JOSE DE JEUS ORTEGA v CITIMORTGAGE INC.

Case Number: EC062301 Hearing Date: July 25, 2014 Dept: NCB

15. EC062301
JOSE DE JEUS ORTEGA v CITIMORTGAGE INC.
Demurrer and Motion to Strike

The facts alleged in the Complaint is as follows: In 2007, the Plaintiffs obtained a $245,000 loan secured by a deed of trust on their property. The Plaintiffs began to have difficulties making their monthly payments in 2008. A notice of default was recorded on September 26, 2011 and a notice of trustee’s sale was recorded on March 30, 2012. The Plaintiffs attempted to obtain a loan modification, but their property was sold on April 25, 2012. This was a wrongful foreclosure.

Plaintiff pleads the following causes of action in the Complaint:
1) Wrongful Foreclosure
2) Breach of Contract
3) Breach of Implied Covenant of Good Faith and Fair Dealing
4) Intentional Misrepresentation
5) Negligent Misrepresentation
6) Promissory Estoppel
7) Negligence
8) Violation of Business and Professions Code section 17200
9) Intentional Infliction of Emotional Distress

This hearing concerns the demurrer and motion to strike of Defendant, Citimortgage, Inc. The foundation of the claims in the Plaintiffs’ Complaint is that their property was wrongfully sold in a foreclosure sale.

1. First Cause of Action for Wrongful Foreclosure
The Defendant argues that this cause of action lacks any facts indicating that the foreclosure was wrongful. The Plaintiffs allege in paragraphs 29 to 33 that the Defendant Cal-Western did not have “standing” to record a notice of default because only a trustee can record a notice of default.
However, under Civil Code section 2924(a)(1), a trustee, mortgagee, beneficiary, or any of their agents can initiate a non-judicial foreclosure. The notice of default in untabbed exhibit B to the Complaint indicates that Cal-Western acted as the trustee, substituted trustee, or agent for the trustee or beneficiary. The Plaintiffs do not plead facts to demonstrate that Cal-Western is not an agent for the trustee or beneficiary. Since the notice of default indicates that Cal-Western is acting as an agent for the trustee or beneficiary, the facts in the exhibit indicate that it has the authority under Civil Code section 2924(a)(1) to initiate the non-judicial foreclosure.
This indicates that the first cause of action lacks sufficient facts because it does not plead that Cal-Western was acting without authority. As noted above, the Plaintiffs’ claim that it had no standing as a trustee is incorrect.

Accordingly, the Court sustains the demurrer to the first cause of action.

Under California law, the Plaintiffs must show in what manner they can amend their Complaint and how that amendment will change the legal effect of the pleading. Goodman v. Kennedy (1976) 18 Cal.3d 335, 349. The Plaintiffs did not file any opposition papers or offer any basis for finding that they can correct the defects in their pleadings by amendment. Accordingly, the Court does not grant leave to amend.

2. Second Cause of Action for Breach of Contract and Third Cause of Action for Breach of Implied Covenant of Good Faith and Fair Dealing
The Defendant argues that the Plaintiffs do not plead sufficient facts to demonstrate that alleged contract was enforceable.
The Plaintiffs allege in paragraph 38 that the Defendant entered into an agreement under which it agreed to process the Plaintiffs’ loan modification if the Plaintiffs submitted the paperwork. This is an agreement to modify a contract concerning interests in real property.
A contract coming within the statute of frauds is invalid unless it is memorialized by a writing subscribed by the party to be charged or by the party’s agent. Civil Code section 1624. An agreement for the sale of real property or an interest in real property comes within the statute of frauds. Civil Code section 1624(a)(3). A mortgage or deed of trust also comes within the statute of frauds. Secrest v. Security National Mortgage Loan Trust 2002-2 (2008) 167 Cal. App. 4th 544, 552-553. An agreement to modify a contract that is subject to the statute of frauds is also subject to the statute of frauds. Id. (citing Civil Code section 1698(a)).
The Plaintiff alleges that the Defendant entered into an agreement to process their loan modification. This an agreement that would modify a contract subject to the statute of frauds. There are no allegations that this agreement was made in writing. This is grounds for a demurrer because the alleged contract is invalid under the statute of frauds.

Accordingly, the Court sustains the demurrer to the second cause of action.

Further, the third cause of action for breach of the implied covenant of good faith and fair dealing is based on the same contract. Since the Plaintiffs did not allege sufficient facts to demonstrate that a valid contract existed, the cause of action for the breach of an implied covenant in that contract lacks sufficient facts.
Further, the Plaintiffs are seeking tort damages in this claim. For example, in paragraphs 47 and 48 the Plaintiffs seek general damages and punitive damages. California law authorizes the award of tort damages for the breaches of the covenant of good faith and fair dealing in insurance contracts. Erlich v. Menezes (1999) 21 Cal. 4th 543, 551. This case does not involve an insurance contract.

Accordingly, the Court sustains the demurrer to the third cause of action.

Under California law, the Plaintiffs must show in what manner the Plaintiffs can amend their Complaint and how that amendment will change the legal effect of the pleading. Goodman v. Kennedy (1976) 18 Cal.3d 335, 349. The Plaintiffs did not file any opposition papers or offer any basis for finding that they can correct the defects in their pleadings by amendment. Accordingly, the Court does not grant leave to amend.

3. Demurrer to Fourth Cause of Action for Fraud and to Fifth Causes of Action for Negligent Misrepresentation
The Defendant argues that these causes of action lack the particularity needed to plead a fraud and negligent misrepresentation claims. The Plaintiff’s fourth cause of action include the following elements:

1) a representation, usually of fact, which is false;
2) knowledge of its falsity;
3) intent to defraud;
4) justifiable reliance upon the misrepresentation; and
5) damage resulting from that justifiable reliance
Stansfield v. Starkey (1990) 220 Cal. App. 3d 59, 72-73.

Facts constituting each element of fraud must be alleged with particularity; the claim cannot be saved by referring to the policy favoring liberal construction of pleadings. Committee on Children’s Television, Inc. v. General Foods Corp. (1983) 35 Cal.3d 197, 216. Since fraud must be pleaded with particularity, the complaint must allege facts showing how, when, where, to whom, and by what means the representations were tendered. Stansfield v. Starkey (1990) 220 Cal.App.3d 59, 73. In addition, fraud pleadings against a corporation must allege the names of the persons who made the misrepresentations, their authority to speak for the corporation, to whom they spoke, what they said or wrote, and when it was said or written. Tarmann v. State Farm Mutual Automobile Insurance Co. (1991) 2 Cal.App.4th 153, 157.
The elements of negligent misrepresentation are the following:

1) a misrepresentation of a past or existing material fact;
2) without reasonable grounds for believing it to be true;
3) with intent to induce another’s reliance on the fact misrepresented;
4) ignorance of the truth and justifiable reliance thereon by the party to whom the misrepresentation was directed; and
5) damages.
B.L.M. v. Sabo & Deitsch (1997) 55 Cal. App. 4th 823, 834.

Negligent misrepresentation is a separate and distinct tort, a species of the tort of deceit. Bily v. Arthur Young & Co. (1992) 3 Cal. 4th 370, 407. Since it is a tort of fraud, facts constituting each element must be alleged with particularity; the claim cannot be saved by referring to the policy favoring liberal construction of pleadings. Committee on Children’s Television, Inc. v. General Foods Corp. (1983) 35 Cal.3d 197, 216.

A review of the fourth and fifth causes of action reveals that the Plaintiffs did not plead the claims with the required particularity.
In paragraph 51 of the fourth cause of action, the Plaintiffs allege that on April 22, 2012 an agent for the Defendant made a representation that there was no date scheduled for the foreclosure and that the home was in loan modification. There are no allegations that identify how, where, or by what means this representation was tendered. There are no allegations identifying the authority of the person to speak for the Defendant. This is insufficient to plead the element of a false representation.
In paragraph 53, the Plaintiffs allege that they justifiably relied on the representations. However, the Plaintiffs allege in paragraph 19 that they had received a notice of trustee’s sale that identified the sale date as April 25, 2012. There are no allegations demonstrating that it was justifiable for the Plaintiffs to rely upon a representation that contradicted a notice recorded on their property. This is insufficient to plead the element of reliance.
In paragraph 54, the Plaintiffs allege that they suffered damages because they lost the opportunity to pursue other foreclosure procedures. There are no particular facts that identify any other procedures that the Plaintiffs could have taken between the date of the representation, which was April 22, 2012, and the date of the sale on April 25, 2012. This is insufficient to plead the element of resulting damages.

The fifth cause of action for negligent misrepresentation is based on the same allegations and it contains the same defects. It does not contain particular allegations regarding the representation in paragraph 57, it does not plead sufficient facts to plead reasonably reliance in paragraph 59, and it does not plead particular facts to demonstrate that the damages were the result of reasonable reliance.

Therefore, the Court sustains the demurrer to the fourth and fifth causes of action.

4. Demurrer to Sixth Cause of Action for Promissory Estoppel
The Defendants argue that this cause of action lacks sufficient facts to identify a clear promise. The elements of a cause of action for promissory estoppel claim are the following:

1) a promise clear and unambiguous in its terms;
2) reliance by the party to whom the promise is made;
3) the reliance must be both reasonable and foreseeable; and
4) the party asserting the estoppel must be injured by his reliance.
Aceves v. U.S. Bank N.A. (2011) 192 Cal. App. 4th 218, 225.

The promise must be clear and unambiguous in its terms and cannot be established from preliminary discussions and negotiations. Garcia v. World Savings, FSB (2010) 183 Cal. App. 4th 1031, 1044. Further, a hopeful expectation cannot satisfy the element of reliance. Aceves, 192 Cal.App.4th at 227.

In paragraph 63, the Plaintiff alleges that the Defendant made a promise to process the Plaintiffs’ application for a loan modification. This is not a clear promise because it is not an allegation that the Defendants promised to approve the application, to modify the loan, or not to foreclose; instead, it is a vague promise to consider the application for a loan modification.
This type of promise does not state a promissory-estoppel claim. A similar type of allegation was rejected in Torres v. Litton Loan Servicing LP (E.D. Cal. Apr. 12, 2011) 2011 U.S. Dist. LEXIS 40048, in which the plaintiff alleged that the defendant promised to process and review the plaintiff’s application for a loan modification. The Court found that this failed to allege an unambiguous promise to approve the application, modify the loan, or not to foreclose.
An example of a clear and unambiguous promise is in Aceves. After a notice of default was recorded, the plaintiff filed for bankruptcy protection under chapter 7. The plaintiff contacted the defendant and was told that if her loan was out of bankruptcy, the defendant would work with her on a mortgage reinstatement and loan modification. The defendant filed a motion for relief from the bankruptcy stay. In reliance on the promise to modify the loan, the plaintiff did not oppose the motion. However, the defendant set the house for sale and sold it without modifying the loan. The Court found that this was sufficient because the promise indicated that the defendant would not foreclose on the plaintiff’s home without first engaging in negotiations with her to reinstate and modify the loan on mutually agreeable terms. 192 Cal.App.4th at 226.
In the pending case, there is no allegation that any of the Defendants agreed to modify the loan. Instead, the Plaintiffs allege that the Defendant promised to review their loan application. This is not sufficient to state a cause of action for promissory estoppel.

Therefore, the Court sustains the demurrer to the sixth cause of action because it does not plead sufficient facts.

5. Demurrer to Seventh Cause of Action for Negligence
The Defendant argues that it has no duty as a lender to the Plaintiffs. A complaint in an action for negligence must allege:

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 the breach; and
4) damage to the plaintiff.
Jones v. Grewe (1987) 189 Cal. App. 3d 950, 954.

Under California law, a lender owes no general duty of care to the borrower. Nymark v. Heart Federal Savings & Loan Association (1991) 231 Cal.App.3d 1089, 1096 (“as a general rule, a financial institution owes no legal 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.”).
The Plaintiffs allege in paragraph 71 that the Defendant acted negligently with regards to her loan modification and breached its duty by carelessly handling her application.
These allegations do not demonstrate that the Defendant had a duty because its involvement in the loan modification does not exceed its scope as a lender of money. A loan modification is, at its core, an attempt by a money lender to salvage a troubled loan and nothing more than a renegotiation of loan terms. Armstrong v. Chevy Chase Bank, FSB (N.D. Cal. Oct. 3, 2012) 2012 U.S. Dist. LEXIS 144125, 11-12. This renegotiation is the same activity that occurred when the loan was first originated; the only difference being that the loan is already in existence. Id. Outside of actually lending money, it is beyond debate that negotiating the terms of the lending relationship is one of the key functions of a money lender. Id. For this reason, a loan modification is characterized as a traditional money lending activity. Id.
Here, the Plaintiffs’ allegations demonstrate that the Defendant was attempting to salvage a troubled loan by renegotiating the terms of the loan. These allegations do not demonstrate that the Defendant was exceeding its conventional role as a lender because a loan modification is part of the conventional role of a lender. Accordingly, the seventh cause of action does not plead that the Defendant had a tort duty sufficient to plead a claim for negligence.

Therefore, the Court sustains the demurrer to the seventh cause of action because it does not plead sufficient facts.

6. Demurrer to Eighth Cause of Action for Violation of Business and Professions Code section 17200
The Defendant argues that this cause of action lack the particular facts needed to plead claims under Business and Professions Code section 17200. The Plaintiffs’ cause of action is brought for the violation of Business and Professions Section 17200, which defines unfair competition to be any unlawful, unfair, or fraudulent business practice. In order to plead a claim under Business and Professions Code section 17200, there must be allegations showing an unlawful, unfair, or fraudulent business act or practice. Paulus v. Bob Lynch Ford, Inc. (2006) 139 Cal. App. 4th 659, 676-677. This includes anything that can properly be called a business practice and that at the same time is forbidden by law. Id. Further, to plead this statutory claim, the pleadings must state with reasonable particularity the facts supporting the statutory elements of the violation. Khoury v. Maly’s of California, Inc. (1993) 14 Cal. App. 4th 612, 619.

A review of the Plaintiffs’ allegations reveals that they are attempting to recast their fraud claim as a violation of section 17200. In paragraphs 94 to 97, the Plaintiff alleges that the Defendant made false representations that it knew were untrue and that as a result the Plaintiffs suffered damages.

California law holds that an action under Business and Professions Code section 17200 is not an all-purpose substitute for a tort or contract action. Paulus v. Bob Lynch Ford, Inc. (2006) 139 Cal. App. 4th 659, 676-677. Since the Plaintiffs are restating the fraud claim their fourth cause, they are using the cause of action for violation of section 17200 to duplicate a tort claim. This is an improper use of Business and Professions Code section 17200.
Further, section 17200 “borrows” violations of other laws and treats them as “unlawful” practices independently actionable under the unfair competition law. Smith v. State Farm Mutual Automobile Ins. Co. (2001) 93 Cal. App. 4th 700, 718, 113 Cal. Rptr. 2d 399 (2001). When a plaintiff cannot state a claim under the “borrowed” law, the plaintiff cannot state a claim under unfair competition law either. Here, the Plaintiffs cannot state their claim for wrongful foreclosure. Accordingly, the Plaintiffs do not state a claim for the violation of 17200 either.

Therefore, the Court sustains the demurrer to the eighth cause of action.

7. Demurrer to Ninth Cause of Action for Intentional Infliction of Emotional Distress
The Defendant argues that this cause of action lacks sufficient facts to demonstrate that it engaged in outrageous conduct. The elements of the tort of intentional infliction of emotional distress are the following:

1) extreme and outrageous conduct by the defendant with the intention of causing, or reckless disregard of the probability of causing, emotional distress;
2) the plaintiff’s suffering severe or extreme emotional distress; and
3) actual and proximate causation of the emotional distress by the defendant’s outrageous conduct. Conduct to be outrageous must be so extreme as to exceed all bounds of that usually tolerated in a civilized community.”
Christensen v. Superior Court (1991) 54 Cal.3d 868, 903

The Plaintiffs allege in paragraphs 101 that the Defendants engaged in outrageous conduct when they sold the Plaintiffs’ home in a foreclosure sale. These allegations do not demonstrate that the Defendant engaged in conduct so extreme as to exceed all bounds of that usually tolerated in a civilized community. Instead, it alleges that the Defendant was engaged in conduct related to the collection of a debt.
Courts have recognized that the attempted collection of a debt by its very nature often causes the debtor to suffer emotional distress. Ross v. Creel Printing & Publishing Co., Inc. (2002) 100 Cal. App. 4th 736, 745. Such conduct is only outrageous if it goes beyond “all reasonable bounds of decency.” Id.
There are no allegations demonstrating that the Defendant’s conduct in collecting a debt went beyond all reasonable bounds of decency.

Therefore, the Court sustains the demurrer to the ninth cause of action.

The Plaintiffs have the burden of showing in what manner they can amend their complaint and how that amendment will change the legal effect of their pleading. Goodman v. Kennedy (1976) 18 Cal.3d 335, 349. In their opposition, the Plaintiffs made a generic request for leave to amend, but fail to meet their burden of demonstrating the manner in which they can amend their pleadings.
Here, it does not appear reasonably possible for the Plaintiffs to correct this defect because the Plaintiffs are attempting to claim that statements made in the loan modification are outrageous conduct. As noted above, conduct related to the collection is not outrageous unless it exceeds all reasonable bounds of decency. The Plaintiffs offer no basis to find that they can plead outrageous conduct. Instead, it appears that the Plaintiffs are re-pleading their second cause of action for fraud as a duplicative cause of action for the intentional infliction of emotional distress.
Under California law, the Plaintiffs must show in what manner the Plaintiffs can amend their Complaint and how that amendment will change the legal effect of the pleading. Goodman v. Kennedy (1976) 18 Cal.3d 335, 349. The Plaintiffs did not file any opposition papers or offer any basis for finding that they can correct the defects in their pleadings by amendment. Accordingly, the Court does not grant leave to amend.

8. Lack of Tender
The Plaintiffs’ Complaint is based on claims that they suffered damages because their home was sold in an improper foreclosure sale. An additional ground for a demurrer to each cause of action is the lack of allegations demonstrating that the Plaintiffs tendered the amount due on the loan.
To plead any cause of action for irregularity in the foreclosure sale procedure, there must be allegations showing that the plaintiff tendered the amount of the secured indebtedness to the defendant. Abdallah v. United Sav. Bank (1996) 43 Cal. App. 4th 1101, 1109 (affirming an order sustaining a demurrer without leave to amend in a case claiming that the foreclosure and sale of a home was improper). A valid tender must be nothing short of the full amount due the creditor. Gaffney v. Downey Sav. & Loan Ass’n (1988) 200 Cal. App. 3d 1154, 1165. The Court of Appeal found that the following summary of the tender rule describes this requirement:

The rules which govern tenders are strict and are strictly applied, and where
the rules are prescribed by statute or rules of court, the tender must be in such
form as to comply therewith. The tenderer must do and offer everything that
is necessary on his part to complete the transaction, and must fairly make
known his purpose without ambiguity, and the act of tender must be such that
it needs only acceptance by the one to whom it is made to complete the transaction.
Id.

The underlying principle for the tender rule is that “equity will not interpose its remedial power in the accomplishment of what seemingly would be nothing but an idle and expensively futile act, nor will it purposely speculate in a field where there has been no proof as to what beneficial purpose may be subserved through its intervention.” Karlsen v. American Sav. & Loan Assn. (1971) 15 Cal. App. 3d 112, 118.
Further, this applies to any cause of action implicitly integrated with the voidable sale. Id. at 121. In Karlsen, the Court found that causes of action for breach of an oral agreement to delay the sale, for an accounting, and for a constructive trust failed because the plaintiff had not made a valid tender. In Arnolds Management Corp. v. Eischen (1984) 158 Cal. App. 3d 575, the Court found that causes of action for fraud and negligent misrepresentation based on the claim that the defendant had misrepresented the sale date failed because the plaintiff had not made a valid tender. The Court in Karlsen reasoned that absent an effective and valid tender, the foreclosure sale would become valid and proper. Karlsen, 15 Cal.App.3d at 121.

A review of the Plaintiff’s Complaint reveals that the Plaintiff seeks relief from the sale of their property and that each cause of action is implicitly integrated with the foreclosure proceeding and sale. Since absent a tender, the foreclosure sale is valid and proper, the Plaintiffs must plead that they satisfied the tender rule.

A review of the Plaintiff’s Complaint reveals that the Plaintiff did not plead that the Plaintiff tendered the amount due. Under California law, absent an effective and valid tender, the foreclosure sale to the Defendant is valid and proper.

Therefore, the Court sustains the Defendant’s demurrers to each cause of action in the Complaint on this ground as well.

9. Motion to Strike
In light of the ruling to sustain the demurrer to each cause of action in the Complaint, the motion to strike is moot and is taken off calendar.

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JOSE DE JEUS ORTEGA v CITIMORTGAGE INC.

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