2016-00197388-CU-OR

Timothy J. Pellegrini vs. JPMorgan Chase Bank, N.A.

Nature of Proceeding: Hearing on Demurrer to Second Amended Complaint

Filed By: Idleman, William

** If any party requests oral argument, then at the time the request is made, the requesting party shall inform the court and opposing counsel of the specific issue(s) on which oral argument is sought. **

The demurrer of JPMorgan Chase Bank, N.A. (Chase) and Deutsche Bank National Trust Company, as Trustee for WAMU Mortgage Pass-Through Certificates Series 2003-AR8 (Deutsche Bank) (collectively “Defendants”) to the second amended complaint (SAC) is SUSTAINED in part without leave to amend and OVERRULED in part.

Factual/Procedural Background

This is a nonjudicial foreclosure case. The plaintiffs are Timothy and Loribeth Pellegrini (collectively “Plaintiffs”). Plaintiffs allege that Chase was their loan servicer, that Deutsche Bank is the successor beneficiary under their deed of trust, and that non -party Washington Mutual Bank, N.A. (WaMu) was the original lender and beneficiary. There is no allegation that the property was sold at auction.

According to Plaintiffs, WaMu transferred the loan to an unidentified entity that then attempted to place the loan in the trust of which Deutsche Bank is trustee. The goal of these transfers was to pool and securitize loans for subsequent sales on the market. Plaintiffs allege that the Pooling and Service Agreement (PSA) associated with the trust required loans to be deposited into the trust no later than approximately October 25, 2003.

WaMu was forced to close during the financial crisis of 2008, and the FDIC assumed control over its assets. Chase subsequently acquired servicing rights to Plaintiffs’ loan. Plaintiffs allege the FDIC and Chase purported to assign all beneficial interest in the loan to Deutsche Bank, as trustee, in 2013. Plaintiffs characterize this assignment as void because WaMu had transferred the loan in 2003–years before the FDIC entered the picture. Plaintiffs further allege, however, that after WaMu transferred the loan in 2003, the loan never made it into the trust because the note was not properly endorsed. In the alternative, Plaintiffs allege the loan never made it into the trust because it was not received before the closing date in or around October 25, 2003.

The SAC contains causes of action for declaratory relief, conversion and violation of B&P Code §§ 17200 et seq. These are the same causes of action presented in the first amended complaint (FAC). This court, the Hon. David I. Brown presiding, sustained Defendants’ demurrer the FAC but granted leave to amend. Defendants now demur to the SAC on grounds the allegation fail to state facts sufficient to state a valid cause of action.

Discussion

The First Cause of Action for Declaratory Relief

The demurrer is SUSTAINED without leave to amend.

The first cause of action is predicated on Plaintiffs’ theory that, for one reason or another, neither Defendant was ever authorized to demand or receive Plaintiffs’ loan payments. Despite some amendments to the SAC in this regard, Plaintiffs’ allegations remain defective because California does not allow borrowers to seek pre-foreclosure declarations of an institution’s authority to foreclose. (See Saterbak v. JPMorgan Chase Bank, N.A. (2016) 245 Cal.App.4th 808, 814-815.) Because Plaintiffs have not demonstrated a reasonable likelihood they can cure this theory of declaratory relief, leave to amend is denied.

The Second Cause of Action for Conversion

The demurrer is OVERRULED.

Defendants allegedly converted Plaintiffs’ loan payments by misrepresenting their (Defendants’) authority to receive such payments. As noted above, Plaintiffs may not seek a pre-foreclosure declaration of Defendants’ authority to foreclose. (See Saterbak, p. 814 [“California courts do not allow such preemptive suits because they ‘would result in the impermissible interjection of the courts into a nonjudicial scheme enacted by the California Legislature’”].) But Defendants have not established that Plaintiffs are similarly barred from pursuing pre-foreclosure damages for conversion. Absent an authority holding as much, the court will not sustain the demurrer solely because Plaintiffs lack standing to determine Defendants’ authority to foreclose.

The court rejects Defendants’ further argument that the demurrer to the conversion cause of action should be sustained on grounds Plaintiffs have not alleged the true servicer or beneficiary under the loan documents. Such allegations are not essential to a conversion cause of action. (See Oakdale Village Grp. v. Fong (1996) 43 Cal.App.4th 539, 543-544 [reciting the elements].)

Finally, the court rejects Defendants’ argument that the 2013 Assignment of Deed of Trust attached to the SAC as an exhibit precludes Plaintiffs from advancing a conversion claim. Although the exhibit purports to show that Deutsche Bank received a beneficial interest in the deed of trust, Plaintiffs allege the exhibit is void.

The Third Cause of Action for Violation of B&P Code §§ 17200 et Seq.

The demurrer is OVERRULED.

Plaintiffs allege that Defendants deprived them of loan payments by wrongfully

claiming authority to receive or transmit such payments. This is enough to establish both economic loss and unfair and/or fraudulent conduct. In reaching this conclusion, the court notes that Plaintiffs do not merely allege injury in the form of foreclosure proceedings underway or the threat of the loss of their property. Hence, this case is distinguishable from Jenkins v. JPMorgan Chase Bank, N.A. (2013) 216 Cal.App.4th 497, on which Defendants rely.

Disposition

The demurrer is sustained without leave to amend and overruled on the terms above.

Defendants are directed to file and serve their answer(s) to the second and third causes of action no later than 3/26/18.