SCV-251118 Vivier v. RBC Mortgage:

Defendant RBC Mortgage has filed a demurrer to the First and Fifth causes of action in Plaintiff’s Second Amended Complaint (SAC). In support of the demurrer, defendant has requested judicial notice, which is granted. (Fontenot v. Wells Fargo Bank, N.A. (2011) 198 Cal.App.4th 256, 265.)

Defendant contends that the First Cause of Action for Declaratory Relief and Reformation (CC § 1670.5) fails, as she fails to allege tender and that the claims are barred by the statute of limitations. Further, the Defendant argues that the SAC fails to allege facts to establish that the subject loan was unconscionable. Further, the Defendant contends that the Plaintiff has failed to allege a predicate unfair business practice to support the Fifth Cause of Action.

Plaintiff opposes, arguing that the SAC pleads sufficient facts to demonstrate that the loan in question was unconscionable, and was predicated on misrepresentations by the Defendant. Further, the Plaintiff contends that the SAC alleges a discovery date of September 2010, which puts the action within the relevant statute of limitations.

The Plaintiff’s first cause of action is premised on the unconscionability of the terms of the loan, and the Defendant’s alleged misrepresentations and omissions regarding the loan. The Plaintiff contends that the subject loan is unconscionable, and therefore should be reformed under CC § 1670.5. (See also Lona v. Citibank, N.A. (2011) 202 Cal.App.4th 89.)

First the court notes that unconscionability is a defense, not an independent cause of action. (See e.g. Carboni v. Arrospide (1991) 2 Cal.App.4th 76; and California Grocers Assn. v. Bank of America (1994) 22 Cal.App.4th 205, 217, 27 Cal.Rptr.2d 396.) Nevertheless, the California Grocers case assumed for purposes of discussion that California’s unfair competition statute may create an affirmative cause of action for unconscionability. (Id. at p. 218; Bus. & Prof.Code, § 17200 et. seq.) Further, unconscionability may form the basis of a reformation cause of action. (See generally CC § 3399; and e.g. Rosenfeld v. JPMorgan Chase Bank, N.A. (2010) 732 F.Supp.2d 952 [applying California law].) To be considered unconscionable the loan must be both procedurally and substantively unconscionable. With respect to the procedural aspects, the Plaintiff alleges that the loan was not a pre-printed form and that neither she nor her husband were allowed to review prior to signing. As instructed by the court in Lona:

Absent unusual circumstances, evidence that one party has overwhelming bargaining power, drafts the contract, and presents it on a take-it-or-leave-it basis is sufficient to demonstrate procedural unconscionability and require the court to reach the question of substantive unconscionability, even if the other party has market alternatives. (Gatton v. T–Mobile USA (2007) 152 Cal.App.4th 571, 586, 61 Cal.Rptr.3d 344.)

(Lona, supra, at 109.)

So, it seems here that the bargaining power and contract of adhesion (as alleged) provides enough procedural unconscionability to review the allegations involving the substantive unconscionability of the contract. This presents a close case, the Plaintiff has alleged that the true terms of the loan in question were not disclosed, i.e. that the interest rate was adjustable. Since the interest rate was adjustable, the Plaintiff was not in a position to pay the loan once the mortgage interest rate reset to the higher amount. Moreover, the Plaintiff contends that the Defendant fraudulently inserted into the loan application a false income, unbeknownst to the Plaintiff, and but for this false statement, the loan would not have been approved. Furthermore, the SAC alleges that the Defendant knew that the Plaintiff could not afford to repay the loan, and despite this, originated the loan. Under the circumstances, and the liberality given to pleading on demurrer, these allegations are sufficient to state a cause of action.

Further, tender is not required. Full tender of the indebtedness is not required if the borrower attacks the validity of the underlying debt. (Lona, supra, at 112–113.) Here, the Plaintiff has alleged unconscionability, and therefore, under Lona tender is not required.

Moreover, the statute of limitations bar does appear “clearly and affirmatively” from the face of the complaint. It is not enough that the complaint might be time-barred. (Committee for Green Foothills v. Santa Clara County Bd. of Supervisors (2010) 48 Cal.4th 32, 42.) The Plaintiff has alleged that the discovery of the unconscionable aspects of the loan was not made until 2010. This is sufficient to survive on demurrer.

Since the court has found that the Plaintiff has properly alleged that the contract was unconscionable, the Fifth Cause of Action for a violation of BP § 17200 survives. (See California Grocers Assn. v. Bank of America (1994) 22 Cal.App.4th 205, 217.)

Accordingly, the Defendant’s demurrer is overruled in its entirety. The Plaintiff is to draft an order consistent with this ruling.