Case Name: James D. Butler, et al. v. JPMorgan Chase Bank, N.A., et al.
Case No.: 2018-CV-323746

(1) Demurrer to the Second Amended Complaint by Defendants Select Portfolio Servicing, Inc. and Deutsche Bank National Trust Company as Trustee for WaMu Mortgage Pass-Through Certificates, Series 2006-AR3
(2) Demurrer and Motion to Strike to the Second Amended Complaint by Defendant JPMorgan Chase Bank, N.A.

Factual and Procedural Background

This action arises out of foreclosure proceedings initiated by defendants JPMorgan Chase Bank, N.A. (“Chase”); Select Portfolio Servicing, Inc. (“SPS”); and Deutsche Bank National Trust Company as Trustee for WaMu Mortgage Pass-Through Certificates, Series 2006-AR3 (“Deutsche”) (collectively, “Defendants”) against property owned by plaintiffs James D. Butler and Noemi G. Butler (“Noemi”) (collectively, “Plaintiffs”).

As alleged in the Second Amended Complaint (“SAC”), Plaintiffs own real property located at 18910 Pendergast Avenue in Cupertino, California (“Subject Property”). (SAC, ¶ 1.) On December 7, 2005, Plaintiffs executed an adjustable rate, negative amortization mortgage relating to the Subject Property, which consisted of a Deed of Trust (“DOT”), Adjustable Rate Note (“Note”) and Adjustable Rate Rider. (Id. at ¶ 7.) The DOT identifies Washington Mutual Bank, F.A. (“WaMu”) as the lender, Washington Mutual Bank (“WMB”) as the loan servicer and California Reconveyance Company (“CRC”) as the trustee. (Ibid.) Shortly after the loan origination, Plaintiffs’ loan was sold, securitized and placed in the WaMu Mortgage Pass-Through Certificates, Series 2006-AR3 (“Trust Pool”). (Id. at ¶¶ 8-9.) This fact is reflected in the free writing prospectus of the Trust Pool which lists Plaintiffs’ loan as being among its assets. (Id. at ¶ 9.)

In September 2008, Chase acquired WaMu from the Federal Deposit Insurance Corporation (“FDIC”) pursuant to a Purchase and Assumption Agreement (“PAA”). (SAC, ¶ 17.) However, Plaintiffs’ loan was not among the assets acquired by Chase because it had been sold to the Trust Pool in 2006. (Ibid.)

On March 1, 2010, CRC recorded a notice of default on the Subject Property (“NOD 1”). (SAC, ¶ 19.) The NOD 1 falsely identified Chase as the beneficiary of the DOT despite the fact Chase never acquired Plaintiffs’ loan as an asset. (Ibid.) That same day, an assignment of the DOT (“ADOT”) to Deutsche as trustee of the Trust Pool was recorded. (Id. at ¶ 20.) In the ADOT, Chase falsely purported to be the beneficiary of the DOT as successor-in-interest to WaMu. (Ibid.) The ADOT was also executed by Deborah Brignac, a known robo-signer. (Ibid.)
On February 7, 2011, CRC recorded a notice of trustee’s sale. (SAC, ¶ 23.) This sale ultimately did not take place. (Ibid.) In November 2017, Deutsche substituted Clear Recon Corp. (“Clear Recon”) as trustee under the DOT. (Id. at ¶ 29.) On December 19, 2017, Clear Recon recorded a notice of default on the Subject Property (“NOD 2”). (Id. at ¶ 30.) Both of these documents were invalid because they flowed from the defective and void ADOT from Chase to Deutsche and were executed by an entity (i.e. Deutsche) that had no authority to record it. (Id. at ¶¶ 29-30.)

Meanwhile, on December 15, 2016, Plaintiffs submitted a completed loan modification application to Chase, who was then holding itself out as their loan servicer. (SAC, ¶ 24.) Chase later transferred its servicing rights to SPS who undertook the review of Plaintiffs’ loan modification. (Ibid.) In January and February 2017, SPS sent Plaintiffs a letter advising them that their application was incomplete and requesting that they submit information that had previously been submitted with their original application. (Id. at ¶ 25.) On May 24, 2017, SPS denied Plaintiffs’ request for a loan modification. (Id. at ¶ 26.) SPS also denied Plaintiffs’ subsequent appeal of the denial. (Id. at ¶ 27.) Several months later, Plaintiffs received a letter from SPS advising them they might still have loss mitigation alternatives and inviting them to apply. (Id. at ¶ 28.)

On March 23, 2018, plaintiff Noemi found a notice of trustee’s sale posted on the door of her home stating that a sale was scheduled for May 2, 2018. (SAC, ¶ 31.) On April 11, 2018, Plaintiffs submitted another loan modification application with SPS. (Id. at ¶ 32.) Over the course of the next week, Noemi followed up several times with SPS regarding the status of her application, provided revisions to the application that were requested, and was informed the sale on her property would be halted. (Id. at ¶¶ 32-34.) Notwithstanding this fact, on April 18, 2018, Noemi was informed the sale would still proceed and her application was not undergoing review as she submitted it too close to the date of the sale. (Id. at ¶ 35.) Around that same time, two other SPS representatives told Noemi that her application was in review and that the sale would be halted. (Id. at ¶ 36.)

On April 23, 2018, Plaintiffs filed a First Amended Complaint (“FAC”) alleging causes of action for: (1) declaratory relief; (2) wrongful foreclosure; (3) quiet title; (4) slander of title; (5) cancellation of instruments; (6) violations of Business and Professions Code section 17200 et seq.; (7) negligence; and (8) unjust enrichment.

Defendants SPS and Deutsche (collectively, the “Foreclosing Entities”) filed a demurrer to the FAC and defendant Chase filed a separate demurrer and motion to strike the pleading. The Court sustained the demurrer by the Foreclosing Entities with leave to amend as to the first, third, fourth, fifth, sixth, and seventh causes of action. The Court sustained the demurrer with leave to amend by defendant Chase in its entirety as Plaintiffs did not oppose the motion. As such, the motion to strike was rendered moot.

On July 6, 2018, Plaintiffs filed the operative SAC alleging causes of action for violation of Business and Professions Code section 17200 et seq. [against all Defendants] and negligence [against the Foreclosing Entities].

The following motions are currently before the Court: (1) the demurrer to the SAC by the Foreclosing Entities; and (2) the demurrer and motion to strike to the SAC by defendant Chase. Defendants filed requests for judicial notice in conjunction with the motions. Plaintiffs filed written oppositions. Defendants filed reply papers.

The Foreclosing Entities’ Demurrer to the SAC

The Foreclosing Entities demur to the first and second causes of action on the grounds they are fatally uncertain and fail to state a claim for relief. (Code Civ. Proc., § 430.10, subds. (e), (f).)

Request for Judicial Notice

The Foreclosing Entities request judicial notice of a rescission of notice of default that was recorded on May 1, 2018. Their request is made pursuant to Evidence Code section 452 (“Section 452”), subdivision (h), which permits judicial notice of facts that are “not reasonably subject to dispute and capable of immediate and accurate determination by resort to sources of reasonably indisputable accuracy.”

Recorded documents are generally judicially noticeable under Section 452, subdivision (h). (Fontenot v. Wells Fargo Bank, N.A. (2011) 198 Cal.App.4th 256, 264-265 (Fontenot) [disapproved of on other grounds in Yvanova v. New Century Mortg. Corp. (2016) 62 Cal.4th 919].) With that said, the notice of rescission is not a proper subject of judicial notice because it is not helpful or necessary to resolving issues raised in the Foreclosing Entities’ demurrer. (See Jordache Enterprises, Inc. v. Brobeck, Phleger & Harrison (1998) 18 Cal.4th 739, 748, fn. 6 [a court need not take judicial notice of a matter unless it “is necessary, helpful, or relevant”].)

Therefore, the Foreclosing Entities’ request for judicial notice is DENIED.

Legal Standard

“In reviewing the sufficiency of a complaint against a general demurer, we are guided by long settled rules. ‘We treat the demurrer as admitting all material facts properly pleaded, but not contentions, deductions or conclusions of fact or law. We also consider matters which may be judicially noticed.’” (Blank v. Kirwan (1985) 39 Cal.3d 311, 318.) “A demurrer tests only the legal sufficiency of the pleading. It admits the truth of all material factual allegations in the complaint; the question of plaintiff’s ability to prove these allegations, or the possible difficulty in making such proof does not concern the reviewing court.” (Committee on Children’s Television, Inc. v. General Foods Corp. (1983) 35 Cal.3d 197, 213–214.)

“The reviewing court gives the complaint a reasonable interpretation, and treats the demurrer as admitting all material facts properly pleaded. The court does not, however, assume the truth of contentions, deductions or conclusions of law. … [I]t is error for a trial court to sustain a demurrer when the plaintiff has stated a cause of action under any possible legal theory. And it is an abuse of discretion to sustain a demurrer without leave to amend if the plaintiff shows there is a reasonable possibility any defect identified by the defendant can be cured by amendment.” (Gregory v. Albertson’s, Inc. (2002) 104 Cal.App.4th 845, 850.)

Uncertainty

In the Notice of Motion, the Foreclosing Entities demur to the first and second causes of action on the ground of uncertainty. These defendants however do not expound upon this ground in their supporting memorandum of points and authorities. The standard for uncertainty is that the allegations of the pleading must be so unintelligible the defendant cannot reasonably respond, i.e., he or she cannot reasonably determine what issues must be admitted or denied, or what counts or claims are directed against him or her. (Khoury v. Maly’s of California, Inc. (1993) 14 Cal.App.4th 612, 616.) The Foreclosing Entities do not discuss this standard relative to the SAC’s claims in any way. As such, they do not substantiate their demurrer on the ground of uncertainty. (See, e.g., People v. Dougherty (1982) 138 Cal.App.3d 278, 282; see also Cal. Rules of Court, rule 3.1113(b) [supporting memorandum must include a discussion of legal authority in support of the position advanced].)

Accordingly, the demurrer to the first and second causes of action on the ground of uncertainty is OVERRULED.

First Cause of Action: Violation of Business and Professions Code Section 17200 et seq.

The first cause of action is for violations of Business and Professions Code section 17200 et seq., otherwise known as the Unfair Competition Law (“UCL”). Plaintiffs allege, among other things, that Defendants engaged in unfair and fraudulent business practices when they executed false and misleading foreclosure documents, violated various Civil Code and Penal Code statutes, and negligently failed to negotiate a loan modification with them in good faith. (SAC, ¶¶ 43-44.)

The Court previously sustained the demurrer to the UCL claim on the ground that Plaintiffs did not allege sufficient facts to establish standing. Despite the amended pleading, the Foreclosing Entities again argue that Plaintiffs have not alleged standing to support their UCL cause of action.

In Kwikset Corp. v. Superior Court (2011) 51 Cal.4th 310 (Kwikset Corp.), the California Supreme Court considered the private standing requirements of Business and Professions Code section 17204, as amended by Proposition 64, and set forth “a simple test” to determine whether a plaintiff has standing to bring a private UCL action. (Kwikset Corp., supra, 51 Cal.4th at p. 322.) “To satisfy the narrower standing requirements imposed by Proposition 64, a party must now (1) establish a loss or deprivation of money or property sufficient to qualify as injury in fact, i.e., economic injury, and (2) show that the economic injury was the result of, i.e., caused by, the unfair business practice or false advertising that is the gravamen of the claim.” (Ibid.) A UCL claim will survive a demurrer if the plaintiff can plead “general factual allegations of injury resulting from the defendant’s conduct.” (Id. at p. 327.)

The injuries allegedly suffered by Plaintiffs are set forth in paragraph 46 of the SAC to support their claim under the UCL. This includes injury in the form of the following: (1) diminution of the value of their real property; (2) damage to their creditworthiness; (3) inability to modify the terms of their adjustable rate mortgage loan; and (4) incurring costs in retaining the services of a forensic mortgage loan auditor and attorneys. (SAC, ¶ 46.) The Foreclosing Entities argue such allegations do not qualify as economic injuries under section 17204 and, even if they did, it is unclear how any of these damages resulted from defendants’ violations of the UCL. Plaintiffs appear to concede these arguments as they fail to address them in opposition to the motion. Plaintiffs instead make vague references to standing in a pre-foreclosure sale and assignment of the Note. (See OPP at p. 4.) Having failed to address the standing argument, which appears to be well-taken, the demurrer to the first cause of action is SUSTAINED WITH 10 DAYS’ LEAVE TO AMEND for failure to state a claim.

Second Cause of Action: Negligence

The second cause of action is a claim for negligence. “To state a cause of action for negligence, a plaintiff must allege (1) the defendant owed the plaintiff a duty of care, (2) the defendant breached that duty, and (3) the breach proximately caused the plaintiff’s damages or injuries. [Citation.] Whether a duty of care exists is a question of law to be determined on a case-by-case basis.” (Lueras v. BAC Home Loans Servicing, LP (2013) 221 Cal.App.4th 49, 62 (Lueras).)

To support negligence, Plaintiffs allege the Foreclosing Entities owed them a duty to conduct loan modification negotiations in good faith and comply with all applicable laws. (SAC, ¶ 56.) The Foreclosing Entities allegedly breached this duty by making material misrepresentations to Plaintiffs regarding the status of their loan modification. (Id. at ¶¶ 50-51.)

The Foreclosing Entities argue there is no duty of care to support the negligence claim. As a general rule, a financial institution generally does not owe a borrower a duty of care in the course of ordinary lending activities. (See Nymark v. Heart Federal Savings & Loan Assn. (1991) 231 Cal.App.3d 1089 and Lueras, supra, 221 Cal.App.4th at p. 49.) The Sixth District Court of Appeal however has held this general rule is not determinative of whether a duty of care is owed during the loan modification process. (Daniels v. Select Portfolio Servicing, Inc. (2016) 246 Cal.App.4th 1150, 1180-82.) Rather, the existence of a duty of care is determined based on the factors set forth by the California Supreme Court in Biakanja v. Irving (1958) 49 Cal.2d 647 (Biakanja), such as the foreseeability of the harm, moral blameworthiness, and possibility of preventing future harm. (Id. at pp. 1182-83 [holding lender owed duty of care during loan modification process].) The Foreclosing Entities do not address any of the Biakanja factors or connect them to allegations set forth in the SAC. These defendants therefore do not substantiate their argument. In addition, as is the case here, “a lender does owe a duty to a borrower to not make material misrepresentations about the status of an application for a loan modification or about the date, time, or status of a foreclosure sale.” (Lueras, supra, 221 Cal.App.4th at p. 68.)

Even if a duty of care exists, the Foreclosing Entities argue Plaintiffs fail to allege damages to support negligence. This argument is not persuasive as Plaintiffs allege damages and harm suffered as set forth in paragraphs 54, 65, and 67 of the SAC which must be accepted as true on demurrer. (See Olson v. Toy (1996) 46 Cal.App.4th 818, 823 [for purposes of demurrer, we accept these allegations as true].)

Accordingly, the demurrer to the second cause of action on the ground that it fails to state a claim is OVERRULED.

Chase’s Demurrer to the SAC

Chase demurs to the first cause of action on the ground that it fails to state a claim for relief. (Code Civ. Proc., § 430.10, subd. (e).)

Request for Judicial Notice

Chase seeks judicial notice of documents recorded in connection with the Subject Property – namely, the DOT, ADOT, NOD 1, NOD 2, notice of trustee’s sale, substitution of trustee, and notice of rescission. The request is made pursuant to Evidence Code sections 451 and 452. As stated, recorded documents are judicially noticeable under Section 452, subdivision (h). (See Fontenot, supra, 198 Cal.App.4th at pp. 264-265.) The documents are also sufficiently relevant to issues raised in support of the demurrer.

Consequently, the request for judicial notice is GRANTED.

First Cause of Action: Violation of Business and Professions Code Section 17200 et seq.

The UCL cause of action is the only claim alleged against defendant Chase. As a preliminary matter, Chase argues the UCL cause of action has been rendered moot as Plaintiffs’ loan has been reinstated and the NOD 2 has been rescinded. Thus, there is no pending non-judicial foreclosure activity. (See Wilson & Wilson v. City Council of Redwood City (2011) 191 Cal.App.4th 1559, 1574 [“When events render a case moot, the court, whether trial or appellate, should generally dismiss it.”].) Plaintiffs appear to concede this argument as they fail to address it in opposition to the motion.

Even if the UCL cause of action is not moot, defendant Chase argues the claim is barred by the four-year statute of limitations under Business & Professions Code section 17208.

“[A] statute of limitations gives someone who has suffered a civil wrong a certain period of time to sue for damages.” (Doe v. Roman Catholic Archbishop of Los Angeles (2016) 247 Cal.App.4th 953, 960 (Doe).) “[T]he statute of limitations exists to promote the diligent assertion of claims, ensure defendants the opportunity to collect evidence while still fresh, and provide repose and protection from dilatory suits once excess time has passed.” (Aryeh v. Canon Business Solutions, Inc. (2013) 55 Cal.4th 1185, 1191 (Aryeh).)

“The limitations period, the period in which a plaintiff must bring suit or be barred, runs from the moment a claim accrues.” (Aryeh, supra, 55 Cal.4th at p. 1191.) Traditionally, a cause of action “accrues” when it is complete with all of its elements. (Doe, supra, 247 Cal.App.4th at p. 961.) However, “a cause of action will at times be deemed to accrue at a later date, such as when the plaintiff did not discover and had no occasion to discover the cause of action until that later date, when the defendant fraudulently concealed the existence of a possible claim until that later date, or when the defendant committed multiple wrongs that ended on that later date.” (Ibid.)

A court may sustain a demurrer on the ground of failure to state sufficient facts if “the complaint shows on its face the statute [of limitations] bars the action.” (E-Fab, Inc. v. Accountants, Inc. Services (2007) 153 Cal.App.4th 1308, 1315.) A demurrer is not sustainable if there is only a possibility the cause of action is time-barred; the statute of limitations defense must be clearly and affirmatively apparent from the allegations in the pleading. (Id. at pp. 1315-16.) When evaluating whether a claim is time-barred, a court must determine (1) which statute of limitations applies and (2) when the claim accrued. (Id. at p. 1316.)

Defendant Chase argues the UCL claim is based upon the allegedly “void” Assignment and a theory of untimely transfer of the loan. Here, the alleged Assignment was recorded in 2010. (See Chase’s RJN at Exhibit 2.) In addition, documents reflecting the sale of the loan to the Trust Pool were available to the public in 2005-2006. (See SAC at Exhibits B-C.) Thus, to be considered timely, defendant Chase contends Plaintiffs were required to file their UCL claim at least four years following the recording of the Assignment in 2010. As this action was not filed until 2018, more than eight years later, Chase argues the UCL claim is time barred.

In opposition, Plaintiffs do not dispute the statute of limitations argument except to argue that the doctrine of equitable tolling is applicable. (See OPP at pp. 4-5.)

Equitable tolling applies “occasionally and in special situations” “to soften the harsh impact of technical rules which might otherwise prevent a good faith litigant from having a day in court.” (Addison v. State of California (1978) 21 Cal.3d 313, 319; see also McDonald v. Antelope Valley Community College Dist. (2008) 45 Cal.4th 88, 99 (McDonald).)

Equitable tolling “halts the running of the limitations period so long as the plaintiff uses reasonable care and diligence in attempting to learn the facts that would disclose the defendant’s fraud or other misconduct.” [Citation.] The doctrine “focuses primarily on the plaintiff’s excusable ignorance of the limitations period. [Citation.] [It] is not available to avoid the consequences of one’s own negligence.” [Footnote. Citation.]

(Sagehorn v. Engle (2006) 141 Cal.App.4th 452, 460-461.)

Equitable tolling requires “a showing of three elements: ‘timely notice, and lack of prejudice, to the defendant, and reasonable and good faith conduct on the part of the plaintiff.’ [Citations.]” (McDonald, supra, 45 Cal.4th at p. 102.) “When a plaintiff relies on a theory of fraudulent concealment, delayed accrual, equitable tolling, or estoppel to save a cause of action that otherwise appears on its face to be time-barred, he or she must specifically plead facts which, if proved, would support the theory.” (Mills v. Forestex Co. (2003) 108 Cal.App.4th 625, 641.)

Despite this argument, Plaintiffs do not allege facts necessary to support equitable tolling and therefore fail to state a valid claim under the UCL.

Accordingly, the demurrer to the first cause of action is SUSTAINED WITH 10 DAYS’ LEAVE TO AMEND for failure to state a claim. Having sustained the demurrer on these grounds, the Court declines to address the other arguments on demurrer.

Chase’s Motion to Strike

Given the Court’s ruling on demurrer, the motion to strike portions of the SAC by defendant Chase is MOOT.