Case Number: EC061565 Hearing Date: May 02, 2014 Dept: B

ATTENTION: THE COURT WILL BE DARK ON MAY 2, 2014.

TO ALL COUNSEL AND UNREPRESENTED PARTIES:
PLEASE REVIEW THE TENTATIVES BELOW, AND ADVISE THE CLERK OF THE COURT AT (818) 557-3472 WHETHER YOU SUBMIT TO THE TENTATIVE OR WISH TO SCHEDULE ANOTHER HEARING DATE. IF YOU WISH TO SCHEDULE ANOTHER HEARING DATE, PLEASE CONTACT ALL OPPOSING PARTIES AND AGREE ON A HEARING DATE OF MAY 16, MAY 23, OR MAY 30, AND INFORM THE CLERK OF THE SELECTED DATE.

Demurrer and Motion to Strike

Case Management Conference

The Complaint alleges that Defendant services the Plaintiffs’ loan. The Plaintiffs applied for a loan modification, but the Defendant has failed to provide a modification.

The Plaintiff alleges that Defendant violated Civil Code section 2923.5 by failing to contact the Plaintiffs to assess their financial information. The Defendant negligently breached its duty to assist the Plaintiffs with their loan modification. The Defendant has engaged in an unfair business practice by failing to provide a loan modification.

The Causes of action in the First Amended Complaint are: 1) Violation of Civil Code section 2923.5; 2) Negligence; and 3) Violation of Business and Professions Code section 17200

This hearing concerns the Defendant’s demurrer to the causes of action in the First Amended Complaint. The Defendants base their demurrer on arguments demonstrating that each cause of action fails to plead sufficient facts to constitute a cause of action.

1. Demurrers to First Cause of Action for Violation of Civil Code Section 2923.5

The Defendant argues that this cause of action lacks sufficient facts because there are no allegations that a notice of default has been recorded.

Civil Code section 2923.5 prohibits a mortgagee, trustee, beneficiary or authorized agent from filing a notice of default until 30 days after initial contact is made or 30 days after satisfying the due diligence requirements. Section 2923.5(a)(2) requires a “mortgagee, beneficiary or authorized agent” to “contact the borrower in person or by telephone in order to assess the borrower’s financial situation and explore options for the borrower to avoid foreclosure.” Section 2923.5(b) requires a default notice to include a declaration “from the mortgagee, beneficiary, or authorized agent” of compliance with section 2923.5, including attempt “with due diligence to contact the borrower as required by this section.” To plead statutory claims, 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.

Civil Code section 2923.5 precludes the Defendant from recording a notice of default until 30 days after the Defendant has made an initial contact with the borrower to assess the borrower’s financial situation and explore options for avoiding foreclosure, or has satisfied the due diligence requirements of the statute. A review of the Plaintiffs’ First Amended Complaint reveals no allegation that the Defendant has recorded a notice of default. Since there are no allegations that the Defendant recorded a notice of default, the Plaintiffs have not pleaded that the Defendant violated section 2923.5.

The Plaintiffs offer no legal authority holding that a loan servicer can violate section 2923.5 before a notice of default is recorded. Instead, the Plaintiffs’ opposition papers includes arguments regarding timelines and deadlines by which the Defendant must perform the initial contact. This argument is irrelevant to the demurrer. Civil Code section 2923.5 is violated when a loan service records a notice of default without complying with its requirements. Since the Plaintiffs do not plead that the Defendant recorded a notice of default, the Plaintiffs have not pleaded a cause of action for the violation of Civil Code section 2923.5.

Accordingly, the first cause of action lacks sufficient facts because it does not include allegations demonstrating that the Defendant recorded a notice of default.

This is the Plaintiffs’ second attempt to plead their claims. California law imposes the burden on the Plaintiff to demonstrate the manner in which they can amend their pleadings to state their claims against the Defendant. Goodman v. Kennedy (1976) 18 Cal.3d 335, 349. The Plaintiffs do not meet this burden because they do not offer any basis to find that they can correct the defect in the first cause of action by amendment, i.e., state that they can allege that the Defendant recorded a notice of default.

Accordingly, the Court does not grant leave to amend.

2. Demurrer to Second Cause of Action for Negligence

The Defendant argues that this cause of action lacks sufficient facts because the Defendant does not have a tort duty to the Plaintiffs. The second cause of action alleges that the Defendant had a common law duty of care in performing their role as service of the loan. 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 Plaintiff’s second cause of action attempts to plead a claim based on a legal duty of care to the Plaintiff with regards to the loan transaction, e.g., a duty of care when servicing the loan or reviewing the loan modification. Under California law, this does not plead a cause of action for negligence because the Defendant had no tort duty of care to the Plaintiffs in its role of lending money.

Further, the allegations regarding the loan modification do not demonstrate that the Defendant exceeded its conventional role because 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. This indicates that the Defendant’s conduct when reviewing the loan modification is part of the lending relationship.

Accordingly, the second cause of action lacks sufficient facts because it does not include facts demonstrating that the Defendant had a tort duty of care to the Plaintiff.

This is the Plaintiffs’ second attempt to plead their claims. California law imposes the burden on the Plaintiffs to demonstrate the manner in which they can amend their pleadings to state their claims against the Defendants. Goodman v. Kennedy (1976) 18 Cal.3d 335, 349. The Plaintiffs do not meet this burden because they do not offer any basis to find that they can correct the defect in the second cause of action by amendment.

Accordingly, the Court does not grant leave to amend.

3. Demurrer to Third Cause of Action for Business and Professions Code section 17200

The Defendant argues that the Plaintiffs have not pleaded sufficient facts to state a claim for the violation of Business and Professions Section 17200. 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.

In paragraphs 41 to 43, the Plaintiffs allege that the Defendant engaged in unlawful, unfair, and fraudulent business practices by delaying and refusing to communicate during the loan modification process and by violating Civil Code section 2923.5. A comparison of the Plaintiffs’ third cause of action to the pleadings in their first and second causes of action reveals that the Plaintiffs have restated their first and second causes of action as violations of 17200, i.e., they are pleading that the Defendant violated section 17200 by failing to comply with Civil Code section 2923.5 and by breaching their duties during the loan modification process.

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 their first and second causes of action in their third cause of action, they are using the third cause of action for violation of section 17200 as a substitute for the first and second causes of action.

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 a claim for the violation of Civil Code section 2923.5 because no default has not been entered. Accordingly, the Plaintiffs do not state a claim for the violation of 17200 either.

Finally, the Plaintiffs’ third cause of action lacks any particularity. For example, paragraph 42 alleges that the Defendant’s conduct was unfair because “its utility is significantly outweighed by the gravity of the harm that it imposes on borrowers”. There are no particular allegations that identify the specific business practice at issue. Also, paragraph 43 alleges that the Defendant’s conduct was unfair because the “practice is oppressive, unscrupulous, and/or substantially injurious to borrowers”. There are no particular allegations identifying the business practice at issue.

The Plaintiffs’ opposition claims that the Defendant institute improper foreclosure proceedings, recorded false filings as the foreclosure was wrongful, attempted foreclosure without legal authority, and made material misrepresentations. It appears that the Plaintiffs are discussing a different pleading because there are no allegations that the Defendant has instituted foreclosure proceedings. Instead, as noted above, the Defendant has not recorded a notice of default. Since there are no allegations that the Defendant has commenced a foreclosure proceeding by recording a notice of default, there are no allegations that demonstrate that the Defendant has engaged in an unfair business practice by instituting improper foreclosure proceedings without legal authority.

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

This is the Plaintiffs’ second attempt to plead their claims. California law imposes the burden on the Plaintiffs to demonstrate the manner in which they can amend their pleadings to state their claims against the Defendant. Goodman v. Kennedy (1976) 18 Cal.3d 335, 349. The Plaintiffs do not meet this burden because they do not offer any basis to find that they can correct the numerous defects in their third cause of action by amendment.

Accordingly, the Court does not grant leave to amend.