Case Name: Harry Wong, et al. v. MTC Financial, Inc., et al.
Case No.: 2015-1-CV-282939

Demurrer by Defendant JPMorgan Chase Bank, N.A. to the First Amended Complaint of Plaintiffs Harry Wong and Maryanne A. Wong

Factual and Procedural Background

This action arises out of a residential mortgage loan. Plaintiffs Harry Wong and Maryanne A. Wong (collectively, “Plaintiffs”) purchased the subject property located at 753 Folsom Circle, Milpitas, California (“Property”). (First Amended Complaint (“FAC”), ¶¶ 2, 8.) Many years later, Plaintiffs began to explore refinancing options for their existing home mortgage. (Id., at ¶ 9.) “[R]epresentatives of Washington Mutual Bank, F.A. (‘WaMu’) solicited Plaintiffs to refinance with WaMu,” advising them that “it would be easier and less expensive for WaMu – their existing lender – to refinance their Property ….” (Id., at ¶ 10.) Plaintiffs were further advised by a WaMu loan officer “to add Philip Wong [(‘Philip’)] as a borrower with 1% undivided interest to help get a better deal, although [they] could have qualified without Philip …, who was never expected to make any of the payments and who in fact did not make any of the payments.” (Id., at
¶ 11.)

Subsequently, Plaintiffs “enter[ed] into a loan with a rider, wherein, [they] would be the non-borrower trustors and Philip … would be the Borrower.” (FAC, ¶ 11.) The Adjustable Rate Rider (“Rider”) stated that the principal balance of the loan could never increase to over $555,000 or 125 percent of the original principal balance of $444,000. (Id., at ¶ 12.) Plaintiffs also executed a Deed of Trust (“DOT”) on the Property in favor of WaMu. (Ibid., Ex. A.)

Thereafter, defendant JPMorgan Chase Bank, N.A. (“Chase”) acquired WaMu and all of its assets, and became the beneficiary under the loan. (FAC, ¶ 13.)

“From 2005 to 2014, Plaintiffs were making what they understood to be their full mortgage payments by paying approximately $2,600.00 per month. However, when Plaintiffs attempted to make the mortgage payment for December 2014 …, [Chase] refused to accept Plaintiffs’ mortgage payment.” (FAC, ¶ 14.) Chase later informed Plaintiffs that it would not accept their mortgage payment because it “had commenced California’s non-judicial foreclosure process due to the fact that Plaintiffs were allegedly behind on their mortgage payments.” (Ibid.)

On February 19, 2015, Chase recorded a Notice of Default (“NOD”) against the Property. (FAC, ¶ 15.) A few months later, on May 29, 2015, Chase recorded a Notice of Trustee’s Sale (“NTS”) regarding the Property. (Ibid.) Subsequently, a Chase representative informed Plaintiffs that the current loan balance was $574,893.50 “despite the fact that the [DOT] explicitly stated that [the] principal balance of [the] loan could never increase to over $555,000.00, or 125% of the original principal balance of $444,000.00.” (FAC, ¶ 16.)

Based on the foregoing, Plaintiffs filed the operative FAC against Chase, alleging a single cause of action for declaratory relief. In the FAC, Plaintiffs allege that an actual controversy exists between them and Chase regarding their respective rights and duties pursuant to the DOT, specifically whether Chase can increase the principal balance of the loan to an amount over $555,000. (FAC, ¶ 19.) Plaintiffs “seek a judicial determination as to whether [Chase] can increase [the] principal balance as they have done in order to ascertain the present value of the loan and [their] rights and responsibilities.” (Id., at ¶ 20.) Plaintiffs allege that “[a] judicial declaration is necessary and appropriate at this time … so that the Parties can ascertain their rights and duties under the Agreement in order to avoid Defendant from increasing [the] principal balance further and then taking title to Plaintiffs’ Property.” (Id., at ¶ 21.)

Currently before the Court is the demurrer by Chase to the FAC on the ground that Plaintiffs fail to allege facts sufficient to constitute a cause of action. (See Code Civ. Proc., § 430.10, subd. (e).) Plaintiffs filed papers in opposition to the demurrer on April 20, 2016. Chase filed a reply on April 26, 2016.

Discussion

I. Request for Judicial Notice

Chase’s request for judicial notice of various documents recorded against the Property (Exhibits 1-2(C) and 4-8) and a Purchase and Assumption Agreement (“PAA”) (Exhibit 3) is GRANTED. (See Fontenot v. Wells Fargo Bank, N.A. (2011) 198 Cal.App.4th 256, 264 [“[A] court may take judicial notice of the fact of a document’s recordation, the date the document was recorded and executed, the parties to the transaction reflected in a recorded document, and the document’s legally operative language, assuming there is no genuine dispute regarding the document’s authenticity. From this, the court may deduce and rely upon the legal effect of the recorded document, when that effect is clear from its face.”]; see also Scott v. JPMorgan Chase Bank, N.A. (2013) 214 Cal.App.4th 743, 753-754 [As JPMorgan argues, the FDIC’s official acts of seizing WaMu’s assets and publishing the P&A Agreement are judicially noticeable. Moreover, … the FDIC’s official act of transferring certain WaMu assets (but not certain liabilities) to JPMorgan as of September 25, 2008—as evinced by the P&A Agreement—is an official act subject to judicial notice under section 452, subdivision (c) under the circumstances of this case.”].)

Chase’s request for judicial notice of the court order denying Plaintiffs’ request for preliminary injunction (Exhibit 9) is DENIED because it is not relevant to the pending matter. (See People v. Rowland (1992) 4 Cal.4th 238, 268, fn. 6 [“Judicial notice … cannot be taken of any matter that is irrelevant.”].)
II. Legal Standard

“In reviewing the sufficiency of a [pleading] against a general demurrer, we are guided by long settled rules. ‘We treat the demurrer as admitting all material facts properly pleaded, but not contentions, deductions or conclusions of fact or law. We also consider matters which may be judicially noticed.’ ” (Blank v. Kirwan (1985) 39 Cal.3d 311, 318.) “A demurrer tests only the legal sufficiency of the pleading. It admits the truth of all material factual allegations in the [pleading]; 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 (“Committee”).)

III. Claim for Declaratory Relief

“A complaint for declaratory relief is legally sufficient if it sets forth facts showing the existence of an actual controversy relating to the legal rights and duties of the parties under a written instrument or with respect to property and requests that the rights and duties of the parties be adjudged by the court. [Citations.] If these requirements are met and no basis for declining declaratory relief appears, the court should declare the rights of the parties whether or not the facts alleged establish that the plaintiff is entitled to favorable declaration. [Citations.]” (Wellenkamp v. Bank of America (1978) 21 Cal.3d 943, 947, superseded by regulation on other grounds; see Columbia Pictures Corp. v. De Toth (1945) 26 Cal.2d 753, 760; see also Code Civ. Proc., § 1060.)

Chase argues that Plaintiffs fail to allege sufficient facts to state a claim for declaratory relief because: (1) Plaintiffs waived any right or defense to its election to initiate foreclosure proceedings, the claim is time-barred, and the PAA limits its liability; (2) Plaintiffs lack standing as they are not the borrowers on the loan and there is not actual controversy; and (3) the claim is preempted by the Home Owner’s Loan Act, 12 U.S.C. sections 1461, et seq. (“HOLA”).

A. Waiver, Statute of Limitations, and Effect of PAA

Chase contends that Plaintiffs waived their right to bring the claim for declaratory relief because they signed the “Rider to Deed of Trust Executed By A Non-Borrower Trustor and Borrower,” which included a waiver of any right or defense to its election of a remedy, including the initiation of foreclosure proceedings against the Property. (See Mem. Ps. & As., p. 56:17-28.) Chase also asserts, in a conclusory manner, that “any claim challenging the negotiation or terms of the Rider is time-barred inasmuch as over 11 years have elapsed since the execution of the Rider.” (Mem. Ps. & As., p. 6:5-7.) Lastly, Chase contends that “[it] did not assume liability under the [PAA] for claims arising from the loans made by WaMu.” (Ibid.)

With respect to Chase’s argument regarding waiver, Chase relies on the following portions of the Rider: “Trustor … specifically waives any right or defense to its obligations under this Security Instrument based on Bank’s election of any remedy against Borrower, including but not limited to, nonjudicial foreclosure”; Trustor waives various specified defenses, such as the statute of limitations and incapacity; and “Trustor waives all rights and defenses arising out of an election of remedies by Lender.” (RJN, Ex. 2, p. 4.)

As Plaintiffs persuasively argue, this language does not amount to a waiver of any and all claims against Chase. Rather, the waiver applies only to rights and defenses to Plaintiffs obligations under the DOT that arise out of and/or are based on Chase’s election of a particular remedy. Here, the claim for declaratory relief does not arise out of and it is not based on Chase’s election of non-judicial foreclosure proceedings. Instead, the claim arises out of Chase’s alleged violation of the terms of the DOT and Rider. (See FAC, ¶¶ 19-20 [alleging that an actual controversy exists between Plaintiffs and Chase regarding their respective rights and duties under the DOT, specifically “whether [Chase] can increase [the] principal balance as they have done in order to ascertain the present value of the loan and [their] rights and responsibilities.”].) Furthermore, contrary to Chase’s assertion otherwise, the claim does not seek to enjoin Chase from foreclosing on the Property. The specific relief requested is “a judicial determination as to whether [Chase] can increase [the] principal balance as they have done in order to ascertain the present value of the loan and [their] rights and responsibilities.” (Id., at ¶ 20.)

Next, Chase’s conclusory argument that “any claim challenging the negotiation or terms of the Rider is time-barred” fails to demonstrate that the claim for declaratory relief is barred by the applicable statute of limitations. First, Chase does not cite any legal authority or otherwise indicate what the applicable statute of limitations is for Plaintiffs’ claim for declaratory relief. Second, Chase has not presented any argument establishing when the cause of action for Plaintiffs’ claim for declaratory relief accrued. (Pena v. City of Los Angeles (1970) 8 Cal.App.3d 257, 262-263 [“A cause of action accrues when a suit may be maintained thereon, and the statute of limitations begins to run on the date of the accrual. If declaratory relief is sought with reference to an obligation which has been breached and the right to commence an action for ‘coercive’ relief upon the cause of action arising therefrom is barred by the statute, the right to declaratory relief is likewise barred …. ‘Until some conventional right of action has accrued, the statute of limitations does not operate independently to cut off the right to bring one for declaratory relief, and after a ‘coercive’ right of action has accrued the alternative right to bring an action for the declaratory remedy continues concurrently with the ‘coercive’ right of action.’”].)

Chase’s third and final argument—that it did not assume liability under the PAA for claims arising from the loans made by WaMu—fails to demonstrate that the claim for declaratory relief is barred. The terms of the judicially noticed PAA indicate that Chase did not assume any liabilities related to WaMu’s lending activities that occurred prior to September 25, 2008. (See RJN, Ex. 3, p. 9, ¶ 2.5.) However, it appears that the claim for declaratory relief does not arise out of the loan origination. (See Armendariz v. JPMorgan Chase Bank, NA (S.D. Cal., May 13, 2011, No. 3:11-CV-00137 AJB) 2011 WL 1869914, at *3-4 [indicating that the subject language in the PAA pertains to claims arises out of the conduct of the lender at the time of the origination of the mortgage loan and/or before Chase received WaMu’s interests from the FDIC].) Instead, it appears that the relevant conduct by Chase took place on or about February 2016, when it allegedly demanded payment of a principal balance in excess of $555,000.

B. Standing

Chase argues that Plaintiffs lack standing to bring their claim for declaratory relief because there is no actual controversy as Plaintiffs are not personally obligated to pay the sums secured by the DOT.

In opposition, Plaintiffs argue that they have standing and adequately allege an actual controversy because they are parties to the Rider; the Rider “recognizes that Trustor may make payments pursuant to the loan”; and, “[t]herefore, demanding a sum above the amount allowed in the [DOT] affects Plaintiffs’ ability to reinstate or payoff the loan to protect their interest ….” (Opp’n., p. 7:1-4. ) In support of their argument, Plaintiffs cite to paragraph 8 of the Rider.

That portion of the Rider states, “[w]ith or without notice to Trustor, the Bank, in its sole discretion, at any time and from [time] to time, in such manner and upon such terms as it considers best, may (a) apply any or all payments or recoveries from Borrower, from Trustor, from any guarantor or endorser, or realized from any security, in such manner, order and priority as the Bank elects ….” (RJN, Ex. 2B, p. 3, ¶ 8.)

This language does not give Plaintiffs, as Trustors, a right to make payments on the loan or otherwise indicate that they have the ability to reinstate or payoff the loan such that Chase’s alleged demand for payment of an amount in excess of $555,000 would affect their rights. Consequently, Plaintiffs fail to demonstrate that an actual controversy exists with respect to their rights under the written instruments.

C. Conclusion

Accordingly, the demurrer to the FAC is SUSTAINED, with 10 days’ leave to amend.