Filed 10/4/19 Armstrong v. U.S. Bank, N.A. CA6

NOT TO BE PUBLISHED IN OFFICIAL REPORTS

California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

SIXTH APPELLATE DISTRICT

DONALD STEWART ARMSTRONG,

Plaintiff and Appellant,

v.

U.S. BANK, N.A., as Trustee,

Defendant and Respondent.

H045590

(Monterey County

Super. Ct. No. 17CV00854)

This action concerns a 2004 loan secured by a deed of trust obtained by the borrower/trustor/former owner, Cindy Ikeoka (Ikeoka), encumbering certain property located on Aguajito Road, Carmel Area, in Monterey County (the Property). After Ikeoka defaulted on the obligation, the Property was sold through nonjudicial foreclosure (trustee’s sale) in March 2017. The buyer at the trustee’s sale—Chevy Chase Funding LLC Mortgage Backed Certificates Series 2005-1 (hereafter CC Funding)—was the purported beneficiary under the deed of trust, through assignment. U.S. Bank, N.A. (U.S. Bank), is the trustee of CC Funding.

In March 2017, Donald Stewart Armstrong (Armstrong), who had purchased the Property from Ikeoka prior to the trustee’s sale, filed suit against CC Funding. Armstrong thereafter filed a first amended complaint (Complaint). As presented in the Complaint’s caption, Armstrong alleged four claims, namely, causes of action for wrongful foreclosure, cancellation of instruments, violation of Business and Professions Code section 17200, and quiet title. In July 2017, CC Funding, through the Bank as its trustee, filed a demurrer to the Complaint. (Hereafter, we refer to the party to this litigation, CC Funding, through U.S. Bank as its trustee, as defendant.) The trial court sustained defendant’s demurrer to the Complaint without leave to amend as to three of the four claims, overruling the demurrer as to the cancellation of instruments claim. In November 2017, defendant filed a motion for judgment on the pleadings (hereafter sometimes referred to as the motion), directed to the remaining cancellation of instruments claim in the Complaint. The court granted defendant’s motion without leave to amend, and Armstrong filed a timely appeal.

We conclude that the court did not err in granting the motion for judgment on the pleadings. We conclude, however, that the court should have granted leave to amend. We will therefore reverse the judgment.

I. FACTS

Since a motion for judgment on the pleadings addresses the factual allegations of the pleading and searches for defects only disclosed from those allegations or from matters of which judicial notice may be taken (Cloud v. Northrop Grumman Corp (1998) 67 Cal.App.4th 995, 999 (Cloud)), we identify the facts here as those contained in Armstrong’s Complaint which included as attachments the documents referenced in the allegations of that pleading. (See Ingram v. Flippo (1999) 74 Cal.App.4th 1280, 1285, fn. 3 [judicial notice of documents referred to extensively in complaint is appropriate on demurrer].)

A. First Amended Complaint

After initiating this action against defendant on March 9, 2017, Armstrong filed the (First Amended) Complaint on May 11, 2017. As presented in the Complaint’s caption, Armstrong alleged claims for “1. wrongful foreclosure; 2. cancellation of instruments; 3. violations of California Business and Professions Code § 17200; and 4. quiet title.” (Capitalization omitted.) The essential allegations of the Complaint are described below.

Armstrong alleged that he formerly owned the Property, having purchased it as reflected by a grant deed recorded December 10, 2014. When he acquired it, the Property was encumbered by a deed of trust recorded July 2, 2004. Under the deed of trust, Ikeoka (Armstrong’s predecessor in interest) was the trustor, Chevy Chase Bank, FSB (CC Bank) was lender and trustee, and Mortgage Electronic Registration Systems, Inc. (MERS) was CC Bank’s nominee and beneficiary. The deed of trust was a security instrument for a loan evidenced by a promissory note signed by the borrower, Ikeoka, dated June 28, 2004, in the principal amount of $1,470,000.

In 2008, Ikeola began to have difficulty making her monthly payments under the deed of trust. She attempted unsuccessfully to renegotiated the terms of her loan. After making a loan payment of $13,686 in September 2008 to bring her loan current—which was made based upon the belief that CC Bank would then renegotiate the loan—CC Bank recorded a notice of default shortly thereafter. In May 2009, Ikeola received a debt validation notice identifying the indebtedness as being “owed to ‘[MERS] as Nominee for U.S. Bank as Trustee for CCB Libor Series 2005-1.’ ”

In or about July 2009, Capital One, N.A. acquired certain assets from CC Bank, which was failing, and Ikeola received a notice that servicing rights had been transferred to Capital One, N.A. In March 2010, after CC Bank was no longer in existence, MERS, acting as CC Bank’s nominee, assigned all beneficial interest in the deed of trust to U.S. Bank as Trustee for CCB Libor Series 2005-1 Trust (CCB Libor Trust). Armstrong alleged in the Complaint that “this was a post-closing assignment of interest in a closed trust pool and as such, was void . . . [and] this purported transfer expressly violated the Pooling and Servicing Agreement (‘PSA’) governing the Trust Pool,” and thus violated certain provisions of the Internal Revenue Code. In April 2010, CCB Libor Trust filed a proof of claim in the United States Bankruptcy Court in a proceeding in which Ikeoka was the debtor; in that proof of claim, Ikeoka’s creditor under the subject deed of trust was identified as “US Bank, NA as trustee for CCB Libor Series 2005-1 Trust.” And more than one year later, in July 2011, MERS recorded a “ ‘Corrective’ Assignment of Deed of Trust” (hereafter the Corrective Assignment), under which MERS, through a purported correction to the March 2010 Assignment of Deed of Trust, identified the assignee as “US Bank, NA as trustee [for] Chevy Chase Funding LLC Mortgage Backed Certificates Series 2005-1” (defendant herein). Armstrong alleged that the Corrective Assignment was “completely void” because it was “not merely a correction of the ‘full Assignee name’ but an attempt to substitute in a completely different Trust Pool by a party [MERS] who no longer held any beneficial interest in the Deed of Trust.”

Armstrong alleged further that despite the absence of a valid transfer of a beneficial interest in the deed of trust, U.S. Bank, as trustee of CC Funding, “proceeded to initiate wrongful and unauthorized foreclosure proceedings against the Subject Property.” U.S. Bank did so by recording a notice of trustee’s sale on behalf of CC Funding and completed the foreclosure sale in 2016. Armstrong alleged that the foreclosure “was unlawful and initiated against [sic] by parties who did not hold have [sic] standing to foreclose.” As a result, Armstrong sought relief “of actual and punitive damages, and a rescission of the [foreclosure] sale.”

Although the caption of the Complaint listed four causes of action, only three were alleged in the text of the pleading. The first cause of action was one for wrongful foreclosure, based upon its initiation by “entities [not] authorized to invoke the power of sale under [the] Deed of Trust,” and because defendant did not possess the original note. Armstrong alleged as a second cause of action that defendant “committed an unfair business practice [under Bus. and Prof. Code, § 17200] by holding itself out to be the owner of [the] loan” while there were “serious questions relating to the standing of [CC Funding] to foreclose[] on the Subject Property” due to uncertainty as to the identity of the owner of the loan. In the third cause of action, Armstrong alleged that “[b]y attempting to claim title to the Subject Property through illegal foreclosure, [d]efendant is asserting a claim of title that is adverse to [Armstrong’s] ownership interest in the Subject Property.” Armstrong therefore sought a determination of title in the Property as against all adverse claims to it.

B. Demurrer to First Amended Complaint

Defendant filed a demurrer to the Complaint on July 14, 2017. Citing Code of Civil Procedure section 430.10, subdivision (e), defendant argued that the Complaint failed to state facts sufficient to constitute a cause of action for wrongful foreclosure, violation of Business and Professions Code section 17200, and quiet title. Defendant did not address in its demurrer the claim for cancellation of instruments. Armstrong opposed the demurrer. The court sustained the demurrer without leave to amend as to the first (wrongful foreclosure), third (violations of Business and Professions Code section 17200), and fourth causes of action (quiet title), and it overruled the demurrer as to the second cause of action (cancellation of instruments).

C. Judgment on the Pleadings

After filing an answer, on October 20, 2017, defendant filed a motion for judgment on the pleadings under section 438. It asserted that Armstrong had failed in the Complaint to state a cause of action for cancellation of instruments because (1) he did not plead the necessary elements, (2) he failed to plead facts sufficient to constitute a cause of action, and (3) in any event, cancellation of instruments is a remedy and Armstrong failed to plead a factual or legal basis for such relief.

Armstrong opposed the motion. He contended that defendant’s motion should not be considered because it was actually a motion for reconsideration that was untimely. Armstrong asserted further that the Complaint had alleged sufficient facts to support a claim for cancellation of instruments based upon factual allegations in the pleading that (1) called into question whether CC Funding had standing to foreclose because it may not have held a beneficial interest in the deed of trust at the time of foreclosure, and (2) CC Funding did not have possession of the original note at the time of foreclosure.

Armstrong filed concurrently with his opposition a motion for leave to file second amended complaint. He asserted that the amendment was prompted by matters learned in discovery to the effect that “Defendants have now admitted that they have no evidence that they possessed the original wet-ink NOTE on the date of the foreclosure sale, because, in fact, they were not the beneficiary at that time, if they ever were.” The proposed amended pleading also named Ikeoka, whom Armstrong identified as his “life-partner” and a beneficiary of his trust, as a plaintiff. In addition to including allegations naming Ikeola as a plaintiff and concerning defendant’s having not possessed the original note at the time of foreclosure, Armstrong alleged in the prayer of the proposed second amended complaint that plaintiffs were seeking a cancellation of the trustee’s deed upon foreclosure sale recorded March 20, 2017.

After hearing argument, on December 1, 2017, the court granted the motion for judgment on the pleadings and denied leave to amend. A formal order was filed December 29, 2017. A judgment of dismissal was entered in favor of the Bank on January 30, 2018. Armstrong filed a timely notice of appeal.

II. DISCUSSION

A. Motions for Judgment on the Pleadings

“A trial court’s determination of a motion for judgment on the pleadings accepts as true the factual allegations that the plaintiff makes. [Citations.] In addition, it gives them a liberal construction.” (Gerawan Farming, Inc. v. Lyons (2000) 24 Cal.4th 468, 515-516 (Gerawan Farming).) The motion “performs the same function as a general demurrer, and hence attacks only defects disclosed on the face of the pleadings or by matters that can be judicially noticed. [Citations.]” (Cloud, supra, 67 Cal.App.4th at p. 999.)

Because the trial court determines as a matter of law whether a pleading is vulnerable to a motion for judgment on the pleadings, “ ‘we review the ruling de novo, assuming the truth of all material facts properly pled.’ [Citation.]” (Angelucci v. Century Supper Club (2007) 41 Cal.4th 160, 166; see also Gerawan Farming, supra, 24 Cal.4th at p. 515.) An appellate court will affirm the granting of a motion for judgment on the pleadings if it was correct on any legal basis, irrespective of the correctness of the trial court’s rationale. (Stevenson Real Estate Services, Inc. v. CB Richard Ellis Real Estate Services, Inc. (2006) 138 Cal.App.4th 1215, 1220.)

In determining whether leave to amend should have been granted where a pleading is vulnerable to a motion for judgment on the pleadings, we assess “whether the defect can reasonably be cured by amendment.” (Schonfeldt v. State of California (1998) 61 Cal.App.4th 1462, 1465 (Schonfeldt).) We review for abuse of discretion the trial court’s determination as to whether the plaintiff has shown a reasonable possibility that the complaint may be amended to cure the defect exposed by the motion for judgment on the pleadings. (Mendoza v. Rast Produce Co., Inc. (2006) 140 Cal.App.4th 1395, 1402 (Mendoza).) “The burden of proof is squarely on the plaintiff” to establish error in the denial of leave to amend. (Baughman v. State of California (1995) 38 Cal.App.4th 182, 187.)

B. No Error in Granting of Judgment on the Pleadings

On appeal, Armstrong contends that the court erred in granting the motion for judgment on the pleadings on the Complaint. He raises two arguments, one procedural and the other substantive. Neither is persuasive.

1. Motion Not Precluded Under Section 1008

Armstrong contends—as he argued below—that defendant’s motion for judgment on the pleadings was a disguised motion for reconsideration of the court’s prior order, wherein it had overruled the demurrer to the Complaint as to the second cause of action for cancellation of instruments. Because, Armstrong argues, the motion for reconsideration was not brought within 10 days after service of notice of the prior order on demurrer as required under section 1008, subdivision (a), it could not be considered by the court.

Section 1008, subdivision (b) provides: “A party who originally made an application for an order which was refused in whole or part, or granted conditionally or on terms, may make a subsequent application for the same order upon new or different facts, circumstances, or law, in which case it shall be shown by affidavit what application was made before, when and to what judge, what order or decisions were made, and what new or different facts, circumstances, or law are claimed to be shown. For a failure to comply with this subdivision, any order made on a subsequent application may be revoked or set aside on ex parte motion.” “The overriding purpose of Code of Civil Procedure section 1008 is to prevent duplicative motions. [Citation.]” (UAS Management, Inc. v. Mater Misericordiae Hospital (2008) 169 Cal.App.4th 357, 367 (UAS Management).)

The court below, in ruling on the merits of the motion, impliedly found that the motion for judgment on the pleadings was not a disguised, untimely motion for reconsideration. This implied conclusion was not erroneous, because (1) the Complaint contained no allegations at all concerning a claim for cancellation of instruments; (2) the Complaint, while mentioning in the caption “2. cancellation of instruments” (capitalization omitted), did not contain a second cause of action for cancellation of instruments in the body of the pleading (but instead, pleaded as the second cause of action a claim based on violation of Business and Professions Code section 17200); (3) defendant’s demurrer to the Complaint did not separately address a purported cancellation of instruments claim; (4) defendant, as explained in its motion, only addressed in its demurrer the three causes of action alleged in the body of the Complaint and “surmised that the Cancellation of Instruments cause of action was inadvertently included in the [Complaint’s] caption due to a drafting error”; and (5) as argued by defendant below, prior to the filing of the motion for judgment on the pleadings, the trial “[c]ourt ha[d] not yet had an opportunity to rule on the merits of the cancellation cause of action.” Simply stated, the motion was not a “duplicative motion[]” of the kind section 1008 was intended to prevent. (UAS Management, supra, 169 Cal.App.4th at p. 367.) The court below therefore did not err in impliedly concluding that the motion for judgment on the pleadings was not an untimely motion for reconsideration barred under section 1008.

2. Complaint Failed to State Cause of Action

Defendant asserted in its motion for judgment on the pleadings that Armstrong had failed to state facts sufficient to constitute a cause of action for cancellation of instruments. Defendant argued that the Complaint “[did] not contain a single allegation relating to cancellation,” and “[i]n fact, [d]efendant cannot even surmise which instruments [Armstrong] is seeking to cancel.” (Original italics.) Defendant’s position below was well-taken.

Civil Code section 3412 provides that “[a] written instrument, in respect to which there is a reasonable apprehension that if left outstanding it may cause serious injury to a person against whom it is void or voidable, may, upon his application, be so adjudged, and ordered to be delivered up or canceled.” In order to prosecute successfully a claim for cancellation of an instrument, the plaintiff must plead and prove “ ‘(1) the instrument is void or voidable due to, for example, fraud; and (2) there is a reasonable apprehension of serious injury including pecuniary loss or the prejudicial alteration of one’s position. [Citation.]’ [Citation.]” (Thompson v. Ioane (2017) 11 Cal.App.5th 1180, 1194 (Thompson).) For cancellation, the “plaintiff must allege, inter alia, facts showing actual invalidity of the apparently valid instrument or piece of evidence.” (Wolfe v. Lipsy (1985) 163 Cal.App.3d 633, 638 (Wolfe), disapproved on other grounds in Droeger v. Friedman, Sloan & Ross (1991) 54 Cal.3d 26, 35-36.)

As correctly noted by defendant, the Complaint contained no allegations whatsoever regarding a cancellation of instruments claim. And while Armstrong identified generally in the Complaint at least six instruments—the promissory note, the deed of trust, the debt validation notice, the assignment of deed of trust, the correction of assignment of deed of trust, and the trustee’s deed upon sale—he failed to identify in the Complaint which instrument or instruments should be ordered canceled by the court. Having failed to identify the instrument Armstrong contends to be void or voidable and thus subject to cancellation (see Thompson, supra, 11 Cal.App.5th at pp. 1193-1194), the Complaint failed to state facts sufficient to constitute a cause of action. Thus, the court did not err in granting judgment on the pleadings.

C. Court’s Denial of Leave to Amend Was an Abuse of Discretion

Although Armstrong urges that he made a sufficient showing below that the Complaint was not subject to the motion for judgment on the pleadings, he asserts further that he sought leave below to file a second amended complaint “to more fully flesh out the facts and allegations for the Cause of Action for Cancellation of Instruments.” And Armstrong contends that the court’s denial of leave to amend constituted an abuse of discretion.

Defendant responds that the grounds for Armstrong’s request for leave to file a second amended complaint “consisted of the same recycled facts and arguments set forth in the [Complaint].” Defendant contends further that the cancellation of instruments claim “is a remedy that must be yoked to a cause of action creating a basis for liability, and [Armstrong] did not have a single surviving cause of action” as result of the trial court’s ruling on the demurrer to the Complaint. We conclude for the reasons stated below that Armstrong should have been granted leave to amend.

As noted above, a plaintiff alleging a claim for cancellation of instruments must plead and prove “ ‘(1) the instrument is void or voidable . . . ; and (2) there is a reasonable apprehension of serious injury including pecuniary loss or the prejudicial alteration of one’s position. [Citation.]’ [Citation.]” (Thompson, supra, 11 Cal.App.5th at p. 1194.) As to the first element, Armstrong identified in the proposed second amended complaint that the “instrument” he claimed to be void was the trustee’s deed upon sale. As to the second aspect of the first element, Armstrong, in order to demonstrate that he should have been granted leave to amend, needed to make a showing that he could reasonably cure the defect in the Complaint (Schonfeldt, supra, 61 Cal.App.4th at p. 1465) by alleging “facts showing actual invalidity of the apparently valid instrument.” (Wolfe, supra, 163 Cal.App.3d at p. 638.) Armstrong argued below and argues on appeal that the foreclosure was invalid and hence the trustee’s deed upon sale was void because (1) the party foreclosing and making the credit bid to purchase the property was not in fact the beneficiary; and (2) the foreclosing party did not have possession of the original promissory note at the time of foreclosure. We address Armstrong’s first argument here, which is dispositive.

“There are three parties in the typical deed of trust: the trustor (debtor), the beneficiary (lender), and the trustee. [Citation.] The trustee holds a power of sale. If the debtor defaults on the loan, the beneficiary may demand that the trustee conduct a nonjudicial foreclosure sale. [Citation.] . . . [¶] Civil Code sections 2924 through 2924k . . . govern nonjudicial foreclosure sales pursuant to a power of sale contained in a deed of trust.” (Biancalana v. T.D. Service Co. (2013) 56 Cal.4th 807, 813-814.) Although it is the trustee that takes the steps to proceed with a nonjudicial foreclosure, it “may take these steps only at the direction of the person or entity that currently holds the note and the beneficial interest under the deed of trust—the original beneficiary or its assignee—or that entity’s agent. [Citations.]” (Yvanova v. New Century Mortgage Corp. (2016) 62 Cal.4th 919, 927, fn. omitted (Yvanova).) And under Civil Code 2924h, subdivision (b), the beneficiary under a deed of trust or its assignee is entitled to make a credit bid at the trustee’s sale up to the amount of the debt owed. (Kalnoki v. First American Trustee Servicing Solutions, LLC (2017) 8 Cal.App.5th 23, 45.)

As the California Supreme Court recently explained, “A beneficiary or trustee under a deed of trust who conducts an illegal, fraudulent or willfully oppressive sale of property may be liable to the borrower for wrongful foreclosure. [Citations.] A foreclosure initiated by one with no authority to do so is wrongful for purposes of such an action. [Citations.] . . . [O]nly the original beneficiary, its assignee or an agent of one of these has the authority to instruct the trustee to initiate and complete a nonjudicial foreclosure sale.” (Yvanova, supra, 62 Cal.4th at p. 929, fn. omitted.) An allegation that the party claiming to be the beneficiary and that directed the foreclosure sale was not beneficiary of record supports a claim that the foreclosure sale was void. (Sciarratta v. U.S. Bank National Association (2016) 247 Cal.App.4th 552, 563-564 (Sciarratta); see also Dimock v. Emerald Properties LLC (2000) 81 Cal.App.4th 868, 874-876 [because only the current trustee is authorized to proceed with trustee’s sale, foreclosure was void where conducted by former trustee after successor trustee was substituted].) And the Supreme Court held in Yvanova that a borrower has standing to sue to challenge an illegal foreclosure due to a void assignment. (Yvanova, supra, at pp. 929-938.)

In Sciarratta, the borrower challenged the trustee’s sale in which the purported beneficiary through assignment, Bank of America, acquired the property through a credit bid. (Sciarratta, supra, 247 Cal.App.4th at p. 558.) The plaintiff alleged that the foreclosure sale was void, inter alia, because the purported beneficiary through assignment that made a credit bid was not the beneficiary. (Id. at pp. 558-559.) In fact, as the appellate court noted, the beneficiary of record at the time of foreclosure was Deutsche Bank National Trust Company, as trustee for Long Beach Mortgage Loan Trust 2006–6 (Deutsche Bank). (Id. at p. 556.) As explained by the court, (1) the original lender/beneficiary under the June 2005 notes and deed of trust was Washington Mutual Bank, F.A. (WaMu); (2) on April 27, 2009, JPMorgan Chase Bank, N.A. (Chase), as successor in interest to WaMu, assigned the deed of trust and promissory notes to Deutsche Bank; (3) on November 9, 2009, Chase, as successor in interest to WaMu, recorded an assignment in which it purportedly assign the deed of trust and notes to Bank of America; (4) on the same day, the trustee recorded a trustee’s deed upon sale identifying Bank of America as the foreclosing beneficiary taking title through a credit bid; and (5) in December 2009, Chase filed a “ ‘[c]orrective’ [a]ssignment” indicating that it was recorded to correct the name of the assignee from the April 27, 2009 to be Bank of America. (Id. at pp. 556-558.) Based upon these facts, the appellate court held that the plaintiff-borrower had alleged sufficient facts to support the claim that the “ ‘[c]orrective’ [a]ssignment” was void and that the purported beneficiary foreclosing on the property had no authority to do so. (Id. at pp. 562-564.)

Sciarratta is instructive, as the circumstances are analogous to those alleged here by Armstrong. Armstrong has alleged in his Complaint (and in his proposed second amended complaint) facts that, if proved, would support a claim that the foreclosure sale was unlawful because the purported foreclosing beneficiary taking title through a credit bid—CC Funding (Chevy Chase Funding LLC Mortgage Backed Certificates Series 2005-1, through its trustee, U.S. Bank)—was not the current beneficiary. Instead, the true beneficiary at the time, according to the allegations of the Complaint, was CCB Libor Trust (CCB Libor Series 2005-1 Trust, through its trustee, U.S. Bank). The relevant chronology, based upon the allegations in the Complaint, is as follows: (1) in July 2004, the deed of trust was recorded identifying Ikeoka as trustor, CC Bank as trustee and lender, and MERS as nominee and beneficiary; (2) in March 2010, MERS recorded an assignment in which it assigned all beneficial interest in the deed of trust to U.S. Bank as trustee for CCB Libor Trust; (3) in July 2011, MERS recorded the Corrective Assignment, under which MERS purportedly corrected the March 2010 assignment of deed of trust by identifying the assignee as defendant herein (CC Funding, through its trustee, U.S. Bank), and (4) CC Funding, through its trustee, U.S. Bank, commenced foreclosure proceedings and completed the foreclosure sale, but it did not have standing to foreclose on the Property. Armstrong alleged that the Corrective Assignment was “completely void” because it was “not merely a correction of the ‘full Assignee name’ but an attempt to substitute in a completely different Trust Pool by a party [MERS] who no longer held any beneficial interest in the Deed of Trust.”

Having shown that he could plead facts showing that the instrument (trustee’s deed upon sale) was void, Armstrong was also required to plead the second element of a cancellation of instruments claim, namely, “ ‘reasonable apprehension of serious injury including pecuniary loss or the prejudicial alteration of one’s position. [Citation.]’ [Citation.]” (Thompson, supra, 11 Cal.App.5th at p. 1194.) The record shows that Armstrong could satisfy this pleading requirement.

The appellate court in Sciarratta addressed the nature of harm required to be proved by a trustor whose property is lost through a wrongful foreclosure. The appellate court framed the issue as follows: “Where a homeowner alleges foreclosure by one with no right to do so, do such allegations alone establish the requisite prejudice or harm necessary to state a cause of action for wrongful foreclosure? Or instead, to adequately plead prejudice, does the plaintiff-homeowner have to allege the wrongful foreclosure interfered with his or her ability to pay on the debt, or lead to a foreclosure that would not have otherwise occurred?” (Sciarratta, supra, 247 Cal.App.4th at p. 555.) The court concluded the borrower need not allege prejudice or harm other than the wrongful foreclosure itself. (Id. at p. 565.) Relying on Yvanova, supra, 62 Cal.4th at page 937, the Sciarratta court reasoned as follows: “A homeowner experiences prejudice or harm when an entity with no interest in the debt forecloses. When a non-debtholder forecloses, a homeowner is harmed because he or she has lost her home to an entity with no legal right to take it. If not for the void assignment, the incorrect entity would not have pursued a wrongful foreclosure. Therefore, the void assignment is the cause in fact of the homeowner’s injury and all he or she is required to allege on the element of prejudice. The critical issue is not the plaintiff’s ability to pay, but rather whether the defendant’s conduct resulted in the plaintiff’s harm; i.e., a foreclosure that was wrongful because it was initiated by a person or entity having no legal right to do so; i.e. holding void title.” (Sciarratta, supra, at pp. 565-566.)

Armstrong, through the loss of his interest in the Property through a foreclosure that he alleges to have been invalid, has shown that he can allege “ ‘reasonable apprehension of serious injury including pecuniary loss or the prejudicial alteration of one’s position. [Citation.]’ [Citation.]” (Thompson, supra, 11 Cal.App.5th at p. 1194.) As successor-in-interest to Ikeoka, the prior owner of the Property, he had standing to assert such claim. (See Munger v. Moore (1970) 11 Cal.App.3d 1, 7-8.)

The court accepts the factual allegations in the pleading challenged by motion for judgment on the pleadings as true and it liberally construes those factual allegations. (Gerawan Farming, supra, 24 Cal.4th at p. 515-516.) From the allegations in the Complaint, and the allegations in the proposed second amended complaint identifying the instrument sought to be cancelled, Armstrong has shown that he can allege facts sufficient to support a claim based upon cancellation of instruments based upon the voidness of an apparently valid instrument (Wolfe, supra, 163 Cal.App.3d at p. 638), and “ ‘a reasonable apprehension of serious injury including pecuniary loss or the prejudicial alteration of one’s position. [Citation.]’ [Citation.]” (Thompson, supra, 11 Cal.App.5th at p. 1194.) The record therefore showed that he could amend the Complaint to allege a cause of action for cancellation of instruments. (See Glaski v. Bank of America (2013) 218 Cal.App.4th 1079, 1101 [borrower stated viable claim for cancellation of instruments based upon allegations of unlawful foreclosure based upon void sale].)

“[I]t is an abuse of discretion to grant a motion for judgment on the pleadings without leave to amend ‘ “if there is any reasonable possibility that the plaintiff can state a good cause of action.” ’ [Citations.]” (Dudley v. Department of Transp. (2001) 90 Cal.App.4th 255, 260.) Armstrong, as plaintiff bearing the burden of showing a reasonable possibility that the complaint could be amended to cure the defect exposed by the motion for judgment on the pleadings (Mendoza, supra, 140 Cal.App.4th at p. 1402), satisfied his burden. The court erred in denying leave to amend. In so concluding, we express no opinion concerning the merits of his claim for cancellation of instruments. (See Alcorn v. Anbro Engineering, Inc. (1970) 2 Cal.3d 493, 496 [appellate court in reviewing propriety of the sustaining of a demurrer without leave to amend is not concerned with whether plaintiff ultimately will be able to prove the pleading’s allegations].)

IV. DISPOSITION

The judgment entered on the order granting judgment on the pleadings is reversed. The parties shall bear his/its own respective costs on appeal.

___________________________________________ BAMATTRE-MANOUKIAN, J.

WE CONCUR:

__________________________

ELIA, ACTING P.J.

__________________________

MIHARA, J.

Armstrong v. U.S. Bank, N.A., as Trustee

H045590