Case Name: Barbara Cobarruviaz v. Joanna Yu, et al.

Case No.: 16-CV-291695

I. Background

This is an action for fraud brought by Barbara Cobarruviaz (“Plaintiff”) against Joanna Yu (“Yu”) and Chu Lee (“Lee”) (collectively, “Defendants”) arising out of a series of loan transactions secured by Plaintiff’s home.

Plaintiff owns a home located at 12920 Atherton Court, Los Altos Hills, California (“the property”). (Compl., ¶ 25.) In addition to the original mortgage on the property, the property provides security for a home equity line of credit (“HELOC”) Plaintiff obtained from Wells Fargo. (Compl., ¶ 25.) In 2005, Plaintiff contacted Yu at Wells Fargo about refinancing the HELOC because it was coming to term that year. (Compl. ¶ 26.) Yu indicated it would take time to refinance the HELOC, but she could obtain a bridge loan from Lee, a third party, for Plaintiff in the interim. (Compl., ¶ 27.)

In July 2005, Plaintiff signed a promissory note for a bridge loan in the amount of $100,000.00, which was to bear interest at a rate of 12 percent per annum. (Compl., ¶¶ 29-30.) In September 2005, Plaintiff issued a check to Lee in the amount of $60,000.00 as payment on the bridge loan, and delivered it to Yu. (Compl., ¶¶ 31-32.) Upon receipt of the payment, Yu asked Plaintiff to sign a new promissory note for $42,000.00, which she represented as reflecting the remaining $40,000.00 of principal and accrued interest on the first bridge loan. (Compl., ¶ 33.)

From 2005 to 2008, Yu continued to represent to Plaintiff that she was working on refinancing the HELOC through Wells Fargo. (Compl., ¶ 36.) In 2008, Yu arranged for a second bridge loan from Lee in the amount of $50,000.00 to bear interest at an annual rate of 10 percent. (Compl., ¶ 37.) In February 2009, Yu brokered a third bridge loan from Lee in the amount of $20,000 to bear an annual interest rate of 10 percent. (Compl. ¶¶, 38-39.) Plaintiff alleges she made payments on the three bridge loans from 2005 to 2014. (Compl., ¶ 40-41.)

In July 2009, Yu told Plaintiff she could not refinance the HELOC. (Compl., ¶ 42.) Yu insisted Plaintiff’s only option was to refinance the “first two loans on the property,” and indicated Wells Fargo would foreclose on her home if she did not do so. (Compl, ¶ 42.) Yu contemporaneously demanded Plaintiff sign yet another note (the “2009 note”), this time in the amount of $100,000.00, for the three bridge loans from Lee. (Compl., ¶ 44.) Yu threatened that if Plaintiff did not sign the 2009 note, which she represented was reflective of the consolidated outstanding balance on the series of bridge loans from Lee, the refinancing of the “first two loans on the property,” scheduled to close the following day, would be cancelled and Wells Fargo would foreclose on her home. (Compl., ¶ 44.) Plaintiff acquiesced due to financial duress. (Compl., ¶ 45.) Plaintiff did not receive any additional funds when she signed the 2009 note. (Compl., ¶ 45.) The 2009 note was then recorded. (Compl., ¶ 45.)

From 2009 to 2013, Plaintiff repeatedly contacted Yu in an attempt to obtain an accurate payoff amount for the three bridge loans, but was rebuffed by Yu who refused to provide an amount or Lee’s contact information. (Compl., ¶¶ 46, 48.) In late 2013, Yu told Plaintiff she needed to pay Lee “‘more than $300,000.00.’” (Compl., ¶ 50.) Plaintiff persisted in her quest for a more specific demand supported by documentation. (Compl., ¶ 51.)

In March 2014, Plaintiff went to Yu’s office to demand copies of the promissory notes for the bridge loans, a payoff amount, and an explanation for the payoff amount. (Compl., ¶ 52.) Yu produced six notes including: (1) the original note for the first bridge loan; (2) the note reflecting the remaining balance and interest on the first bridge loan in the amount of $42,000.00; (3) the note for the second bridge loan of $50,000.00; (4) the note for the third bridge loan of $20,000.00; (5) a note Plaintiff never saw or signed for $10,000.00; and (6) the 2009 note for $100,000.00. (Compl., ¶ 52.) Despite Yu’s earlier representation that the original note for the first bridge loan was superseded and the 2009 note represented a consolidation of the amount due on the three bridge loans, Yu told Plaintiff she owed Lee for each and every one of these notes. (Compl., ¶ 55.) Yu asserted Plaintiff owed Lee in excess of $300,000.00 including unpaid principal and interest. (Compl., ¶ 55.) Yu further falsely asserted Plaintiff had only made payments in the amount of $6,000.00 to date. (Compl., ¶ 56.) Plaintiff claims she then showed Yu the cancelled check in the amount of $60,000.00 that she remitted as payment in September 2005 and further disputed the validity of the new $10,000.00 note, which she alleges is a doctored photocopy of the note for the third bridge loan. (Compl., ¶¶ 60-61.)

Plaintiff finally decided to try to refinance her HELOC through a different financial institution. (Compl., ¶ 63.) While she approached East West Bank and Fremont Bank, among others, she was prevented from proceeding with refinancing due to the 2009 note recorded against her property and Yu’s repeated misrepresentations as to the bridge loans, the promissory notes, and the payoff amount. (Compl., ¶¶ 68-72.)

Plaintiff filed the complaint on February 18, 2016, and asserts causes of action against Defendants for: (1) cancellation of instrument; (2) slander of title; (3) fraud; and (4) interference with economic advantage. Currently before the Court is Defendants’ demurrer to each cause of action in the complaint. The parties engaged in meet and confer efforts prior to the filing of the demurrer in accordance with Code of Civil Procedure section 430.41.

II. Discussion

A. Request for Judicial Notice

Defendants request judicial notice of the complaint and the full and short form deeds of trust recorded against the property in July 2009. Even if a court is otherwise authorized to take judicial notice, “a matter to be judicially noticed must be relevant to a material issue.” (People ex rel. Lockyer v. Shamrock Foods Co. (2000) 24 Cal.4th 415, 422, fn. 2.) Defendants do not explain and it is not immediately apparent how the full and short form deeds of trust are relevant to the Court’s resolution of the demurrer. While the complaint is relevant, it is unnecessary to take judicial notice of it because it is the pleading under review. (See Paul v. Patton (2015) 235 Cal.App.4th 1088, 1091, fn. 1.) Defendants’ request for judicial notice is therefore DENIED.

B. Demurrer

First, Defendants demur to the first cause of action on the ground of uncertainty. Second, Defendants demur to each cause of action on the ground Plaintiff fails to state facts sufficient to constitute a cause of action. Finally, Defendants argue the Court should sustain their demurrer because each cause of action is time-barred.

1. Uncertainty

A party may demur on the ground of uncertainty to challenge a pleading as uncertain, ambiguous, or unintelligible. (Code Civ. Proc., § 430.10, subd. (f).) “[D]emurrers for uncertainty are disfavored and are granted only if the pleading is so incomprehensible that a defendant cannot reasonably respond.” (Lickiss v. Financial Industry Reg. Authority (2012) 208 Cal.App.4th 1125, 1135.) Defendants do not advance any arguments in support of their demurrer on the ground of uncertainty. They do not argue and the first cause of action does not otherwise appear to be so uncertain as to be incomprehensible. Defendants therefore failed to substantiate their special demurrer to the first cause of action on the ground of uncertainty.

2. Failure to State Sufficient Facts

A defendant may demur to a cause of action on the ground it fails to state facts sufficient to constitute a cause of action. (Code Civ. Proc., §430.10, subd. (e). “A demurrer tests only the legal sufficiency of the pleading.” (Committee on Children’s Television, Inc. v. General Foods Corp. (1983) 35 Cal.3d 197, 213-14, superseded by statute on other grounds.) “[A] general demurrer admits the truth of all material factual allegations in the complaint.” (Alcorn v. Anbro Engineering, Inc. (1970) 2 Cal.3d 493, 496.) A court does not consider a “plaintiff’s ability to prove these allegations, or the possible difficulty in making such proof” on demurrer. (Ibid.)

i. First Cause of Action

Defendants argue Plaintiff fails to state a claim for cancellation of instrument because she does not allege she restored everything of value, specifically the sums due on the bridge loans, to Defendants.

Civil Code section 3412 states: “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 state a claim for cancellation of instrument, a plaintiff must specifically allege the particular instrument he or she asserts constitutes a cloud on his or her title and state facts “showing the apparent validity of the instrument designated, and point out the reason for asserting that it is actually invalid.” (Ephriam v. Metropolitan Trust Co. of Cal. (1946) 28 Cal.2d 824, 833-34.) A plaintiff must also allege he or she restored everything of value received in the transaction, even if execution of the instrument was procured through fraud in the inducement. (Fleming v. Kagan (1961) 189 Cal.App.2d 791, 796.)

Here, Plaintiff does not allege she restored everything of value based on either the payoff demands or her own calculation of amounts due. Plaintiff has therefore failed to state a cause of action for cancellation of instrument.

ii. Second Cause of Action

Defendants argue Plaintiff fails to state a viable claim for slander of title because she does not allege she incurred a direct pecuniary loss immediately following the alleged publication of false statements.

“Slander or disparagement of title occurs when a person, without a privilege to do so, publishes a false statement that disparages title to property and causes the owner thereof ‘some special pecuniary loss or damage.’” (Sumner Hill Homeowners’ Assn., Inc. v. Rio Mesa Holdings, LLC (2012) 205 Cal.App.4th 999, 1030, quoting Fearon v. Fodera (1915) 169 Cal. 370, 379-80.) While a plaintiff must demonstrate the publication of the false statement caused the pecuniary loss suffered, the pecuniary loss need not have occurred while a transaction involving the real property was pending or at the precise time of the publication. (See Appel v. Burman (1984) 159 Cal.App.3d 1209, 1215-16.)

Here, Plaintiff alleges that between 2013 and 2014, she sought to obtain financing secured by the property from several financial institutions, including East West Bank and Fremont Bank, but was unable to do so due to the cloud on her title created by the 2009 note. (Compl., ¶¶ 66-69, 86-87.) While Defendants are correct that Plaintiff alleges a pecuniary loss that occurred after the note was recorded, she still alleges the loss was directly caused by the 2009 note and that East West Bank and Fremont Bank relied on the note in denying her financing. (Compl., ¶ 86.) Defendants do not offer any authority in support of the proposition that Plaintiff’s loss must have occurred within a certain amount of time after the note was recorded. Defendants’ argument therefore lacks merit and is not a sufficient basis for sustaining the demurrer.

iii. Third and Fourth Causes of Action

While Defendants’ demurrer states the third and fourth causes of action are time-barred “and/or” fail to state sufficient facts, Defendants only advance arguments that pertain to the statute of limitations. Defendants do not raise any additional pleading defects with respect to the third and fourth causes of action. Thus, to the extent Defendants intended to challenge the third and fourth causes of action for any reason other than the statute of limitations defense, they have not substantiated their demurrer.

3. Statute of Limitations

Defendants argue the Court should sustain their demurrer on the ground each cause of action is time-barred. As a preliminary matter, the defense of statute of limitations is not an enumerated ground for demurrer in Code of Civil Procedure section 430.10. It is, however, a basis for bringing a demurrer on the ground of failure to state sufficient facts. Since that ground has otherwise been raised, the Court will consider the statute of limitations arguments presented.

A general demurrer will lie where a statute of limitations defense appears clearly and affirmatively from the face of the complaint. (E-Fab., Inc. v. Accountants, Inc. Services (2007) 153 Cal.App.4th 1308, 1315-16.) A general demurrer will not lie when “the complaint shows merely that the action may be barred.” (Ibid.) In determining whether a claim is time-barred, a court must determine (1) which statute of limitations applies and (2) when the plaintiff’s claim accrued. (Id. at p. 1316.)

i. Third Cause of Action

Defendants argue the third cause of action for fraud is time-barred because Plaintiff alleges Yu made misrepresentations as far back as 2005 and disagreed with the amount of the 2009 note at the time she signed it.

The statute of limitations for fraud is three years. (Code Civ. Proc., § 338, subd. (d).) The elements of a fraud claim include: (1) the defendant made a false representation as to a past or existing material fact; (2) the defendant knew the representation was false at the time it was made; (3) in making the representation, the defendant intended to deceive the plaintiff; (4) the plaintiff justifiably relied on the representation; and (5) the plaintiff suffered resulting damages.” (West v. JPMorgan Chase Bank, N.A. (2013) 214 Cal.App.4th 780, 792.) A cause of action for fraud does not accrue until the plaintiff obtains knowledge of facts sufficient to make a reasonably prudent person suspicious of fraud. (Jolly v. Eli Lilly & Co. (1988) 44 Cal.3d 1103, 1110; see also Fox, supra, (2005) 35 Cal.4th at p. 807.) “‘Knowledge of the occurrence and origin of harm cannot necessarily be equated with knowledge of the factual basis for a legal remedy.’” (Jolly v. Eli Lilly & Co., supra, 44 Cal.3d at p. 1110, quoting Kensinger v. Abbott Laboratories (1985) 171 Cal.App.3d 376, 384.) In order to rely on the delayed discovery rule, a plaintiff ‘must specifically plead facts to show (1) the time and manner of discovery and (2) the inability to have made earlier discovery despite reasonable diligence.’” (Fox, supra, 35 Cal.4th at 808, quoting McKelvey v. Boeing North American, Inc. (1999) 74 Cal.App.4th 151, 160.)

First, Defendants’ argument that Plaintiff had knowledge of facts sufficient to put her on notice of fraud, based solely on her disagreement with the amount of the 2009 note, lacks merit. Although Plaintiff alleges she disagreed with the amount of the 2009 note, she does not otherwise allege why she disagreed with the amount at the time. Defendants provide no support for the proposition that a mere disagreement with the amount of a promissory note reflecting a loan consolidation is sufficient to make a reasonably prudent person suspicious of fraud.

Moreover, while Yu represented the 2009 note reflected the consolidated outstanding balance on all of the bridge loans at the time it was executed, Yu did not assert the 2009 note was not in fact a consolidation or that Plaintiff owed money based on the 2009 note as a separate and additional loan, contrary to her previous representation, until 2014. (Compl, ¶¶ 45, 57, 60.) Plaintiff therefore did not learn of Yu’s intent to deceive her or the falsity of the representation until 2014. Despite Plaintiff’s repeated requests, Yu continued to provide inconsistent payoff amounts and did not explain the basis for the payoff amount, which she previously represented was reflected in the 2009 note, until March 2014 when she produced the six promissory notes, including the forged $10,000.00 note, to Plaintiff. Consequently, despite her diligence, Plaintiff could not necessarily have discovered the fraud at an earlier date. Thus, Defendants have not demonstrated the complaint clearly and affirmatively discloses a statute of limitations defense.

Second, while Plaintiff alleges Yu made misrepresentations as early as 2005, she alleges Yu continued to make misrepresentations actionable as fraud until 2014. (Compl., ¶¶ 51-52, 92, 97.) Plaintiff’s third cause of action is not solely predicated on Yu’s first misrepresentations in 2005 or the 2009 note. A demurrer does not lie to part of a cause of action. (PH II, Inc. v. Superior Court (1995) 33 Cal.App.4th 1680, 1682.) The demurrer to the third cause of action is therefore not sustainable on that basis.

ii. First Cause of Action

Defendants argue Plaintiff’s first cause of action for cancellation of instrument is time-barred based on the four-year statute of limitations set forth in Code of Civil Procedure section 343.

Ordinarily, a claim for cancellation of instrument is subject to the four-year statute of limitations set forth in Code of Civil Procedure section 343. (Zakaessian v. Zakaessian (1945) 70 Cal.App.2d 721, 725, citing Moss v. Moss (1942) 20 Cal.2d 640, 644-45.) “However, when the gravamen of the cause of action stated involves fraud or a mistake, Code of Civil Procedure [section 338] is the statute of limitations applicable.” (Zakaessian v. Zakaessian, supra, 70 Cal.App.2d at p. 725.) Here, the gravamen of the first cause of action involves fraud. The statute of limitations is therefore three years, but the cause of action does not accrue until a plaintiff has discovered all of the facts constituting the fraud. (Ibid.; see also Code Civ. Proc., § 338.)

Defendants argue Plaintiff’s claim accrued in 2009 because she alleges she signed the 2009 note under duress as the basis for the invalidity of the instrument. Because this case was filed more than three years later, they conclude it is time-barred. Given Plaintiff indeed alleges she signed the note under duress, she necessarily would have known that particular basis for cancelling the note at the time she signed it. Even so, Plaintiff also alleges the 2009 note is invalid based on fraud and forgery. (Compl., ¶¶ 75-78.) As discussed above, Plaintiff could not have discovered the fraud and forgery until 2014. Plaintiff’s claim thus did not accrue until 2014. Accordingly, a statute of limitations defense does not clearly and affirmatively appear from the face of the complaint and the demurrer is not sustainable on that basis.

iii. Second Cause of Action

Defendants argue Plaintiff’s second cause of action for slander of title is time-barred because she knew the 2009 note was recorded at the time of the recording.

The statute of limitations for a claim of slander of title is three years. (Code Civ. Proc., § 338, subd. (g).) In general, a cause of action accrues “‘when the cause of action is complete with all of its elements.’ [Citations.]” (Fox v. Ethicon Endo-Surgery, Inc. (“Fox”) (2005) 35 Cal.4th 797, 806.) “An important exception to the general rule of accrual is the ‘discovery rule,’ which postpones actual accrual of a cause of action until the plaintiff discovers, or has reason to discover, the cause of action.” (Ibid.) The discovery rule, while not explicitly stated in Code of Civil Procedure section 338, subdivision (g) itself, applies to claims for slander of title. (Arthur v. Davis (1981) 126 Cal.App.3d 684, 690-91.) A cause of action for slander of title therefore does not accrue until a plaintiff “‘could reasonably be expected to discover its existence.’” (Ibid.)

As set forth above, while publication is one element of a cause of action for slander of title, a plaintiff must also allege the publication was without privilege, was false, and resulted in direct pecuniary loss. (See Sumner Hill Homeowners’ Assn., Inc. v. Rio Mesa Holdings, LLC, supra, 205 Cal.App.4th at p. 1030.) Accordingly, even if Plaintiff knew of the publication, in this case the recording of the 2009 note, her cause of action did not accrue until she discovered the note was false and suffered a direct pecuniary loss as a result. Plaintiff did not discover Yu’s fraud and forgery until 2014 and was not denied financing until 2013 and 2014. (Compl., ¶¶ 51-53, 66-69, 86-87.) Defendants do not address accrual with respect to each element of the cause of action or the operation of the discovery rule with respect to the cause of action as a whole. Defendants therefore failed to adequately support their argument that the cause of action accrued in 2009, more than three years from the filing of the complaint. Thus, the demurrer is not sustainable based on a statute of limitations defense.

iv. Fourth Cause of Action

Defendants argue Plaintiff’s fourth cause of action for interference with economic advantage is time-barred based on the two-year statute of limitations set forth in Code of Civil Procedure section 339, subdivision (1). Plaintiff’s fourth cause of action is based on the cancellation of the refinancing transactions by East West Bank and Fremont Bank that occurred from late 2013 to March 2014. While Defendants raise the statute of limitations as a basis for sustaining their demurrer, they do not actually articulate any position as to when Plaintiff’s cause of action accrued or whether Plaintiff filed the complaint more than two years from the time her cause of action accrued. Defendants therefore failed to adequately substantiate their demurrer to the fourth cause of action.

4. Conclusion

Based on the foregoing, the special demurrer to the first cause of action on the ground of uncertainty and the general demurrer to the second, third, and fourth causes of action on the ground of failure to state sufficient facts are OVERRULED. The general demurrer to the first cause of action on the ground of failure to state sufficient facts is SUSTAINED with 10 days leave to amend on the sole basis that Plaintiff failed to allege she restored everything of value to Defendants.

The Court will prepare the order.