Case Number: BC539005    Hearing Date: August 28, 2014    Dept: 58

Judge Rolf M. Treu
Department 58
Hearing Date: Thursday, August 28, 2014
Calendar No.: 7
Case Name: Petrosian v. Midland Mortgage Co., et al.
Case No.: BC539005
Motion: Demurrer
Moving Party: Defendants Midland Mortgage and Deutsche Bank National Trust Company
Responding Party: Plaintiff Brian Lee Petrosian
Notice: OK

Tentative Ruling: Demurrer is sustained as to the 2nd COA to the extent asserted against Defendant Deutsche Bank National Trust Company and as to the 3rd COA, and is otherwise overruled. 15 days leave to amend is granted.

On 3/11/14, Plaintiff Brian Lee Petrosian filed this action against Defendants Midland Mortgage Co. and Deutsche Bank National Trust Company arising out of a loan modification agreement. On 6/17/14, in response but prior to the hearing on a demurrer filed by Defendants, Plaintiff filed a First Amended Complaint.

Factual Allegations of the FAC –
On 12/9/05, Plaintiff obtained a home loan from Downey Savings and Loan Association for $1,000,000 which was secured by a deed of trust. ¶¶ 1, 6. The loan and deed of trust were assigned to Deutsche Bank who assigned the servicing rights to Midland. ¶ 7. In January 2012, Plaintiff contacted Midland for mortgage assistance and submitted an application for a loan modification. ¶¶ 8-10. On 6/15/12, Plaintiff executed a loan modification agreement (“2012 Agreement”) with Deutsche which included an unpaid principal balance of $1,092,760.32 with a fixed yearly interest rate of 3.625% and a total combined monthly payment of $6,756.13. ¶ 11.

From 7/1/12 through May 2013, Plaintiff made all monthly payments on a timely basis and sometimes submitted a payment that was greater than required. ¶ 12. On 6/28/13, Plaintiff sent a cashier’s check for $7,520 to Midland to cover the June payment plus late fees: Midland returned the check stating that it was not the correct amount. ¶ 13.

On 7/3/13, Plaintiff spoke with a Midland representative named Moses who stated that the payment should be $7,229.43. ¶ 14. Plaintiff spoke with a Midland manager named Kim Gruber who stated that the payment should be $6,756.13 informing Plaintiff that Midland would not accept Plaintiff’s June 2013 payment until this was resolved: Ms. Gruber also informed Plaintiff to disregard the late notices he was receiving because they were computer-generated. ¶ 15. On 7/11/13, Plaintiff spoke with a Midland representative named Debbie requesting Midland to accept the June 2013 payment; Debbie told Plaintiff to hold off sending any payments until the matter is resolved. ¶ 16. Plaintiff made numerous calls from June 2013 through August 2013 and representatives stated they were working on resolving the issue. ¶ 17.

On 8/19/13, a Midland representative named Kier contacted Plaintiff and informed him that the account was being recommended for foreclosure. ¶ 18. On 12/5/13 , a notice of default was recorded. ¶ 22. In December 2013, Plaintiff contacted Midland to inquire as to the notice of default and a representative named Kim informed him to disregard the notice because it was computer-generated. ¶ 24.

Plaintiff asserts causes of action for (1) breach of modification agreement, (2) violation of Bus. & Prof. Code § 17200, (3) violation of Civil Code § 2923.5, and (4) breach of covenant of good faith and fair dealing.

Demurrer –
Defendants demur to the FAC.

1. Request for Judicial Notice
In connection with the demurrer, Defendants request judicial notice of various recorded documents: the deed of trust, a loan modification agreement recorded on 6/17/10 (“2010 Agreement”), the 2012 Agreement recorded on 8/29/12, the substitution of trustee, the notice of default, and the notice of trustee sale recorded on 4/10/14. The RJN is granted.

2. 1st COA, Breach of Contract
Defendants argue that Plaintiff fails to properly allege the terms of the 2012 Agreement. See, e.g., Harris v. Rudin, Richman & Appel (1999) 74 Cal.App.4th 299, 307 (stating that an agreement may be attached or its terms may be set out verbatim). The Court disagrees. Plaintiff sufficiently alleges the legal effect of the 2012 Agreement by setting forth the substance of the relevant terms. See Construction Protective Services, Inc. v. TIG Special Ins. Co. (2002) 29 Cal.4th 189, 199; McKell v. Washington Mutual, Inc. (2006) 142 Cal.App.4th 1457, 1489.

Defendants argue that Plaintiff has failed to allege facts of his performance of Defendants’ breach. The Court disagrees. Plaintiff alleges that Defendants have refused to accept Plaintiff’s payments and have wrongfully raised Plaintiff’s monthly payments. FAC ¶¶ 19-21. Plaintiff also alleges that Midland representatives have told Plaintiff to hold off sending any payments. See id. ¶¶ 15-16. At the pleading stage, this is sufficient to allege that Plaintiff’s performance or excuse for non-performance (see Durell v. Sharp Healthcare (2010) 183 Cal.App.4th 1350, 1367-68) and that Defendants have breached the 2012 Agreement.

To the extent Defendants refer to a provision of the 2012 Agreement which provides that a monthly escrow payment may change (RJN Ex. C § 4(c)), this improperly attempts to dispute the allegations of the FAC at the pleading stage (i.e., that there was a reanalysis and an increase in the escrow payment). To the extent Defendants argue that Plaintiff fails to allege damages because he has been living at the property without making any payments, this also improperly attempts to dispute the allegations of the FAC at the pleading stage (see FAC ¶ 35 (alleging that Plaintiff has incurred monetary damages).

The demurer is overruled as to the 1st COA. Because Defendants’ demurrer to the 4th COA for breach of the covenant of good faith and fair dealing raises the same issues as in the demurrer to the 1st COA, the demurrer is overruled as to the 4th COA as well.

3. 2nd COA, Bus. & Prof. Code § 17200
Defendants argue that Plaintiff fails to allege facts that that he has suffered monetary or property loss as a result of Defendants’ actions. See R & B Auto Center, Inc. v. Farmers Group, Inc. (2006) 140 Cal.App.4th 327, 360; Hall v. Time Inc. (2008) 158 Cal.App.4th 847, 855. Similar to the arguments as to the 1st COA, this improperly attempts to dispute Plaintiff’s factual allegations. Plaintiff’s factual allegations sufficiently allege Plaintiff suffering injury as a result of Midland’s actions.

However, as to Deutsche, Deutsche notes that Plaintiff has improperly attempted to assert vicarious liability for Midland’s actions (see FAC ¶ 33), which is improper for a Bus. & Prof. Code § 17200 claim (see, e.g., Emery v. Visa Int’l Service Ass’n (2002) 95 Cal.App.4th 952, 960 (stating that a defendant’s liability must be based on personal participation in and unbridled control over the unfair practices). Plaintiff asserts that the selection of a servicer satisfies this requirement. However, no facts are alleged as to Deutsche’s participation in, control over, or aiding and abetting the alleged unfair practices of Midland. See People v. Sarpas (2014) 225 Cal.App.4th 1539, 1563.

Therefore, the demurrer is sustained as to the 2nd COA to the extent asserted against Deutsche, and is otherwise overruled.

4. 3rd COA, Civil Code § 2923.5
Defendants argue that Plaintiff fails to allege facts supporting a violation of Civil Code § 2923.5. The Court agrees. Plaintiff alleges that Defendants failed to contact Plaintiff to explore alternatives to foreclosure and challenges the attached declaration to the notice of default as being signed by a person with whom Plaintiff was never in contact. See FAC ¶¶ 22-23. However, Plaintiff’s challenge to the declaration attached to the notice of default is insufficient (see RJN Ex. E (asserting contact was made on 5/21/13)): there is no requirement that the declaration be signed by the individual who is purported to have made contact (see Mabry v. Superior Court (2010) 185 Cal.App.4th 208, 232-35). Plaintiff fails to allege any facts to address the attached declaration to the notice of default to support a violation of Civil Code § 2923.5 under the circumstances alleged in this case. Therefore, the demurrer is sustained as to the 3rd COA.

5. Ruling
The demurrer is sustained as to the 2nd COA to the extent asserted against Deutsche and as to the 3rd COA, and is otherwise overruled. Because this is the first challenge to the pleadings addressed by the Court, Plaintiff’s request for leave to amend is granted. Plaintiff to note that any amendment will be the third attempt to state a cause of action, and any successful demurrer will result in strict scrutiny as to whether further amendment is to be allowed.