Case Name: Norma Erwin v. Nationstar Mortgage LLC, et al.

Case No: 17CV313914

I. Background

This case brought by Norma Erwin (“Plaintiff”) against Nationstar Mortgage LLC (“Nationstar”) and Deutsche Bank National Trust Company (“Deutsche”) (collectively “Defendants”) arises from the servicing of a residential mortgage loan for Plaintiff’s property located in San Jose (the “Property”).

According to the allegations of the complaint, Plaintiff is the obligor on a first lien mortgage loan secured by the Property. She initially purchased the Property in 2004 and refinanced the mortgage loan in 2006. Deutsche is the current investor of Plaintiff’s loan while Nationstar is the loan servicer. Pursuant to the financing agreement, Plaintiff signed a promissory note in the amount of $875,000. The principal balance was never to increase to more than 115% of the original principal balance, i.e., no more than $1,006,250 (“Principal Balance Cap”).

On February 18, 2009, the value of the property totaled approximately $800,000, while the balance of the loan totaled $943,000. Since that time, the value of the Property has been less than the total amount owed on Plaintiff’s loan. Defendants have made collection demands on an inflated balance, including interest that was improperly added to her loan.

Plaintiff asserts claims for (1) violation of Civil Code section 1788.17 and (2) declaratory relief.

Defendants previously filed a motion for judgment on the pleadings as to these claims, which was granted without leave to amend as to the first cause of action and denied as to the second. Defendants subsequently filed a motion for summary judgment/adjudication that was denied.

Presently, Defendants once again move for judgment on the pleadings as to the remaining cause of action for declaratory relief and filed accompanying requests for judicial notice. Plaintiff opposes the motion for judgment on the pleadings.

II. Requests for Judicial Notice

“Judicial notice is the recognition and acceptance by the court . . . of the existence of a matter of law or fact that is relevant to an issue in the action without requiring formal proof of the matter.” (Unruh-Haxton v. Regents of the University of California (2008) 162 Cal.App.4th 343, 364, internal quotation marks and citations omitted.) Matters subject to judicial notice are listed in Evidence Code sections 451 and 452. (Id. at p. 364.)
Defendants filed a request for judicial notice in support of their motion, seeking notice of recorded real property records and bankruptcy court records. They also filed a request for judicial notice in support of their reply seeking judicial notice of an additional bankruptcy court record.

The real property records are: Deed of Trust recorded September 1, 2006; Notice of Default and Election to Sell Under Deed of Trust recorded March 2, 2011; Notice of Trustee’s Sale recorded May 31, 2011; and Notice of Trustee’s Sale recorded August 13, 2018.

Pursuant to Evidence Code section 452, subdivision (h), “courts have taken judicial notice of the existence and recordation of real property records, including deeds of trust, when the authenticity of the documents is not challenged.” (Fontenot v. Wells Fargo Bank, N.A. (2011) 198 Cal.App.4th 256, 264 disapproved of on other grounds by Yvanova v. New Century Mortg. Corp. (2016) 62 Cal.4th 919.) Because the authenticity of the documents is not challenged, the subject real property records are generally proper subjects for judicial notice. However, Defendants do not actually rely on them in support of any argument raised by their motion for judgment on the pleadings. As such, these records are not relevant to resolving the motion and consequently are not judicially noticeable. (Silverado Modjeska Recreation and Park Dist. v. County of Orange (2011) 197 Cal.App.4th 282, 307, citing People v. Shamrock Foods Co. (2000) 24 Cal.4th 415, 422 fn. 2 [a precondition to judicial notice is that the matter to be noticed is relevant to material issues under review].)

Turning to the bankruptcy court records, the documents are: docket of the U.S. Bankruptcy Court, Northern District of California, petition number 11-59408 filed by Plaintiff on October 10, 2011 (“Docket”); certain pages from Plaintiff’s bankruptcy schedules filed November 30, 2011 (“Schedules”); and the Mortgage Proof of Claim filed February 27, 2012.

Court records are judicially noticeable under Evidence Code section 452, subdivision (d), and the records are relevant to Defendants’ arguments. Judicial notice of these records is therefore proper.

Accordingly, the request for judicial notice is DENIED as to the real property records and GRANTED as to the court records.

III. Motion for Judgment on the Pleadings

Defendants move for judgment on the pleadings as to the second cause of action for declaratory relief on the ground of failure to state sufficient facts. (See Code Civ. Proc., § 438, subd. (c)(1)(B)(ii).)

At the outset, Plaintiff disputes whether Defendants are entitled to bring this motion. For context, this is the second motion for judgment on the pleadings filed by Defendants relative to the complaint, which has not been amended. Plaintiff argues this motion is an improper motion for reconsideration because it asserts arguments that could have been raised previously. In reply, while Defendants address this issue, they completely miss the point by focusing on the general timing for bringing a motion for judgment on the pleadings as opposed to the issue of bringing successive motions. The Court is inclined to agree with Plaintiff.

Code of Civil Procedure section 439, which became effective January 1, 2018, provides that “[a] party moving for judgment on a pleading that has been amended after a motion for judgment on the pleadings on an earlier version of the pleading was granted shall not move for judgment on any portion of the pleadings on grounds that could have been raised by a motion for judgment on the pleadings as to the earlier version of the pleading.” (Code Civ. Proc., § 439, subd. (b).) Code of Civil Procedure section 430.41 was enacted relative to demurrers effective January 1, 2016.

The Legislature first added Code of Civil Procedure section 430.41 to improve judicial efficiency and ensure repetitive pleading challenges did not unduly consume the resources of both the parties and the judiciary. (Assem. Com. on Judiciary, Rep. on Sen. Bill No. 383 (2015–2016 Reg. Sess.) July 14, 2015; Sen. Com. on Judiciary, Rep. on Sen. Bill No. 383 (2015–2016 Reg. Sess.) May 11, 2015.) Based on the success of the statute, the Legislature then added Code of Civil Procedure section 439 “to extend the benefits of the system created by [Code of Civil Procedure section 430.41]…[by applying] nearly identical…procedures to…motions for judgment on the pleadings.” (Sen. Com. on Judiciary, Rep. on Assem. Bill No. 644 (2017–2018 Reg. Sess.) July 11, 2017.)

The Legislature’s adoption of the same procedures for both demurrers and motions for judgment on the pleadings is unsurprising. As Plaintiff articulates, a motion for judgment on the pleadings is the functional equivalent of a demurrer. (Fire Insurance Exchange v. Super. Ct. (2004) 116 Cal.App.4th 446, 452.) They are accordingly treated identically under the law. (See Gabaldon v. United Farm Workers Organizing Committee (1973) 35 Cal.App.3d 757, 759; Sen. Com. on Judiciary, Rep. on Assem. Bill No. 644 (2017–2018 Reg. Sess.) July 11, 2017.) When courts interpret statutes, they strive to give effect to the legislative purpose of the statute, including by reading statutory language in the context of the statutory scheme as a whole. (United Riggers & Erectors, Inc. v. Coast Iron & Steel Co. (2018) 4 Cal.5th 1082, 1090.)

When read as part of this cohesive statutory scheme to streamline pleading challenges, Code of Civil Procedure sections 430.41 and 439 support the conclusion that a defendant may not challenge a pleading in a piecemeal fashion. Although Code of Civil Procedure section 439 speaks to restrictions relative to a pleading that has been amended, it necessarily follows that the same restriction would apply when the pleading has not been amended.

To explain, the Legislature’s reference to an amended pleading implicitly recognizes that the filing of an amended pleading would ordinarily create the opportunity for the new pleading to be challenged. The law does not contemplate that a party may repetitively challenge a pleading that has not been amended absent a showing of new or different facts, circumstances or law. (See, e.g., Code Civ. Proc., §§ 438, subd. (g)(1), 1008.) As such, it would be incongruous for a party to be restricted from bringing a second motion for judgment on the pleadings relative to an amended pleading but not relative to a complaint that has not been amended. Concluding otherwise would ignore the Legislature’s clear intent to deter repetitive or piecemeal pleading challenges. Thus, the Court finds that a party moving for judgment on the pleadings for a second time to a pleading that has not been amended forfeits arguments that could have been raised in the earlier motion. Here, the arguments advanced by Defendants could have been raised in their prior motion for judgment on the pleadings. The motion is therefore procedurally improper.

Even if the motion were permissible, Defendants’ arguments otherwise do not establish a basis for concluding Plaintiff fails to state a cause of action for declaratory relief.

First, Defendants argue Plaintiff lacks standing because she filed a petition for Chapter 13 bankruptcy in 2011 and only the trustee of the bankruptcy estate has standing to bring the action. But the court in Kelsey v. Waste Mgmt. of Alameda Cty. (1999) 76 Cal.App.4th 590 (Kelsey) explicitly holds that a Chapter 13 debtor in bankruptcy does have standing to maintain a cause of action.

In Kelsey, the court acknowledged as a preliminary matter that “[t]he Bankruptcy Code does not explicitly state whether the debtor has the power to sue and be sued.” (Kelsey v. Waste Mgmt. of Alameda Cty., (1999) 76 Cal.App.4th 590, 595–96.) In reaching the conclusion that a Chapter 13 debtor has standing to maintain a cause of action, the court in Kelsey recounted the ways in which Chapter 13 bankruptcy differs from other bankruptcy proceedings, including that it provides for reorganization plan in which the creditors’ recovery is drawn from the debtor’s earnings rather than from the liquidated assets of the bankrupt estate, that a Chapter 13 debtor remains in the possession of all property of the estate (unless the bankruptcy plan provides otherwise), and that the debtor has certain powers exclusive of those possessed by the trustee. (Kelsey v. Waste Mgmt. of Alameda Cty., (1999) 76 Cal.App.4th 590, 596.) Consequently, Defendants’ contention that Plaintiff lacks standing due to her Chapter 13 bankruptcy is without merit.

Second, Defendants assert Plaintiff’s claim is barred by judicial estoppel because she failed to disclose this claim in her bankruptcy proceeding. This contention is flawed.

“Judicial estoppel, sometimes referred to as the doctrine of preclusion of inconsistent positions, prevents a party from asserting a position in a legal proceeding that is contrary to a position previously taken in the same or some earlier proceeding…. … It is an extraordinary remed[y] to be invoked when a party’s inconsistent behavior will otherwise result in a miscarriage of justice.” (Jogani v. Jogani (2006) 141 Cal.App.4th 158, 169 [internal citations and quotation marks omitted].)

The application of judicial estoppel under the circumstances presented—where a debtor does not disclose claims against a creditor in a bankruptcy case but later sues the creditor—has been raised in bankruptcy cases and non-bankruptcy alike. In this context, the underlying premise is that debtors are required under bankruptcy statutes and rules to disclose all of their personal property, including actual and potential claims or causes of action of whatever nature, and that such property is part of the bankruptcy estate. (Gottlieb v. Kest (2006) 141 Cal.App.4th 110, 132-133 & 136-137.) “Courts of various [non-California] jurisdictions have held that a debtor’s assertion [in a civil action] of legal claims not disclosed in earlier bankruptcy proceedings constitutes an assumption of inconsistent positions…. …[¶] The omission of a cause of action or claim from … mandatory bankruptcy filings is tantamount to a representation that no such claim existed.” (Id. at p. 137 [internal citations and quotation marks omitted].) Similarly, “[s]everal California courts have held that judicial estoppel bars an action where the plaintiff failed to disclose a legal claim in a prior bankruptcy case.” (Id. at p. 138.)

With that said, “nondisclosure in bankruptcy filings, standing alone, is insufficient to support the finding of bad faith intent necessary for the application of judicial estoppel.” (Cloud v. Northrop Grumman Corp. (1998) 67 Cal.App.4th 995, 1019.) In order for such nondisclosure to bar a subsequent civil action, there must be evidence that the debtor acted in bad faith, i.e. when the debtor engages in an effort to obtain an unfair advantage or a scheme to mislead the court. (Ibid.) Thus, whether Plaintiff’s failure to include these claims in the plan was intentional or the result of ignorance, fraud, or mistake is a factual issue that cannot be decided on a motion for judgment on the pleadings. (Ibid.) Here, while the matters subject to judicial notice reflect Plaintiff did not disclose this claim in her bankruptcy proceeding, this issue cannot be resolved on this motion because it is not an evidentiary motion and consideration of evidence is required for such determination. (Id. at p. 1020; see also Haley v. Dow Lewis Motors, Inc. (1999) 72 Cal.App.4th 497, 510.)

For the reasons stated above, Defendants’ motion for judgment on the pleadings on the ground of failure to state sufficient facts is DENIED.

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