Case Name: Sorrento Pavilion, LLC, et al. v. East West Bank, et al.

Case No.: 1-12-CV-233122

Motion by defendants East West Bank, East-West Investment, Inc., John Chen and Betty Liaw for Summary Judgment, or [sic] in the Alternative, Summary Adjudication, on the Second Amended Complaint

Evidence

Defendants’ request for judicial notice is GRANTED. (See Evid. Code § 452, subd. (d), (h); see also Fontenot v. Wells Fargo Bank, N.A. (2011) 198 Cal.App.4th 256, 264 [courts may take judicial notice of the existence and recordation of real property records].)

Plaintiffs’ request for judicial notice is GRANTED. (See Evid. Code § 452, subd. (d); see also Lockley v. Law Office of Cantrell, Green, Pekich, Cruz & McCort (2001) 91 Cal.App.4th 875, 882 [while courts are free to take judicial notice of the existence of each document in a court file, including the truth of results reached, they may not take judicial notice of the truth of hearsay statements in decisions and court files].)

Defendants’ evidentiary objections are SUSTAINED.

Plaintiffs’ evidentiary objections are OVERRULED.

Motion for Summary Judgment and Summary Adjudication

On March 7, 2014, Defendants filed the motion presently before the court: a motion for summary judgment and in the alternative summary adjudication on the second amended complaint (“SAC”). Defendants argue that there are no triable issues of material fact and thus judgment should be granted as a matter of law. Alternatively, Defendants seek to summarily adjudicate the first, third, sixth, ninth, fourteenth, fifteenth, sixteenth, seventeenth, nineteenth, twentieth, twenty-first, and twenty-third causes of action.

“Summary judgment is properly granted when no triable issue of material fact exists and the moving party is entitled to judgment as a matter of law. A defendant moving for summary judgment bears the initial burden of showing that a cause of action has no merit by showing that one or more of its elements cannot be established or that there is a complete defense. Once the defendant has met that burden, the burden shifts to the plaintiff ‘to show that a triable issue of one or more material facts exists as to that cause of action or a defense thereto.’ ‘There is a triable issue of material fact if, and only if, the evidence would allow a reasonable trier of fact to find the underlying fact in favor of the party opposing the motion in accordance with the applicable standard of proof.’” (Madden v. Summit View, Inc. (2008) 165 Cal.App.4th 1267, 1272 [internal citations omitted].)

Similarly, “summary adjudication is proper if the papers submitted show there is no triable issue as to any material fact and the moving party is entitled to prevail on a cause of action as a matter of law.” (Kight v. CashCall, Inc. (2011) 200 Cal.App.4th 1377, 1386-1387.)

Defendants’ motion for summary judgment to the SAC is DENIED for the reasons stated below in the court’s tentative order. (See Gleason v. Klamer (1980) 103 Cal.App.3d 782 [appellate court reversed trial court’s order granting summary judgment because there was a single triable issue of fact].)

With respect to the first cause of action for breach of contract, Defendants argue that there is no evidence that they breached their written agreement with the Plaintiffs.
“To prevail on a cause of action for breach of contract, the plaintiff must prove (1) the contract; the plaintiff’s performance of the contract or excuse for nonperformance, (3) the defendant’s breach, and (4) the resulting damage to the plaintiff.” (Richman v. Hartley (2014) 224 Cal.App.4th 1182, 1186.) Here, Defendants fail to identify any material facts or evidence with respect to the following breaches in their moving papers: (1) failing to properly notify the Plaintiffs that they deemed the note in default; (2) falsely reporting the amount due; and (3) breaching its agreement to provide a loan to Dr. Doan. (See Arciniega v. Bank of San Bernardino (1997) 52 Cal.App.4th 213, 231 [the party bringing a motion for summary judgment must produce admissible evidence to support his or her case; a party cannot rely upon claims or theories unsupported by hard evidence].) Thus, Defendants have failed to meet their initial burden on summary judgment and summary adjudication of the breach of contract claim. (See McCaskey v. California State Auto. Ass’n (2010) 189 Cal.App.4th 947, 975 [if a cause of action is not shown to be barred in its entirety, no order for summary judgment—or adjudication—can be entered].)

Therefore, Defendants’ motion for summary adjudication of the first cause of action is DENIED.

With respect to the third cause of action for breach of the covenant of good faith and fair dealing, Defendants incorporate the same arguments and evidence from the breach of contract claim. Since triable issues of fact remain with the first cause of action, there is no basis for the court to summarily adjudicate the third cause of action.

Accordingly, Defendants’ motion for summary adjudication of the third cause of action is DENIED.

With respect to the sixth cause of action for concealment, Defendants argue that they had no duty to disclose to support a claim for concealment. (See Levine v. Blue Shield of California (2010) 189 Cal.App.4th 1117, 1127 [concealment requires that the defendant be under a duty to disclose a fact to the plaintiff].) As a preliminary matter, the court notes that the function of the pleadings in a motion for summary judgment is to delimit the scope of the issues and to frame the outer measure of materiality in a summary judgment proceeding. (See Hutton v. Fidelity National Title Co. (2013) 213 Cal.App.4th 486, 493 [internal quotation marks and citation omitted].) Even though the sixth cause of action is titled “concealment,” it includes allegations to support a claim for fraudulent misrepresentation. (See SAC at ¶¶ 98-99, 101-102; see also Richelle L. v. Roman Catholic Archbishop (2003) 106 Cal.App.4th 257, 266 [erroneous or confusing labels attached by the inept pleader are to be ignored if the complaint pleads facts which would entitle the plaintiff to relief].) A claim for fraudulent misrepresentation does not require any duty to disclose. (See Perlas v. GMAC Mortgage, LLC (2010) 187 Cal.App.4th 429, 434 [elements of fraudulent misrepresentation claim].) Having failed to address these allegations in the sixth cause of action, Defendants have not met their burden on summary adjudication. (See McCaskey v. California State Auto. Ass’n, supra, 189 Cal.App.4th at p. 975 [if a cause of action is not shown to be barred in its entirety, no order for summary judgment—or adjudication—can be entered].)

Therefore, Defendants’ motion for summary adjudication of the sixth cause of action is DENIED.

With respect to the ninth cause of action for conspiracy to wrongfully foreclose, Defendants argue that this claim was previously adjudicated in the action titled First Century Plaza, LLC v. Sorrento Pavilion, Teri Nguyen, and Vinh Nguyen, Santa Clara County Superior Court case number 1-09-CV-153711 (“Foreclosure Action”). Thus, Defendants assert the defense of collateral estoppel.

“Collateral estoppel precludes relitigation of issues argued and decided in prior proceedings. Traditionally, we have applied the doctrine only if several threshold requirements are fulfilled. First, the issue sought to be precluded from relitigation must be identical to that decided in a former proceeding. Second, this issue must have been actually litigated in the former proceeding. Third, it must have been necessarily decided in the former proceeding. Fourth, the decision in the former proceeding must be final and on the merits. Finally, the party against whom preclusion is sought must be the same as, or in privity with, the party to the former proceeding.” (Proctor v. Vishay Intertechnology, Inc. (2013) 213 Cal.App.4th 1258, 1272.)

In support of their motion, Defendants attach a copy of the summary judgment order in the Foreclosure Action. (See Defendants’ Request for Judicial Notice at Exhibit 10.) In ruling in favor of summary judgment for First Century, the court (Hon. Pierce) specifically declined to address any issues with respect to fraud, conspiracy, or wrongful foreclosure. (Ibid.) Thus, the court did not address the wrongful foreclosure issue on its merits in the Foreclosure Action. Therefore, the collateral estoppel defense is inapplicable.

In the alternative, Defendants argue that they did not owe any duties to Plaintiffs in connection with the foreclosure because when First Century began to foreclose, East West Bank (“EWB”) was no longer the lender for the Senior Loan and thus Defendants had no connection with that loan. (See Defendants’ Separate Statement of Undisputed Facts at Nos. 52-57.) However, other than stating this conclusion, Defendants do not offer any legal authorities in support of this argument. (See Cal. Rules of Court, rule 3.1113(b); see also Quantum Cooking Concepts, Inc. v. LV Assocs., Inc. (2011) 197 Cal.App.4th 927, 934 [trial court not required to comb the record and the law for factual and legal support that a party has failed to identify or provide].) Furthermore, this argument ignores allegations that Defendants participated in the conspiracy by falsely reporting the status of the loan to Plaintiffs. (See SAC at ¶ 123.) Thus, a trier of fact may conclude that Plaintiffs have established their claim for conspiracy to wrongfully foreclose on the basis of fraud.

Therefore, Defendants’ motion for summary adjudication of the ninth cause of action is DENIED.

With respect to the fourteenth cause of action for promissory estoppel, Defendants argue that Plaintiffs cannot establish any reasonable reliance on an unenforceable promise: i.e., the oral promise which is the subject of the promissory estoppel claim is subject to the statute of frauds. (See Civ. Code § 1624, subd. (a)(7).) Defendants argue that, since Plaintiffs are licensed real estate professionals, they are presumed to know that the promise is unenforceable and thus any reliance on the promise was unreasonable.

“The elements of promissory estoppel are: (1) a clear promise, (2) reliance, (3) substantial detriment, and (4) damages measured by the extent of the obligation assumed and not performed.” (Poway Royal Mobilehome Owners Assn. v. City of Poway (2007) 149 Cal.App.4th 1460, 1470-1471 [citation and quotation marks omitted].)

In support, Defendants rely on Philippe v. Shapell Indus. (1987) 43 Cal.3d 1247 where the California Supreme Court rejected the notion that a licensed real estate broker could assert equitable estoppel against a statute of frauds defense to an oral commission agreement in the absence of a showing of actual fraud. (Id. at pp. 1260-1264.) However, Philippe is clearly distinguishable as that case did not address any claim for promissory estoppel on a motion for summary judgment. Furthermore, the Supreme Court stressed that a licensed broker’s reliance could be reasonable in limited circumstances. (Id. at p. 1270.) Thus, whether a broker’s reliance is reasonable must be determined on the facts of each case. (Ibid.) In Philippe, the issue of reasonable reliance was determined in a jury trial, not on summary judgment. Therefore, the issue of whether Plaintiffs’ reliance was reasonable cannot be determined as a matter of law on summary adjudication.

Accordingly, Defendants’ motion for summary adjudication of the fourteenth cause of action is DENIED.

With respect to the fifteenth and twentieth causes of action, Plaintiffs allege claims for negligence and negligent infliction of emotional distress. To establish negligence, a plaintiff must prove (1) the defendant’s legal duty of care towards the plaintiff; (2) the defendant’s breach of that duty; (3) injury to the plaintiff as a proximate result of that breach; and (4) damage to the plaintiff.” (Wallman v. Suddock (2011) 200 Cal.App.4th 1288, 1308.) Similarly, “negligent infliction of emotional distress is a form of the tort of negligence, to which the elements of duty, breach of duty, causation and damages apply. The existence of a duty is a question of law.” (Huggins v. Longs Drugs Stores California, Inc. (1993) 6 Cal.4th 124, 129.)

With respect to these claims, Plaintiffs allege that Defendants had a duty to exercise reasonable care and skill to maintain proper and accurate loan records and to discharge and fulfill the other incidents attendant to the maintenance, accounting, and servicing of loan records. (See SAC at ¶ 146.) On summary adjudication, Defendants argue that they do not owe a duty of care to Plaintiffs because they did not exceed their role as a lender of money. (See Defendants’ Separate Statement of Undisputed Facts at Nos. 9 and 27.)

“Lenders and borrowers operate at arm’s length.” (Lueras v. BAC Home Loans Servicing, LP (2013) 221 Cal.App.4th 49, 63.) “As a general rule, a financial institution owes no duty of care to a borrower when the institution’s involvement in the loan transaction does not exceed the scope of its conventional role as a mere lender of money…. Liability to a borrower for negligence arises only when the lender actively participates in the financed enterprise beyond the domain of the usual money lender.” (Nymark v. Heart Fed. Savings & Loan Assn. (1991) 231 Cal.App.3d 1089, 1096 [internal citations and quotation marks omitted].)

In opposition, Plaintiffs argue that contractual duties between the parties are sufficient to support the negligence claims. However, “courts will generally enforce the breach of a contractual promise through contract law, except when the actions that constitute the breach violate a social policy that merits the imposition of tort remedies.” (Erlich v. Menezes (1999) 21 Cal.4th 543, 552; see Stop Loss Ins. Brokers, Inc. v. Brown & Toland Medical Group (2006) 143 Cal.App.4th 1036, 1041 [a person may not ordinarily recover in tort for the breach of duties that merely restate contractual obligations].) Alternatively, Plaintiffs claim that there is sufficient evidence establishing a fiduciary relationship with Defendants.

“Fiduciary and confidential relationships are relationships existing between parties to a transaction wherein one party is duty bound to act with the utmost good faith for the benefit of the other. Such a relationship ordinarily arises when one party reposes a confidence in the integrity of the other, and the other voluntarily accepts that confidence. Before a person can be charged with a fiduciary obligation, he must either knowingly undertake to act on behalf and for the benefit of another, or must enter into a relationship which imposes that undertaking as a matter of law…The essence of a fiduciary or confidential relationship is that the parties do not deal on equal terms, because the person in whom trust and confidence is reposed and who accepts that trust and confidence is in a superior position to exert unique influence over the dependent party. Fiduciary obligations generally come into play when one party’s vulnerability is so substantial as to give rise to equitable concerns underlying the protection afforded by the law governing fiduciaries. While it is impossible to identify a single set of factors giving rise to a fiduciary relationship, some reasons generally used to demonstrate that a party to such a relationship is vulnerable include advanced age, youth, lack of education, ill health and mental weakness.” (Brown v. Wells Fargo Bank, N.A. (2008) 168 Cal.App.4th 938, 960 [internal citations and quotation marks omitted].)

As a preliminary matter, Plaintiffs fail to allege facts showing that Defendants owed them a fiduciary duty within the SAC. Furthermore, Plaintiffs’ evidence does not rise to the level of a fiduciary or confidential relationship with Defendants. (See Plaintiffs’ Additional Facts (identified as DMFs in the OPP Separate Statement) at Nos. 3-38, 49, 52, 54, 55, 58, 59, and 65.) The evidence shows a series of business dealings between the parties over the years along with the existence of a “personal friendship” with defendant Liaw. (Ibid.) However, “in the absence of proof of the exercise of undue influence, mere friendship is not a confidential relationship.” (McDonald v. Jones (1954) 129 Cal.App.2d 519, 522.) There is no proof of undue influence in this case.

In support, Plaintiffs rely on Barrett v. Bank of America (1986) 183 Cal.App.3d 1362 where the appellate court observed that a bank’s relationship with its customers may give rise to a “quasi-fiduciary” duty. (Id. at p. 1369.) However, more recent California authority has criticized the “loose characterization” of a bank as a “quasi-fiduciary,” and reaffirmed that in the context of an ordinary banking relationship, “the bank is in no sense a true fiduciary.” (See Oaks Mgmt. Corp. v. Sup. Ct. (2006) 145 Cal.App.4th 453, 466.) Also, to the extent that Plaintiffs rely on the Brown case, cited above, the Court of Appeal held that under the unique factual circumstances of that case the bank owed a fiduciary duty to an elderly and frail couple where the evidence showed the bank, through a vice-president, “knowingly induced the elderly and increasingly frail couple to rely on it to handle their financial affairs.” (Brown v. Wells Fargo Bank, N.A., supra, 168 Cal.App.4th at pp. 960-961.) Such facts do not exist in this case to establish a confidential or fiduciary relationship between Plaintiffs and Defendants.

Therefore, Defendants’ motion for summary adjudication to the fifteenth and twentieth causes of action is GRANTED.

With respect to the sixteenth and seventeenth causes of action for negligent misrepresentation and fraud, Defendants reiterate their earlier argument that Plaintiffs could not reasonably and justifiably rely upon Defendants’ promise to forbear. (See Defendants’ Memo of P’s and A’s at p. 11.) This was the same argument made with respect to Plaintiffs’ promissory estoppel claim. As stated above, whether or not Plaintiffs were justified in relying on this oral promise remains an issue for the trier of fact. (See Alliance Mortgage Co. v. Rothwell (1995) 10 Cal.4th 1226, 1239 [except in the rare case where the undisputed facts leave no room for a reasonable difference of opinion, the question of whether a plaintiff’s reliance is reasonable is a question of fact]; see also Gray v. Don Miller & Associates, Inc. (1984) 35 Cal.3d 498, 503 [whether reliance is justified is a question for determination of the trial court].)

Therefore, Defendants’ motion for summary adjudication of the sixteenth and seventeenth causes of action is DENIED.

With respect to the nineteenth cause of action, Plaintiffs allege a claim for unfair business practices. “The UCL governs anti-competitive business practices as well as injuries to consumers, and has as a major purpose the preservation of a fair business competition.” (Puentes v. Wells Fargo Home Mortgage, Inc. (2008) 160 Cal.App.4th 638, 644 [internal quotation marks omitted].) Because section 17200 is written in the disjunctive, it establishes three varieties of unfair competition—acts or practices which are unlawful, or unfair, or fraudulent. (Ibid.)

On summary adjudication, Defendants argue that there is no wrongful conduct to support any claim for unfair business practices. However, as stated above, triable issues remain with respect to at least some of Plaintiffs’ underlying claims to support a cause of action under the UCL.

Therefore, Defendants’ motion for summary adjudication to the nineteenth cause of action is DENIED.

With respect to the twenty-first cause of action, Plaintiffs allege a claim for interference with contractual relations. “In California, the law is settled that a stranger to a contract may be liable in tort for intentionally interfering with the performance of the contract. To prevail on a cause of action for intentional interference with contractual relations, a plaintiff must plead and prove (1) the existence of a valid contract between the plaintiff and a third party; (2) the defendant’s knowledge of that contract; (3) the defendant’s intentional acts designed to induce a breach or disruption of the contractual relationship; (4) actual breach or disruption of the contractual relationship; and (5) resulting damage.” (Reeves v. Hanlon (2004) 33 Cal.4th 1140, 1148 [internal citation and quotation marks omitted].)

Here, Defendants concede that they were aware of at least a valid contract between Sorrento and a third party, Dr. Doan. On summary adjudication, Defendants claim that there is no evidence that they interfered with the contract between Sorrento and Doan. (See Defendants’ Separate Statement of Undisputed Facts at Nos. 77-82, 84, and 86-89.) However, the moving party’s evidence does not affirmatively negate whether Defendants interfered with the contract between Sorrento and Doan. Instead, the evidence primarily addresses whether Doan was willing to perform under the agreement. (Ibid.) Defendants fail to meet their initial burden on summary adjudication of the interference claim.

Therefore, Defendants’ motion for summary adjudication to the twenty-first cause of action is DENIED.

With respect to the twenty-third cause of action, Plaintiffs allege a claim for aiding and abetting fraud. “Liability may…be imposed on one who aids and abets the commission of an intentional tort if the person (a) knows the other’s conduct constitutes a breach of duty and gives substantial assistance or encouragement to the other to so act or (b) gives substantial assistance to the other in accomplishing a tortious result and the person’s own conduct, separately considered, constitutes a breach of duty to the third person.” (Casey v. U.S. Bank Nat. Assn. (2005) 127 Cal.App.4th 1138, 1144.)

On summary adjudication, Defendants argue that there is no evidence of fraud to support the aiding and abetting claim. However, as stated above, triable issues remain with respect to the fraud claims to support the aiding and abetting cause of action.

Therefore, Defendants’ motion for summary adjudication to the twenty-third cause of action is DENIED.

Finally, with respect to the entire SAC, Defendants argue that the action is barred by the doctrine of collateral estoppel. Defendants claim that the same parties addressed identical issues in the Foreclosure Action resulting in a final judgment on the merits. However, as stated above, the court specifically declined to address any issues with respect to fraud, conspiracy, or wrongful foreclosure which are the subject of this action. For example, concealment was not at issue in the Foreclosure Action nor was it actually litigated or necessarily decided. Thus, Defendants have not established that all of the issues are identical, actually litigated, and necessarily decided in the prior proceeding.