Case Name: Mahnaz Khazen v. East West Bank
Case No.: 18CV328954

I. Background

This action brought by plaintiff Mahnaz Khazen (“Plaintiff”) against defendant East West Bank (“Defendant”) concerns a loan transaction.
According to the complaint, on March 17, 2004, Plaintiff obtained a mortgage loan from Defendant in the amount of $735,000, secured with a deed of trust against her real property in Saratoga, California (the “Property”). A little over four years later, the parties modified the terms of the loan and executed a Change in Terms Agreement that extended the loan maturity date to October 1, 2017; changed the interest rate to a variable rate; and increased the principal of the loan. The loan was secured with an Assignment of Deposit Account assigning one of Plaintiff’s certificate of deposit (“CD”) accounts as collateral.

In 2008 and 2009, Plaintiff petitioned the County of Santa Clara’s Office of the Assessor for a tax reassessment of the Property; during this time, she did not pay property taxes. Around April 2010, Defendant required Plaintiff to provide further security for the unpaid property taxes. Plaintiff did so by executing an Assignment of Deposit Account assigning another one of her CD accounts (“Second CD Account”) in the amount of $46,000 as collateral. This Assignment of Deposit Account provided that Defendant would release the funds in the Second CD Account once the Office of the Assessor adjusted the tax payment.

In July 2010, the Office of the Assessor denied Plaintiff’s petition for a lower tax assessment. Plaintiff notified Defendant of the decision and requested the funds in Second CD Account be released to pay the unpaid property taxes. However, Defendant refused to release the funds. Only in June 2013, after the County scheduled a tax lien sale of the Property, did Defendant release the funds. Because of Defendant’s refusal, the property taxes were left unpaid, resulting in penalties and interest. Over Plaintiff’s objections, Defendant added the penalties and interest to Plaintiff’s loan amount.

During the ensuing years, the parties disagreed as to the amount owed on the loan. Plaintiff requested a beneficiary statement and discovered that seven payments from August 2013 to April 2015 were not credited to her loan. The statement also indicated that Defendant was charging Plaintiff for two property tax payments she made herself. Further, the statement indicated Defendant overcharged Plaintiff by including an insurance premium for a different property. Around September 2017, Plaintiff informed Defendant of these issues and requested a corrected statement. Defendant agreed to review its records.

About a month later, Defendant provided Plaintiff with a beneficiary statement but did not make the requested corrections; it also refused Plaintiff’s offer to make a loan payment with a reservation of rights. Later, Defendant reported to Equifax that Plaintiff was more than 60 days late on her October loan payment even though she had paid it. The report was incomplete and inaccurate because Defendant did not inform Equifax that Plaintiff disputed the amount owed and had offered a loan payment with reservation of rights. As a result of Defendant’s report to Equifax, Plaintiff’s credit rating dropped significantly.

In January 2018, Defendant sent a payoff statement on the loan to Plaintiff’s escrow company, Old Republic Title Company. In the statement, Defendant failed to correct the disputed amounts and demanded payment for a late charge and default interest.

On February 9, 2018, Plaintiff paid the full amount demanded by Defendant but only after indicating she was making the payment under protest and with a reservation of rights. Later that month, Defendant acknowledged the amount it demanded was incorrect. It sent Plaintiff a refund and closing statement. However, the closing statement still included incorrect charges and omitted payments.
Plaintiff asserts the following causes of action: (1) breach of contract; (2) violation of Consumer Credit Reporting Agencies Act; (3) fraud; and (4) unjust enrichment.
Defendant presently demurs to the first, third, and fourth causes of action, and moves to strike certain allegations from the complaint. Plaintiff opposes both matters.

II. Demurrer

Defendant demurs to the first, third, fourth causes of action on the ground of failure to state sufficient facts (see Code Civ. Proc., § 430.10, subd. (e)), and additionally demurs to the first cause of action on the ground of uncertainty (see Code Civ. Proc., § 430.10, subd. (f)).

A. Failure to State Facts Sufficient to Constitute a Cause of Action

A party may demur to a cause of action if “[t]he pleading does not state facts sufficient to constitute a cause of action.” (Code Civ. Proc., § 430.10, subd. (e).) “[T]he complaint need only allege facts sufficient to state a cause of action; each evidentiary fact that might eventually form part of the plaintiff’s proof need not be alleged.” (C.A. v. William S. Hart Union High School Dist. (2012) 53 Cal.4th 861, 872.)

1. First Cause of Action

Plaintiff’s cause of action for breach of contract alleges that Defendant breached various express and/or implied agreements between the parties, including agreements to credit all of Plaintiff’s loan payments and provide accurate and complete information to credit reporting agencies about Plaintiff’s loan.

Defendant first argues Plaintiff does not adequately allege the existence of the contracts. To state a claim for breach of contract, a plaintiff must plead the existence of the contract. (Maxwell v. Dolezal (2014) 231 Cal.App.4th 93, 97–98.) To sufficiently plead the existence of a contract, a plaintiff must either attach a copy of the contract, plead the terms verbatim, or plead its legal effect. (Construction Protective Services, Inc. v. TIG Specialty Ins. Co. (2002) 29 Cal.4th 189, 199.) In order to plead a contract’s legal effect, a plaintiff need not specify its every term but must allege the material terms of the contract. (McKell v. Washington Mutual, Inc. (2006) 142 Cal.App.4th 1457, 1489.)

Defendant contends Plaintiff fails to adequately allege the contracts because she does not attach them to the complaint or plead their legal effect. This argument is not persuasive. Some of the contracts are attached to the complaint. Moreover, as stated by Plaintiff in her opposition, she does set forth the legal effect of the contracts in the pleading. As an example, Plaintiff alleges the legal effect of one of the contracts by stating Defendant was required to release the funds from the Second CD Account after the Property’s tax payment was adjusted. (Compl., ¶9.) Thus, there is no basis for concluding that Plaintiff failed to adequately allege the subject contracts.

Next, Defendant contends that Plaintiff’s claim fails because she alleges it breached express and implied contracts but one of the attached contracts includes an integration clause; Defendant argues that clause prohibits the existence of any implied terms in a contract. Defendant cites no legal authority to support this argument and it is therefore unsubstantiated. (See People v. Dougherty (1982) 138 Cal.App.3d 278, 282 [a point asserted without authority in support is without foundation and requires no discussion].) Even if Defendant’s statement of the law is correct, its argument only addresses a portion of a cause of action. Defendant only attacks the cause of action to the extent it is predicated upon the implied contracts; it does not challenge the cause of action to the extent it is predicated on express contracts. The law is settled that a demurrer may not be sustained “as to a portion of a cause of action.” (Daniels v. Select Portfolio Servicing, Inc. (2016) 246 Cal.App.4th 1150, 1167.) Therefore, Defendant’s argument fails.

Consequently, the demurrer to the first cause of action on the ground of failure to state sufficient facts is OVERRULED.

2. Third Cause of Action

The third cause of action for fraud alleges Defendant fraudulently represented that Plaintiff owed the amount set forth in the payoff demand and that she was late in making a payment.
Defendant contends Plaintiff fails to allege her fraud cause of action with the requisite specificity.

“The elements of fraud are (1) the defendant made a false representation as to a past or existing material fact; (2) the defendant knew the representation was false at the time it was made; (3) in making the representation, the defendant intended to deceive the plaintiff; (4) the plaintiff justifiably relied on the representation; and (5) the plaintiff suffered resulting damages.” (West v. JPMorgan Chase Bank, N.A. (2013) 214 Cal.App.4th 780, 792.)

Generally, a fraud claim must be pleaded with specificity. (Boschma v. Home Loan Center, Inc. (2011) 198 Cal.App.4th 230, 248.) When a claim for fraudulent misrepresentations is asserted against a corporation, the plaintiff must “allege the names of the persons who made the allegedly fraudulent representations, their authority to speak, to whom they spoke, what they said or wrote, and when it was said or written.” (Tarmann v. State Farm Mutual Auto. Ins. Co. (1991) 2 Cal.App.4th 153, 157.)

Defendant first addresses the element of fraudulent misrepresentations, arguing Plaintiff does not specify the representatives who made the alleged fraudulent statements or their authority to speak on behalf of it. Defendant further maintains Plaintiff failed to state how, where, and to whom the alleged fraudulent representations were made. In opposition, Plaintiff argues these details have been adequately alleged.

Plaintiff’s argument is meritorious. As she points out, the misrepresentations alleged are found in a document transmitted to her escrow company, which is attached to her complaint. Plaintiff identifies the subject fraudulent representations as the contents of the document. (Compl., ¶¶16-20, 24.) While the identity of the specific employee who created the document is unclear because only the initials “JP” are at the bottom of the page, less specificity is required when the defendant likely possesses the information concerning the facts of the controversy. (See Tarmann v. State Farm Mutual Auto. Ins. Co., supra, 2 Cal.App.4th at 158.) Here, Defendant likely can determine the identity of “JP.” Moreover, it can reasonably be inferred that the employee had authority to speak on behalf of Defendant by virtue of his or her use of the company letterhead to transmit a document from the Loan Service Department. Thus, Plaintiff has adequately pled the details of the alleged fraudulent statements.

Defendant also argues that Plaintiff’s allegations of falsity and damages are cursory and conclusory. Defendant’s argument lacks merit. To plead falsity, a plaintiff must allege that the defendant knew the representation was false. (Sun ‘N Sand v. United Calif. Bank (1978) 21 Cal.3d 671, 703.) Plaintiff alleges falsity by identifying certain portions of the document as untrue and also alleges that Defendant knew those portions were false prior to transmitting the document. (Compl., ¶¶15-24, 26, 41-44.) A plaintiff must also plead damages by alleging the alleged misrepresentation caused her injury. (Service by Medallion v. Clorox Co. (1996) 44 Cal.App.4th 1807, 1818.) She also alleges she suffered damages in the amount of $116,884 because of Defendant’s false representations. (Compl., ¶¶42-43.)

Defendant further argues that Plaintiff’s allegations of detrimental reliance are cursory and conclusory. Defendant’s argument is meritorious though not properly framed because allegations of reliance are missing altogether. The complaint is devoid of allegations that Plaintiff acted in reliance on Defendant’s false statements to the escrow company. Plaintiff has therefore failed to plead an essential element of her fraud claim.

Accordingly, the demurrer to the third cause of action is SUSTAINED with 20 days leave to amend after notice of entry of this signed order, on the sole basis that Plaintiff does not allege the element of detrimental reliance.

3. Fourth Cause of Action

The fourth cause of action for unjust enrichment alleges Defendant was unjustly enriched by overcharging Plaintiff for her loan. Defendant argues this cause of action fails because unjust enrichment is not an independent cause of action and, in any event, Plaintiff is barred from pursuing a claim for restitution because she alleges the existence of express written contracts.
“Unjust enrichment is not a cause of action [ ] or even a remedy, but rather a general principle, underlying various legal doctrines and remedies. It is synonymous with restitution. Unjust enrichment has also been characterized as describing the result of a failure to make restitution.” (McBride v. Boughton (2004) 123 Cal.App.4th 379, 387 [internal quotation marks and citations omitted].) Nevertheless, it is commonplace for plaintiffs to assert a “cause of action” for unjust enrichment. (See Huskinson & Brown v. Wolf (2004) 32 Cal.4th 453, 457; see also Cruz v. PacifiCare Health Systems, Inc. (2003) 30 Cal.4th 303, 309.) In determining whether a cause of action labeled as “unjust enrichment” states any cause of action, a reviewing court must ignore erroneous labels and determine whether facts have been pled that would entitle the plaintiff to some relief. (McBride, supra, 123 Cal.App.4th at 387.) “There are several potential bases for a cause of action seeking restitution. For example, restitution may be awarded in lieu of breach of contract damages when the parties had an express contract, but it was procured by fraud or is unenforceable or ineffective for some reason. Alternatively, restitution may be awarded where the defendant obtained a benefit from the plaintiff by fraud, duress, conversion, or similar conduct. In such cases, the plaintiff may choose not to sue in tort, but instead to seek restitution on a quasi-contract theory.” (Id. at p. 388 [citations omitted].)

Thus, the fact that unjust enrichment technically is not a cause of action is not determinative of whether a cause of action has been stated. The critical inquiry is whether Plaintiff has alleged a potential basis for a cause of action seeking restitution. Defendant argues she cannot pursue any cause of action seeking restitution because she alleges the existence of valid written contracts.
In opposition, Plaintiff does not directly address this issue; instead, she argues she can pursue a claim for restitution in the alternative. She asserts that “[i]f the terms that entitle her to recover under unjust enrichment/restitution are not implied in the parties [sic] written agreement, then she asserts her Fourth Cause of Action for the recovery of her overpayment under the loan [in the alternative.]” (Opp., p. 4:17-19.) She maintains that if the terms are implied, then “she asserts her First Cause of Action for their recovery under a breach of contract theory.” (Opp., p. 4:19-20.) However, as Defendant persuasively argues, Plaintiff cannot plead the existence of a valid contract and also request restitution.

The court in Klein v. Chevron U.S.A., Inc. (2012) 202 Cal.App.4th 1342 addressed whether a plaintiff could pursue a breach of contract claim and a claim for restitution in the same action. The court first stated that a claim for unjust enrichment is ordinarily inappropriate where the plaintiff pleads the existence of a valid express contract defining the parties’ rights. (Klein v. Chevron U.S.A., Inc. (2012) 202 Cal.App.4th 1342, 1388-1390 (“Klein”).) The court went on to address the plaintiffs’ argument that they should be permitted to pursue a claim for breach of contract and, in the alternative, a claim for restitution. In considering the facts before it, the court was not persuaded. “Although a plaintiff may plead inconsistent claims that allege both the existence of an enforceable agreement and the absence of an enforceable agreement, that is not what occurred here. Instead, plaintiffs’ breach of contract claim pleaded the existence of an enforceable agreement and their unjust enrichment claim did not deny the existence or enforceability of that agreement. Plaintiffs are therefore precluded from asserting a quasi-contract claim under the theory of unjust enrichment. [Citations.]” (Id., at 1389-1390.) Because the plaintiffs in Klein “did not deny the existence or enforceability” of the contract in their unjust enrichment cause of action, they could not pursue it in the alternative.

Here, Plaintiff faces the same issue as the plaintiffs in Klein. She does not deny the existence or enforceability of any of the contracts between the parties in her unjust enrichment cause of action. The law clearly states that if a plaintiff alleges the existence of a valid contract, there must be some facts pled either denying the contract’s existence or enforceability for her to pursue a restitution claim in the alternative. (Klein v. Chevron U.S.A., Inc., supra, 202 Cal.App.4th at 1389-1390.) Plaintiff therefore fails to state a claim for restitution.

Consequently, the demurrer to the fourth cause of action for failure to state facts sufficient to constitute a cause of action is SUSTAINED with 20 days leave to amend, after notice of entry of this signed order.

B. Uncertainty re: First Cause of Action

A pleading is subject to a demurrer if it “is uncertain…ambiguous and unintelligible.” (Code Civ. Proc., § 430.10, subd. (f).) “[D]emurrers for uncertainty are disfavored and are granted only if the pleading is so incomprehensible that a defendant cannot reasonably respond.” (Lickiss v. Financial Industry Reg. Authority (2012) 208 Cal.App.4th 1125, 1135.)

As previously discussed, Plaintiff’s first cause of action is for breach of contract, alleging Defendant breached various express and/or implied agreements between the parties.

Defendant argues the first cause of action is ambiguous because Plaintiff alleges terms of certain written loan documents but “[n]o loan documents are attached to the [c]omplaint or incorporated by reference.” (Dem., p. 4:16-17.) This argument addresses whether Plaintiff has sufficiently pled the terms of a contract. Whether a party has sufficiently pled the elements of a cause of action is a ground for a demurrer for failure to state facts sufficient to constitute a cause of action. (C.A. v. William S. Hart Union High School Dist., supra, 53 Cal.4th at 872.) A demurrer for uncertainty does not address whether a pleading fails to “incorporate sufficient facts in the pleading but is directed at the uncertainty existing in the allegations actually made.” (Butler v. Sequeira (1950) 100 Cal.App.2d 143, 145-146.) Thus, Defendant’s demurrer for uncertainty is unsubstantiated.

Therefore, the demurrer to the first cause of action on the ground of uncertainty is OVERRULED.

III. Motion to Strike

Defendant moves to strike certain allegations from the first cause of action as irrelevant or improper. (See Code Civ. Proc., §§ 436, subd. (a).) It contends these allegations pertain to portions of the cause of action that are time-barred.

Per the notice of motion, the challenged allegations are: “1. Page 5; Lines 17-18, “…to promptly apply the assigned Certificate of Deposit to payments of property taxes when requested…” and “2. Page 5; Lines 16-17, “…to properly credit all payments made by Plaintiff towards the loan…” as they relate to Page 3; Lines 16-17, “Payments not properly credited by Defendant to Plaintiff’s loan are as follows: 8/23/2013–$3,000, 10/10/2013–$238.99; 5/12/2014–$238.00…” (Notice of Mtn., p. 2:1-6.)

For context, the challenged allegations appear in the following sentence describing the terms of agreements between the parties: “Pursuant to the written loan documents between Plaintiff and Defendant, Defendant agreed, expressly and/or impliedly, inter alia, to properly credit all payments made by Plaintiff towards the loan, to promptly apply the assigned Certificate of Deposit to payments of property taxes when requested, to charge Plaintiff only for the property taxes actually advanced by Defendant and not paid by Plaintiff, to charge the subject loan only for insurance premiums advanced for insurance on the big Basin property, and to provide accurate and complete information to credit reporting agencies concerning Plaintiff’s loan.” (Compl., ¶30.)

As a threshold matter, the Court questions the propriety of the motion relative to the allegations at page 5, lines 16-17 given that Defendant moves to strike them only to the extent they relate to certain other allegations at page 3 of the pleading. This approach suggests that, if the motion were granted, the allegations would not be deemed stricken as to all remaining allegations. But Defendant cites no legal authority permitting a motion to strike to be employed in that manner. The motion is otherwise substantively flawed.

Defendant argues the breach of contract cause of action is time-barred to the extent it is predicated on breaches of the payment credit terms relative to credits that were not made in 2013 and May 2014 and breach of the CD assignment terms in 2010 because these alleged breaches occurred more than 4 years before the complaint was filed on May 25, 2018.

For purposes of a pleading challenge, a claim may be eliminated based on the statute of limitations defense only if the defense clearly and affirmatively appears on the face of the pleading; the mere possibility a claim may be time-barred is insufficient to justify striking a claim. (See E-Fab., Inc. v. Accountants, Inc. Services (2007) 153 Cal.App.4th 1308, 1315-1316.) In assessing whether a claim is time-barred, the two fundamental questions are: (a) What is the applicable statute of limitations for the claim? and (b) When did the claim accrue? (Id. at p. 1316.)

Defendant contends the applicable statute of limitations is four years under Code of Civil Procedure section 337, which provides that the limitations period for an action in written contract is four years. Defendant is correct.

Turning first to the issue of accrual regarding the claim failure to promptly apply the Second CD Account, Defendant assumes the claim accrued in 2013. Defendant does not engage in any meaningful analysis in its moving papers. In opposition, Plaintiff contends she was not injured until February 9, 2018, when she had to pay the full and disputed loan amount; she concludes the cause of action accrued at that time. (Opp., p. 2:6-15.) For the first time on reply, Defendant argues the cause of action accrued in 2013 because that is when Plaintiff suffered additional penalties and interest from the alleged breach.

Generally, a cause of action accrues at “ ‘the time when the cause of action is complete with all of its elements.’” (Fox v. Ethicon Endo-Surgery, Inc. (2005) 35 Cal.4th 797, 806 (“Fox”), quoting Norgart v. Upjohn Co. (1999) 21 Cal.4th 383, 397 (“Norgart”).) The elements are “generically referred to” as wrongful conduct, causation, and harm. (Norgart, supra, 21 Cal.4th at 397.)

Here, while the breach allegedly occurred in 2013, it is not apparent on the face of the complaint when the harm occurred. Although Defendant argues the cause of action accrued in 2013, it is not readily apparent from the face of the complaint that the penalties and interest were added to her loan amount in 2013. (See Compl., ¶14.) There is no date attached to that allegation. (Compl., ¶14.) Moreover, Plaintiff persuasively argues she was not actually injured until she paid the disputed amount in February 2018. Plaintiff argues that previous to her disputed payment, she suffered no harm because she did not pay the additional penalties and interest. A harm must be appreciable for the cause of action to accrue. (Norgart, supra, 21 Cal.4th at 397-398, fn. 2.) In this instance, Plaintiff paying the disputed amount, where she previously refused to, qualifies as an appreciable harm. Thus, it is not clear from the face of the complaint that the cause of action accrued in 2013.

Next, Defendant argues the claim it failed to properly credit Plaintiff’s 2013 and May 2014 loan payments accrued in 2013 and May 2014. (Opp., p. 3:16-19.) Defendant again fails to adequately analyze the accrual issue and does not provide additional analysis in its reply brief. In opposition, Plaintiff again contends her cause of action accrued on February 9, 2018, when she fully paid the disputed loan amount.

Defendant’s argument is not persuasive because it is predicated on the assumption that Plaintiff was harmed in 2013 and May 2014. As before, Plaintiff persuasively argues she was not injured until she finally paid the disputed amount in February 9, 2018 to release her property, which is when the cause of action finally accrued. (See Norgart, supra, 21 Cal.4th at 397-398, fn. 2.) This is also reflected in the complaint. (Compl., ¶15-19, 25.) Thus, the cause of action is not time barred on its face.

For the foregoing reasons, the motion to strike as to lines 16 to 17 on page 5, and lines 17 to 18 on page 5 is DENIED.

This Court will prepare the Order.