Case Name: Quinto v. JP Morgan Chase Bank, et al.
Case No.: 1-14-CV-269843

Defendants JP Morgan Chase Bank, N.A. (“JP Morgan”) and California Reconveyance Company (“CRC”) demur to the first amended complaint (“FAC”) filed by plaintiff Ursula Q. Quinto (“Plaintiff”). Defendants U.S. Bank N.A. (“US Bank”), Select Portfolio Servicing, Inc. (“SPS”) and Peter Carey Realty (erroneously sued separately as “Peter Carey” and “Realty World Peter Carey Company”) also demur to the FAC.

As a preliminary matter, the Court notes that Plaintiff’s opposing memorandums are untimely. Papers opposing a motion must be filed and served at least nine court days before the hearing. (Code Civ. Proc., § 1005, subd. (b).) Accordingly, with a hearing date of February 3, 2015, Plaintiff’s oppositions were due on January 21. However, they were not filed until January 23rd. Ultimately, the defendants do not appear to have been prejudiced by the late filings and the Court therefore considered the substance of Plaintiff’s opposing papers in evaluating the merits of the motions presently before the Court.

JP Morgan and CRC’s request for judicial notice of various recorded documents, court records, and the Purchase and Assumption Agreement is GRANTED. (Evid. Code, § 452, subds. (d) and (h); see Alfaro v. Community Housing Improvement System & Planning Assn., Inc. (2009) 171 Cal.App.4th 1356, 1382; Evans v. California Trailer Court, Inc. (1994) 28 Cal.App.4th 540, 549; Fontenot v. Wells Fargo Bank, N.A. (2011) 198 Cal.App.4th 256, 264-265 [“a court may take judicial notice of the fact of a document’s recordation, the date the document was recorded and executed, the parties to the transaction reflected in the recorded document, and the document’s legally operative language … [and, f]rom this, the court may deduce and rely upon the legal effect of the recorded document”].)

US Bank, SPS and Peter Carey Realty’s request for judicial notice is GRANTED. (Evid. Code, § 452, subd. (d) and (h); Alfaro, supra, 171 Cal.App.4th at 1382; Fontenot, supra, 198 Cal.App.4th at 264-265.)

On January 9, 2007, Plaintiff purchased the property at 1367 King Road, San Jose (the “Subject Property”) with a $545,000 loan from Washington Mutual Bank (“WaMu”), secured by a deed of trust, with CRC serving as trustee. (JP Morgan and CRC’s Request for Judicial Notice (“RJN”), Exhibit 1.) On July 18, 2008, WaMu assigned the deed of trust and all beneficial interest thereunder to LaSalle Bank, N.A. (“LaSalle Bank”) as trustee for WaMu Mortgage Pass-Through Certificates Series 2007-HY3 (“WaMu Trust”). (RJN, Exhibit 3.) That same day, LaSalle Bank as trustee for the WaMu Trust substituted Quality Loan as trustee, who then promptly issued and recorded on July 21, 2008 a notice of default and election to sell under the deed of trust. (RJN, Exhibit 4; US Bank, et al.’s’ RJN, Exhibit 2.) The notice of defaulted indicated that Plaintiff was $12,125.95 in arrears on her loan. (Id.)
In September 2008, WaMu was closed by the federal Office of Thrift Supervision and the Federal Deposit Insurance Corporation (“FDIC”) was appointed as receiver. (RJN, Exhibit 5.) On September 25, 2008, the FDIC allocated WaMu’s assets and liabilities in accordance with the purchase and assumption agreement entered into between the FDIC and JP Morgan. (Id.) A notice of trustee’s sale was recorded by Quality Loan on October 23, 2008, and sale was set for November 12, 2008. (Id., Exhibit 6.) Plaintiff, however, subsequently entered into a loan modification agreement with JP Morgan, the new beneficiary, on December 1, 2008, which was recorded on May 18, 2009. (Id., Exhibit 8.) Thus, the foreclosure sale never took place, and a notice of rescission of the first notice of default was recorded on April 8, 2009. (Id., Exhibit 7.)

The loan modification agreement provided that the loan would continue to be serviced under the name “Washington Mutual,” with a modified principal balance of $578,690.59 to be reamortized over 458 months. (RJN, Exhibit 8.) The agreement also included a clause waiving any claims the borrower might have had against JP Morgan related to the loan origination or any foreclosure or power of sale proceedings conducted prior to the date of the agreement. (Id.) Plaintiff again defaulted under the terms of the modified loan, and a second notice of default and election to sell under deed of trust, indicating an arrearage of $10,701.91, was recorded on June 18, 2009 by CRC as trustee. (Id., Exhibit 10.) A notice of trustee’s sale was recorded by CRC on September 23, 2009, setting a public sale on October 13, 2009, and listing an unpaid balance of $614,896.50. (Id., Exhibit 11.)

On October 28, 2010, Plaintiff, proceeding in pro per, filed a complaint in this Court, asserting twenty-four claims against JP Morgan and CRC. (RJN, Exhibit 12.) Plaintiff alleged violations of the Truth in Lending Act (“TILA”), the Real Estate Settlement Procedures Act, and related state-law claims, including wrongful foreclosure under Civil Code section 2924, et seq. (Id.) The defendants removed the case to federal court on December 22, 2010 based on federal question jurisdiction, and moved to dismiss. (Id., Exhibits 13 and 14.) The motion was granted but Plaintiff was given leave to amend. (Id., Exhibit 15.) However, no amended complaint was ever filed and on March 25, 2011, the district court dismissed the case for failure to prosecute and closed the file. (Id.) Plaintiff nevertheless attempted to file a first amended complaint on April 8, 2011; in response, the district court issued an order noting that because the case was closed, Plaintiff’s purported first amended complaint had no legal effect, and her only recourse was to file a motion for relief under Federal Rules of Civil Procedure, rule 60(b).

Plaintiff did not file a Rule 60(b) motion, and instead filed a copy of the rejected first amended complaint as a new action in this Court on May 3, 2011. (RJN, Exhibit 16.) This pleading alleged the same twenty-four claims against JP Morgan and CRC as the dismissed federal action and included two new claims, one for wrongful foreclosure under Civil Code section 2932.5 and the other for wrongful foreclosure under Civil Code section 2934a. (Id.) On June 14, 2011, the defendants removed the case on the basis of federal question jurisdiction, and on August 17, 2011, filed a motion to dismiss the complaint. On November 30, 2011, the defendants’ motion to dismiss was granted with prejudice. (RJN, Exhibit 18.)

A notice of trustee’s sale was recorded on August 5 and November 4, 2013 and January 28, 2014, and a trustee’s deed upon sale was recorded on February 21, 2014. (RJN, Exhibits 19-22.) All interest and title in the Subject Property is now vested in US Bank. (Id.)

Plaintiff filed the instant action on August 22, 2014, and the FAC on November 12, 2014, asserting the following causes of action: (1) violation of Civil Code § 1572; (2) fraud; (3) declaratory relief; (4) intentional misrepresentation; and (5) violation of Business & Professions Code § 17200. Plaintiff alleges, among other things, that: WaMu engaged in predatory lending practices by knowingly placing her in a loan that she could not afford; the deed of trust and note were separated resulting in the inability of Plaintiff to ascertain who owns her loan; WaMu has violated the Purchase and Assumption agreement by failing to comply with its procedures bundling Plaintiff’s loan with other securities; the defendants have failed to provide Plaintiff with a meaningful loan modification offer; and the defendants have violated the California Homeowner Bill of Rights by foreclosing on the Subject Property while Plaintiff was in the loan modification process.

On December 12, 2014, JP Morgan and CRC filed the instant demurrer to each of the five causes of action asserted in the FAC on the ground of failure to state facts sufficient to constitute a cause of action. (Code Civ. Proc., § 430.10, subd. (e).) On December 17, 2014, US Bank, SPS and Peter Carey Realty filed their demurrer to Plaintiff’s five causes of action on the same ground. (Id.)

JP Morgan and CRC’s Demurrer

As a threshold matter, the defendants argue that their demurrer should be sustained in its entirety without leave to amend because Plaintiff is estopped from bringing the instant action based on the doctrines of res judicata and collateral estoppel. “[R]es judicata describes the preclusive effect of a final judgment on the merits. Res judicata, or claim preclusion, prevents relitigation of the same cause of action in a second suit between the same parties or parties in privity with them.” (Planning & Conservation League v. Castaic Lake Water Agency (2009) 180 Cal.App.4th 210, 226.) Collateral estoppel, which is closely related and often included within the term “res judicata,” prohibits the relitigation in the second action of issues which were actually litigated and determined in the first. (Clark v. Lesher (1956) 46 Cal.2d 874, 880.)

“Res judicata applies if (1) the decision in the prior proceeding is final and on the merits; (2) the present proceeding is on the same cause of action as the prior proceeding; and (3) the parties in the present proceeding or parties in privity with them were parties to the prior proceeding.” (Busick v. Workmen’s Comp. Appeals Bd. (1972) 7 Cal.3d 967, 974.) The doctrine “bars the litigation not only of issues that were actually litigated but also issues that could have been litigated.” (Id.) The elements of collateral estoppel are nearly identical, barring the existence of similar issues rather than causes of action. (Procedures Dairy Deliv. Co. v. Sentry Ins. Co. (1986) 41 Cal.3d 903, 910.) “Two proceedings are on the same cause of action if they are based on the same ‘primary right.’ [Citation.] The plaintiff’s primary right is to be free from a particular injury, regardless of the legal theory on which liability for the injury is based.”

Viewing the FAC and Plaintiff’s claims in toto, the Court agrees with the defendants that the instant action is an improper attempt by Plaintiff to relitigate matters previously asserted and disposed of in the preceding federal actions. As with those lawsuits, Plaintiff’s present action is based on alleged predatory lending conduct and fraud in the loan origination process, as well as allegations of improper assignment of the deed of trust and failure to comply with proper notice procedures in the foreclosure of the Subject Property. Further, JP Morgan and CRC were named defendants in both federal lawsuits. To the extent that there are additional allegations relating to loan modification, the California Homeowner Bill of Rights, the splitting of the note and deed of trust and violation of the Purchase and Assumption Agreement in the FAC that were not present in the preceding actions, no claims can be maintained based on these allegations for several reasons, which are articulated below.

First, allegations relating to fraud in the loan documents, noncompliance with notice requirements and the retention by WaMu of unearned hidden fees could have been brought in the prior actions and are therefore precluded. (See Busick, supra, 7 Cal.3d 974 [stating that res judicata “bars the litigation not only of issues that were actually litigated but also issues that could have been litigated”].)

Second, Plaintiff lacks standing to bring any claim based on an allegedly unlawful assignment or securitization of the note. (See Jenkins v. JP Morgan Chase Bank, N.A. (2013) 216 Cal.App.4th 497, 515 [“‘[b]ecause a promissory note is a negotiable instrument, a borrower must anticipate it can and might be transferred to another creditor. As to plaintiff, an assignment merely substituted one creditor for another, without changing her obligations under the note.’ As an unrelated third party to the alleged securitization, and any other subsequent transfers of the beneficial interest under the promissory note, [Plaintiff] lacks standing to enforce any agreements, including the investment trust’s pooling and service agreement, relating to such transactions. Furthermore, even if any subsequent transfers of the promissory note were invalid, [Plaintiff] is not the victim of such invalid transfers because her obligations under the note remained unchanged”]; see also Mendoza v. Chase Bank, N.A. (2014) 228 Cal.App.4th 1020, 1029 [“[c]ourts have rejected homeowners’ claims that securitization changes the roles of the original parties”].)

Third, the “holder of the note” argument has been consistently and repeatedly rejected by the courts. (See, e.g., Debrunner v. Deutsche Bank Nat. Trust Co. (2012) 204 Cal.App.4th 433, 440; see also McCain v. Bank of America, N.A. (E.D. Cal. 2011) 2010 U.S. Dist. LEXIS 113956, 3 [stating that the “holder of the note” assertion is “untenable because under the California nonjudicial foreclosure statutes, the trustee or beneficiary is not required to a be a holder in due course of the instrument”].)

Fourth, Plaintiff cannot maintain a claim under the Homeowner Bill of Rights (Civ. Code §§ 2920.5-2924.20) for two reasons. First, judicially noticed materials establish that Plaintiff was not only considered for but already granted a loan modification on the Subject Property (RJN, Exhibit 8), and was not required to be offered another one. Civil Code section 2923.6, subdivision (g), states in pertinent part that “[i]n order to minimize the risk of borrowers submitting multiple applications for first lien loan modifications for the purpose of delay, the mortgage servicer shall not be obligated to evaluate applications from borrowers who have already been evaluated or afforded a fair opportunity to be evaluated for a first tier lien loan modification prior to January 1, 2013…” Second, Civil Code section 2924.15, subdivision (a) clearly states that “[u]nless otherwise provided, paragraph (5) of Section 2924, and Sections 2923.5, 2923.55, 2923.6, 2923.7, 2924.9, 2924.10, 2924.11 [cited in the Complaint], and 2924.18 shall apply only to first lien mortgages or deeds of trust that are secured by owner-occupied residential real property containing no more than four dwelling units. For these purposes, ‘owner-occupied’ means that the property is the principal residence of the borrower and is security for a loan made for personal, family or household purposes.” Documents attached to Plaintiff’s original complaint, which the Court has taken judicial notice of, establish that Plaintiff has consistently identified the subject property as investment property rented to tenants and not as her principal residence.

Given the foregoing, Plaintiff fails to state any claim against JP Morgan and CRC for violation of Civil Code section 1572, fraud, declaratory relief, intentional misrepresentation and violation of Business and Professions Code section 17200. In her opposition, Plaintiff merely repeats the allegations of the FAC and theories which have, as stated above, been consistently and unequivocally rejected by the courts. Plaintiff does not address the defendants’ res judicata argument, and thus impliedly concedes its merit. Consequently, JP Morgan and CRC’s demurrer to the first, second, third, fourth and fifth causes of action on the ground of failure to state facts sufficient to constitute a cause of action is SUSTAINED WITHOUT LEAVE TO AMEND.

US Bank, SPS and Peter Carey Realty’s Demurrer

As an initial matter, Plaintiff has failed to state any claim against Peter Carey Realty which, per the allegations of the FAC, did not become involved with the Subject Property until after the foreclosure was completed and the property sold at public auction. However, all of Plaintiff’s claims are based on events that took place prior to that point, including the origination and servicing of Plaintiff’s loan and the actual foreclosure process itself.

As the defendants articulate in their supporting memorandum, Plaintiff’s FAC essentially wholly disregards the Court’s November ruling on the their demurrer to the original complaint in continuing to allege claims and theories that were rejected as contrary to California law, including improper securitization, fraud in the origination of the 2007 loan and various violations of the California Homeowner Bill of Rights. Thus, having failed to amend her allegations in any substantive way, her claims still fail for the reasons set forth below.

The defendants’ demurrer to the first (violation of Civil Code § 1572), second (fraud) and fourth (intentional misrepresentation) causes of action on the ground of failure to state facts sufficient to constitute a cause of action is SUSTAINED WITHOUT LEAVE TO AMEND. All of these claims are for variations of fraud and thus require (1) a misrepresentation (false representation, concealment or nondisclosure), (2) knowledge of falsity, (3) intent to defraud/induce reliance, (4) justifiable reliance, and (5) resulting damage. (Philipson & Simon v. Gulsvig (2007) 154 Cal.App.4th 347, 363.) It is well-settled that each of the foregoing elements must be pleaded with specificity. (Committee on Children’s Television, Inc. v. General Foods Corp. (1983) 35 Cal.3d 197, 216-217.) Further, as articulated above, in order to plead a claim for fraud against a corporate defendant, the plaintiff must allege “the names of the persons who made the allegedly fraudulent representations, their authority to speak, to whom they spoke, what they said or wrote, and when it was said or written.” (Tarmann v. State Farm Mut. Auto. Ins. Co. (1991) 2 Cal.App.4th 153, 157; see also Lazar v. Superior Court (1996) 12 Cal.4th 631, 645.)

With the foregoing requirements in mind, all three causes of action still fail to state sufficiently specific fraud claims against any of the defendants. Plaintiff simply repeats the same general allegations of improper securitization, fraud in the origination of her loan, predatory lending, and various violations of HBOR. As articulated in the prior order, these allegations cannot support claims for fraud because: (1) Plaintiff does not have standing to challenge the securitization of her loan; (2) the “produce the note” theory has repeatedly and consistently been rejected by California courts; (3) Plaintiff waived any claims arising out of the loan origination or loan modification she was granted in December 2008; and (4) Plaintiff’s fraud claims are time-barred.

Plaintiff’s attempt to now plead that she was a resident of the Subject Property and therefore it qualified for protections offered by HBOR is impermissible and the allegation is disregarded, as it directly contradicts her admission in the complaint and judicially noticed materials that establish that the Subject Property was an investment property rented to tenants and not used as Plaintiff’s principal residence.

The defendants’ demurrer to the third cause of action (declaratory relief) on the ground of failure to state facts sufficient to constitute a cause of action is SUSTAINED WITHOUT LEAVE TO AMEND. Plaintiff still fails to plead specific facts demonstrating the existence of an actual, present controversy; her allegation that “[a]n actual controversy has arisen and now exists between and among Plaintiff and Defendants and each of them as to the duties and obligations of the respective parties with regard to the loan or the foreclosure” (FAC, ¶ 114) is merely a conclusion and the allegations of faulty securitization and ownership rights upon which the cause of action is predicated are untenable for the reasons previously discussed. (See Code Civ. Proc., § 1060; see also City of Cotati v. Cashman (2002) 29 Cal.4th 69, 80.)

The defendants’ demurrer to the fifth cause of action (violation of Business & Professions Code § 17200) on the ground of failure to state facts sufficient to constitute a cause of action is SUSTAINED WITHOUT LEAVE TO AMEND. None of the preceding causes of action state sufficient facts to support a claim on which a UCL claim can be based; in other words, Plaintiff’s claim is predicated on non-actionable conduct.