Case Name: Daniel Heath, et al. v. Wells Fargo Bank, N.A., et al.

Case No.: 16CV293265

Wells Fargo Bank, N.A.’s Motion for Summary Judgment, or in the Alternative, Summary Adjudication

Factual and Procedural Background

Plaintiffs Daniel Heath and Meghan Heath (collectively, “Plaintiffs” or “Heaths”) are the owners of real property located at 22525 Summit Road (“Property”) in Los Gatos. (First Amended Complaint (“FAC”), ¶8.) In May 2005, the Heaths purchased the Property and made substantial renovations. (FAC, ¶9.) In July 2006, the Heaths obtained a loan in the amount of $648,000 secured by a deed of trust against the Property in favor of NL, Inc. (Id.) The loan required the Heaths to make interest only payments at an interest rate of 6.625% until August 1, 2016 at which time the interest rate would adjust. (Id.) Defendant Wells Fargo Bank, N.A. (“Bank”) became the servicer of the loan shortly after it was executed. (Id.)

In February 2011, Bank sent the Heaths a loan modification agreement which increased the Heaths’ principal balance to $720,000 but provided a temporary reduction in the interest rate for approximately five years. (FAC, ¶10.) The agreement provided that the original terms of the loan, including the 6.625% interest rate, would be enforced beginning February 2016. (Id.) Plaintiffs expressed their concern to Bank that the modification did not provide a permanent solution. (Id.) The Bank told the Heaths that they should not be concerned because this solution would allow the Heaths time to apply for a permanent loan modification prior to the interest rate increase and this modification would not affect the Heaths’ ability to receive a permanent modification in the future. (Id.) The Heaths accepted the loan modification agreement, began making monthly payments pursuant to the agreement, and began applying for a permanent loan modification through Bank. (Id.)

From 2012 through 2014, the Heaths continued to apply for a loan modification from Bank to no avail. (FAC, ¶11.) The Heaths contacted Bank weekly inquiring about a loan modification and informed Bank that they would rather sell the Property to recoup any equity if loan modification was not possible. (Id.) Bank informed the Heaths to keep applying because a loan modification would be provided and told the Heaths not to give up on the modification process by selling the Property. (Id.) In reliance, the Heaths continued applying for modification instead of selling their Property and continued making payments. (Id.)

In early April 2014, the Heaths received a letter from Bank representative, Sapphire Fletcher (“Fletcher”), denying a piggy-back modification. (FAC, ¶12.) The Heaths contacted Fletcher to inquire about the denial and informed Fletcher that they had approximately $300,000 of equity in the Property would place the Property for sale. (Id.) Fletcher told the Heaths to keep applying for loan modification instead of selling. (Id.) Fletcher guaranteed the Heaths would receive a loan modification explaining that although the Heaths were denied one type of modification (piggy-back modification), the Heaths were eligible and qualified for other modifications. (Id.) In view of Fletcher’s vehement statements of a forthcoming modification, the Heaths submitted an entirely new loan modification application in May 2014. (Id.)

From May 2014 to the beginning of 2016, the Heaths continued to submit and resubmit documents in support of their loan modification application without any determination. (FAC, ¶13.) During this time, the Property’s value decreased and the principal balance on the Plaintiffs’ loan increased over $100,000. (Id.) In January 2016, the Heaths learned from Bank that they were not eligible for any modification because their loan was a securitized loan and it was not possible for Bank to provide a modification under these circumstances. (Id.)

Plaintiffs immediately listed the Property for sale at the price they planned to list it for sale in 2014, but received no offers. (FAC, ¶14.) In March 2016, Bank caused a Notice of Trustee’s Sale to be recorded against the Property. (Id.) The Heaths later discovered Bank had been charging them a late fee of approximately $1,424.86 each month Plaintiffs were delinquent when the monthly payments were no more than $3,500 per month. (FAC, ¶15.)

On May 28, 2016, the Heaths filed a complaint against Bank asserting causes of action for:

(1) Breach of the Implied Covenant of Good Faith and Fair Dealing
(2) Promissory Estoppel
(3) Negligent Misrepresentation
(4) Fraud

After obtaining leave of court, the Heaths filed the operative FAC on April 4, 2017 which asserts causes of action for:

(1) Breach of the Implied Covenant of Good Faith and Fair Dealing
(2) Promissory Estoppel
(3) Negligent Misrepresentation
(4) Fraud
(5) Breach of Contract

On May 4, 2017, Bank filed its answer to the Plaintiffs’ FAC.

On January 23, 2018, Bank filed the motion now before the court, a motion for summary judgment/ adjudication of Plaintiffs’ FAC.

III. Defendant Bank’s motion for summary judgment is GRANTED.

A. Defendant Bank’s motion for summary adjudication of the Heaths’ first cause of action [breach of implied covenant of good faith and fair dealing] is GRANTED.

“Every contract imposes upon each party a duty of good faith and fair dealing in its performance and its enforcement.” (Rest.2d Contracts, § 205.) “There is an implied covenant of good faith and fair dealing in every contract that neither party will do anything which will injure the right of the other to receive the benefits of the agreement.” (Comunale v. Traders & General Ins. Co. (1958) 50 Cal.2d 654, 658; see also CACI No. 325.)

“The covenant of good faith and fair dealing, implied by law in every contract, exists merely to prevent one contracting party from unfairly frustrating the other party’s right to receive the benefits of the agreement actually made. [Citation.] The covenant thus cannot ‘be endowed with an existence independent of its contractual underpinnings.’ [Citations.] It cannot impose substantive duties or limits on the contracting parties beyond those incorporated in the specific terms of their agreement.” (Guz v. Bechtel National, Inc. (2000) 24 Cal.4th 317, 349 – 350.)

“The implied covenant of good faith and fair dealing rests upon the existence of some specific contractual obligation. [Citation.] ‘The covenant of good faith is read into contracts in order to protect the express covenants or promises of the contract, not to protect some general public policy interest not directly tied to the contract’s purpose.’ [Citation.] … ‘In essence, the covenant is implied as a supplement to the express contractual covenants, to prevent a contracting party from engaging in conduct which (while not technically transgressing the express covenants) frustrates the other party’s rights to the benefits of the contract.’” (Racine & Laramie, Ltd. v. Department of Parks & Recreation (1992) 11 Cal.App.4th 1026, 1031 – 1032.)

In moving for summary adjudication of the Heaths’ first cause of action, Bank cites CACI, number 325 which states that in order to establish a claim for breach of implied covenant of good faith and fair dealing, a plaintiff must prove all of the following:

1. That [name of plaintiff] and [name of defendant] entered into a contract;
2. That [name of plaintiff] did all, or substantially all of the significant things that the contract required [him/her/it] to do [or that [he/she/it] was excused from having to do those things];]
3. That all conditions required for [name of defendant]’s performance [had occurred/ [or] were excused];]
4. That [name of defendant] unfairly interfered with [name of plaintiff]’s right to receive the benefits of the contract; and
5. That [name of plaintiff] was harmed by [name of defendant]’s conduct.

Bank argues initially that the Heaths cannot prevail on such a claim because they cannot establish the second element, i.e., that the Heaths did all, or substantially all of the significant things that the contract required them to do or that they were excused from having to do those things. In other words, the Heaths cannot establish that they performed as required under the deed of trust which is the contract alleged to be at issue. (See FAC, ¶¶18 – 19 alleging Bank became the servicer of the loan and “Pursuant to Section 20 of the Deed of Trust, the loan servicer … had the obligation to service Plaintiff’s loan in good faith.”)

In support of its argument, Bank proffers evidence that the Heaths defaulted on the Loan beginning on June 1, 2011, and they are currently due for their monthly payments due on May 1, 2013 and onwards. In opposition, the Heaths skip over this argument and instead focus on addressing Bank’s second argument concerning breach. Nevertheless, in their separate statement, the Heaths dispute Bank’s factual assertion by offering evidence that Meghan Heath made payments on the loan after May 2013. For example, she made a payment on January 29, 2014. [Bank] expressly stated to Daniel Heath that he is not obligated to make his monthly mortgage payments on February 11, 2014. Prior to the 2011 loan modification, the Heaths paid [Bank] $43,000.

In this court’s opinion, evidence of payments made prior to the 2011 loan modification and evidence of a single payment made on January 29, 2014 do not create a triable issue with regard to whether Plaintiffs defaulted in performance after June 1, 2011, i.e., are not current on their loan payment obligations. The evidence cited by Plaintiffs do not support their assertion that Daniel Heath was told by Bank that he is not obligated to make his monthly mortgage payments.

Much of Plaintiffs’ opposition to the first cause of action is devoted to the issue of breach. Plaintiffs contend Bank incorrectly focuses on an implied covenant of good faith and fair dealing which arises from the deed of trust at issue in this action. Instead, Plaintiffs contend the covenant of good faith and fair dealing is based on the contract that the Bank entered into with its investor or a “Servicer Participation Agreement” that Bank entered into with the Department of Treasury, or is based upon some independent common law duty that exists by virtue of Bank’s role as a loan servicer. As indicated above, the covenant of good faith and fair dealing is not endowed with an existence independent of its contractual underpinnings. Additionally, as Bank correctly points out in reply, “The pleadings serve as the ‘outer measure of materiality’ in a summary judgment motion, and the motion may not be granted or denied on issues not raised by the pleadings.” (Weil & Brown, et al., CAL. PRAC. GUIDE: CIV. PRO. BEFORE TRIAL (The Rutter Group 2017) ¶10:51.1, p. 10-22; see also Government Employees Ins. Co. v. Superior Court (2000) 79 Cal.App.4th 95, 98—“A defendant moving for summary judgment need address only the issues raised by the complaint; the plaintiff cannot bring up new, unpleaded issues in his or her opposing papers.”) The only contract alleged to form the basis of the first cause of action is the deed of trust.

Defendant Bank has sufficiently shown that Plaintiffs have not substantially performed. Since Plaintiffs have not shown the existence of a triable issue of material fact, defendant Bank’s alternative motion for summary adjudication of the first cause of action in the Heaths’ FAC for breach of implied covenant of good faith and fair dealing is GRANTED.

B. Defendant Bank’s motion for summary adjudication of the Heaths’ second cause of action [promissory estoppel] is GRANTED.

“The doctrine of promissory estoppel is set forth in section 90 of the Restatement of Contracts. It provides: ‘A promise which the promisor should reasonably expect to induce action or forbearance of a definite and substantial character on the part of the promise and which does induce such action or forbearance is binding if injustice can be avoided only be enforcement of the promise.’” (Signal Hill Aviation Co. v. Stroppe (1979) 96 Cal.App.3d 627, 637 (Signal Hill).) “California recognizes the doctrine. ‘Under this doctrine a promisor is bound when he should reasonably expect a substantial change of position, either by act or forbearance, in reliance on his promise, if injustice can be avoided only by its enforcement.” (Signal Hill, supra, 96 Cal.App.3d at p. 637.) In essence, “the estoppel is a substitute for consideration.” (1 Witkin, Summary of California Law (9th ed. 1987) Contracts, §248, p. 250.) “Cases have characterized promissory estoppel claims as being basically the same as contract actions, but only missing the consideration element.” (US Ecology, Inc. v. State of California (2005) 129 Cal.App.4th 887, 903 (US Ecology).) “[P]romissory estoppel claims are aimed solely at allowing recovery in equity where a contractual claim fails for a lack of consideration, and in all other respects the claim is akin to one for breach of contract.” (Id. at p. 904.)

“The California Supreme Court explained in [Raedeke v. Gibralter Sav. & Loan Assn. (1974) 10 Cal.3d 665] that the purpose of this doctrine is to make a promise binding, under certain circumstances without consideration in the usual sense of something bargained for and given in exchange. If the promisee’s performance was requested at the time the promisor made his promise and that performance was bargained for, the doctrine is inapplicable.” (Signal Hill, supra, 96 Cal.App.3d at p. 640; see also Youngman v. Nevada Irrigation District (1969) 70 Cal.2d 240, 249—“The purpose of this doctrine is to make a promise binding, under certain circumstances, without consideration in the usual sense of something bargained for and given in exchange. If the promisee’s performance was requested at the time the promisor made his promise and that performance was bargained for, the doctrine is inapplicable.”) “Conceptually, promissory estoppel is distinct from contract in that the promisee’s justifiable and detrimental reliance on the promise is regarded as a substitute for the consideration required as an element of an enforceable contract.” (Signal Hill, supra, 96 Cal.App.3d at p. 640.)

“The required elements for promissory estoppel in California are … (1) a promise clear and unambiguous in its terms; (2) reliance by the party to whom the promise is made; (3) his reliance must be both reasonable and foreseeable; and (4) the party asserting the estoppel must be injured by his reliance.” (Laks v. Coast Fed. Sav. & Loan Assn. (1976) 60 Cal.App.3d 885, 890; see also US Ecology, supra, 129 Cal.App.4th 887, 901; see also Aceves v. U.S. Bank, N.A. (2011) 192 Cal.App.4th 218, 225.)

In the second cause of action, the Heaths allege, in relevant part, “Fletcher told Plaintiffs that if they kept applying for a modification, she guaranteed that they would receive a modification.” (FAC, ¶27.) “Plaintiffs reasonably relied and did not sell the Property to retain the equity contained therein and, instead, continued to apply for a loan modification.” (FAC, ¶28.) The Heaths ask “that [Bank] honor its promises to provide a loan modification or, in the alternative, to write off the arrears that amassed because of [Bank]’s promise, so that Plaintiffs may capture some of the equity in their property.” (FAC, ¶31.)

In moving for summary adjudication of the Heaths’ second cause of action, Bank argues initially that even if the promise could be enforced, the promise is an oral promise to modify the Heaths’ loan/ deed of trust which is barred by the statute of frauds.

The statute of frauds provides that any agreement pertaining to “the sale of real property, or of an interest therein” is invalid unless it is memorialized in writing and signed by the party to be charged. (Civ. Code, § 1624, subd. (a)(3).) A mortgage or deed of trust is subject to the statute of frauds. (Civ. Code, § 2922 [“A mortgage can be created, renewed, or extended, only by writing, executed with the formalities required in the case of a grant of real property”].) An agreement that modifies a contract subject to the statute of frauds is likewise subject to the statute of frauds. (Civ. Code, § 1698, subd. (c); Nguyen v. Calhoun (2003) 105 Cal.App.4th 428, 445, [129 Cal.Rptr.2d 436] [“we conclude that the foreclosure sale may not be set aside based on the lender’s alleged breach of an oral agreement to postpone the trustee’s sale”].)

(Granadino v. Wells Fargo Bank, N.A. (2015) 236 Cal.App.4th 411, 415–416 (Granadino).)

Bank proffers evidence that there is no written agreement signed by Bank promising the Heaths a further loan modification. In opposition, the Heaths cite Associated Creditors’ Agency v. Haley Land Co. (1966) 239 Cal.App.2d 610, 617 where the court wrote:

The doctrine of estoppel to assert the statute of frauds as a defense is applicable where a party, by words or conduct, represents that he will stand by his oral agreement, and the other party, in reliance upon that representation, changes his position, to his detriment. [Citations.] The existence of an estoppel is a question of fact, unless, of course, but a single inference may be drawn from the facts. [Citations.] The doctrine of estoppel to assert the statute of frauds is invoked to prevent fraud that inheres in unconscionable injury that would result from denying enforcement of the oral contract after one party has been induced by the other seriously to change his position in reliance upon the oral contract. [Citation.]

The Granadino court also recognized the possibility that estoppel could preclude a party from asserting the statute of frauds but the appellants did not present such an argument. (Granadino, supra, 236 Cal.App.4th at p. 416.) Here, on the other hand, Plaintiffs proffer evidence in opposition that, subsequent to the oral promise from Fletcher, in June 2014, an individual named William Hare (“Hare”) from Bank stated that Bank is continuing to work with the Heaths on modification. Plaintiffs also proffer evidence that they refrained from placing the Property for sale in reliance on Bank’s promise of a permanent loan modification.

However, as Bank argues in reply, Plaintiffs must establish some detrimental reliance. The mere assertion that Plaintiffs refrained from selling their home is not sufficient to demonstrate any detriment. “To defeat summary judgment, [plaintiffs] cannot rely on ‘speculation, conjecture, imagination, or guesswork.’ [Citations.]” (Granadino, supra, 236 Cal.App.4th at p. 418.) Plaintiffs’ evidence establishes merely that they changed their legal position by refraining from selling the Property earlier. In order to establish some detriment, Plaintiffs would have to produce admissible evidence that in refraining from selling the Property earlier, they suffered some quantifiable loss. Plaintiffs have not done so here and so their assertion of detriment is entirely speculative. Plaintiffs have not sufficiently presented admissible evidence to support application of the doctrine of estoppel to overcome the statute of frauds.

Consequently, defendant Bank’s alternative motion for summary adjudication of the second cause of action in the Heaths’ FAC for promissory estoppel is GRANTED.

C. Defendant Bank’s motion for summary adjudication of the Heaths’ third cause of action [negligent misrepresentation] is GRANTED.

“Negligent misrepresentation is a form of deceit, the elements of which consist of (1) a misrepresentation of a past or existing material fact, (2) without reasonable grounds for believing it to be true, (3) with intent to induce another’s reliance on the fact misrepresented, (4) ignorance of the truth and justifiable reliance thereon by the party to whom the misrepresentation was directed, and (5) damages.” (Fox v. Pollack (1986) 181 Cal.App.3d 954, 962; internal citation omitted; see also CACI, No. 1903.)

There cannot be, as a matter of law, a negligent promise to perform a future event. In Tarmann v. State Farm Mutual Automobile Ins. Co. (1991) 2 Cal.App.4th 153, 159, the court explained, “To maintain an action for deceit based on a false promise, one must specifically allege and prove, among other things, that the promisor did not intend to perform at the time he or she made the promise and that it was intended to deceive or induce the promisee to do or not do a particular thing. [Citations.] Given this requirement, an action based on a false promise is simply a type of intentional misrepresentation, i.e., actual fraud. [Footnote.] The specific intent requirement also precludes pleading a false promise claim as a negligent misrepresentation, i.e., ‘The assertion, as a fact, of that which is not true, by one who has no reasonable ground for believing it to be true.’ [Citation.] Simply put, making a promise with an honest but unreasonable intent to perform is wholly different from making one with no intent to perform and, therefore, does not constitute a false promise. Moreover, we decline to establish a new type of actionable deceit: the negligent false promise.”

In their third cause of action, Plaintiffs allege, in relevant part, “Fletcher negligently represented to Plaintiffs that if they kept applying for a modification, she guaranteed that they would receive a modification.” (FAC, ¶52.) This is an alleged promise to perform a future event. Pursuant to Tarmann, such a promise can only be intentional. Accordingly, defendant Bank’s alternative motion for summary adjudication of the third cause of action in the Heaths’ FAC for negligent misrepresentation is GRANTED.

D. Defendant Bank’s motion for summary adjudication of the Heaths’ fourth cause of action [fraud] is GRANTED.

1. Statute of Frauds.

In moving for summary adjudication of the fourth cause of action for fraud, defendant Bank initially contends the fourth cause of action, like the second cause of action for promissory estoppel, is barred by the statute of frauds. However, unlike the promissory estoppel claim, Plaintiff’s fourth cause of action for fraud does not seek to enforce Bank’s alleged promise to provide a loan modification. Instead, the Heaths’ fourth cause of action seeks damages resulting from the fraud. The statute of frauds does not apply to a claim which does not seek enforcement of an oral promise. Bank’s reliance on Tenzer v. Superscope, Inc. (1985) 39 Cal.3d 18 is not persuasive. As explained by the Court in Riverisland Cold Storage, Inc. v. Fresno-Madera Production Credit Ass’n (2013) 55 Cal.4th 1169, 1183 (Riverisland), “Tenzer disapproved a 44–year–old line of cases to bring California law into accord with the Restatement Second of Torts, holding that a fraud action is not barred when the allegedly fraudulent promise is unenforceable under the statute of frauds.”

2. Fraudulent Intent.

As a separate basis for summary adjudication, Bank contends the Heaths cannot show fraudulent intent. “Fraud is an intentional tort; it is the element of fraudulent intent, or intent to deceive, that distinguishes it from actionable negligent misrepresentation and from nonactionable innocent misrepresentation. It is the element of intent which makes fraud actionable, irrespective of any contractual or fiduciary duty one party might owe to the other.” (City of Atascadero v. Merrill Lynch, Pierce, Fenner & Smith, Inc. (1998) 68 Cal.App.4th 445, 482.) Something more than nonperformance is required to prove the defendant’s intent not to perform his promises. “A promise of future conduct is actionable as fraud only if made without a present intent to perform. (Civ. Code, §1710, subd. 4; [Citation omitted.]) “ ‘A declaration of intention, although in the nature of a promise, made in good faith, without intention to deceive, and in the honest expectation that it will be fulfilled, even though it is not carried out, does not constitute a fraud. [Citation.]’ ” [Citation omitted.] Moreover, “ ‘something more than nonperformance is required to prove the defendant’s intent not to perform his promise.’ [Citations.] … [I]f plaintiff adduces no further evidence of fraudulent intent than proof of nonperformance of an oral promise, he will never reach a jury.” (Magpali v. Farmers Group, Inc. (1996) 48 Cal.App.4th 471, 481.) “[T]he intent element of promissory fraud entails more than proof of an unkept promise or mere failure of performance.” (Riverisland, supra, 55 Cal.4th at p. 1183.)

To support its assertion that it had no fraudulent intent, Bank proffers evidence that it denied the Heaths for a Home Affordable Modification Program (“HAMP”) loan modification via letters dated December 13, 2011, March 11, 2014, and March 25, 2014. Bank also denied the Heaths for a non-HAMP loan modification on March 12, 2014 and June 26, 2014 because the Heaths had exceeded the maximum number of modifications allowed by HSBC.

Initially, Bank’s consideration and denial of the Heaths for a loan modification prior to the alleged false promise (April 2014) is irrelevant. Whether Bank had fraudulent intent is measured at the time of the alleged false promise. (See Beckwith v. Dahl (2012) 205 Cal.App.4th 1039, 1060—“in a promissory fraud action … the complaint must allege (1) the defendant made a representation of intent to perform some future action, i.e., the defendant made a promise, and (2) the defendant did not really have that intent at the time that the promise was made, i.e., the promise was false.” (Emphasis added.)) Thus, Bank’s denial of loan modification prior to April 2014 is not evidence of an unkept promise or failure to perform on a promise which occurred later.

Thus, the only relevant evidence offered by Bank is its denial of loan modification on June 26, 2014. Bank’s evidence actually undercuts its argument. Bank’s evidence is that it denied the Heaths for non-HAMP loan modifications on March 12, 2014 and June 26, 2014 for the reason that the Heaths exceeded the maximum number of modifications allowed. If the reason for denial existed prior to the alleged promise and is the same reason given for denial after the promise, it would serve as circumstantial evidence that Bank did not have the requisite intent to perform. “To be sure, fraudulent intent must often be established by circumstantial evidence.” (Riverisland, supra, 55 Cal.4th at p. 1183.)

3. Justifiable Reliance.

Finally, Bank contends summary adjudication of the fraud cause of action is proper because the Heaths cannot demonstrate justifiable reliance on the alleged promise of a loan modification.

“ ‘Besides actual reliance, [a] plaintiff must also show “justifiable” reliance, i.e., circumstances were such to make it reasonable for [the] plaintiff to accept [the] defendant’s statements without an independent inquiry or investigation.’ [Citation.] The reasonableness of the plaintiff’s reliance is judged by reference to the plaintiff’s knowledge and experience. [Citation.] ‘ “Except in the rare case where the undisputed facts leave no room for a reasonable difference of opinion, the question of whether a plaintiff’s reliance is reasonable is a question of fact.” [Citations.]’ [Citation.]” [Citation.]

(West v. JPMorgan Chase Bank, N.A. (2013) 214 Cal.App.4th 780, 794 (Emphasis added.))

To support its position that the Heaths could not justifiably rely, Bank proffers evidence that each of the applications that the Heaths submitted to Bank expressly stated they agreed and acknowledged that Bank was not obligated to offer them any particular outcome. Bank denied the Heaths for a HAMP loan modification via letters dated December 13, 2011, March 11, 2014, and March 25, 2014. Bank also denied the Heaths for a non-HAMP loan modification on March 12, 2014 and June 26, 2014 because the Heaths had exceeded the maximum number of modifications allowed by HSBC. During telephone calls on July 25, 2011, June 20, 2014, and December 29, 2014, Bank informed the Heaths that HSBC’s guidelines prevented Bank from offering them a second loan modification.

In opposition, the court finds the existence of evidence which would present a triable issue of material fact with regard to whether Plaintiffs’ reliance was justifiable. For instance, plaintiff Meghan Heath declares, “no [Bank] employee ever told us that there were no options for modification and we should move on. [Bank] never gave us information that we had no real options. Instead, we were always told in writing or on the phone that there were other options. See highlighted language in letters attached as Exhibit 2.” As indicated above, whether a plaintiff’s reliance is reasonable is a question of fact.

Although triable issues of material fact would normally preclude summary adjudication of the Heaths’ fourth cause of action, the court finds the claim is barred by the doctrine of res judicata as discussed, infra. Accordingly, defendant Bank’s alternative motion for summary adjudication of the fourth cause of action in the Heaths’ FAC for fraud is GRANTED.

E. Defendant Bank’s motion for summary adjudication of the Heaths’ fifth cause of action [breach of contract] is GRANTED.

In the fifth cause of action for breach of contract, the Heaths allege Bank breached that provision of the promissory note which states, “If the Note Holder has not received the full amount of any monthly payment by the end of 15 calendar days after the date it is due, I will pay a late charge to the Note Holder. The amount of the charge will be 5.000% of my overdue payment of interest during the period when my payment is interest only, and of principal and interest after that. I will pay this late charge promptly but only once on each late payment.” (FAC, ¶64.) According to the Heaths, Bank breached this provision by “charging Plaintiffs a late fee of approximately $1,424.86 each month that Plaintiffs’ payment was delinquent as late fees since March 2013. During this time, Plaintiffs’ monthly payments were no more than $3,500.00 per month, therefore, the monthly late fee charged was substantially more than 5% of the overdue payment.” (FAC, ¶65.)

“A complaint for the breach of contract must include the following: (1) the existence of a contract, (2) plaintiff’s performance or excuse for non-performance, (3) defendant’s breach, and (4) damages to plaintiff therefrom.” (Acoustics, Inc. v. Trepte Construction Co. (1971) 14 Cal.App.3d 887, 913.)

In moving for summary adjudication, defendant Bank argues initially that Plaintiffs cannot maintain a cause of action for breach of contract because they have not performed. Just as with the first cause of action for breach of implied covenant of good faith and fair dealing, Bank proffers evidence that the Heaths defaulted on the Loan beginning on June 1, 2011, and they are currently due for their monthly payments due on May 1, 2013 and onwards. In opposition, the Heaths skip over this argument and instead focus on addressing Bank’s second argument concerning breach. Nevertheless, in their separate statement, the Heaths dispute Bank’s factual assertion by offering evidence that Meghan Heath made payments on the loan after May 2013. For example, she made a payment on January 29, 2014. [Bank] expressly stated to Daniel Heath that he is not obligated to make his monthly mortgage payments on February 11, 2014. Prior to the 2011 loan modification, the Heaths paid [Bank] $43,000.

In this court’s opinion, evidence of payments made prior to the 2011 loan modification and evidence of a single payment made on January 29, 2014 do not create a triable issue with regard to whether Plaintiffs defaulted in performance after June 1, 2011, i.e., are not current on their loan payment obligations. The evidence cited by Plaintiffs do not support their assertion that Daniel Heath was told by Bank that he is not obligated to make his monthly mortgage payments.

Defendant Bank has sufficiently shown that Plaintiffs have not substantially performed. Since Plaintiffs have not shown the existence of a triable issue of material fact, defendant Bank’s alternative motion for summary adjudication of the fifth cause of action in the Heaths’ FAC for breach of contract is GRANTED.

F. Defendant Bank’s motion for summary judgment based on judicial estoppel/ res judicata is GRANTED.

1. Judicial Estoppel.

As an alternative basis for summary judgment, Bank contends the Heaths’ claims are barred by the doctrine of judicial estoppel.

Judicial estoppel, sometimes referred to as the doctrine of preclusion of inconsistent position, 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. The doctrine serves a clear purpose: to protect the integrity of the judicial process.”

(13 Witkin, Summary of California Law (10th ed. 2005) Equity, §193, p. 532 citing Jackson v. County of Los Angeles (1997) 60 Cal.App.4th 171, 181 (Jackson).)

…a long-standing tenet of bankruptcy law requires one seeking benefits under its terms to satisfy a companion duty to schedule, for the benefit of creditors, all his interests and property rights. [Citation.] The preparation and filing of a disclosure statement is a critical step in the reorganization of a chapter 11 debtor, and the debtor’s express obligation of candid disclosure is the pivotal concept in a reorganization procedure. [Citation.] A strong interest in finality pervades chapter 11 arrangements, and disclosure is important not only to a creditor charged with wrongdoing, but to other creditors and to the bankruptcy court. [Citation.] It has been specifically held that a debtor must disclose any litigation likely to arise in a non-bankruptcy contest. [Citation.] The result of a failure to disclose such claims triggers application of the doctrine of equitable estoppel, operating against a subsequent attempt to prosecute the actions.

(Conrad v. Bank of America (1996) 45 Cal.App.4th 133, 146 (overruled on other grounds in Lovejoy v. AT&T Corp. (2001) 92 Cal.App.4th 85.)

In International Engine Parts v. Feddersen & Co. (1998) 65 Cal.App.4th 345 (Feddersen), a company and its principals sued defendants for accounting malpractice. Years earlier, the company knew of this potential claim. When the company filed for bankruptcy, it intentionally chose not to disclose it. When the company subsequently sued for malpractice, the claim was held barred by the doctrine of judicial estoppel. A similar result occurred in Burnes v. Pemco Aeroplex, Inc. (11th Cir. 2002) 291 F.3d 1282 (Burnes) where the plaintiff attempted to pursue a discrimination claim after failing to disclose such claim in concurrent bankruptcy proceedings.

The doctrine [of judicial estoppel] 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 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.

(MW Erectors, Inc. v. Niederhauser Ornamental & Metal Works Co., Inc. (2005) 36 Cal.4th 412, 422 (Niederhauser) citing Jackson, supra, 60 Cal.App.4th at p. 183.)

Bank proffers evidence here that the Heaths filed a Chapter 13 bankruptcy on January 19, 2015 and did not schedule any claims against Bank. The Heaths did not oppose Bank’s proof of claim filed on May 6, 2015, the bankruptcy court approved their Chapter 13 plan on October 5, 2015, and the Heaths made payments until the case was dismissed on February 19, 2016.

On summary judgment, it is the moving party’s initial burden to establish each and every element of its defense. Here, Bank relies upon the doctrine of judicial estoppel as applied by federal courts.

Judicial estoppel “ ‘is an equitable doctrine invoked by a court at its discretion.’ ” New Hampshire v. Maine, 532 U.S. 742, 750, 121 S.Ct. 1808, 149 L.Ed.2d 968 (2001), quoting Russell v. Rolfs, 893 F.2d 1033, 1037 (9th Cir.1990). In determining whether to apply the doctrine, we typically consider (1) whether a party’s later position is “clearly inconsistent” with its original position; (2) whether the party has successfully persuaded the court of the earlier position, and (3) whether allowing the inconsistent position would allow the party to “derive an unfair advantage or impose an unfair detriment on the opposing party.” Id. at 750–51, 121 S.Ct. 1808. In addition, we have held that judicial estoppel “seeks to prevent the deliberate manipulation of the courts,” and therefore should not apply “when a party’s prior position was based on inadvertence or mistake.” Helfand v. Gerson, 105 F.3d 530, 536 (9th Cir.1997) (emphasis added).

(U.S. v. Ibrahim (9th Cir. 2008) 522 F.3d 1003, 1009.)

There is a significant distinction between the doctrine of judicial estoppel applied by federal courts versus the same doctrine applied by California courts. Under the doctrine applied by California courts, the last element is that “the first position was not taken as a result of ignorance, fraud, or mistake.” (See Niederhauser, supra, 36 Cal.4th at p. 422.) Under the federal cases, the last element is, “the party to be estopped must have acted intentionally, not inadvertently.” (In re USInternetworking, Inc. (Bankr. D. Md. 2004) 310 B.R. 274, 281.) This distinction is not without a difference. Under the federal standard, this element can be satisfied if it is shown that the party to be estopped knew of his claim and had motive to conceal it. (Id. at p. 285.) This gives rise to an inference that the concealment was intentional. (See Barger v. City of Cartersville, Ga. (11th Cir. 2003) 348 F.3d 1289, 1294.)

In Kelsey v. Waste Management of Alameda County (1999) 76 Cal.App.4th 590 (Kelsey), the plaintiff filed an employment discrimination and emotional distress claim with the DFEH against his former employer in June 1996. One month later, in July 1996, the plaintiff filed for bankruptcy, but did not identify his discrimination claim as an asset or cause of action on his bankruptcy schedules. On April 2, 1997, the bankruptcy court confirmed the bankruptcy plan. Twenty days later on April 22, 1997, plaintiff filed the discrimination/ emotional distress action in court. The trial court granted summary judgment, in part, on the ground that plaintiff is judicially estopped.

The appellate court in Kelsey reversed. The court referenced the elements of judicial estoppel utilized in California. There was no dispute with regard to the first four elements. It was only the fifth element which was at issue, i.e., whether “the first position was not taken as a result of ignorance, fraud, or mistake.” (Kelsey, supra, 76 Cal.App.4th at p. 598 citing Jackson, supra, 60 Cal.App.4th at p. 183.) The employer defendant attempted to show that the plaintiff intentionally failed to list his claim by showing that plaintiff had “counsel during the bankruptcy proceedings, filed his bankruptcy one month after his DFEH claim, and asked for over $9 million in the instant lawsuit.” (Id. at p. 599.) Based on that evidence, the appellate court drew inferences in favor of the plaintiff rather than the defendant. The Kelsey court concluded by stating,

We draw all reasonable inferences from the evidence in favor of [plaintiff] Kelsey, and therefore infer that Kelsey’s failure to list his claim against Waste Management in his bankruptcy case was unintentional. [Citation.] Because Waste Management failed to provide evidence negating the possibility that Kelsey’s failure to list his claim against Waste Management in his bankruptcy schedules was the result of ignorance or mistake, it has not met its burden on summary judgment of showing that there is a complete defense to Kelsey’s causes of action.

(Id.)

Even if we assume that Waste Management met its initial burden on summary judgment, Kelsey clearly raised a triable issue of fact in his response to the summary judgment motion. He submitted a declaration stating that, when he was preparing to file for chapter 13 bankruptcy protection with the aid of his attorney, discussion of the DFEH charge against Waste Management did not arise, and he was unaware that he was required to disclose the charge with the bankruptcy court. Had he been aware, Kelsey avers, he would have disclosed it. We must accept these statements as true. [Citation.] Kelsey’s declaration thus shows that he was ignorant of the need to disclose the DFEH charge in his bankruptcy case, and raises a triable issue regarding Kelsey’s motives in failing to disclose his claim against Waste Management in his bankruptcy schedules. Because triable issues of fact exist regarding the defense of judicial estoppel, summary judgment was improper.

(Id. at pp. 599 – 600.)

Here, Bank has not met its initial burden because there is no evidence that the Heaths’ failure to list its claim in bankruptcy was not taken as a result of ignorance, fraud, or mistake. Even under the federal standard, Bank has not met its burden as there is no evidence that the Heaths’ failure to list its claim in bankruptcy was intentional, and not inadvertent.

2. Res Judicata.

Based on the same evidence cited above with regard to judicial estoppel, Bank also argues the Heaths’ claims are barred by the doctrine of res judicata. “Generally, four elements must be present in order to establish the defense of res judicata: (1) the parties were identical in the two actions; (2) the prior judgment was rendered by a court of competent jurisdiction; (3) there was a final judgment on the merits; and, (4) the same cause of action was involved in both cases.” (In re Heritage Hotel Partnership I (B.A.P. 9th Cir. 1993) 160 B.R. 374, 376–377 (Heritage).)

“It is now well-settled that a bankruptcy court’s confirmation order is a binding, final order, accorded full res judicata effect and precludes the raising of issues which could or should have been raised during the pendency of the case, such as typical lender liability causes of action.” (Id. at p. 377; emphasis added.)

Bank also cites Siegel v. Federal Home Loan Mortg. Corp. (9th Cir. 1998) 143 F.3d 525, 528–529 (Siegel) for its similar statement of the doctrine.

The “doctrine of res judicata bars a party from bringing a claim if a court of competent jurisdiction has rendered a final judgment on the merits of the claim in a previous action involving the same parties or their privies.” Robertson v. Isomedix, Inc. (In re Intl. Nutronics), 28 F.3d 965, 969 (9th Cir.1994). Thus, “ ‘[r]es judicata bars all grounds for recovery that could have been asserted, whether they were or not, in a prior suit between the same parties on the same cause of action.’ ” Id. (alteration in original) (citation omitted). That applies to matters decided in bankruptcy. See id.

In opposition, the Heaths draw a fine distinction in the application of the doctrine of res judicata specifically as to Chapter 13 bankruptcy petitions such as the .

a confirmed plan is binding on both the debtor and his or her creditors. The binding effect extends to all questions pertaining to the plan that were or could have been raised. (In re Enewally (9th Cir.2004) 368 F.3d 1165, 1172; In re Demarco (Bankr.M.D.Fla.2000) 258 B.R. 30, 34–35.) As the Court of Appeals for the Ninth Circuit explained in Enewally, “ ‘[O]nce a bankruptcy plan is confirmed, it is binding on all parties and all questions that could have been raised pertaining to the plan are entitled to res judicata effect.’ [Citation.]” (In re Enewally, supra, 368 F.3d at p. 1172; see In re Mansaray–Ruffin (3rd Cir.2008) 530 F.3d 230, 241.)

However, the res judicata effect of a confirmed chapter 13 plan is limited. … “Generally, [section] 1327(a) does provide a res judicata effect to the terms of a confirmed plan. [Citation.] This effect, however, is premised on the notion that the bankruptcy court has addressed in the confirmed plan and order only those issues that are properly within the scope of the confirmation hearing.” …

For example, a confirmed plan has no preclusive effect as to issues that must be brought by an adversary proceeding in the bankruptcy court. (See In re Enewally, supra, 368 F.3d at p. 1173 [“a Chapter 13 plan confirmed while an adversary proceeding was pending would not have res judicata effect on the adversary proceeding.”]; In re Summerville, supra, 361 B.R. at p. 141 [quoting Enewally]; In re Beard, supra, 112 B.R. at p. 956 [“If an issue must be raised through an adversary proceeding it is not part of the confirmation process and, unless it is actually litigated, confirmation will not have a preclusive effect.”].)

(Edwards v. Broadwater Casitas Care Center (2013) 221 Cal.App.4th 1300, 1306.)

In their opposition, the Heaths contend their claim(s), including fraud, “were not addressed by confirmation of the Plan and require adversary proceedings to litigate.” The point, however, that Bank raises and that the Heaths neglect to address is that while an adversary proceeding may have been required to litigate the fraud, it was incumbent upon the Heaths to commence such a proceeding during the pendency of their bankruptcy case as it was an issue which could and should have been raised. Res judicata acts to bar not only claims that were previously asserted but also those claims which could or should have been asserted. It is this court’s opinion that the facts here are more akin to Heritage and Siegel where claims that could have been raised, but were not, were thereby barred by res judicata.

Accordingly, defendant Bank’s motion for summary judgment is GRANTED.

Plaintiffs filed objections to defendant Bank’s evidence. Plaintiffs’ evidentiary objections fail to comply with California Rules of Court, rule 3.1354. For that reason alone, the court declines to rule on the Plaintiffs’ evidentiary objections. Moreover, the court did not rely on all of the evidence that Plaintiffs object to. “In granting or denying a motion for summary judgment or summary adjudication, the court need rule only on those objections to evidence that it deems material to its disposition of the motion. Objections to evidence that are not ruled on for purposes of the motion shall be preserved for appellate review.” (Code Civ. Proc., §437c, subd. (q).)