. Select Portfolio Servicing, Inc. (2016) 246 Cal.App.4th 1150, 1181 (“Daniels”).) On the other hand, other courts applied the Biakanja factors, ultimately determining there is a duty to use reasonable care in handling a loan modification request, once the lender undertakes to consider it. (See Alvarez v. BAC Home Loans Servicing, L.P. (2014) 228 Cal.App.4th 941, 945-952; Daniels, supra, 246 Cal.App.4th at p. 1183; Rossetta v. CitiMortgage, Inc. (2017) 18 Cal.App.5th 628, 640.)

The Court finds the latter line of cases, particularly the Sixth District decision Daniels, more persuasive. As explained in Daniels, the “general rule” of no duty was developed in the context of actions by third parties seeking to hold construction lenders liable for borrowers’ failings, and it would make no sense to impose on a lender such failings unless it was actively involved in the borrower’s construction project. (Daniels, supra, 246 Cal.App.4th at pp. 1180-81.) Moreover, the foreclosure cases Nymark cited for the “general rule” applied Biakanja to determine whether the lender owed a duty of care. (Ibid.) It therefore does not follow that courts should not look to the Biakanja factors. Daniels compels application of the Biakanja factors here and that application, particularly in light of the Legislature’s enactment of the Homeowner Bill of Rights (which expresses a strong public policy of avoiding foreclosure when possible and protecting homeowners from improper loan servicer conduct), leads to the conclusion the once a lender or loan servicer undertakes to consider a loan modification request, it owes the borrower a duty to use reasonable care in handling that request. (See Alvarez, supra, 228 Cal.App.4th at pp. 945-952.) Thus, Defendants’ contention that Plaintiffs cannot maintain a claim for negligence because they did not owe a duty of care is without merit and does not provide a basis upon which to sustain the demurrer to this claim.

Defendants insist that even if a duty of care exists, Plaintiffs failed to plead the elements of breach and causation. (See Lueras, supra, 221 Cal.App.4th at p. 62.) Defendants provide absolutely no argument as to the element of breach. Plaintiffs allege Defendants breached each of the three duties alleged to exist, and there is no apparent defect in those allegations. (See FAC, ¶ 79, 82, 83; see also Guilliams v. Hollywood Hosp. (1941) 18 Cal.2d 97, 101 [a plaintiff need only plead negligence cause of action in general terms].) With respect to the element of causation, Defendants aptly assert Plaintiffs do not actually allege they suffered any damages as a result of the alleged negligence, rendering the pleading defective.

Consequently, the demurrer to the fourth cause of action may be sustained on the basis Plaintiffs fail to plead the element of causation.

iv. Fifth Cause of Action

The fifth cause of action for negligent infliction of emotional distress (“NIED”) is predicated on Defendants’ moving forward with the foreclosure sale without giving Plaintiffs an opportunity to avoid it by refusing to accept tender and seriously consider their loan modification application. (FAC, ¶¶ 87-90.)

NIED is not an independent tort, but rather a species of negligence, and as such, the plaintiff must plead the element of duty. (Christensen v. Superior Court (1991) 54 Cal.3d 868, 884.) Defendants assert that because Plaintiffs fail to allege the element of duty in connection with the fourth cause of action for negligence, they similarly fail to plead the element here. For the reasons stated above, Plaintiffs adequately allege the element of duty. Accordingly, there is no apparent defect with the duty allegations relative to this cause of action.

Next, Defendants assert the allegation that they negligently refused to give Plaintiffs an opportunity to cure the loan modification is false because the APA reveals they were offered several opportunities to cure the default. This argument is well-taken as the bankruptcy documents reflect that even after Plaintiffs’ loan application submitted in March 2016 was denied, they were given multiple opportunities to correct the default. Further, the APA reflects the loan was actually modified to allow them to repay it, which they failed to do. This by itself, however, is not a basis for sustaining the demurrer because it only addresses one portion of the cause of action. (See PH II, supra, 33 Cal.App.4th at p. 1682.) The cause of action is also predicated on Defendants’ failure to accept tender, which is an issue distinct from modification.
With that said, as Defendants persuasively argued by Defendants, the demurrer to the NIED claim is sustainable on the basis that such causes of action cannot be predicated on damage to property or financial interests. Generally, damages for emotional distress may not be awarded when they arise from property damage. (Erlich v. Menezes (1999) 21 Cal.4th 543, 554–555.) As such, where the misrepresentation is negligent as opposed to intentional, and the plaintiff did not suffer physical injury and only suffered economic damage, he or she is not entitled to recover for emotional distress. (Branch v. Homefed Bank (1992) 6 Cal.App.4th 793, 799–800 [“Recovery for worry, distress and unhappiness as the result of damage to property, loss of a job or loss of money is not permitted when the defendant’s conduct is merely negligent.”].) Here, Plaintiffs’ claim is predicated on the loss of property, and, consequently, does not support a basis for emotional distress damages.

Accordingly, the demurrer to the fifth cause of action is sustained on the basis it is solely predicated on property damage.

v. Sixth Cause of Action

The sixth cause of action for violations of the UCL is predicated on Defendants’ purported unfair business practices. (FAC, ¶¶ 92-96.)

“The UCL prohibits, and provides civil remedies for, unfair competition, which it defines as ‘any unlawful, unfair or fraudulent business act or practice.’ Its purpose ‘is to protect both consumers and competitors by promoting fair competition in commercial markets for goods and services.’” (Kwikset Corp. v. Superior Court (2011) 51 Cal.4th 310, 320, citations omitted.) “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. In other words, a practice is prohibited as unfair or deceptive even if not unlawful and vice versa.” (Puentes v. Wells Fargo Home Mortgage, Inc. (2008) 160 Cal.App.4th 638, 644, citations and quotations marks omitted.) Plaintiffs’ claim is predicated on Defendants’ purportedly unfair, unlawful, and fraudulent business practices. Defendants advance three arguments relating to all three prongs.

First, Defendants argue Plaintiffs fail to state a claim because the UCL cause of action is predicated on the same acts as their other unsuccessful causes of action. This argument is not well-taken. As stated above, this cause of action is predicated on the unlawful, unfair, and fraudulent prongs. This argument would only dispose of the cause of action to the extent it is based on the unlawful prong. (See Graham v. Bank of America, N.A. (2014) 226 Cal.App.4th 594, 610 (“Graham”) [violation under the unlawful prong requires a predicate violation of another law]; see also Avila v. Wells Fargo Bank, National Association (N.D. Cal., Dec. 23, 2016, No. C 16-05904 WHA) 2016 WL 7425925, *6].) The unfair and fraudulent prongs do not require a plaintiff to plead a violation of an underlying law; for example, to plead the defendant acted fraudulently, the plaintiff must only allege members of the public are likely to be deceived by the defendant’s behavior. (Graham, supra, 226 Cal.App.4th at p. 613.) Because this argument only disposes a portion of the cause of action, it is not sustainable. (See PH II, supra, 33 Cal.App.4th at p. 1682.)

Next, Defendant asserts Plaintiffs fails to state a claim because they lack standing. Relative to the UCL, the standing requirement is set forth in Business and Professions Code section 17204, which provides that a plaintiff must have “suffered injury in fact and has lost money or property as a result of the unfair competition.” In the foreclosure context, this requires showing a “causal link between [the alleged] economic injury, [the loss or impending loss of property to foreclosure]” and the defendant’s allegedly unfair, unlawful, or fraudulent business practices. (Jenkins v. JP Morgan Chase Bank, N.A. (2013) 216 Cal.App.4th 497, 523 (“Jenkins”), disapproved of on other grounds by Yvanova v. New Century Mortg. Corp. (2016) 62 Cal.4th 919.) A plaintiff fails to satisfy the causation prong of the statute (and thus fails to establish standing) if he or she would have suffered “the same harm whether or not a defendant complied with the law.” (Daro v. Superior Court (2007) 151 Cal.App.4th 1079, 1099.)
Particularly, Defendants argue Plaintiffs cannot plead they suffered injury because the default on the loan is what triggered the sale of the Subject Property. Generally, when a plaintiff does not dispute he or she is in default, he or she lack standing because it is the default that triggers the foreclosure process. (Jenkins, supra, 216 Cal.App.4th at p. 523.) This is the case here. Plaintiffs admittedly defaulted on the loan and did not tender the amount due. Despite Defendants’ purported UCL violations, Plaintiffs were offered numerous opportunities to cure the default, most notably in October 2017 in connection with the fifth bankruptcy proceeding. (See RJN, Exh. 16, APA.) However, they failed to do so. As such, the pleading does not suggest Defendants’ actions were the cause of their injury; rather, their injury is attributable to their default.

In addition, as aptly argued by Defendants, the demurrer may also be sustained on the basis Plaintiffs fail to plead this cause of action with requisite particularity. All statutory causes of action, as this one, must be pleaded with particularity. (See Covenant Care, Inc. v. Superior Court (2004) 32 Cal.4th 771, 783; Khoury, supra, 14 Cal.App.4th at p. 619 [UCL cause of action must be pleaded with particularity].) This requires a plaintiff to plead every fact material to the existence of the defendant’s statutory liability. (See Hood v. Hacienda La Puente Unified School Dist. (1998) 65 Cal.App.4th 435, 439.) In a UCL claim, allegations are insufficiently particular when they do not explain the manner in which the defendant’s acts are unfair, deceptive, or unlawful. (Khoury, supra, 14 Cal.App.4th at p. 619.) Plaintiffs’ allegations do not meet this pleading standard. Plaintiffs simply allege Defendants “engaged in unfair competition” without specifying any particular unfair behavior whatsoever. (See FAC, ¶ 93.) Further, Plaintiffs’ allegations as to their injuries are similarly unspecific as they plead they suffered irreparable harm without indicating the nature of that harm or how it was caused. (Id. at ¶ 95.)

In light of the above, the demurrer to the sixth cause of action is sustained on the bases Plaintiffs lack standing and fail to plead the cause of action with requisite particularity.

vi. Seventh Cause of Action

Plaintiffs allege Defendants acted fraudulently by concealing the fact they transferred the loan from one defendant to another without providing requisite notice and that the loan was securitized. (FAC, ¶¶ 35-36.)

Defendants first insist this cause of action is barred by the statute of limitations. Defendants correctly identify that the applicable statute of limitations is governed by Code of Civil Procedure section 338, subdivision (d), which provides the limitations period for an action for a fraud cause of action is three years and it is not deemed to have accrued until the aggrieved party’s discovery of the fraud. Defendants do not expound on their argument aside from stating this cause of action is barred by this statute of limitations. Further, Defendants do not identify when the cause of action accrued, which is a necessary step in analyzing if the limitations period has elapsed. (See E-Fab., supra, 153 Cal.App.4th at pp. 1315-16.) Defendants’ argument is otherwise problematic because it does not appear from the face of the pleading or judicially noticed documents when the cause of action accrued. For instance, there are no facts as to when Plaintiffs discovered the purported fraud or when the purported fraud even occurred. As such, it cannot be determined from the face of the pleading or matters subject to judicial notice that the claim is time-barred.

Defendants additionally assert Plaintiffs fail to plead the cause of action with requisite particularity. “Fraud must be pleaded with specificity rather than with ‘general and conclusory allegations.’” (West v. JPMorgan Chase Bank, N.A. (2013) 214 Cal.App.4th 780, 793, quoting Small v. Fritz Companies, Inc. (2003) 30 Cal.4th 167, 184.) When the fraud is predicated on a misrepresentation, the plaintiff must allege facts showing how, when, where, to whom, and by what means the representations were made and, in the case of a corporate defendant, he or she must also allege the name of the person who made the representations, his or her authority to speak on behalf of the corporation, to whom they spoke, what he or she said or wrote, and when the representation was made. (Ibid.) Defendants contend Plaintiffs do not meet this standard.

Defendants’ argument is misplaced because Plaintiffs’ cause of action is predicated on concealment and not a misrepresentation. Plaintiffs specifically allege Defendants concealed the purported securitization and transfer of notices from them. (FAC, ¶¶ 35-36.) A plaintiff is not required to allege the details of any misrepresentation when the fraud cause of action is based on concealment. (Alfaro v. Community Housing Imp. System & Planning Ass’n, Inc. (2009) 171 Cal.App.4th 1356, 1384.) This is because it is much more difficult to allege such details in a case of non-disclosure; “[h]ow does one show ‘how’ and ‘by what means’ something didn’t happen, or ‘when’ it never happened, or ‘where’ it never happened?” (Ibid.) Thus, Plaintiffs are not required to allege such details here.

With that said, Plaintiffs’ allegations still fail to meet the particularity standard. There are no specific facts alleged that would reveal to Defendants the basis for this cause of action. For example, while Plaintiffs allege Defendants concealed the fact the subject loan was securitized, they do not actually allege the loan was securitized in the first instance, thereby failing to provide sufficient factual detail to Defendants to defend this cause of action. By way of another example, Plaintiffs allege the securitization of the loan “had a materially negative effect on [them],” but they do not explain in what way securitization impacted them at all. (See FAC, ¶ 36.) Consequently, Plaintiffs fail to allege this cause of action with requisite particularity.

Accordingly, the demurrer to the seventh cause of action is sustained because Plaintiffs fail to plead the cause of action with requisite specificity.

vii. Eighth Cause of Action

The eighth cause of action for quiet title alleges Defendants claim an interest adverse to Plaintiffs in the Subject Property, even though they have no right to it. (FAC, ¶¶ 42-44.)

Quiet title causes of action are governed by Code of Civil Procedure section 761.020, which requires a plaintiff to set forth the following five elements in a verified complaint: (1) a description of the property; (2) the plaintiff’s interest in the property; (3) the defendant’s adverse claim; (4) the date as of which the determination is sought; and (5) a prayer for the determination of the plaintiff’s interest in the property. Defendants contend Plaintiffs fail to plead these elements.

As aptly argued by Defendants, Plaintiffs fail to allege all of these elements. While Plaintiffs plead a description of the Subject Property (FAC, ¶ 1), that they have an interest in the Subject Property because they were granted it by deed (id. at ¶ 19), and that Defendants have an adverse claim to the Subject Property as they claim an ownership interest therein (id. at ¶ 42), they fail to allege the date as of which the determination is sought or a prayer for the determination of their interest in the Subject Property.

Consequently, the demurrer is sustained because Plaintiffs fail to plead all the requisite elements of a quiet title cause of action.

3. Conclusion

The demurrer to each cause of action on the ground of failure to state sufficient facts to constitute a cause of action is SUSTAINED with 10 days leave to amend.
The Court shall prepare the Order.