Case Number: BC502267 Hearing Date: March 19, 2018 Dept: 50

Superior Court of California

County of Los Angeles

Department 50

bell hospital corporation, et al.

Plaintiffs,

vs.

new aid medical supply, inc., et al.

Defendants.

Case No.:

BC 502267

Hearing Date:

March 19, 2018

Hearing Time:

8:30 a.m.

[TENTATIVE] ORDER RE:

DEMURRER OF NEW AID MEDICAL SUPPLY, INC., EARL COLLINS AND RITA COLLINS TO AMERICAN CARDIOCARE MEDICAL CENTER, INC.’S SECOND AMENDED COMPLAINT

Background

Plaintiffs Bell Hospital Corporation (“Bell Hospital”) and American Cardiocare Medical Center, Inc. (“American Cardiocare”) filed this wrongful foreclosure action on March 5, 2013. Plaintiffs filed a First Amended Complaint (“FAC”) on June 9, 2015 against Defendants New Aid Medical Supply, Inc. (“New Aid”); Earl Collins; Rita Collins; T.D. Service Company (“T.D. Service”); and Fran DePalma (collectively “Defendants”). On September 2, 2015, the Court issued an order striking the FAC and dismissing the action with prejudice as to all Defendants. Plaintiffs filed a motion for reconsideration, which was denied. Plaintiffs appealed. On May 16, 2017, the Court of Appeal issued a ruling sustaining the demurrer to eleven of the twelve causes of action and reversing as to the quiet title cause of action as brought by American Cardiocare. A remittitur was issued on July 21, 2017.

The operative Second Amended Complaint (“SAC”) was filed by American Cardiocare on September 18, 2017. The gravamen of the SAC is that Defendants New Aid, Earl Collins, and Rita Collins (collectively, the “New Aid Defendants”) wrongfully foreclosed on and took title to that certain real property located at 1125 Cherry Avenue, Long Beach, CA (the “Property”). The pertinent facts are as follows:

On February 7, 2005, a grant deed confirming Bell Hospital’s title to the Property was recorded. (SAC, ¶ 9.) On the same day, a Deed of Trust in favor of Cal Vista Home Loans, Inc. (“Cal Vista”) securing Bell Hospital’s obligation to repay a loan as set forth in a promissory note was recorded against the Property. (New Aid Defendants’ RFJN, Ex. 1; SAC, ¶ 9.)

Between December 2005 and June 2012, a “deed dispute” between Earl Collins and an individual named Jerry Aguolu (presumably on behalf of Bell Hospital) resulted in Bell Hospital being locked out of the Property for that period of time. (SAC, ¶ 10.)

While the “deed dispute” was pending, in or about March 2006, New Aid was assigned (allegedly via a purchase by Earl Collins and Rita Collins) all of the beneficial interest in the Cal Vista Deed of Trust. (New Aid Defendants’ RFJN, Exs. 2-10; SAC, ¶ 11.) The “deed dispute” was resolved in June 2012 by court-ordered settlement. (SAC, ¶ 12.) The settlement required Earl Collins to execute a grant deed and reconvey and return possession of the Property to Bell Hospital. (SAC, ¶ 12.) On June 20, 2012, Bell Hospital recorded a deed transferring its interest in the Property to American Cardiocare. (SAC, ¶¶ 10, 13, Ex. A; New Aid Defendants’ RFJN, Ex. 11.)

On or about May 7, 2015, New Aid foreclosed on the Cal Vista Deed of Trust and acquired the Property at the foreclosure sale. (SAC, ¶ 18; New Aid Defendants’ RFJN, Ex. 12.)

New Aid Defendants now demur to the SAC on the grounds that it fails to state facts sufficient to constitute a quiet title cause of action, that it is uncertain, and that American Cardiocare lacks standing. American Cardiocare opposes.

Request for Judicial Notice

American Cardiocare’s Request for Judicial Notice is granted.

New Aid Defendants’ Request for Judicial Notice is granted.

Discussion

A demurrer can be used only to challenge defects that appear on the face of the pleading under attack or from matters outside the pleading that are judicially noticeable. ((Blank v. Kirwan (1985) 39 Cal.3d 311, 318.) “To survive a demurrer, the complaint need only allege facts sufficient to state a cause of action; each evidentiary fact that might eventually form part of the plaintiff’s proof need not be alleged.” ((C.A. v. William S. Hart Union High School Dist. (2012) 53 Cal.4th 861, 872.) For the purpose of testing the sufficiency of the cause of action, the demurrer admits the truth of all material facts properly pleaded. ((Aubry v. Tri-City Hospital Dist. (1992) 2 Cal.4th 962, 966-967.) A demurrer “does not admit contentions, deductions or conclusions of fact or law.” ((Daar v. Yellow Cab Co. (1967) 67 Cal.2d 695, 713.) A demurrer for uncertainty may lie if the failure to label the parties and claims renders the complaint so confusing defendant cannot tell what he or she is supposed to respond to. ((Williams v. Beechnut Nutrition Corp. (1986) 185 Cal.App.3d 135, 139, fn. 2.)

As to the demurrer for uncertainty, the Court finds that the SAC sufficiently labels the parties and claims, and that the SAC is not so confusing that the New Aid Defendants cannot tell what they are supposed to respond to. Therefore, the demurrer on the basis of uncertainty is overruled.

The New Aid Defendants also demur on the basis that American Cardiocare lacks standing and that tender is required to state a claim. American Cardiocare contends in opposition that it has standing because it held title to the Property at the time of the foreclosure sale. American Cardiocare further contends that no tender was required because American Cardiocare alleges a setoff against the New Aid Defendants. The Court agrees. (See Lona v. Citibank, N.A. (2011) 202 Cal.App.4th 89, 113 (holding that “a tender will not be required when the person who seeks to set aside the trustee’s sale has a counterclaim or setoff against the beneficiary” and citing to Hauger v. Gates (1954) 42 Cal.2d 752, 755, discussed infra).)

With regard to the setoff allegations, the Court finds the Court of Appeal’s opinion in this matter instructive. [1] As the Court of Appeal noted in its ruling, one of the theories of liability upon which the FAC rests is the theory that the New Aid Defendants’ failure to reduce the balance due under the promissory note by the amount they allegedly collected from 2005 through 2012 while in possession of the Property resulted in a “grossly overstated” loan balance that could not be cured. The Court of Appeal registered doubt as to whether the FAC properly pled “facts to adequately allege [that] Bell Hospital was entitled to any (or some share) of the profits made by New Aid during the period of its occupancy of the Property.” (Opinion, p. 19.) There were no details about the nature of the “deed dispute” between the New Aid Defendants and Bell Hospital. There were no details about the associated litigation between the New Aid Defendants and Bell Hospital over the “deed dispute.” And there were no details about the resolution of that litigation by settlement. (Ibid.)

In order to state a valid claim for quiet title, American Cardiocare had to present sufficient factual allegations concerning the “deed dispute” and the settlement thereof. Without these additional facts, American Cardiocare could not allege a legal entitlement to the benefit of “setoffs.” (Opinion, p. 37.) Now, in the SAC, American Cardiocare has added additional facts presumably to overcome the defects in its quiet title claim as identified by the Court of Appeal. However, the Court finds these additional facts to be insufficient. The substantive amendments appear to be in paragraph 16 of the SAC, where American Cardiocare alleges that “[o]nce [New Aid] did take possession [of the Property], it was obligated to account for the reasonable rental value of the Property, the rents and profits received and offset these amounts from any balances that were accumulating on the mortgage during the time of its exclusive occupation of the Property.” (SAC, ¶ 16.) This statement is conclusory. There are no facts setting forth the legal basis for New Aid’s purported “obligation” to Bell Hospital/American Cardiocare.[2] The fact that the settlement of the “deed dispute” required Earl Collins to “execute a grant deed and reconveyance of the Property” to Bell Hospital does not explain Bell Hospital or American Cardiocare’s entitlement to any rents or profits during the time they were not in possession of the Property. (See SAC, ¶ 12.) Moreover, the additional facts purporting to explain the “deed dispute” do not actually do so. (Compare SAC, ¶ 10 with FAC, ¶ 16.) Instead, the SAC only alleges that the “deed dispute” was Earl Collins’ recordation of a separate security instrument against the Property and falsely claiming it was a grant deed. (SAC, ¶ 10.) It is unclear how this series of events entitles Bell Hospital to any of New Aid’s rents or profits.

The Court of Appeal cited to Hauger v. Gates (1954) 42 Cal.2d 752, 755-756 in its analysis of the quiet title claim. In Hauger, the plaintiff agreed to purchase from the defendants certain real property and certain personal property. (Hauger v. Gates, supra, 42 Cal.2d at p. 753.) The defendants then executed and delivered to plaintiffs a deed to the real property, and the plaintiffs executed and delivered a promissory note. (Hauger v. Gates, supra, 42 Cal.2d at p. 753.) The plaintiffs failed to make certain payments under the deed of trust, and the defendants failed to make the agreed delivery of certain personal property. (Hauger v. Gates, supra, 42 Cal.2d at p. 754.) When defendants recorded a notice of breach and election to sell under the deed of trust, the plaintiffs claimed that they were not then indebted to defendants because the value of the undelivered personal property exceeded the amount of the installments then due under the promissory note. (Hauger v. Gates, supra, 42 Cal.2d at p. 754.) The Supreme Court of California held that the plaintiffs “had a setoff which they were entitled to assert” and that “[b]y reason of their failure to deliver certain personal property to which plaintiffs were entitled under the agreement of sale . . . plaintiffs were not in default at the time of the sale.” (Id. at p. 755 [emphasis added].)

In the SAC, American Cardiocare has not adequately alleged any entitlement existing at the time of the foreclosure sale. Accordingly, the demurrer to the SAC is sustained.

When a demurrer is sustained, the burden is on the plaintiff to prove a reasonable possibility that the defect can be cured by amendment. (Maxton v. Western States Metals (2012) 203 Cal.App.4th 81, 95 [disapproved on other grounds].) To satisfy that burden, “[t]he plaintiff must clearly and specifically state the legal basis for amendment, i.e., the elements of the cause of action, as well as the factual allegations that sufficiently state all required elements of that cause of action.” (Maxton v. Western States Metals, supra, 203 Cal.App.4th at p. 95 (internal quotations omitted).) At pages 6 through 10 of its Opposition, American Cardiocare describes what may be the basis for such allegations, including claims regarding the duties of a purported mortgagee in possession. American Cardiocare does not cite to any paragraphs of the SAC that already adequately reflect the information and theories set forth at pages 6 through 10 of its Opposition. Consequently, the Court construes this discussion as an indication of what American Cardiocare could allege if allowed to further amend the SAC.

Conclusion

For the foregoing reasons, the New Aid Defendants’ demurrer is sustained with leave to amend. The New Aid Defendants have 20 days from the date of this Order to file and serve a third amended complaint. If they fail to do so, then the New Aid Defendants are to submit a judgment within 30 days of this Order. The New Aid Defendants are ordered to give notice of this ruling.

DATED: March 19, 2018 ________________________________

Hon. Teresa A. Beaudet

Judge, Los Angeles Superior Court

[1] Though neither party included the Court of Appeal’s opinion in their respective Requests for Judicial Notice, the Court judicially notices the opinion pursuant to Evidence Code section 452(d).

[2] But see discussion below regarding amendment.