Case Name:   Kim Thu Vu, et al. v. America’s Wholesale Lender, et al.

Case No.:       1-14-CV-263590

 

Currently before the Court is the demurrer of defendants Countrywide Home Loans, Inc., dba America’s Wholesale Lender (“Countrywide”), The Bank of New York Mellon (“BONYM”), and Mortgage Electronic Registration Systems, Inc. (“MERS”) (collectively, “Defendants”) to the complaint of plaintiffs Kim Thu Vu and Tom Cao (collectively, “Plaintiffs”). Defendants demur to each cause of action in the complaint on the grounds of failure to allege sufficient facts to constitute a cause of action. (See Code Civ. Proc., § 430.10, subd. (e).)

 

Request for Judicial Notice

 

In support of their demurrer, Defendants ask the Court to take judicial notice of a number of court records. The request for judicial notice is GRANTED. (See Evid. Code, § 452, subd. (d).)

 

Substantive Analysis

 

Defendants demur to each cause of action on the ground that Plaintiffs fail to allege facts sufficient to constitute a cause of action. They contend that the doctrine of judicial estoppel bars each cause of action, Plaintiffs lack standing to sue, and Plaintiffs do not allege sufficient facts supporting the elements of each cause of action.

 

Doctrine of Judicial Estoppel

 

            Defendants contend that each cause of action in the instant complaint is barred by the doctrine of judicial estoppel because Plaintiffs failed to disclose their claims against Defendants in their chapter 7 bankruptcy schedules, despite knowledge of the claims.

 

The defense of judicial estoppel precludes a party from asserting a position in a judicial proceeding which is inconsistent with a position successfully asserted by it in a prior proceeding. (See Billmeyer v. Plaza Bank of Commerce (1995) 42 Cal.App.4th 1086, 1092.) Generally, to invoke the defense, a party’s inconsistent position must arise from intentional wrongdoing or an attempt to obtain an unfair advantage. (See Kitty-Anne Music Co. v. Swan (2003) 112 Cal.App.4th 30, 35.) A plaintiff will be deemed to have attempted to obtain an unfair advantage if: (1) the plaintiff fails to list a claim against one of his or her principal creditors in answer to an express question about counterclaims and setoffs; and (2) the events on which the plaintiff bases its claim occurred before the filing of the bankruptcy petition. (See Hamilton v. Greenwich Investors, XXVI, LLC (2011) 195 Cal.App.4th 1602, 1614.)

 

Defendants argue that the claims asserted in this complaint arose prior to the filing of Plaintiffs’ bankruptcy petition, and Plaintiffs did not disclose these claims in their bankruptcy schedules. In opposition, Plaintiffs contend that, at the time of the petition, there was no pending litigation and there is no indication that they were intentionally concealing a potential financial asset from the bankruptcy court. Their argument is persuasive.

 

A review of the bankruptcy schedules indicates that Plaintiffs did not list any of Defendants as creditors. Thus, there is no indication that the omission of the instant claims from the bankruptcy petition was intentional or an attempt to obtain an unfair advantage. Accordingly, the demurrer on the basis of the defense of judicial estoppel is without merit.

 

Lack of Standing to Sue

 

            Defendants contend that Plaintiffs lack standing to sue because they failed to schedule their claims in their chapter 7 bankruptcy. In their opposition, Plaintiffs do not address this argument.

 

Under Code of Civil Procedure section 367, every action must be prosecuted in the name of the real party in interest, except as otherwise provided by statute. After a person files for bankruptcy protection, any causes of action previously possessed by that person become the property of the bankrupt estate. (See Cloud v. Northrup Grumman Corp. (1998) 67 Cal.App.4th 995, 1001.) Any property that is neither abandoned nor administered by the bankruptcy trustee remains property of the bankruptcy estate. (Id. at p. 1003.) A chapter 7 debtor may not prosecute a cause of action belonging to the bankruptcy estate unless the claim has been abandoned by the trustee. (See Bostonian v. Liberty Savings Bank (1997) 52 Cal.App.4th 1075, 1081.)

 

Here, the judicially noticed records reveal that Plaintiffs’ claims against Defendants were not listed on the asset schedules they filed with the bankruptcy court. Thus, unless the bankruptcy trustee abandons these claims, they remain the property of the bankruptcy trustee. Accordingly, Plaintiffs lack standing to prosecute these causes of action unless the trustee of the bankruptcy estate abandons the claim.

 

First Cause of Action for Breach of Contract – Money Had and Received

 

Defendants contend that the first cause of action fails to state facts sufficient to constitute a cause of action because Plaintiffs do not allege a sum certain owed to them and that Defendants are not legally entitled to retain the payments. In opposition, Plaintiffs claim that their outstanding debt “has been largely (if not entirely) extinguished by payments received (mortgage payments, insurance, credit default swaps, ‘bailouts,’ etc.).” (Oppn., p. 6:2-3.)  This argument is not persuasive. Plaintiffs do not allege the exact sum owed to them or any facts indicating that the mortgage payments, insurance, credit default swaps and bailouts were made for their benefit. (See Farmers Ins. Exchange v. Zerin (1997) 53 Cal.App.4th 445, 460 [to allege a cause of action for money had and received, plaintiff must state facts indicating that the defendant is indebted to the plaintiff in a certain sum for money had and received by the defendant for the use of plaintiff].) Thus, Plaintiffs fail to allege facts sufficient to state a cause of action for money had and received.

 

Second Cause of Action for Breach of Contract – Improper Assignments

 

Defendants contend that Plaintiffs fail to plead the elements of a cause of action for breach of contract. In particular, they indicate that Plaintiffs do not allege that they performed as required under the contract, that Defendants breached the contract, or that they were damaged by the alleged breach of contract.

 

The elements of a cause of action for breach of contract are: (1) the existence of a contract, (2) the plaintiff’s performance or excuse for nonperformance, (3) the defendant’s breach, and (4) resulting damage. (See Wall Street Network, Ltd. v. N.Y. Times Co. (2008) 164 Cal.App.4th 1171, 1178.)

 

First, Plaintiffs do not allege that they fully performed under the deed of trust and note. Second, while Plaintiffs allege that Defendants breached the contract by failing to properly assign the deed of trust and the mortgage note together, Plaintiffs have identified no provision in the either the deed of trust or the mortgage note to that effect. Finally, Plaintiffs do not allege any facts suggesting that they have been harmed by the assignment of the note separately from the deed of trust. (See Fontenot v. Wells Fargo Bank, N.A. (2001) 198 Cal.App.4th 256, 272 [the assignment of a promissory note merely substitutes one creditor for another without changing obligations under the note].) Based on the foregoing, Plaintiffs fail to state facts sufficient to constitute a cause of action for breach of contract.

 

Third Cause of Action for Violation of the Homeowner’s Bill of Rights

 

Defendants contend that Plaintiffs’ cause of action fails because the Homeowner’s Bill of Rights (“HBOR”) did not take effect until after the recordation of the “robo-signed” assignment of the deed of trust and it does not apply retroactively. Further, Defendants contend that the alleged violation is not material. In opposition, Plaintiffs acknowledge that the HBOR does not apply retroactively. However, they argue that any future notice of sale will be in violation of Civil Code section 2924.17 because the assignment was not accurate, complete and supported by competent evidence.

 

With regard to their third cause of action, Plaintiffs allege that the assignment of the deed of trust dated September 16, 2011 was “robosigned” in violation of Civil Code section 2924.17. (Compl., ¶ 57.) They further allege that the “robosigning” of the assignment is a material violation of Civil Code section 2924.17, entitling them to injunctive relief. (Comp., ¶ 60.)

 

Civil Code section 2924.17, subdivision (a), states: “[a] declaration recorded … pursuant to section 2923.5, a notice of default, notice of sale, assignment of a deed of trust, or substitution of trustee recorded by or on behalf of a mortgage servicer in connection with a foreclosure subject to the requirements of Section 2924 … shall be accurate and complete and supported by competent and reliable evidence.”  In turn, section 2924.19, subdivision (a)(1), provides that if a trustee’s deed upon sale has not been recorded, a borrower may bring an action for injunctive relief to enjoin a “material” violation of section 2923.5, 2924.17, or 2924.18.

 

With regard to the assignment of the deed of trust, as both parties acknowledge, the HBOR took effect after the recordation of the assignment of the deed of trust and the HBOR is not retroactive. (See Rockridge Trust v. Wells Fargo, N.A. (N.D.Cal. 2013) 985 F.Supp.2d 1110, 1152.) Thus, the assignment of the deed of trust does not provide a basis for this cause of action. With regard to Plaintiffs’ argument that should Defendants record a notice of trustee’s sale in the future it would constitute a violation of Civil Code section 2924.17, the issue is not before the Court as no notice of trustee’s sale has been, as yet, been recorded.

In any case, in Johnson v. PNC Mortgage (N.D.Cal. Aug. 12, 2014, C 14-02976 LB) 2014 U.S.Dist. Lexis 111846, the federal district court found that a similar conclusory allegation of “robo-signing” was insufficient to support a cause of action for a material violation of Civil Code section 2924.17. The plaintiffs in Johnson alleged, on information and belief, that the defendant executed an assignment of their deed of trust without reviewing competent and reliable evidence in violation of section 2924.17. The defendant moved to dismiss the cause of action for violation of section 2924.17 and the federal district court granted the motion. First, the court reasoned that the plaintiffs’ robo-signing theory lacked factual support because their allegations were made entirely on information and belief without supporting factual detail. Second, the court concluded that even if the defendant violated the statute, the violation was not material. It reasoned that the assignment of a deed of trust does not affect the right to enforce the deed of trust through foreclosure. Thus, even if the assignment was a sham, it would not have changed affected the rights of the plaintiffs.

 

The same considerations apply in the present matter. Here, Plaintiffs’ “robo-signing” allegations concerning the assignment of the deed of trust were made solely on information and belief without any factual detail. In addition, Plaintiffs do not indicate how the assignment of the deed of trust could have affected their rights in the property. Accordingly, Plaintiffs fail to state facts sufficient to constitute a cause of action for a material violation of Civil Code sections 2924.17 and 2924.19.

 

Fourth Cause of Action for Wrongful Foreclosure

 

Defendants contend that a plaintiff may not bring an action to preemptively challenge a defendants’ authority to foreclose. In opposition, Plaintiffs argue that they have sufficiently alleged that Defendants do not have the authority to foreclose on their property because the assignment of the deed of trust was a sham.

Plaintiffs allege that Defendants have no authority to initiate a nonjudicial foreclosure sale because they have no beneficial interest in the property due to the allegedly sham assignment of the deed of trust. However, the nonjudicial foreclosure scheme does not “require that the foreclosing party have an actual beneficial interest in both the promissory note and deed of trust to commence and execute a nonjudicial foreclosure sale.” (Jenkins v. JPMorgan Chase Bank, N.A. (2013) 216 Cal.App.4th 497, 513.) Thus, the allegedly sham assignment does not prevent Defendants from foreclosing on the property and therefore, Plaintiffs fail to state facts sufficient to constitute a cause of action for wrongful foreclosure.

 

Fifth Cause of Action for Unfair Business Practices

 

With regard to their fifth cause of action, Plaintiffs allege that Defendants engaged in a number of unlawful acts, including the recordation of fraudulent documents. (Compl., ¶ 79.)

 

Defendants argue that Plaintiffs have failed to plead any injury in fact or loss of money or property as a result of the alleged unlawful acts. This argument is persuasive. Plaintiffs do not allege how the recordation of fraudulent documents caused them any economic injury. Even if the assignment of the deed of trust was a sham, the assignment would not have changed the plaintiffs’ payment obligations and would only have affected the rights of the lender and future encumbrancers or purchasers. (See Johnson v. PNC Mortgage (N.D.Cal. Aug. 12, 2014, C 14-02976 LB) 2014 U.S.Dist. Lexis 111846; Fontenot, supra, 198 Cal.App.4th at p. 272.) Accordingly, Plaintiffs do not allege an economic injury and therefore, fail to state facts sufficient to allege a cause of action for unfair business practices.

 

Based on the foregoing, the demurrer to each cause of action in the complaint is SUSTAINED WITH 10 DAYS’ LEAVE TO AMEND as Plaintiffs lack standing to sue  and fail to allege facts sufficient to state a cause of action.

 

The currently-scheduled case management conference (9-16-14) is CONTINUED to November 18, 2014 at 10:00 a.m. in Department 5.