2012-00123676-CU-OR
Laurie McDonald vs. SD County Realty, Inc.
Nature of Proceeding: Hearing on Demurrer
Filed By: Rasmussen, Jeffrey
Defendant Bank of America’s Demurrer to Plaintiffs’ Second Amended Complaint is
SUSTAINED, without leave to amend.
The notice of motion does not provide notice of the Court’s tentative ruling system as
required by with C.R.C., Rule 3.1308 and Local Rule 1.06(D). Local Rules for the
Sacramento Superior Court are available on the Court’s website at
ordered to notify opposing party immediately of the tentative ruling system and to be
available at the hearing, in person or by telephone, in the event opposing party
appears without following the procedures set forth in Local Rule 1.06(B).
Plaintiffs’ Second Amended Complaint sets forth five causes of action against
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defendants: the 1 for Fraud – Intentional Misrepresentation, the 2 for Violation of
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Cal. Bus. & Prof. Code, sec. §17200 et seq., the 3 for Negligent Misrepresentation,
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the 4 for Intentional Infliction of Emotional Distress and the 5 for Wrongful
Foreclosure.
Plaintiffs’ action arises out of an alleged inducement by Bank to default on plaintiffs’
mortgage payments in 2011, in order to be considered for a loan modification. The
loan modification was denied and defendants instituted foreclosure proceedings. No
foreclosure sale has taken place.
Plaintiffs’ initial loan was obtained in 2007. In early 2011 Plaintiffs attempted to
refinance the loan. Plaintiffs allege that they discovered the fraud in 2011 at the time of
the refinance. Thereafter, Plaintiffs allege that a Bank representative induced them to
miss mortgage payments so they could be considered for a modification. Plaintiffs
allege they were told that missing the loan payments would have no negative effect on
their credit, but thereafter the bank took away their credit cards and removed their
“premier” status and plaintiff Laurie McDonald alleges that her business suffered as a
result. Plaintiffs were thereafter denied a loan modification. Subsequently, a notice of
default was issued.
Plaintiff Laurie McDonald filed for bankruptcy on May 26, 2011 and later on May 15,
2012.
Standing
Defendant demurs to the entire SAC on the grounds that plaintiff Laurie McDonald
lacks standing, because her claims alleged in this action belong to the Bankruptcy
Trustee.
After a person files for bankruptcy protection, any causes of action previously
possessed by that person become the property of the bankrupt estate. (See 11 U.S.C.
§ 541(a)(1) and 323) Cloud v. Northrop Grumman Corp. (1998) 67 Cal. App. 4th 995,
1001. A cause of action becomes property of the bankruptcy estate upon filing of the
petition, even if not listed on the schedules. Vertkin v. Wells Fargo Home Mortg., 2010
U.S. Dist. LEXIS 94105, 2010 WL 3619798 (N.D. Cal. Sept. 9, 2010) citing Sierra
Switchboard Co. v. Westinghouse Elec. Corp., 789 F.2d 705, 707 (9th Cir.1986)
(property of bankruptcy estate included claims asserted regarding wrongful
foreclosure). Plaintiff could theoretically regain its lost standing to pursue its claims
against defendants if its claims were abandoned by the bankruptcy trustee. Id., at
1003. Once the property is abandoned, it is excluded from the bankruptcy estate. (11
U.S.C. § 554(a), (b).) Upon abandonment, the property reverts to the party holding a
possessory interest and is treated as if no bankruptcy petition had been filed. The
property interest would then be restored to McDonald nunc pro tunc as of the filing of
the bankruptcy petition. (In re Kreisel, 399 BR 678, 679 (BC CD CA 2008); Catalano v.
CIR., 279 F.3d 682, 685 (9th Cir.2002).)
Nonetheless, Plaintiff’s claims involving the origination of the loan are claims that
belong to the bankruptcy trustee. Plaintiff Laurie McDonald did not list these claims in
her bankruptcy. Plaintiff has no standing to pursue these claims unless she receives
an abandonment of the claim by the bankruptcy trustee.
Despite the Court’s June 11, 2013 order stating the above sustaining the demurrer to
the First Amended Complaint, with leave to amend, plaintiffs’ SAC has not included
any allegations to cure this defect.
In opposition, Plaintiffs argues that their causes of action arose in “early 2011” after the
May 26, 2011 bankruptcy filing. However, even if the Court were to credit plaintiff’s
contention, this ignores her May 15, 2012 bankruptcy filing, which also failed to
disclose these claims.
Although plaintiff requests leave to amend, she has failed to explain why she did not
do so after the last demurrer was sustained.
The Court finds that the plaintiff Laurie McDonald lacks standing, and the demurrer to
the entire complaint as to Laurie McDonald is SUSTAINED.
Judicial Estoppel
Even if the bankruptcy trustee were to abandon these claims, Plaintiff is judicially
estopped from bringing them because they were never scheduled in the bankruptcy
court.
The implied representation that an asset does not exist (i.e., the omitted asset). . . may
be sufficiently material that the court cannot in good conscience permit the debtor to
take a contrary position in subsequent litigation.” Diamond Z Trailer, Inc. v. JZ LLC. (In
re JZ LLC), (B.A.P. 9th Cir. 2007) 371 B.R. 412, 421. Under California law, it is well-
settled that a failure to disclose the existence of lender liability claims requires
dismissal of those claims.
Plaintiffs were aware of the denial of their loan modification application before the
September 26, 2011 discharge in bankruptcy. (SAC, paras. 11-19). “Judicial estoppel
will be imposed when the debtor has knowledge of enough facts to know that a
potential cause of action exists during the pendency of the bankruptcy, but fails to
amend his schedules or disclosure statements to identify the cause of action as a
contingent asset.” Hamilton v. State Farm Fire & Cas. Co. (9th Cir. 2001) 270 F.3d
778, 784. “The debtor’s duty to disclose potential claims as assets does not end when
the debtor files schedules, but instead continues for the duration of the bankruptcy
proceeding.” Id. at 785.
Plaintiffs have failed to oppose this contention.
Statute of Frauds
All of plaintiffs’ claims are based on the allegation that the Bank orally instructed
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plaintiffs to default in order to receive a loan modification. The 1 , 2 and 3 causes
of action also rely on the allegation that the Bank representative orally stated that
plaintiffs’ credit would not be affected by defaulting. Each of these allegations is
barred by the statute of frauds.
The alleged promise for a loan modification is subject to the statute of frauds. Absent a
written agreement to modify the loan, any claim based upon an oral contract to modify
the loan is barred by the statute of frauds.” Clark v. Countrywide Home Loans, Inc.
(E.D.Cal. 2010) 732 F.Supp.2d 1038, 1043. Any claim based on an oral contract to
modify the loan is barred by the statute of frauds.
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Demurrer to the 1 for Fraud – Intentional Misrepresentation, is SUSTAINED, without
leave to amend. The representations by the Bank’s employee Lorraine that plaintiff’s
credit would not be affected by their failure to make mortgage payments, depends
upon a loan modification agreement, which was nothing more than an oral agreement,
barred by the statute of frauds.
Demurrer to the 2nd for Violation of Bus. & Prof. Code, sec. §17200 et seq. is
SUSTAINED, without leave to amend.
As the demurrer to the cause of action for fraud has been sustained, facts sufficient to
state a cause of action have not been alleged.
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Demurrer to the 3 for Negligent Misrepresentation is SUSTAINED, without leave to
amend.
As a general rule, a financial institution owes no duty of care to a borrower when the
institution’s involvement 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
Assn. (1991) 231 Cal. App. 3d 1089, 1096. In the absence of duty, no negligence can
be found.
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Demurrer to the 4 for Intentional Infliction of Emotional Distress is SUSTAINED,
without leave to amend.
The elements of a prima facie case for the tort of intentional infliction of emotional
distress are: (1) extreme and outrageous conduct by the defendant with the intention
of causing, or reckless disregard of the probability of causing, emotional distress; (2)
the plaintiff’s suffering severe or extreme emotional distress; and (3) the actual and
proximate causation of the emotional distress by the defendant’s outrageous
conduct.” (Cervantez v. J.C. Penney Company, Inc. (1979) 24 Cal.3d 579, 593.)
Conduct is only “extreme and outrageous” when it is “so extreme as to exceed all
bounds of that usually tolerated in a civilized community.” Davidson v. City of
Westminster,(1982) 32 Cal. 3d 197. The Court may, as a threshold matter, determine
whether the alleged conduct rises to the level of “extreme and outrageous.”
Here, plaintiff alleges matters that directly implicate lending related activities: that
BANA assured him that he would suffer no adverse consequences if he stopped
making payments on his loan. Plaintiff alleges he is now in foreclosure as a result of
BANA’s misrepresentations. The Court cannot conclude that these allegations, as
presently pled, suffice to overcome BANA’s demurrer. The allegations of Bank of
America’s conduct are not sufficiently specific or “outrageous” to state a cause of
action.
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Demurrer to the 5 for Wrongful Foreclosure is SUSTAINED, without leave to amend.
This cause of action is also barred by the statute of frauds, as set forth above.
The prevailing party shall prepare a formal order for the Court’s signature pursuant to
C.R.C. 3.1312.
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