Case Number: BC506889 Hearing Date: April 08, 2014 Dept: 32

CASE NAME: George Lanning, et al. v. California Bank & Trust, et al.
CASE NO.: BC506889
HEARING DATE: 04/07/14
DEPARTMENT: 32
SUBJECT: Demurrer to Second Amended Complaint
MOVING PARTY: Defendants California Bank & Trust
RESP. PARTY: Plaintiffs George Lanning and Nansee Lanning

TENTATIVE RULING

General Demurrer:

1st cause of action (Intentional infliction of emotional distress) – SUSTAINED WITHOUT leave to amend
2nd cause of action (Quiet title) – SUSTAINED WITHOUT leave to amend
3rd cause of action (Declaratory relief) — SUSTAINED WITHOUT leave to amend
4th cause of action (Breach of implied covenant of good faith and fair dealing) — SUSTAINED WITHOUT leave to amend

Demurrer for uncertainty OVERRULED.

ANALYSIS

General Demurrer

Defendant demurs to the first, second, third, and fourth causes of action for failure to state a claim and for uncertainty.

A demurrer cannot be sustained if the complaint alleges the essential facts of some valid claim when construed liberally with a view to substantial justice between the parties. (Gruenberg v. Aetna Ins. Co. (1973) 9 Cal.3d 566, 572.) If the complaint fails to plead any essential element of a particular cause of action, a demurrer should be sustained. (Rakestraw v. Cal. Physicians’ Serv. (2000) 81 Cal.App.4th 39, 43.) For purposes of demurrer, allegations of the complaint must be accepted as true. (Tiedje v. Aluminum Taper Milling Co. (1956) 46 Cal.2d 450, 454.) A court can disregard allegations that are contradicted by the express terms of an exhibit. (Freeman v. San Diego Association of Realtors (1999) 77 Cal.App.4th 171, 178.) A demurrer can be used only to challenge defects that appear on the face of the pleading under attack of from matters outside the pleading that are judicially noticeable. (Blank v. Kirwan (1985) 39 Cal.3d 311, 318.)

First Cause of Action – IIED

The elements for a claim for IIED are (1) outrageous conduct by defendant; (2) Defendant’ intention of causing or reckless disregard of the probability of causing emotional distress; (3) severe emotional distress; and (4) causation. (Huntingdon Life Sciences, Inc. v. Stop Huntingdon Animal Cruelty USA, Inc. (2005) 129 Cal. App. 4th 1228, 1259.) “Conduct is extreme and outrageous when it exceeds all bounds of decency usually tolerated by a decent society, and is of a nature which is especially calculated to cause, and does cause, mental distress.” (Fisher v. San Pedro Peninsula Hospital (1989) 214 Cal.App.3d 590.)

The complaint appears to allege that Defendant caused Plaintiffs emotional distress by fraudulently foreclosing on the Sunset and San Fernando properties. (SAC ¶ 43.) As stated in the Court’s ruling on the demurrer to the FAC, declaring a default and initiating a foreclosure would not be considered extreme or outrageous conduct.

In opposition, Plaintiffs contend that Defendant engaged in extreme and outrageous conduct because Defendant refused to honor a $130,000 loan commitment from its predecessor. Plaintiffs have added the following language to the IIED claim: “”Defendant CB&T acquired ALLIANCE who had agreed to lend $130,000 to Plaintiffs for repairs on the San Fernando Property. CB&T had a duty to make the loan after the commitment by its predecessor in interests. This caused Plaintiffs great anguish.” (SAC ¶ 42; see also SAC ¶¶ 26, 96.) Plaintiffs suggest in their opposition brief that the “agreement” with Alliance was oral. (Oppo. 5:9-13.) Even if Defendant CB&T had a duty to honor the Alliance agreement (see further discussion below), at most Plaintiffs have alleged that Defendant did not honor a contractual agreement to loan money. Plaintiffs cite no authorities suggesting that a lender’s denial of credit, or breach of an oral agreement to provide credit, could support an IIED claim. Moreover, Plaintiff has failed to show any such duty existed. (See further discussion below).

Plaintiffs have had three opportunities to state a claim for IIED and fail to show in opposition that these defects could be cured by amendment. (Oppo. 8.) Accordingly, further leave to amend is denied.

The demurrer to the first cause of action is SUSTAINED WITHOUT LEAVE TO AMEND.

Second and Third Causes of Action – Quiet Title and Declaratory Relief

These causes of action are predicated on the allegation that Defendant had no legal right to foreclosure on the properties. (SAC ¶ 86.) However, these allegations contradict prior allegations in the complaint and attached exhibits. (See FAC ¶ 18 [stating that on February 6, 2009, FDIC transferred all assets of Alliance, including Note 1, to Defendant]; see also FAC Exh. 4.) They also contradict documents and facts judicially noticed by the Court. On February 3, 2014, the Court granted Defendant’s request for judicial notice of the Purchase and Assumption Agreement that memorialized the sale of Alliance’s assets, including the instant loans, to Defendant. The Court also granted judicial notice of a substitution of trustee transferring the duty as trustee from Alliance to Defendant TD Services Co. The Court judicially notices these documents from the demurrer to the FAC.

Plaintiffs have not changed the allegations in the quiet title or declaratory relief causes of action. The new allegations in the SAC, as described at pages 4 to 5 of the demurrer, do not support Plaintiffs’ theory that Defendant had no legal right to foreclose on the properties.

In opposition, Plaintiffs contend that there are no records to validate the transfer of trustee duties from Alliance to TD Service Co. (Oppo. 6; see also SAC ¶ 31.) However, this argument contradicts the substitution of trustee discussed above. Moreover, the inability of Plaintiffs to locate a record of this transfer of duties does not establish that Defendant lacked the legal right to foreclose.

Plaintiffs have not explained in opposition how they could cure these defects by amendment. (Oppo. 8.) Accordingly, the demurrer to the second and third causes of action is SUSTAINED WITHOUT LEAVE TO AMEND.

Fourth Cause of Action – Breach of Implied Covenant of Good Faith and Fair Dealing

Plaintiffs allege that “the terms of the loans imposed upon Defendants deny good faith and fair dealing.” (SAC ¶ 94.) Plaintiffs allege that Defendant willfully withheld numerous disclosures; withheld repair assistance at the San Fernando property; and permitted the receiver to increase the costs of operation at the San Fernando property. (¶ 97.)

“The covenant of good faith and fair dealing, implied by law in every contract, exists merely to prevent one contracting party from unfairly frustrating the other party’s right to receive the benefits of the agreement actually made…. The covenant thus cannot ‘be endowed with an existence independent of its contractual underpinnings.’… ‘ It cannot impose substantive duties or limits on the contracting parties beyond those incorporated in the specific terms of their agreement.’” (Guz v. Bechtel Nat. Inc. (2000) 24 Cal.4th 317, 349.) Plaintiffs have not identified terms of the loan documents that were breached or frustrated by Defendant’s alleged conduct. Plaintiffs do not allege what disclosures Defendant withheld or how Defendant had an obligation to control the actions of a court-appointed receiver.

The only new allegations to the SAC for this cause of action are that Defendant “had the duty to make the $130,000 loan that ALLIANCE had made a commitment to Plaintiffs when CB&T obtained ALLIANCE after they had failed.” (SAC ¶ 96.) From the opposition brief, it appears Plaintiffs are arguing that there was an oral agreement between Alliance and Plaintiffs whereby Alliance agreed to loan Plaintiffs $130,000 secured by a second deed of trust on the San Fernando Property. (Oppo. 5.) Plaintiffs have not alleged the terms of this oral agreement.

Moreover, as a general rule, a bank that succeeds a failed institution through FDIC foreclosure can only succeed to agreements memorialized in writing. This D’Oench, Duhme doctrine is a rule of estoppel that precludes a borrower from asserting defenses against the Federal Deposit Insurance Corporation and its assignees that are based on either secret or unrecorded agreements that alter the terms of an obligation. The purpose behind the D’Oench, Duhme doctrine and its statutory counterpart is to allow federal and state bank examiners to rely on a failed bank’s records in evaluating the bank’s assets and to prevent fraudulent insertion of new terms into agreements. (See generally RTC Mortg. Trust 1994-S2 v. Shlens (1998) 62 Cal.App.4th 304, 315-317.) Since Plaintiffs concede the agreement was “oral” and provide no facts about the formation of this agreement (Oppo. 5), Plaintiffs fail to assert a plausible theory for enforcing Alliance’s “agreement” against Defendant.

In requesting leave to amend, Plaintiffs claim that they “would seek leave to further amend on the issue of CBT being the successor to implied agreement.” Plaintiffs seem to argue that D’Oench, Duhme does not apply, but they provide no offer of proof of what additional allegations they could add to support a breach of covenant claim against Defendant.

The demurrer to the fourth cause of action is SUSTAINED WITHOUT LEAVE TO AMEND.

Demurrer for Uncertainty

Demurrers for uncertainty are strictly construed, because discovery can be used for clarification, and apply where defendants cannot reasonably determine what issues or claims are stated. (Khoury v. Maly’s of Cal., Inc. (1993) 14 Cal.App.4th 612, 616.) Defendant fails to show that the complaint is so uncertain that it cannot determine what issues are stated. Accordingly, the demurrer for uncertainty is OVERRULED.