2011-00104150-CU-BC

Luis Azevedo vs. Suntrust Mortgage Inc

Nature of Proceeding: Hearing on Demurrer

Filed By: McTigue, Sean R. If any party requests oral argument, then the hearing will take place on Tuesday, June
10, 2014, at 9:00AM in this department. Any party seeking oral argument must still
make a telephonic request pursuant to Local Rule 1.06(B).

**If any party requests oral argument, then at the time the request is made, the
requesting party must inform the court and opposing counsel of the specific
issues on which oral argument is sought.**

Defendant SunTrust Mortgage, Inc.’s (“Defendant’s”) Demurrer to Plaintiffs Luis
Azevedo’s and Barbara Azevedo’s (“Plaintiffs’”) Fourth Amended Complaint (“4AC”) is
OVERRULED in part and SUSTAINED in part.

This is a nonjudicial foreclosure case. Plaintiffs purchased a residential property in
1998, which they refinanced through a $266,250 loan from Defendant in 2006, secured
by a Deed of Trust (“DOT”). (4AC ¶¶ 6-7, Ex. A.) Plaintiffs allege that, beginning in
June 2007, Defendant began to misapply or refuse to apply their monthly payments (
Id. ¶¶ 8-13), resulting in the foreclosure of the property in November 2010. (Id. ¶ 24.)
Plaintiffs have pleaded three causes of action against Defendant: Breach of Contract,
Breach of the Implied Covenant of Good Faith and Fair Dealing, and Promissory
Estoppel. Defendant has demurred to all three causes of action on grounds that the
allegations fail to state a cause of action.

Request for Judicial Notice

Defendant’s Request for Judicial Notice (“RJN”) is GRANTED.

Demurrer to the First Cause of Action for Breach of Contract

Defendant’s demurrer to the first cause of action is OVERRULED.

Plaintiffs’ breach of contract cause of action relies on three distinct theories: (1)
Defendant breached the forbearance agreement between the parties by failing to
communicate with Plaintiffs regarding future payments after the forbearance
agreement expired (4AC ¶ 27), (2) Defendant breached the DOT by “attempting to
foreclose under the DOT after failing to apply Plaintiffs’ payments” (Id. ¶ 31), and (3)
Defendant breached the DOT by wrongfully applying insurance proceeds to the loan
rather than using them to repair Plaintiffs’ property. (Id. ¶ 30.)

Defendant’s Moving Memorandum and Reply are silent as to the third theory. Under
this theory, Plaintiffs claim that they had property insurance as required by the DOT,
and that their insurance company issued a check to Defendant to repair the roof of the
property. (Id.) Plaintiffs allege that Defendant was obligated under the DOT to use
this money to repair the roof, and that Defendant breached the DOT by instead
applying the proceeds to the principle balance of the loan, forcing Plaintiffs to
independently pay for the roof repair. (Id.)

As noted above, Defendant ignores this theory in its Moving Memorandum.
Furthermore, even though Plaintiffs oppose the demurrer in reliance on this theory,
Defendant fails to address this theory in its Reply as well. The Court is required to
overrule a demurrer if the allegations state a cause of action on any theory.
th
Charpentier v. Los Angeles Rams Football Co., (1999) 75 Cal.App.4 301, 307.
Defendant having failed to address the sufficiency of Plaintiffs’ allegations relative to insurance, has failed to meet its burden as moving party. CRC 3.1113(b). Indeed, this
theory appears to require a genuine contractual analysis of the terms of the DOT. The
Court will not undertake such an analysis in the first instance. As a consequence, the
demurrer to the first cause of action is overruled.

In overruling the demurrer, the Court is aware of Defendant’s general contention that
Plaintiffs cannot state any breach of contract claim under the DOT, including a breach
associated with the insurance proceeds, because they have failed to allege the
element of their own performance. Specifically, Defendant argues that the checks
attached to the 4AC show that not all payments were timely made, and that Plaintiffs’
payments were inadequate because they did not include payment of late fees. (4AC
Ex. B; Moving Mem. at 2.) However, Plaintiffs allege that they “tried to tender
payments, but Defendant would not accept them.” (4AC ¶ 17.) This allegation, liberally
construed, suffices to establish the element of Plaintiffs’ performance.

Demurrer to the Second Cause of Action for Breach of the Implied Covenant of Good
Faith and Fair Dealing

Defendant’s demurrer to the second cause of action is OVERRULED.

Plaintiffs base their cause of action for breach of the implied covenant of good faith
and fair dealing on two separate contracts: (1) the DOT, and (2) the forbearance
agreement.

With respect to the DOT, Plaintiffs allege that Defendant accepted their loan payments
but failed to apply them to the loan, instead declaring Plaintiffs to be in default. (4AC ¶
40.) Defendant argues that the allegations do not establish the element of unfair
interference. Specifically, Defendant argues that it acted in accordance with the terms
of the DOT, which “allow SunTrust to hold inadequate funds for a reasonable time,
then return them if the loan is not brought current.” (Moving Mem. at 5.) Defendant
contends that the payments in question were “inadequate” because they did not
include late fees.

The allegations in the 4AC and exhibits thereto present a factual question as to
whether the loan payments that Defendant held and rejected were adequate. It is
unclear whether Plaintiffs’ payments were late and whether any late fees were actually
assessed. As a consequence, whether Defendant was entitled to reject the payments
in question, and thus unlawfully interfered with Plaintiffs’ rights under the contract,
present factual issues that the Court cannot currently resolve.

Demurrer to the Third Cause of Action for Promissory Estoppel

Defendant’s demurrer to the third cause of action is SUSTAINED with leave to amend.

Plaintiffs base their promissory estoppel cause of action on the forbearance
agreement. Plaintiffs allege that the entire agreement was a “promise” that Defendant
did not honor because Defendant refused to “review Plaintiffs’ emails,” “acknowledge
documentation of payments and attempts to make payments,” and “resolve the entire
matter.” (4AC ¶ 45.) Plaintiffs further allege that Defendant dishonored its promise by
“ceasing all communications” with Plaintiffs. (Id.) Defendant argues that the third
cause of action fails because it really states a cause of action for breach of written
contract, not promissory estoppel. Defendant also argues that Plaintiffs have failed to allege any resulting injury. (Moving Mem. at 6.)

Plaintiffs have failed to address these arguments in their Opposition, which the Court
construes as their concession on the merits. As a result, the Court sustains the
demurrer. Because this is the first time that Defendant has objected to the promissory
estoppel cause of action, the Court grants leave to amend.

Conclusion

The demurrers to the first and second causes of action are OVERRULED.

The demurrer to the third cause of action is SUSTAINED with leave to amend.

No later than June 19, 2014, Plaintiffs may file and serve a fifth amended complaint
(“5AC”) on an attempt to remedy the defects in the third cause of action; Defendant to
file and serve its responsive pleading(s) within 10 days thereafter, 15 days if the 5AC
is served by mail. (Although not required by any statute or rule of court, Plaintiffs are
requested to attach a copy of the instant minute order to the 5AC to facilitate the filing of the
pleading.)

The minute order is effective immediately. No formal order pursuant to CRC Rule 3.1312 or
further notice is required.