Case Number: EC062469    Hearing Date: August 01, 2014    Dept: NCB

Demurrer

The Complaint alleges that in 2005, the Plaintiffs obtained a loan secured by a deed of trust on his property. In 2011, the Plaintiffs were not able to afford the loan and sought a loan modification. The Plaintiffs were advised that they had to be in default to obtain a loan modification.
The Plaintiffs received a loan modification package in January 2012. The Plaintiffs submitted their loan modification information. The Plaintiffs received numerous notices that changed the identity of the person managing their account. In addition, the Plaintiffs received numerous requests for additional information for a loan modification. While they were awaiting a decision, a notice of default was recorded on July 17, 2012 and a notice of default and election to sell was recorded on December 6, 2013. The Plaintiffs were then advised in March and April of 2014 that they did not qualify for a loan modification and that they needed to pay $43,977.61 to reinstate their loan.
The Plaintiffs brought this action to seek relief alleging the following causes of action:
1) Fraud
2) Negligent Misrepresentation
3) Negligence
4) Intentional Infliction of Emotional Distress
5) Wrongful Foreclosure – Violation of Civil Code sections 2924 et seq.
6) Violation of Business and Professions Code section 17200

This hearing concerns the demurrer of Defendants, Wells Fargo Bank and US Bank National Association.

1. Demurrer to First Cause of Action for Fraud and to Second Causes of Action for Negligent Misrepresentation
The Defendants argue that these causes of action lack the particularity needed to plead a fraud and negligent misrepresentation claims. The Plaintiff’s first cause of action includes 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 first and second causes of action reveals that the Plaintiffs did not plead the claims with the required particularity.
In paragraph 38 of the first cause of action, the Plaintiffs allege that the Defendant, Bank of America, through its authorized representatives, Michael Welch and Roxanne Tiska, misrepresented to the Plaintiffs that they would receive a loan modification if they defaulted on their loan and completed the loan modification package. There are no allegations that identify how, when, where, or by what means this representation was tendered. This is insufficient to plead the element of a false representation.
Further, there are insufficient particular facts to demonstrate that the Defendant had any intent to defraud or that the Plaintiffs had resulting damages from the Defendant’s alleged misrepresentation. There are no particular allegations identifying the Defendant’s intent to defraud the Plaintiffs.
Further, the Plaintiffs claim against Bank of America is that it falsely promised to provide a loan modification. However, the Plaintiffs allege in paragraph 38 that their loan was transferred to the Defendant, SPS. In paragraph 39, the Plaintiffs allege that the Defendant, SPS, requested additional documents. This indicates that the Plaintiffs were still awaiting a decision on their application for a loan modification.
There are no particular facts demonstrating that the Bank of America had any control over the loan modification application after the loan was transferred to SPS or that they still participated in the modification decision. Accordingly pleadings do not demonstrate that Bank of America is liable for any damages resulting from the denial of the loan modification.
The second 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 47 and it does not plead sufficient facts to demonstrate that the damages were the result of the alleged negligent misrepresentation in paragraph 52.

Finally, it appears that the Plaintiffs are incorporating particular facts from other parts of their Complaint. This is an improper use of incorporation. A civil plaintiff may, for the sake of convenience, incorporate by reference previous portions of the pleading for informational purposes only. Cal-West Nat. Bank v. Superior Court (1986) 185 Cal. App. 3d 96, 101. Neither the Court nor the Defendants are required to search the pleadings in order to determine whether the Plaintiff has pleaded a cause of action. Instead, the essential elements of each cause of action must be pleaded within the cause of action.

Therefore, the Court sustains the demurrer to the first and second causes of action with 10 days leave to amend.

2. Demurrer to Third Cause of Action for Negligence
The Defendant argues that it has no duty as a lender to the Plaintiff. 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 54 that the Defendant had a duty when engaged in the loan modification process. In paragraph 56, the Plaintiffs allege that the Defendant was negligent in the activities of loan servicing and when it failed to provide accurate information about the availability of a loan modification.
These allegations do not demonstrate that the Defendants had a duty. Further, 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 Defendants were attempting to salvage a trouble loan by renegotiating the terms of the loan. These allegations do not demonstrate that the Defendants were exceeding their conventional role as a lender because a loan modification is part of the conventional role of a lender. Accordingly, the third cause of action does not plead that the Defendants had a tort duty sufficient to plead a claim for negligence.

The Plaintiffs argue that legal authority imposes a duty on a lender 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. The Plaintiffs cite to Lueras v. BAC Home Loans Servicing, LP (2013) 221 Cal. App. 4th 49. However, a review of the legal authority reveals that the citation is drawn from a discussion of a cause of action for negligent misrepresentation. Id. at 68. The Court found that the law imposes a duty not to make negligent misrepresentations of fact and that this applied to a lender making representations about the status of a loan modification or a foreclosure sale. Id.
The plaintiff in Lueras has made allegations that the bank had made material misrepresentations in a negligence claim. The trial court had sustained the bank’s demurrer to the cause of action without leave to amend. The Court of Appeal reversed and directed the trial court to grant leave to amend to plead a claim for negligent misrepresentation. It did not order the trial court to grant leave to plead a claim for negligence.
In the pending case, the Plaintiffs have attempted to plead claim for negligent misrepresentation in their second cause of action. Any attempt to plead a third cause of action for negligence based on the same allegations would be duplicative.

Therefore, the Court sustains the demurrer without leave to amends because it does not appear reasonably possible for the Plaintiffs to correct this defect.

3. Demurrer to Fifth Cause of Action for Wrongful Foreclosure – Violation of Civil Code sections 2924 et seq.
The Defendant argues that the Plaintiffs’ claim is not ripe because no foreclosure sale had occurred and because there are no allegations indicating that it had any role in the foreclosure proceedings.
First, California law holds that “a trustee or mortgagee may be liable to the trustor or mortgagor for damages sustained where there has been an illegal, fraudulent or willfully oppressive sale of property under a power of sale contained in a mortgage or deed of trust.” Munger v. Moore (1970) 11 Cal. App. 3d 1, 7 (italics added for emphasis). There are no allegations that there has been a sale of the Plaintiffs’ property.
Second, the Plaintiffs are bringing a statutory claim that the Defendants violated one, some, or all of the numerous statutes in Civil Code sections 2924 et seq. Since the Plaintiffs are bringing a statutory claim, the cause of action must be pleaded with particularity. Covenant Care, Inc. v. Superior Court (2004) 32 Cal. 4th 771, 790.
The claim is defective because it does not identify a statute or the facts identifying the conduct that violated the specified statute. Instead, the plaintiffs make a generic allegation in paragraph 73 that the Defendants’ conduct violated a provision in Civil Code sections 2924 et seq. This is insufficient.
The Plaintiffs then allege in paragraph 74 that the Defendant’s acts were intended to cause a default. There are no allegations that explain how this violates any provision of Civil Code sections 2924 et seq.
In paragraph 74, the Plaintiffs allege that the Defendant’s acts violate Civil Code section 2924(a)(1)(C). This subsection requires a notice of default to include the following:

“A statement setting forth the nature of each breach actually known
to the beneficiary and of his or her election to sell or cause to be sold
the property to satisfy that obligation and any other obligation secured
by the deed of trust or mortgage that is in default.”

The Plaintiffs do not plead how the Defendants violated this provision or that the notice of default lacked this statement. Instead, the Plaintiffs allege that the Defendant engineered a default. This is insufficient to plead the statutory elements of the violation.

In the opposition, the Plaintiffs argue that the foreclosure is wrongful because they were not in default. The Plaintiffs cite to a discussion in Monday v. Saxon Mortg. Servs. (E.D. Cal. June 25, 2010) 2010 U.S. Dist. LEXIS 63173, of a cause of action for cancellation of instrument. The Court found that a foreclosure sale is wrongful when a mortgagor either is not in default or cures any such default within the time allotted by the California Civil Code (italics added for emphasis). The Court found that the plaintiff’s allegations that she had not made any late payments and that she was not in default were sufficient to support a cause of action to cancel the instrument, i.e., the Trustee’s Deed Upon Sale.
In the pending case, there has not been a foreclosure sale. Further, the Plaintiffs admit that there was a default and that they were attempting to obtain a loan modification.
Finally, due to the exhaustive nature of California’s non-judicial foreclosure scheme, California Courts have refused to read any additional requirements into the non-judicial foreclosure statute. Gomes v. Countrywide Home Loans, Inc. (2011) 192 Cal. App. 4th 1149, 1154. Since the Plaintiffs do not identify a particular section and then plead facts with particularity demonstrating that the Defendants violated the particular section, the Plaintiffs’ cause of action lacks sufficient facts.

Therefore, the Court sustains the demurrer to the fifth cause of action. Since this is the original Complaint and the defects are caused by the failure to plead particular facts, the Court grants the Plaintiffs 10 days leave to amend.

5. Demurrer to Sixth Cause of Action for Violation of Business and Professions Code section 17200
The Defendants argue 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.

First, there are no allegations identifying the particular conduct of the Defendant, Bank of America that was an unfair business practice. The Plaintiffs allege facts regarding SPS, NDS, and Bank of New York. Since there are no particular facts regarding the Bank of America, the cause of action lacks sufficient facts.

Second, a review of the Plaintiffs’ allegations reveal that they are attempting to recast their tort claims as a violation of section 17200. In paragraph 84, the Plaintiff alleges that as indicated in the causes of action for fraud, negligent misrepresentation, negligence, and wrongful foreclosure, the Defendants’ actions are unlawful, unfair, or fraudulent business practices. In paragraphs 85 and 86, the Plaintiffs allege that the Defendants fraudulent service loans and fail to provide adequate information.
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 tort claims in their first, second, third, and fourth cause, they are using the cause of action for violation of section 17200 to duplicate their tort claims. 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 sixth cause of action. Since this is the original Complaint and the defects are caused by the failure to plead particular facts, the Court grants 10 days leave to amend.

Summary of Ruling:
SUSTAIN demurrers to first, second, fifth, and sixth causes of action with 10 days leave to amend.
SUSTAIN demurrer to third cause of action without leave to amend.