Case Name: Stephen G. Debrunner v. Ocwen Loan Servicing, LLC, et al.
Case No.: 2014-1-CV-273607

Currently before the Court is the motion by defendants Ocwen Loan Servicing, LLC (“Ocwen”) and Deutsche Bank National Trust Company, as trustee for Morgan Stanley ABS Capital I Inc. Trust, Series 2007-SEA 1, erroneously sued as Deutsche Bank National Trust Company (“Deutsche”) for summary judgment or, in the alternative, summary adjudication.

Factual and Procedural Background

This action arises out of foreclosure proceedings against certain real property located in Los Altos, California (“Subject Property”) that is partially owned by plaintiff Stephen G. Debrunner (“Plaintiff”). (See First Amended Complaint (“FAC”), ¶¶ 9-28.)

The Subject Property was encumbered by two deeds of trust. (FAC, ¶¶ 10-11.) The first deed of trust was executed by Barbara Chiu (“Chiu”) on June 24, 2004, and secured a loan in the amount of $975,000 from Quick Loan Funding, Inc. (“Quick Loan”). (Id., at ¶ 10.) The second deed of trust was executed by Chiu on March 2, 2006, and secured a loan in the amount of $675,000 from a group of personal investors including Plaintiff (collectively, “Investors”). (Id., at ¶ 11.)

Chiu apparently fell behind on her loan payments and Investors, therefore, foreclosed on the second deed of trust on March 18, 2009. (FAC, ¶ 12.) At that time, the Investors “became … Chiu’s successor in interest” to the first deed of trust and “entitled persons” under Civil Code section 2943, subdivision (a)(4). (Ibid.) In addition, the Investors had the ability to pay and/or borrow sufficient sums of money to pay off the amount due under the first deed of trust. (Ibid.)

On September 15, 2009, a notice of default was recorded against the Subject Property in connection with the first deed of trust, stating that Deutsche was the creditor to whom the debt was owed. (FAC, ¶ 14.)

Next, on October 16, 2009, Plaintiff wrote to Deutsche, “among others,” and requested a beneficiary statement and payoff demand pursuant to Civil Code section 2943. (FAC, ¶ 15.) Thereafter, “Plaintiff continued to make requests for a payoff amount, at approximately bi-monthly intervals ….” (Ibid.)

Because no offer of proof was forthcoming regarding the owner of the beneficial interest in the loan secured by the first deed of trust, Plaintiff filed a lawsuit against Deutsche (Santa Clara County Superior Court, Case No. 2009-1-CV-157852) alleging that Deutsche had not established any lawful right to enforce the promissory note and first deed of trust. (FAC, ¶ 16.) The trial court eventually entered judgment in Deutsche’s favor in that action, and the judgment was affirmed on appeal. (Id., ¶¶ 17-19.)
Subsequently, on February 20, 2014, defendant Western Progressive (“Western Progressive”) recorded a notice of default against the Subject Property, which stated that $821,844 was owned to Deutsche and Ocwen. (FAC, ¶ 20.) Four days later, Plaintiff’s counsel wrote to Deutsche, Ocwen, and Western Progressive, requesting a payoff amount to satisfy the loan secured by the first deed of trust. (Id., at ¶ 21.)

Several months later, Western Progressive recorded a notice of trustee’s sale, which stated that the total amount owed was $1,589,255.75 and the trustee’s sale was set for October 27, 2014. (FAC, ¶ 22.) After being contacted by Plaintiff, Western Progressive agreed to postpone the trustee’s sale to late November 2014. (Id., at ¶ 23.)

On November 6, 2014, Ocwen sent Plaintiff a payoff demand in the amount of $1,607,100.80. (FAC, ¶¶ 15, 24.) The amount set forth in the payoff demand grossly overstates the amount owed on the promissory note secured by the first deed of trust. (Id., at ¶ 24.) Prior to November 6, 2014, Plaintiff had not received any payoff demand statement from Deutsche, Ocwen, or Western Progressive. (Id., at ¶ 26.) If Deutsche, Ocwen, or Western Progressive had provided Plaintiff, and the other Investors, with a payoff demand statement when he first requested one on October 16, 2009, he would have paid the amount due at that time. (Id., at ¶ 27.) “The failure to provide a payoff amount … blocked [Plaintiff’s] attempt to sell the Property.” (Id., at ¶ 26.) Furthermore, Plaintiff was unable to rent the Subject Property at fair market value and, consequently, incurred damages in the form of lost rental income in the amount of $390,000. (Id., at ¶ 28.)

Based on the foregoing, Plaintiff filed a complaint against Deutsche, Ocwen, and Western Progressive on November 21, 2014. Almost two years later, Plaintiff filed the operative FAC against Deutsche, Ocwen, and Western Progressive, alleging causes of action for: (1) declaratory relief; (2) negligence; and (3) unfair business practices. Deutsche and Ocwen subsequently filed an answer to the FAC on July 5, 2016.

On October 21, 2016, Deutsche and Ocwen jointly filed the instant motion for summary judgment or, in the alternative, summary adjudication. Plaintiff filed papers in opposition to the motion on February 9, 2017. Deutsche and Ocwen filed a joint reply on March 1, 2017.

Discussion

Deutsche and Ocwen move, in part, for summary adjudication of Plaintiff’s second cause of action, which is framed as a claim for negligence.

The negligence cause of action, as pleaded by Plaintiff, is based solely on an alleged violation of Civil Code section 2943 subdivision (c). (FAC, ¶¶ 42-47.) In the second cause of action, Plaintiff alleges that Deutsche and Ocwen owed him a legal duty under Civil Code section 2943 subdivision (c) to timely provide him with a payoff demand statement; Deutsche and Ocwen breached their duty as they failed to timely provide him with a payoff demand statement following written requests for the same; and he sustained various compensatory damages as a result of the failure to timely provide him with a payoff demand statement. (FAC, ¶¶ 42-47.)

It is well-established that “[a]n action in negligence requires a showing that the defendant owed the plaintiff a legal duty, that the defendant breached the duty, and that the breach was a proximate or legal cause of injuries suffered by the plaintiff.” (Ann M. v. Pacific Plaza Shopping Center (1993) 6 Cal.4th 666, 673.) Since Plaintiff framed his claim as one for negligence, it could be argued that Plaintiff need only prove that Deutsche and Ocwen owed him a legal duty under Civil Code section 2943 subdivision (c) to provide him with a timely payoff demand statement; Deutsche and Ocwen breached that duty by failing to timely provide him with such a statement; and their breach caused his damages.

However, because the claim is based solely on Deutsche and Ocwen’s alleged violation of Civil Code section 2943 subdivision (c), the Court questions whether Plaintiff can properly frame the second cause of action as a common law claim for negligence as opposed to a statutory claim for violation of Civil Code section 2943 subdivision (c).

The Court’s concern is based largely on the language of Civil Code section 2943, subdivision (e)(4). That subdivision provides:

If a beneficiary for a period of 21 days after receipt of the written demand willfully fails to prepare and deliver the statement, he or she is liable to the entitled person for all damages which he or she may sustain by reason of the refusal and, whether or not actual damages are sustained, he or she shall forfeit to the entitled person the sum of three hundred dollars ($300). Each failure to prepare and deliver the statement, occurring at a time when, pursuant to this section, the beneficiary is required to prepare and deliver the statement, creates a separate cause of action …. For the purposes of this subdivision, “willfully” means an intentional failure to comply with the requirements of this section without just cause or excuse.

(Civ. Code, § 2943, subd. (e)(4), emphasis added.) Thus, under the terms of the statute, a beneficiary is liable to an entitled person for damages sustained as a result of a refusal to timely provide a payoff demand statement only if the refusal was willful.
In light of the foregoing, the Court requests that the parties submit further briefing on the issue of whether Plaintiff may avoid the willfulness requirement and the limitation of liability to beneficiaries as set forth in Civil Code section 2943, subdivision (e)(4) by recasting a claim for violation of Civil Code section 2943, subdivision (c) as a negligence claim.

Accordingly, the matter is CONTINUED to Thursday, April 13, 2017, at 9:00 a.m. in Department 6 to allow the parties to submit supplemental briefs on the issue identified above. The supplemental briefs shall not exceed eight pages in length and must be filed and served 16 court days before the hearing. Any response to the supplemental briefs shall not exceed five pages and must be filed and served nine court days before the hearing.