Case Name: Durvalino Sarmento v. Bank of New York Mellon, et al.
Case No.: 18CV323337

I. Background

This case brought by Durvalino Sarmento (“Plaintiff”) against Bank of New York Mellon, as trustee for the certificate holders of the CLUALT, Inc., Alternative Loan Trust 2007-17CB Pass-Through Certificates, Series 2007-17CB (“Bank of New York”), Bayview Loan Servicing, LLC (“Bayview”) and the Law Offices of Les Zieve (“Les Zieve”) (collectively “Defendants”) arises from Defendants’ alleged failure to provide written notice that Plaintiff’s application for a loan modification and short sale was denied.

According to the allegations of the Complaint, Plaintiff purchased real property located at 3892 Kauai Drive in San Jose (“the Property”). In order to purchase the Property Plaintiff obtained a loan; including a Deed of Trust and Promissory Note. The Deed of Trust was eventually securitized and assigned to Bank of New York, while servicing for the loan was eventually transferred to Bayview. A Substitution of Trustee was recorded naming Les Zieve as the new trustee. Defendants recorded a Notice of Default and Notice of Trustee Sale against the Property. Before the sale date, Plaintiff filed a case in the Superior Court of California County of Santa Clara (“Prior Action”) against Bank of New York and Les Zieve in order to stop the sale. Plaintiff sought a temporary restraining order (TRO) to prevent the sale. Although the request for a TRO was denied, the sale did not take place.

Plaintiff applied for a loan modification. Defendants orally informed Plaintiff’s broker that the application was denied. Plaintiff’s broker then sought authorization from Bayview for a short sale. Bayview refused to enter into negotiations regarding a short sale because of the ongoing litigation. Defendants failed to provide Plaintiff with written notice of the denials; as such, he did not have the opportunity to appeal either decision. Subsequently, another Notice of Trustee Sale was recorded against the Property despite the fact Plaintiff had not received a written determination on his requests for a loan modification and short sale.

During this process Plaintiff was assigned a single point of contact by Defendants. Plaintiff’s single point of contact failed in his duties because he lacked access to current information and personnel sufficient to keep Plaintiff informed, and he failed to inform Plaintiff of his right to appeal.

Plaintiff asserts causes of action against Defendants for (1) violation of former Civil Code 2923.6, subdivision (c) and current section 2924.11, subdivision (b); (2) violation of Civil Code section 2923.7; (3) negligence; and (4) violation of Business and Professions Code section 17200, et seq.

Currently before the Court is Bank of New York and Bayview’s demurrer to each cause of action. They filed a request for judicial notice in support.

II. Request for Judicial Notice

“Judicial notice is the recognition and acceptance by the court, for use by the trier of fact or by the court, of the existence of a matter of law or fact that is relevant to an issue in the action without requiring formal proof of the matter.” (Unruh-Haxton v. Regents of University of California (2008) 162 Cal.App.4th 343, 364.) Matters subject to judicial notice are listed in Evidence Code sections 451 and 452. (Id. at p. 364.) A precondition to judicial notice is that the matter to be noticed is relevant to a material issue before the court. (People v. Shamrock Foods Co. (2000) 24 Cal.4th 415, 422, fn. 2.)

Defendants request judicial notice of numerous documents that can be categorized as recorded real property records and court records.

The real property records, which concern the Property, are: a grant deed recorded in March 1995; a deed of trust recorded in May 2007; an assignment of a deed of trust recorded on May 2011; a substitution of trustee recorded in November 2015; a notice of default and election to sell under deed of trust recorded in November 2015; a notice of trustee sale recorded in March 2016; a second notice of trustee sale recorded in May 2017.

“Pursuant to [Evidence Code section 452, subdivisions (c) and (h)] courts have taken judicial notice of the existence and recordation of real property records, including deeds of trust, when the authenticity of the documents is not challenged.” (Fontenot v. Wells Fargo Bank, N.A. (2011) 198 Cal.App.4th 256, 264 disapproved of on other grounds by Yvanova v. New Century Mortg. Corp. (2016) 62 Cal.4th 919.) Thus, the subject real property records are generally proper subjects for judicial notice. Defendants, however, do not actually rely on these records in support of any particular argument raised by their demurrer. As such, the records are not relevant to resolving the demurrer and consequently are not judicially noticeable.

Next, the court records are all from the Prior Action, namely Durvalino v. Bank of New York Mellon, Case No. 16CV293443. The records are: a register of actions; a demurrer to the complaint; an order denying an ex parte request for a temporary restraining order; an order sustaining the demurrer to the complaint; and a request for dismissal entered in January 2018.

Court records are judicially noticeable under Evidence Code section 452, subdivision (d), and the records here are relevant to Defendants’ argument that the instant action is barred by res judicata. Judicial notice of these records is therefore proper.

Accordingly, the request for judicial notice is DENIED as to the real property records and GRANTED as to the court records.

III. Discussion

Defendants demur to each cause of action on the grounds of failure to state sufficient facts and uncertainty. (See Code Civ. Proc., § 430.10, subds. (e) and (f).)

With respect to uncertainty, although Defendants state in their notice of demurrer and demurrer that they are challenging each cause of action on that ground, they do not advance any related arguments in their supporting memorandum. The demurrer for uncertainty is therefore unsubstantiated. (See Cal. Rules of Court, rule 3.1113(b) [memorandum must include “any arguments relied upon, and a discussion of the statutes, cases, and textbooks cited in support of the position advanced”].) Accordingly, the demurrer for uncertainty to each cause of action is OVERRULED.

Turning to the ground of failure to allege sufficient facts, Defendants advance a global argument that all four causes of action are barred by res judicata, and also present arguments specific to each cause of action.

A. All Causes of Action – Res Judicata

Defendants contend that all causes of action are barred under the doctrine of res judicata based on the Prior Action.

“If all of the facts necessary to show that an action is barred by res judicata are within the complaint or subject to judicial notice, a trial court may properly sustain a general demurrer.” (Planning and Conservation League v. Castaic Lake Water Agency (2009) 180 Cal.App.4th 210, 225.) “[Res judicata] has two aspects. It applies to both a previously litigated cause of action, referred to as claim preclusion, and to an issue necessarily decided in a prior action, referred to as issue preclusion.” (Brinton v. Bankers Pension Services, Inc. (1999) 76 Cal.App.4th 550, 556, internal citations omitted.) Defendants argue that claim preclusion applies here.

“Res judicata, or claim preclusion, precludes the relitigation of a cause of action that was litigated in a prior proceeding if three requirements are satisfied: (1) the present action is on the same cause of action as the prior proceeding; (2) the prior proceeding resulted in a final judgment on the merits; and (3) the parties in the present action or parties in privity with them were parties to the prior proceeding. [Citation.] Res judicata not only precludes the relitigation of issues that were actually litigated, but also precludes the litigation of issues that could have been litigated in the prior proceeding. [Citations.]” (Bullock v. Philip Morris USA, Inc. (2011) 198 Cal.App.4th 543, 557; DKN Holdings LLC v. Faerber (2015) 61 Cal.4th 813, 824.)

Regarding the first element, Defendants assert the Prior Action was based on the same cause of action as the instant case because both involve the same primary right. “[U]nder California’s ‘primary right’ theory of code pleading, [courts] determine the causes of action alleged in the complaint ‘based on the injury to the plaintiff, not on the legal theory or theories advanced to characterize it.’ [Citations.]” (Choi v. Sagemark Consulting (2017) 18 Cal.App.5th 308, 335.) “Thus, it is the harm suffered that is the significant factor in defining the primary right at issue.” (City of Oakland v. Oakland Police & Fire Retirement System (2014) 224 Cal.App.4th 210, 228, italics original.) As such, Defendants are generally correct that two actions can be based on the same cause of action for purposes of res judicata even if based on different legal theories. (See Gillies v. JPMorgan Chase Bank, N.A. (2017) 7 Cal.App.5th 907, 914.)

Plaintiff does not quarrel with that general proposition. Instead, he asserts that the doctrine of res judicata cannot be applied here because the events giving rise to the instant case occurred after the Prior Action was filed. To that point, Plaintiff characterizes the cases as involving “different causes of action as a matter of metaphysical necessity.” (Opp., p. 5:26-27.)

While Plaintiff cites no legal authority to support his position, there is law on point, namely Planning & Conservation League v. Castaic Lake Water Agency (2009) 180 Cal.App.4th 210, 227.) In that case, the court explained that res judicata does not preclude a second action alleging claims arising after a prior action was initiated, stating:

As a cause of action is framed by the facts in existence when the underlying complaint is filed, res judicata “is not a bar to claims that arise after the initial complaint is filed.” [Citations.] For this reason, the doctrine may not apply when “there are changed conditions and new facts which were not in existence at the time the action was filed upon which the prior judgment is based. [Citations.]” [Citation.] This exception to the doctrine encompasses claims based on rights that arise after the filing of the complaint in the first action, but before judgment is entered. [Citation.] … “These rights may be asserted in a supplemental pleading, but if such a pleading is not filed a plaintiff is not foreclosed from asserting the rights in a subsequent action. [Citation.] The general rule that a judgment is conclusive as to matters that could have been litigated ‘does not apply to new rights acquired pending the action which might have been, but which were not, required to be[,] litigated [Citations].’ [Citation.]” [Citation].

(Planning & Conservation League v. Castaic Lake Water Agency (2009) 180 Cal.App.4th 210, 227-228.)

Here, the prior action was predicated on a defective assignment of the Deed of Trust, and was filed in April 2016. In contrast, the instant action is based on failure to provide written notice of a loan modification determination and short sale. The second action could not have been brought until the injury underlying it occurred—a loan modification application and short sale application were submitted to Defendants and they recorded a Notice of Trustee sale—which occurred in May 2017. Thus, the instant action could not have been brought until after the first action was filed, and while Plaintiff could have amended that action, he was not required to do so.

Accordingly, the first element of res judicata—the same cause of action—is not met due to the timing of events, and thus res judicata does not bar the present case. This conclusion renders moot Defendants’ arguments regarding the other elements of res judicata and whether res judicata bars Plaintiff from asserting related claims.

Accordingly, there is no basis for concluding that the instant action is barred by res judicata.

B. First Cause of Action for Violation of Civil Code section 2923.6 or 2924.11

The first cause of action states that Defendants violated former Civil Code section 2923.6, subdivision (c) and current section 2924.11, subdivision (b) by recording a Notice of Trustee Sale before providing a written determination regarding Plaintiff’s application for a loan modification.

Defendants contend the first cause of action fails for several reasons discussed in turn below.

1. Application of Section 2924.11

Defendants argue that Civil Code section 2924.11, subdivision (b) does not apply in this case because it did not become effective until after the underlying facts occurred and is not retroactive. Defendants insist that only former Civil Code section 2923.6, subdivision (c) can be applied here.

Civil Code section 2924.11, subdivision (b), which became operative on January 1, 2018, states:

Following the denial of a first lien loan modification application, the mortgage servicer shall send a written notice to the borrower identifying with specificity the reasons for the denial and shall include a statement that the borrower may obtain additional documentation supporting the denial decision upon written request to the mortgage servicer.

(Civ. Code, § 2924.11, subds. (b), (g).)

Former Civil Code section 2923.6, subdivision (c) also concerned loan modification applications. It was added to the Civil Code in 2012 and repealed effective January 1, 2018. (Stats.2012, c. 86 (A.B.278), § 7; Stats.2012, c. 87 (S.B.900), § 7.) It stated in pertinent part:

If a borrower submits a complete application for a first lien loan modification offered by, or through, the borrower’s mortgage servicer, a mortgage servicer, mortgagee, trustee, beneficiary, or authorized agent shall not record a notice of default or notice of sale, or conduct a trustee’s sale, while the complete first lien loan modification application is pending. A mortgage servicer, mortgagee, trustee, beneficiary, or authorized agent shall not record a notice of default or notice of sale or conduct a trustee’s sale until any of the following occurs: (1) The mortgage servicer makes a written determination that the borrower is not eligible for a first lien loan modification, and any appeal period pursuant to subdivision (d) has expired.

(Former Civ. Code, § 2923.6, subd. (c).)

“A basic canon of statutory interpretation is that statutes do not operate retrospectively unless the Legislature plainly intended them to do so.” (Western Security Bank v. Superior Court (1997) 15 Cal.4th 232, 243.) “The presumption against retroactive application is grounded in principles of due process and proscriptions against ex post facto laws.” (Bullard v. California State Automobile Assn. (2005) 129 Cal.App.4th 211, 217.)

Here, the facts upon which the first cause of action is predicated all occurred before the effective date of section 2924.11 in January 2018. And there is no indication the Legislature intended the statute to apply retroactively. Thus, Plaintiff cannot maintain an action for violation of section 2924.11 based on the facts alleged.

Since the first cause of action is otherwise based on the alleged violation of section 2923.6, the claim as a whole does not fail due to the inapplicability of section 2924.11. (See PH II, Inc. v. Superior Court (1995) 33 Cal.App.4th 1680, 1682 [“A demurrer does not lie to a portion of a cause of action.”].) Defendants, however, do advance arguments that pertain to section 2923.6 as addressed below.
2. Pendency of Application

Defendants argue they did not violate Civil Code section 2923.6, subdivision (c) because Plaintiff’s loan application was not pending when the Notice of Trustee Sale was recorded. According to Defendants, the statute only prohibits recording a Notice of Trustee Sale “until the loan servicer reviews the pending application.” (Pts. & Auth. ISO Dem., p. 10:22.) Since the Complaint reflects they notified Plaintiff of their denial of the loan modification application prior to recording a Notice of Trustee Sale, they conclude the notice was properly recorded.

Defendants’ interpretation of former Civil Code section 2923.6, subdivision (c) is flawed. While that statute did prohibit recording a Notice of Trustee Sale while an application is pending, it also created an additional requirement that “[t]he mortgage servicer makes a written determination that the borrower is not eligible for a first lien loan modification, and any appeal period pursuant to subdivision (d) has expired.” (See former Civ. Code, 2923.6, subd. (c).) Former subdivision (d) stated: “If the borrower’s application for a first lien loan modification is denied, the borrower shall have at least 30 days from the date of the written denial to appeal the denial and to provide evidence that the mortgage servicer’s determination was in error.” (Former Civ. Code 2923.6, subd. (d) [italics added].)

Thus, contrary to Defendants’ argument, a loan servicer is required to wait 30 days after a written denial before recording a Notice of Trustee Sale. Here, the allegation is that no written denial was ever sent, and Plaintiff never had any meaningful appeal period. Therefore, Defendants’ argument that they complied with former section 2923.6 because the loan modification was no longer pending when the Notice of Trustee Sale was recorded is not well-taken.

3. Allegation Notice Never Sent

Defendants argue that Plaintiff’s claim fails because, to state a cause of action for violation of Civil Code section 2923.6, subdivision (f), Plaintiff must allege they never sent written notice of denial but he merely alleges he did not receive notice. The first cause of action, however, is not predicated on a violation of subdivision (f) of the statute. Assuming Defendants intended to refer to subdivision (c), Defendants’ position is not well-taken. Plaintiff alleges they “failed to provide a letter notifying [him] of the denial.” (Complaint, ¶34.) Implicit in this allegation is that Defendants did not send Plaintiff a notice letter.

Accordingly, the demurrer is not sustainable on this basis.

4. Material Violation

Defendants also argue that any violation of former Civil Code section 2923.6, subdivision (c) was immaterial, and thus no remedy is available to Plaintiff.

Civil Code section 2924.12, subdivision (a)(1) provides that “a borrower may bring an action for injunctive relief to enjoin a material violation of Section 2923.5, 2923.7, 2924.11, or 2924.17.” (Civ. Code, § 2924.12, subd, (a)(1).) The former version of section 2924.12 which was operative concurrently with former section 2923.6 was includes 2923.6 in the list of applicable statutes. (Former Civ. Code, § 2924.12, subd.(a)(1).) Defendants assert courts have interpreted the term “material” as whether the alleged violation affected a plaintiff’s loan obligations or the modification process. (See Cornejo v. Ocwen Loan Servicing, LLC (E.D. Cal. 2015) 151 F.Supp.3d 1102, 1113.) Although the cited case does so hold, it is one federal trial court, and not controlling.

There is limited other authority interpreting the term material as it appears in Civil Code section 2924.12. Several other federal district courts have considered the topic, but research reveals no controlling California cases. These federal cases often minimize the materiality requirement, in part based on a lack of clear definition as to what must be plead. For example, in Greene v. Wells Fargo Bank, N.A. (N.D. Cal., May 7, 2015, No. C 15-00048 JSW) 2015 WL 2159460, the court stated:

As Defendant concedes, there is a dearth of authority interpreting the meaning of “material.” In the absence of any authority defining the meaning of a “material violation,” the Court declines to impose any additional pleading obligations on Plaintiff. The Court notes that one of the purposes of the Homeowners Bill of Rights (“HBOR”) was to eliminate the practice of “dual-tracking.” [Citation.] In light of this purpose, the Court cannot say that alleging that Defendant filed a notice of default while Plaintiff’s complete application for a loan modification was pending would not qualify as a material violation.
(Id. at p. 3.)

In addition, cases have considered the purpose of the Homeowner’s Bill of Rights when deciding if a violation is material. (Hendricks v. Wells Fargo Bank, N.A. (C.D. Cal., Apr. 14, 2015, No. CV-15-01299-MWF JEMX) 2015 WL 1644028, at *8; Gonzales v. Citimortgage, Inc (N.D. Cal., June 3, 2015, No. C-14-4059 EMC) 2015 WL 3505533, at *5.)

The Court views this case as fitting within Greene’s reasoning. Moving forward in the foreclosure process while a loan modification application has not been completely resolved—including the right to appeal—is material. Even if the Court was to apply the standard cited by Defendants—defining material as a violation which affected a plaintiff’s loan obligations or the modification process—the result would be the same. Here, Plaintiff alleges that Defendants did not provide him with written notice of the decision on his loan modification, thus depriving him of the ability to appeal that decision. Denial of the opportunity to appeal a loan modification decision could affect the modification process. In the absence of clear authority stating that denial of appeal rights is not material, and considering the purpose of preventing dual-tracking, the Court concludes denial of appeal rights and dual tracking is material. Thus, Plaintiff sufficiently alleges a material violation.

5. Conclusion

Accordingly, the demurrer to the first cause of action on the ground of failure to state sufficient facts is OVERRULED.

C. Second Cause of Action for Violation of Civil Code Section 2923.7

Plaintiff alleges Defendants violated Civil Code 2923.7 because his single point of contact did not have access to current information and personnel sufficient to timely, accurately, and adequately inform him. Plaintiff also alleges the point of contact failed notify him of his right to appeal, and thereby failed to ensure he was considered for all foreclosure prevention alternatives.

Defendants first argue that Plaintiff’s claim fails because Defendants were not required to ensure the quality of the point of contact.

It is true that Civil Code section 2923.7 requires a mortgage servicer to provide a single point of contact. (Civ. Code, § 2923.7, subd. (a).) However, this is not all the statute requires. It also requires the point of contact fulfill certain duties. (Civ. Code, § 2923.7, subd. (b).) Thus, a violation of section 2923.7 can occur not only because a defendant failed to appoint a single point of contact but also because the point of contact failed to perform as specified in subdivision (b). (See Nasseri v. Wells Fargo Bank, N.A. (N.D. Cal. 2015) 147 F.Supp.3d 937, 944 [plaintiff sufficiently plead a violation of section 2923.7 where single point of contact set the account for automatic payments but later failed to inform the plaintiff that she could no longer make automatics payments]; Penermon v. Wells Fargo Bank, N.A. (N.D. Cal. 2014) 47 F.Supp.3d 982, 1000 [plaintiff stated a claim where single point of contact failed to communicate with him].)

Here, Plaintiff alleges the single point of contact did not perform his duties by failing to keep him informed and provide him a written letter regarding the denial of his loan modification. Thus, the argument that Defendants did not violate section 2923.7 because they have no responsibility for the quality of the point of contact is misplaced.

Next, Defendants argue that any violation that occurred was not material. Defendants’ argument is very similar to the one raised with respect to former Civil Code section 2923.6, subdivision (c). Defendants assert that any failures by the single point of contact did not affect plaintiff’s loan obligations or loan modification process. As discussed in section above, there is limited case law on this topic, and what little case law there is either minimizes materiality as a separate element, or finds violations are material based on the purpose of the statute. Here, the Court has already ruled that if materiality is an element at all, the loss of the opportunity to appeal is a material change to the loan modification process. In the second cause of action Plaintiff asserts the failures of the point of contact prevented him from appealing the loan modification issue and being considered for foreclosure alternatives. Thus, because Plaintiff alleges a material violation, Defendants’ argument is not well-taken.

Accordingly, the demurrer to the second cause of action for violation of Civil Code section 2923.7 on the ground of failure to state sufficient facts is OVERRULED.

D. Third Cause of Action for Negligence

Plaintiffs allege that Defendants were negligent in their handling of Plaintiff’s loan modification and short sale applications. Defendants argue that Plaintiff has not alleged any of the elements of negligence. The elements of negligence are duty, breach, causation, and damages. (Lueras v. BAC Home Loans Servicing, LP (2013) 221 Cal.App.4th 49, 62.)

1. Duty

Defendants contend that did not owe Plaintiff any duty whatsoever because, under California law, “as a general rule, a financial institution owes no duty of care to a borrower when the institution’s role 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 Ass’n (1991) 231 Cal.App.3d 1089, 1096 (Nymark).)

In the foreclosure context there is a split of authority as to whether the general rule that no duty of care exists extends to plaintiffs who have sought loan modifications. For background, it is necessary to summarize Biakanja v. Irving (1958) 49 Cal.3d 647, (Biakanja). “Biakanja ‘ is the leading California case discussing whether a legal duty should be imposed absent privity of contract.’ [Citation.] In Biakanja, the California Supreme Court held that whether the defendant in a specific case ‘will be held liable to a third person not in privity is a matter of policy and involves the balancing of various factors,’ including: (1) ‘the extent to which the transaction was intended to affect the plaintiff,’ (2) ‘the foreseeability of harm to [the plaintiff],’ (3) ‘the degree of certainty that the plaintiff suffered injury,’ (4) ‘the closeness of the connection between the defendant’s conduct and the injury suffered,’ (5) ‘the moral blame attached to the defendant’s conduct,’ and (6) ‘the policy of preventing future harm.’ [Citation.] (Daniels v. Select Portfolio Servicing, Inc. (2016) 246 Cal.App.4th 1150, 1181 (Daniels).)

Some courts applied the Biakanja factors, ultimately determining there is a duty to use reasonable care in handling a loan modification request, once the lender undertakes to consider it. (See Alvarez v. BAC Home Loans Servicing, L.P. (2014) 228 Cal.App.4th 941, 945-952 (Alvarez); Daniels, supra, 246 Cal.App.4th at p. 1183; Rossetta v. CitiMortgage, Inc. (2017) 18 Cal.App.5th 628, 640.) On the other hand, multiple courts followed Nymark and declined to consider an exception to the general rule in this circumstance because loan modifications fall squarely within a lending institution’s conventional role as a money lender. (See Lueras, supra, 221 Cal.App.4th at p. 68.) These courts typically did not apply six factors set forth in Biakanja, which are evaluated to determine whether a duty exists. (Daniels v. Select Portfolio Servicing, Inc. (2016) 246 Cal.App.4th 1150, 1181 (Daniels).)

The Court finds the former line of cases, particularly the Sixth District decision Daniels, more persuasive. As explained in Daniels, the general rule of no duty was developed in the context of actions by third parties seeking to hold construction lenders liable for borrowers’ failings (construction defects) and it would make no sense to impose a duty on the lender unless it was involved in the process of construction. (Daniels, supra, 246 Cal.App.4th at pp. 1180-81.) Residential foreclosure cases are distinct in that the plaintiff is not seeking to impose a duty on the lender to prevent an error by the borrower.

In Daniels the court applied the Biakanja, factors to the issue of whether a bank had a duty with respect to a loan modification process and concluded that it did. (Daniels, supra, 246 Cal.App.4th at p. 1183.) Daniels compels application of the Biakanja factors here and that application, particularly in light of the Legislature’s enactment of the Homeowner Bill of Rights (which expresses a strong public policy of avoiding foreclosure when possible and protecting homeowners from improper loan servicer conduct), leads to the conclusion the once a lender or loan servicer undertakes to consider a loan modification request, it owes the borrower a duty to use reasonable care in handling that request. (See Alvarez, supra, 228 Cal.App.4th at pp. 945-952.)
Defendants’ simply assert that a lender owes no duty to a borrower. Under Daniels, it is clear this general point is without merit. In reply Defendants address the Biakanja factors and assert that because Plaintiff does not allege the loan application was mishandled. However, this argument is circular because the very reason for Plaintiff’s suit is a failure to provide a written decision regarding the loan modification, from which he could appeal. Plaintiff cannot know if the loan modification decision was properly made without the ability to review the decision and appeal it, which is what he alleges Defendants have prevented him from doing.

Thus, the demurrer is not sustainable on this basis.

2. Breach

Defendants assert that, if they had any duty towards Plaintiff, none of the actions in the Complaint constitute a breach. They assert that there is no allegation in the complaint that they mishandled Plaintiff’s loan modification, lost documents or asked Plaintiff for documents he had already submitted. Rather, Defendants claim according to the Complaint they reviewed that application and denied it.

In the first instance, this argument is predicated one of two assumptions. Either on the assumption that so long as the application was reviewed and denied, Defendants did not breach their duty to Plaintiff, or alternatively the only way Defendants could breach their obligations would be by mishandling Plaintiff’s loan application, losing documents, or asking for documents that have already been submitted. Defendants present no law limiting negligence claims to either scenario.

Moreover, even if Defendants cited law stating Plaintiff must allege Defendants mishandled his loan application, he has so alleged. Plaintiff alleges Defendants mishandled his loan modification by failing to provide him with written notification of the decision to deny his application as required by law. It is unclear if Defendants dispute they failed to provide written notice, or admit it but deny the alleged mishandling was a breach of their duty.

Insomuch as Defendants contest whether they failed to provide a written notification, “[a] demurrer tests only the legal sufficiency of the pleading. It admits the truth of all material factual allegations in the complaint; the question of plaintiff’s ability to prove these allegations, or the possible difficulty in making such proof does not concern the reviewing court.” (Committee on Children’s Television, Inc. v. General Foods Corp. (1983) 35 Cal.3d 197, 213-214.) If alternatively they assert that a failure to provide written notice is not a breach, they do not support it with argument or citation to law.

Therefore, the demurrer is not sustainable on this basis.

3. Causation and Damages

Plaintiff alleges “[a]s a result of Defendants’ negligence, Plaintiff has suffered damages including but not limited to, being forced into bankruptcy due to imminent loss of his Property, destruction of [his] credit, attorney’s fees, severe emotional distress, lack of appetite, frustration, fear, anger, helplessness, nervousness, anxiety, sleeplessness, sadness, and depression[.]” (Complaint, ¶67.)

Defendants argue that Plaintiff fails to allege causation because any damages he has suffered are a result of defaulting on the loan, not their actions regarding the loan modification or short sale. Defendants present no law in support of this argument.

Defendants are generally correct that Plaintiff must plead some connection between the harm suffered and their breach to allege negligence. (Christensen v. Superior Court (1991) 54 Cal.3d 868, 900–901 (Christensen); see Saelzler v. Advanced Group 400 (2001) 25 Cal.4th 763, 778 [“Actual causation is an entirely separate and independent element of the tort of negligence”].) “ ‘Ordinarily that is accomplished by implication from the juxtaposition of the allegations of wrongful conduct and harm. [Citation.] However, where the pleaded facts of negligence and injury do not naturally give rise to an inference of causation the plaintiff must plead specific facts affording an inference the one caused the others.’ [Citation.]” (Christensen, supra, 54 Cal.3d at p. 900–901.)

Here, Plaintiff has alleged various failures resulted in deprivation of the opportunity to appeal two decisions; the denial of his loan modification and the refusal to consider a short sale.

However, Plaintiff does not allege a connection between Defendants’ actions and the harm he suffered. The damages alleges are “being forced into bankruptcy due to imminent loss of his Property, destruction of Plaintiffs’ credit, attorneys’ fees, severe emotional distress, loss of appetite, frustration, fear, anger, helplessness, nervousness, anxiety, sleeplessness, sadness, and depression…” (Complaint, ¶67.) He does not explain how if he had better communication with his single point of contact, had written notice of and the opportunity to appeal both the loan modification and the short sale decisions, and was reviewed for all possible foreclosure alternatives, it would have prevented any of the damages complained of. These damages are all related to being in default on his loan and the possibility of foreclosure. The demurrer is sustainable on this basis.

In addition, Defendants contend that Plaintiff does not allege the element of damages because choosing to file for bankruptcy and suffering emotional distress due to default are not legal damages. Even if the argument was meritorious, Defendants advance no argument whatsoever regarding the alleged damage to Plaintiff’s credit and attorney’s fees allegedly incurred. Thus, the element of damages would still be sufficiently pleaded.

4. Conclusion

Accordingly, the demurrer to the third cause of action for negligence on the ground of failure to state sufficient facts is SUSTAINED, with 10 days leave to amend.

E. Fourth Cause of Action for Unfair Business Practices

Plaintiff alleges that Defendants’ conduct amounted to unfair competition in violation of Business and Professions Code section 17200, et seq., knowns as the unfair competition law (“UCL”). The UCL prohibits “any unlawful, unfair or fraudulent business act or practice and unfair, deceptive, untrue or misleading advertising and any act prohibited by [California’s false advertising law].” (Bus. & Prof. Code, § 17200 et seq.)

Defendants argue that Plaintiff’s UCL claim must fail because any injury was due to his default on the loan, not any action by them. Defendants correctly assert that to have standing to bring a UCL claim a private plaintiff must allege both they suffered economic injury, and the defendant’s unfair competition caused that injury. (See Bus. & Prof. Code, § 17204; see Peterson v. Cellco Partnership (2008) 164 Cal.App.4th 1583.)

The required “causal connection is broken when a complaining party would suffer the same harm whether or not a defendant complied with the law.” (Daro v. Superior Court (2007) 151 Cal.App.4th 1079, 1099.) In the foreclosure context, where a plaintiff pleads economic damages they must allege they would not have suffered the same harm absent the alleged UCL violation. (Jenkins v. JPMorgan Chase Bank, N.A. (2013) 216 Cal.App.4th 497, 522-3.)

Here, the economic injuries alleged in the UCL cause of action is “loss of money and property, loss of reputation and goodwill, severe emotional distress, loss of appetite, frustration, fear, anger, helplessness, nervousness, anxiety, sleeplessness, sadness, and depression[.]” (Complaint, ¶76.) Plaintiff does not clearly allege how any of these harms go beyond what Plaintiff would inherently suffer from default and the associated risk of foreclosure. Said another way, it does not appear that Defendants’ failures regarding the loan modification application, the short sale process, or the single point of contact, resulted in additional harm to Plaintiff. Thus, the demurrer is sustainable on this basis.

Next, Defendants assert that Plaintiff’s UCL claim fails because it is dependent on the other causes of action, all of which fail. The Court did not sustain the demurrer as to each of the other causes of action. Thus, this argument is not well-taken.

Accordingly, the demurrer to the fourth cause of action for violation of Business and Professions Code section 17200 on the ground of failure to state sufficient facts is SUSTAINED, with 10 days leave to amend.