Case Name:   Jenhon Liu v. CitiMortgage, Inc., et al.

Case No.:       1-13-CV-257216

 

Currently before the Court is defendants CitiMortgage, Inc. (“CitiMortgage”) and Verdugo Trustee’s (“Verdugo”) (collectively, “Defendants”) demurrer to and motion to strike portions of the second amended complaint (“SAC”) of plaintiff Jenhon Liu (“Liu”).

 

Request for Judicial Notice

 

In support of their demurrer and motion to strike, Defendants ask the Court to take judicial notice of the following: (1) a copy of the notice of default, recorded on March 18, 2013, (2) a copy of the notice of trustee’s sale recorded on June 19, 2013, (3) a copy of the trustee’s deed upon sale recorded on August 21, 2013, and (4) the order re: demurrers, motion to strike the first amended complaint, and motion to expunge lis pendens filed in this action.

 

With regard to the notice of default, notice of trustee’s sale, and trustee’s deed upon sale, courts may take judicial notice of the existence and recordation of real property records, when the authenticity of the documents is not challenged. (See Fontenot v. Wells Fargo Bank, N.A. (2011) 198 Cal.App.4th 256, 264-265.) Here, Liu does not challenge the authenticity of these documents. Thus, Defendants’ request for judicial notice as to these documents is GRANTED.

 

With regard to the order regarding demurrers, motion to strike the first amended complaint and motion to expunge lis pendens, this document is a court record relevant to the issues to be decided in this demurrer. (See Evid. Code, § 452, subd. (d); People ex rel. Lockyer v. Shamrock Foods Co. (2000) 24 Cal.4th 415, 422, fn. 2 [only relevant matters subject to judicial notice].) Accordingly, the request for judicial notice as to this order is GRANTED.

 

Demurrer to the SAC

 

Defendants demur to the third, fourth, fifth, and sixth causes of action for intentional infliction of emotional distress, negligent infliction of emotional distress, quiet title and to set aside trustee’s sale, respectively, on the ground of failure to state facts sufficient to constitute a cause of action. (See Code Civ. Proc., § 430.10, subd. (e).)

 

Third Cause of Action for Intentional Infliction of Emotional Distress

Defendants first contend that damages for emotional distress are not recoverable for breach of contract or injury to property. They reason that as the basis of Liu’s causes of action is a loan contract, no damages for emotional distress are recoverable. This argument lacks merit. Damages for emotional distress in cases of property damage or breach of contract are permitted when they are based on an intentional tort. (See Ragland v. US Bank National Assn. (2012) 209 Cal.App.4th 182, 204.) As a cause of action for intentional infliction of emotional distress sounds in tort (id.), Liu may seek damages for emotional distress.

Next, Defendants argue that CitiMortgage’s conduct does not rise to the level of extreme and outrageous conduct because it merely exercised its right to foreclose after Liu defaulted on his loan. In opposition, Liu argues that a lender’s foreclosure in the absence of a default constitutes extreme and outrageous conduct under Ragland, supra.

In Ragland, the plaintiff argued that the defendant bank engaged in outrageous conduct by inducing her to miss a loan payment, refusing to accept her monthly payments, and selling her home at foreclosure. (Ragland, supra, 209 Cal.App.4th at p. 204.) The Court of Appeal agreed, holding that such conduct could support a cause of action for intentional infliction of emotional distress. In Rowen v. Bank of America, N.A. (C.D.Cal. Mar. 18, 2013, CV 12-1762 CAS (MANx) 2013 U.S. Dist. Lexis 39997, a federal district court applied Ragland, supra, in a factual situation similar to the present action. In Rowen, the plaintiff alleged that made her monthly mortgage payments until the defendant refused to accept further payments on the ground that she was in default. After contacting the defendant, the plaintiff learned that the default was triggered by defendant’s charging her for “forced place insurance” even though she already paid for this insurance through other means. The defendant’s representatives admitted that they were mistaken and represented that the defendant would take no action until the error was corrected. Despite these assurances, the defendant declared the plaintiff in default. After the plaintiff filed suit, the defendant moved to dismiss the plaintiff’s cause of action for intentional infliction of emotional distress on the basis that she did not allege extreme and outrageous conduct. The federal district court denied the motion. Relying on Ragland, supra, it held that when a plaintiff states facts indicating dishonesty or bad faith, and the lack of the legal right to foreclose, the plaintiff adequately alleges outrageous conduct.

Here, Liu states facts indicating that CitiMortgage lacked the legal right to foreclose on his property and acted in bad faith. In this regard, Liu alleges that, just as in Rowen, supra, his lender, CitiMortgage, erroneously purchased forced-placed insurance on his behalf even though he had insurance in place on the property at all times. (SAC,    p. 4:15-18.) He further alleges that even though CitiMortgage acknowledged that he maintained property insurance at all times (SAC, p. 5:8-9), it declared him to be in default and refused to accept his monthly mortgage payments. (SAC, p. 13:9-17.) Thus, Liu alleges facts indicating that CitiMortgage lacked the legal right to foreclose and acted in bad faith. Accordingly, Liu adequately alleges outrageous conduct.

Based on the foregoing, Liu states facts sufficient to constitute a cause of action for intentional infliction of emotional distress. Therefore, the demurrer to the third cause of action is OVERRULED.

 

Fourth Cause of Action for Negligent Infliction of Emotional Distress

Defendants contend that Liu fails to alleged facts indicating that CitiMortgage owed him a duty of care. This argument is persuasive. “No fiduciary duty exists between a borrower and a lender in an arm’s length transaction. [Citations.] ‘[A]s a general rule, a financial institution owes no duty of care to a borrower when the institution’s involvement in the loan transaction does not exceed the scope of its conventional role as a mere lender of money.’[Citation.]” (Ragland, supra, 209 Cal.App.4th at p. 206.) Here, Liu alleges that CitiMortgage owed him a duty of care not to foreclose on the property unless and until he was in default on his obligations. (SAC, p. 15:19-21.) Liu does not, however, allege any facts indicating that CitiMortgage exceeded the scope of its role as a lender of money by electing to foreclose upon the property. Thus, Liu does not allege sufficient facts to support the existence of a legal duty. Accordingly, the demurrer to the fourth cause of action is SUSTAINED WITH 10 DAYS’ LEAVE TO AMEND.

Fifth and Sixth Causes of Action for Quiet Title and to Set Aside Trustee’s Sale

In its opposition, Liu indicates that he did not direct any allegations in these causes of action against Defendants. He further states that these causes of action are solely directed at defendant Lion Share Investments, LLC. As Liu indicates that he has abandoned these causes of action with regard to Defendants, the demurrer to the fifth and sixth causes of action for quiet title and to set aside trustee’s sale is SUSTAINED WITHOUT LEAVE TO AMEND.

 

Motion to Strike Portions of the SAC

Defendants move to strike portions of the SAC on the grounds that it contains irrelevant, false, and improper matters and is not drawn in conformity with the laws of California. (See Code Civ. Proc., § 436, subds. (a),(b).) In particular, they move to strike allegations pertaining to the request for: (1) emotional distress damages in the second cause of action for breach of the covenant of good faith and fair dealing (SAC, p. 12:5), (2) emotional distress damages in the third cause of action for intentional infliction of emotional distress (SAC, ¶¶ 77, 80, 81), (3) emotional distress damages in the fourth cause of action (SAC, ¶ 95), and (4) punitive damages in the third cause of action (SAC, p. 20:5.)

With regard to the request for emotional distress damages in the second cause of action for breach of the covenant of good faith and fair dealing, Defendants contend that emotional distress damages are not available in a contract dispute. This argument is persuasive. “Because the covenant of good faith and fair dealing essentially is a contract term that aims to effectuate the contractual intentions of the parties, ‘compensation for its breach has almost always been limited to contract rather than tort remedies.’ [Citations.]” (Cates Construction, Inc. v. Talbot Partners (1999) 21 Cal.4th 28, 43.) Accordingly, the motion to strike the request for emotional distress damages (SAC, p. 12:5) in the second cause of action is GRANTED WITH 10 DAYS’ LEAVE TO AMEND.

With regard to the request for emotional distress damages in the third cause of action, Defendants argue that, as this cause of action is premised on Liu’s loan contract, emotional distress damages are unavailable. This argument lacks merit. As indicated above, damages for emotional distress in cases of property damage or breach of contract are permitted when they are based on an intentional tort. (See Ragland, supra, 209 Cal.App.4th at p. 204.) As a cause of action for intentional infliction of emotional distress sounds in tort (id.), Liu may seek damages for emotional distress. Accordingly, the motion to strike the request for emotional distress damages (SAC, ¶¶ 77, 80, 81) in the third cause of action is DENIED.

With regard to the request for emotional distress damages in the third cause of action, as the demurrer to the fourth cause of action is SUSTAINED, the motion to strike the allegations pertaining to this cause of action (SAC, ¶ 95) is MOOT.

With regard to the request for punitive damages, Defendants first contend that Liu’s request for punitive damages must be stricken because Liu does not allege any specific factual allegations of oppression, malice, or fraud. In opposition, Liu argues that his allegations concerning CitiMortgage’s decision to foreclose on his property even though it knew he was not in default are sufficient to establish that CitiMortgage acted maliciously. Here, Liu alleges that CitiMortgage knew or should have known that he was not in default (SAC, p. 13:15-17) and the non-judicial foreclosure would cause him significant injury (SAC, p. 13:24-28). Despite this knowledge, it proceeded to foreclose on Liu’s property anyway. (SAC, p. 13:18-21.) Thus, these allegations are sufficient to show that CitiMortgage was aware of the probable consequences of its conduct and wilfully and deliberately failed to avoid the consequences. (See Spinks v. Equity Residential Briarwood Apartments (2009) 171 Cal.App.4th 1004, 1055 [“outrageous” acts carried out despite concerns about legality of the acts and knowledge of effect on the plaintiff sufficient to support award of punitive damages].) Accordingly, Liu adequately alleges that CitiMortgage acted maliciously.

 

Next, Defendants contend that Liu does not allege that any CitiMortgage officers, directors, or managing agents authorized or ratified any alleged acts of oppression, fraud or malice. This argument is persuasive. Here, Liu does not allege any facts showing that an officer, director or managing agent of CitiMortgage authorized or ratified the conduct of their employees in foreclosing on his property. (See Scannell v. County of Riverside (1984) 152 Cal.App.3d 596, 614 [plaintiff must allege facts indicating authorization or ratification of malicious acts by officer, director, or managing agent of corporation].) Thus, Liu does not allege sufficient facts to support a claim for punitive damages. Accordingly, the motion to strike Liu’s request for punitive damages (SAC, p. 20:5) is GRANTED WITH 10 DAYS’ LEAVE TO AMEND.