2013-00146654-CU-OR

Russell A Bundick vs. Penny Mac Loan Services LLC

Nature of Proceeding:    Hearing on Demurrer to First Amended Complaint

Filed By:   Baumgartner, Craig N.

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

Defendant PennyMac Loan Services, LLC’s (“PennyMac”) demurrer to Plaintiff Russell
A. Bundick’s (“Bundick”) first amended complaint (“FAC”) is SUSTAINED as follows:

Overview

This is a nonjudicial foreclosure case.  While Bundick’s loan was active, PennyMac
allegedly acted as loan servicer for a period that included the nonjudicial foreclosure
process.  Bundick alleges that he fell behind on his payments and, despite his efforts
to obtain a loan modification, the home was sold at a trustee’s sale.

The FAC contains three causes of action for breach of the implied covenant of good
faith and fair dealing, wrongful foreclosure and negligence.  PennyMac demurs to each
cause of action on grounds that the allegations do to state a valid cause of action.

Previously, the court sustained PennyMac’s demurrer to the original complaint and
granted Bundick leave to amend.  The first demurrer was effectively unopposed.  The
allegations directed at PennyMac in the FAC are almost identical to those in the
original complaint.

Discussion

Res Judicata and Collateral Estoppel First, PennyMac notes that former Co-Defendant DEG Equities, LLC prevailed in its
unlawful detainer action against Bundick.  Observing that unlawful detainer judgments
can support defenses based on res judicata and collateral estoppel, PennyMac argues
that “to the extent” and “inasmuch as” the FAC challenges the validity of the trustee’s
sale of Bundick’s home, (see Moving Memo. at 5:20, 7:6), the unlawful detainer
judgment bars those “claims.”  ( Id. at 5:22; see also Reply at 1:23-25.)

The court rejects PennyMac’s argument because it is unclear whether PennyMac
contends that one or more complete causes of action are barred.  PennyMac’s failure
to clarify its argument is critical because the court may only sustain a demurrer if it
disposes of an entire cause of action; the motion to strike is the proper vehicle to
attack less than an entire cause of action.  (See, e.g., PH II, Inc. v. Superior Court
th
(1995) 33 Cal.App.4   1680, 1682 [citation omitted].)  Although PennyMac contends
that each of Bundick’s “claims” is “based on” the sale of his home at foreclosure,
(Moving Memo. at 6:21-22), PennyMac does not appear to argue that Bundick’s
causes of action are based solely on that sale.  Because it is unclear whether
PennyMac even argues that res judicata and collateral estoppel dispose of an entire
cause of action, the court will not sustain any demurrer based on those doctrines.

In rejecting res judicata and collateral estoppel as bases upon which to sustain the
demurrer, the court further notes that PennyMac has not adequately addressed all of
the relevant legal standards.  As PennyMac observes, the unlawful detainer judgment
was entered after Bundick defaulted.  The rule of collateral estoppel following entry of
default judgment is the following:

“A default judgment conclusively establishes, between the parties so far
as subsequent proceedings on a different cause of action are concerned,
the truth of all material allegations contained in the complaint in the first
action, and every fact necessary to uphold the default judgment; but such
judgment is not conclusive as to any defense or issue which was not
raised and is not necessary to uphold the judgment.”

(Four Star Electric, Inc. v. F & H Constr. (App. 3 Dist. 1992) 7 Cal.App.4th 1375, 1380
[citation and brackets omitted].)  As moving party, PennyMac was required to
demonstrate that the FAC does not raise any issues or defenses that were not raised
and necessarily decided in the unlawful detainer case.  (See  Vella v. Hudgins (1977)
20 Cal.3d 251, 257 [“The burden of proving that the requirements for application of res
judicata have been met is upon the party seeking to assert it as a bar or estoppel”]
[citations omitted].)  The court will not undertake that analysis in the first instance and
thus rejects PennyMac’s first argument for this additional reason.

The court finds that PennyMac’s citation to  Vella, supra, 20 Cal.3d 251, 256, does not
alter the analysis.  That case only involved the issue of fraud, which is not an issue
here, and the high court concluded that res judicata and collateral estoppel did not
th
apply.  Malkoskie v. Option One Mortgage Corp. (2010) 188 Cal.App.4   968, is not
determinative either.  The question there was whether an unlawful detainer action bars
subsequent causes of action based on allegations of an irregular trustee’s sale. The
conduct of the sale itself is not the sole basis for any of Bundick’s causes of action.

The First Cause of Action for Breach of the Implied Covenant of Good Faith and
Fair Dealing
The demurrer is SUSTAINED with leave to amend.

Bundick’s allegations are insufficient because he has not alleged facts establishing any
contractual relationship with PennyMac.  Bundick asserts that he can remedy this
defect by alleging an implied contractual relationship.  Accordingly, the court grants
Bundick leave to amend.

The court does not address the parties’ additional arguments in support of and in
opposition to the demurrer to the first cause of action.

The Second Cause of Action for Wrongful Foreclosure

The demurrer is SUSTAINED.

When the court granted Bundick leave to amend the complaint, it did not grant leave to
add new causes of action, including the second cause of action for wrongful
foreclosure.  If Bundick wishes to add this or any other new cause of action, he must
do so after obtaining leave to amend pursuant to CRC 3.1324.  Because Bundick did
not move for or obtain leave of court to add his second cause of action to the FAC, this
cause of action is not properly before the court.

The Third Cause of Action for Negligence

The demurrer is SUSTAINED without leave to amend.

As PennyMac points out, loan servicers generally do not owe borrowers tort duties of
care.  (See Moving Memo. at 14:2-7.)  Furthermore, although it is conceivable that
such duties could arise if the servicer went beyond its traditional role as such, Bundick
does not allege that PennyMac went beyond its traditional role as loan servicer, nor
does he assert that he can allege such facts in a second amended complaint (“SAC”).
Bundick having failed to demonstrate the likelihood that he will be able to state a valid
negligence cause of action against PennyMac, the court sustains the demurrer without
leave to amend.  (See Schifando v. City of Los Angeles (2003) 31 Cal. 4th 1074,
1081.)

Judicial Notice

PennyMac’s request for judicial notice is UNOPPOSED and GRANTED.

Conclusion

No later than July 14, 2014, Bundick may file and serve an SAC in an effort to remedy
the defects in his first cause of action for breach of the implied covenant of good faith
and fair dealing.  Bundick may not add new causes of action until such time as the
court grants a proper motion for leave to amend pursuant to CRC 3.1324.  PennyMac
shall file and serve its responsive pleading(s) within 10 days after service of the SAC,
15 days if the SAC is served by mail.  (Although not required by any statute or rule of
court, Bundick is requested to attach a copy of the instant minute order to the SAC to
facilitate the filing of the pleading.)

The minute order is effective immediately.  No formal order pursuant to CRC 3.1312 or
further notice is required.