Filed 4/27/20 Agbede v. R.C. Temme Corp. CA4/2

NOT TO BE PUBLISHED IN OFFICIAL REPORTS

California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

FOURTH APPELLATE DISTRICT

DIVISION TWO

SONNY AGBEDE et al.,

Plaintiffs and Appellants,

v.

R.C. TEMME CORPORATION,

Defendant and Respondent.

E072337

(Super.Ct.No. CIVDS1815523)

OPINION

APPEAL from the Superior Court of San Bernardino County. Michael A. Sachs, Judge. Reversed and remanded with directions.

William Dolph Beck and Rahel Goharchin Javaheri, for Plaintiffs and Appellants.

Krishel Law Firm and Daniel L. Krishel for Defendant and Respondent.

Plaintiffs Sonny Agbede and George Karapanian (collectively the Borrowers) took out a $235,981 loan, secured by a deed of trust on commercial property that they owned. Defendant R.C. Temme Corporation (Temme) is one of the holders of the deed of trust.

In March 2013, the Borrowers stopped making any payments on the loan, including insurance premium payments. Temme therefore bought and paid for insurance on its own, to protect its security. In August 2017, there was a fire at the property. The City of Barstow (City) insisted that the Borrowers pay to clean up the fire damage.

The Borrowers then filed this action. They alleged that Temme was required to pay for the clean-up out of any insurance proceeds. In this appeal, they also allege, alternatively, that Temme was required to credit any insurance proceeds against the outstanding indebtedness. The trial court sustained a demurrer, without leave to amend, and it entered judgment accordingly.

The Borrowers appeal. We will hold that, on these facts, there is a reasonable possibility that they could amend so as to state a cause of action. Hence, we will reverse the judgment and direct that they be given leave to amend.

I

FACTUAL BACKGROUND

Consistent with the applicable standard of review (see part II, post), the following facts are taken from the allegations of the complaint, minus any legal conclusions, but plus any matters of which the trial court took judicial notice.

The Borrowers own a piece of commercial property on Main Street in Barstow (Property).

In 2007, the Borrowers took out a $235,981 loan, secured by a deed of trust on the Property. Temme and/or its president Richard Temme is one of several co-holders of the note and trust deed.

The note and trust deed are attached to and incorporated into the complaint. They require the Borrowers to make monthly interest payments. The trust deed also requires them to maintain insurance on the Property and to make monthly payments into an impound account for insurance. If the Borrowers fail to pay for insurance, the trust deed allows the lender to do so and to add the amount of the payments to the indebtedness.

The trust deed provided: “The amount collected under any . . . insurance policy may be applied by Lender upon any indebtedness secured hereby and in such order as Lender may determine, or at option of Lender . . . may be released to Borrower.”

In March 2013, the Borrowers stopped making any payments — including insurance payments — on the loan. Accordingly, Temme obtained insurance at its own expense. Temme and the other holders of the trust deed were the named insureds.

In August 4, 2017, at 2:00 a.m., there was a fire at the Property. A fire department report labeled the fire “suspicious” and the cause as “[u]nder [i]nvestigation.” At 9:00 a.m., Temme made a claim under its insurance policy.

The City demanded that the Property be cleaned up after the fire, on pain of criminal prosecution. Temme refused to clean it up, claiming that, as lender, it was not obligated to do so. Thus, the Borrowers cleaned up the Property, at a total cost of $67,100.

II

STANDARD OF REVIEW

“On appeal from a judgment dismissing an action after sustaining a demurrer without leave to amend, the standard of review is well settled. We give the complaint a reasonable interpretation, reading it as a whole and its parts in their context. [Citation.] Further, we treat the demurrer as admitting all material facts properly pleaded, but do not assume the truth of contentions, deductions or conclusions of law. [Citations.] When a demurrer is sustained, we determine whether the complaint states facts sufficient to constitute a cause of action. [Citation.] And when it is sustained without leave to amend, we decide whether there is a reasonable possibility that the defect can be cured by amendment: if it can be, the trial court has abused its discretion and we reverse. [Citation.]” (City of Dinuba v. County of Tulare (2007) 41 Cal.4th 859, 865.)

Our standard of review is de novo. (People ex rel. Harris v. Pac Anchor Transportation, Inc. (2014) 59 Cal.4th 772, 777.)

III

THE BORROWERS’ ALLEGED CAUSES OF ACTION

A. Additional Procedural Background.

The complaint asserted two causes of action:

1. For implied contractual indemnity “for the costs of demolition and clean-up [and] from any and all fire insurance benefits received by [Temme] . . . ”; and

2. For a declaratory judgment regarding the disposition of any insurance proceeds that Temme received.

In its motion for judgment on the pleadings, Temme argued generally that, because it bought and paid for the insurance, it was entitled to the proceeds. Regarding the implied contractual indemnity cause of action, it argued that it was not liable to the City because it did not cause the fire. Regarding the declaratory cause of action, it simply repeated these two arguments.

B. Discussion.

1. Implied contractual indemnity.

“In general, indemnity refers to ‘the obligation resting on one party to make good a loss or damage another party has incurred.’ [Citation.]” (Prince v. Pacific Gas & Electric Co. (2009) 45 Cal.4th 1151, 1157.)

“[T]here are only two basic types of indemnity: express indemnity and equitable indemnity. [Citation.] . . . [I]mplied contractual indemnity is now viewed simply as ‘a form of equitable indemnity.’ [Citation.]” (Prince v. Pacific Gas & Electric Co., supra, 45 Cal.4th 1151, 1157.)

“[I]mplied contractual indemnity” “require[s] a joint legal obligation . . . .” (Prince v. Pacific Gas & Electric Co., supra, 45 Cal.4th at p. 1161.) “[T]he doctrine originated as a means to equitably shift the risk of loss from one joint tortfeasor to another when both were deemed liable to the injured party.” (Ibid.) “[I]mplied contractual indemnity has always been subject to the rule that ‘“there can be no indemnity without liability.”’ [Citation.]” (Id. at p. 1165.)

In other words, “the indemnitee and the indemnitor must share liability for the injury. [Citation.] Thus, no indemnity may be obtained from an entity that has no pertinent duty to the injured third party [citation], that is immune from liability [citation], or that has been found not to be responsible for the injury [citation].” (Jocer Enterprises, Inc. v. Price (2010) 183 Cal.App.4th 559, 573-574.)

Here, there is no injured third party. The Borrowers have not been required to pay any third party for an injury suffered by that third party; they have simply been required to pay vendors to remedy a code violation at their own property.

We are willing to stretch a point and to view the City as the relevant third party. Even on that view, however, the complaint does not allege that Temme was liable to the City on any basis. The Borrowers have not cited any facts or law that would make Temme — the lender, not the owner — liable to the City for the clean-up. (See Kaura v. Stabilis Fund II, LLC (2018) 24 Cal.App.5th 420, 428-436 [in action against owner and lender to abate substandard housing, lender was not liable for city’s attorney fees].)

The parties assume that, if Temme caused the fire, it would be liable to the City for the clean-up. Thus, the Borrowers argue that they could amend to allege that Temme caused the fire.

Preliminarily, this assumption is not self-evident. Certainly Temme might be liable to the Borrowers (provided it acted negligently or intentionally). It is less clear, however, that it would be liable to the City, as an equitable indemnity claim would require. Neither side has provided us with any relevant authority. For example, the City’s municipal code sections requiring the duty to repair code violations would seem likely to be relevant; however, nobody cites them. Nevertheless, we accept the parties’ assumption for the sake of argument.

Even given these assumptions, the record demonstrates that the Borrowers cannot amend to allege that Temme caused the fire. At the hearing on the motion, there was this exchange:

“THE COURT: . . . Well, my question to you, sir, . . . is do you believe you’re going to be able to allege facts that would suggest that [Temme] started the fire or was responsible for the fire or any of their agents started the fire [or was] responsible for the fire? That’s my question to you.

“[COUNSEL FOR THE BORROWERS]: Well, I’ll answer that question.

“THE COURT: Okay. That’s just a yes or no.

“[COUNSEL FOR THE BORROWERS]: The answer is yes. Can I give you my reason for that?

“THE COURT: No. Just . . . tell me what facts they would be.

“[COUNSEL FOR THE BORROWERS]: Can — I mean, who knows.

“THE COURT: Well, sir —

“[COUNSEL FOR THE BORROWERS]: We can make a good faith attempt at establishing that. You know the facts.

“THE COURT: Yeah, I know the facts of the case.

“[COUNSEL FOR THE BORROWERS]: And the city of Barstow says suspicious. So I talked to the city of Barstow and the fire department investigation unit, and I said to them have you found that transient that was paid to set a fire at 2:00 in the morning? Have you found him yet? And their answer to me is going to be yes or no, we’re on it, the case has gone cold. It’s not cold yet. They’re still on it.”

The trial court also asked:

“THE COURT: How do you know that someone was paid to start the fire? What facts do you have . . . ?

“[COUNSEL FOR THE BORROWERS]: . . . I have the fire department in Barstow saying suspicious.”

Viewing this exchange in its entirety, it is clear that the Borrowers could not, in good faith, allege that Temme caused the fire.

In their brief, they continue to argue, as at the hearing, that the fire was deemed “suspicious.” They add that “the only one who benefited is [Temme] . . . .” However, there are many kinds of suspicious fires, and there are many insureds who receive the proceeds of such fires. These facts may support further investigation, but they do not, standing alone, support a reasonable, good-faith belief that the insured caused the fire. (See 580 Folsom Associates v. Prometheus Development Co. (1990) 223 Cal.App.3d 1, 22 [“A complete lack of evidence to substantiate key allegations of the cross-complaint . . . is sufficient ground for imposition of sanctions for the filing of a frivolous pleading.”].)

We therefore conclude that the trial court properly sustained the demurrer, without leave to amend, with respect to the cause of action for implied contractual indemnity.

2. Declaratory relief.

“‘Strictly speaking, a general demurrer is not an appropriate means of testing the merits of the controversy in a declaratory relief action because plaintiff is entitled to a declaration of his rights even if it be adverse.’ [Citations.] However, ‘where the issue is purely one of law, if the reviewing court agreed with the trial court’s resolution of the issue it would be an idle act to reverse the judgment of dismissal for a trial on the merits. In such cases the merits of the legal controversy may be considered on an appeal from a judgment of dismissal following an order sustaining a demurrer without leave to amend and the opinion of the reviewing court will constitute the declaration of the legal rights and duties of the parties concerning the matter in controversy.’ [Citations.]” (Herzberg v. County of Plumas (2005) 133 Cal.App.4th 1, 24.)

A declaratory relief cause of action fails when it is “‘wholly derivative’” of another failed cause of action. (Ball v. FleetBoston Financial Corp. (2008) 164 Cal.App.4th 794, 800; accord, Smyth v. Berman (2019) 31 Cal.App.5th 183, 191-192.) As we held in part III.B.1, ante, the Borrowers cannot state a cause of action for implied contractual indemnity. Thus, to the extent that the declaratory relief cause of action is based on an implied contractual indemnity theory, it, too, must fail.

The Borrowers, however, assert three additional theories: (1) unjust enrichment, (2) conversion, and (3) breach of contract, based on the language of the trust deed.

“The elements of a cause of action for unjust enrichment are simply stated as ‘receipt of a benefit and unjust retention of the benefit at the expense of another.’ [Citation.]” (Professional Tax Appeal v. Kennedy-Wilson Holdings, Inc. (2018) 29 Cal.App.5th 230, 238.) Unless the Borrowers have a theory as to why Temme was not entitled to the insurance proceeds, they cannot make out a cause of action for unjust enrichment.

“‘“‘Conversion is the wrongful exercise of dominion over the property of another. The elements of a conversion claim are: (1) the plaintiff’s ownership or right to possession of the property; (2) the defendant’s conversion by a wrongful act or disposition of property rights; and (3) damages . . . .’”’ [Citation.]” (Lee v. Hanley (2015) 61 Cal.4th 1225, 1240.) Once again, if Temme was entitled to the insurance proceeds, the Borrowers cannot make out a cause of action for conversion.

Temme contends that it was entitled to the insurance proceeds because it bought and paid for the insurance. On this record, the only thing that could alter that entitlement is the trust deed. Accordingly, the declaratory relief cause of action stands or falls on the language of the trust deed.

The trust deed, as relevant here, provided:

“ . . . Borrower shall pay to Lender on the day monthly payments of principal and interest are payable under the Note . . . one-twelfth of yearly premium installments for hazard insurance . . . . [¶] . . . Lender shall apply the Funds to pay said . . . insurance premiums . . . .” (Impound Clause.)

“Borrower agrees to provide, maintain and deliver to Lender fire insurance satisfactory and with loss payable to Lender.” (Maintenance Clause.)

“The amount collected under any fire or other insurance policy may be applied by Lender upon any indebtedness secured hereby . . . , or at option of Lender . . . may be released to the Borrower.” (Amount Collected Clause.)

“If Borrower fails to perform the covenants and agreements contained in this Deed of Trust, . . . then Lender, at Lender’s option, may . . . disburse such sums . . . and take such action as is necessary to protect Lender’s interest. . . . [¶] Any amounts disbursed by Lender pursuant to this paragraph . . . , including but not limited to . . . insurance premiums due . . . , shall become additional indebtedness of Borrower secured by this Deed of Trust.” (Additional Indebtedness Clause.)

Here, the Borrowers failed to make premium payments, in breach of the Impound Clause; thus, they also failed to maintain fire insurance, in beach of the Maintenance Clause. Consistent with the Additional Indebtedness Clause, Temme made those payments in the Borrowers’ stead. Hence, the Borrowers became liable for them.

This sequence of events, however, had no effect on the provisions of the trust deed regarding the disposition of insurance proceeds. Specifically, under the Amount Collected Clause, Temme’s only options were (1) to apply the proceeds against the amount of the indebtedness, or (2) to release the proceeds to the Borrowers. It could not just keep the proceeds.

Temme asserts that the Amount Collected Clause “applies only to fire or other insurance ‘provided[,]’ ‘maintained’ and ‘delivered’ by the borrower . . . .” Not so. The trust deed contemplates that insurance may be provided and maintained by the borrower, under the Maintenance Clause, or by the lender, under the Additional Indebtedness Clause. Accordingly, the Amount Collected Clause, by its terms, applies to “any fire or other insurance policy . . . .” (Italics added.)

Temme repeatedly protests that the Borrowers are seeking “free insurance benefits.” This overlooks the fact that any insurance premiums that Temme pays are added to the indebtedness. Thus, the Borrowers are ultimately liable for all insurance premiums, one way or the other.

Temme also complains that it obtained insurance “for its own benefit.” Under the trust deed, however, all insurance, whether obtained by the borrower or the lender, is for the lender’s benefit. The basic purpose of the insurance is to protect the lender’s security. For example, if a fire causes damage, the value of the lender’s security is reduced. The insurance proceeds compensate the lender for the reduction. However, the lender must apply the insurance proceeds to the indebtedness, so that the indebtedness is reduced concomitantly. That way, the (reduced) indebtedness is still adequately secured by the (reduced) value of the property — not over and not under.

Temme, on the other hand, wants to keep the insurance proceeds, yet still hold the Borrowers liable for the full amount of the loan. Thus, it is seeking a double recovery — a thing the law abhors.

The trust deed in this case is hardly unique. “A clause found in nearly all deeds of trust provides that, to protect the security of the deed of trust, the borrower must (1) provide hazard insurance . . . , naming the lender as an additional loss payee, and (2) generally assign to the lender insurance proceeds up to the amount of the outstanding loan balance. The lender usually reserves the right (1) to purchase the insurance if the borrower does not do so, and (2) in the event of a covered loss, to apply any amounts paid under any such insurance to the secured debt. More recently drafted deeds of trust allow the lender to claim the insurance proceeds after a covered loss only if restoration or repair is not economically feasible or if the lender’s security is lessened.” (Bernhardt et al., Cal. Mortgages, Deeds of Trust, and Foreclosure Litigation (Cont.Ed.Bar 4th ed. 2019) § 8.57, italics added.)

“The provision . . . which gives the [lender] the option . . . to either apply the insurance proceeds toward the debt or permit the [borrower] to take the proceeds, is enforceable with few exceptions.” (Bernhardt et al., Cal. Mortgages, Deeds of Trust, and Foreclosure Litigation, supra, § 8.63.) “When a lender does not properly handle insurance proceeds, the borrower may bring an action to rectify the lender’s conduct and obtain damages for breach of contract . . . .” (Ibid.)

We therefore conclude that there is a reasonable possibility that the Borrowers can amend (see fn. 5, ante) so as to state a cause of action for declaratory relief.

IV

DISPOSITION

The judgment is reversed. On remand, the trial court must enter a new order, sustaining the demurrer as to both causes of action, but giving the Borrowers leave to amend only their declaratory relief cause of action (see fn. 5, ante) within a prescribed number of days. In the interest of justice, each side shall bear its own costs. (Cal. Rules of Court, rule 8.278(a)(5).)

NOT TO BE PUBLISHED IN OFFICIAL REPORTS

RAMIREZ

P. J.

We concur:

SLOUGH

J.

RAPHAEL

J.