Sepehry-Fard v. The Bank of New York Mellon CA6 ( 2016 )

Filed 2/16/16 Sepehry-Fard v. The Bank of New York Mellon CA6
NOT TO BE PUBLISHED IN OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for
publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication
or ordered published for purposes of rule 8.1115.
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SIXTH APPELLATE DISTRICT
FAREED SEPEHRY-FARD, H039493
(Santa Clara County
Plaintiff and Appellant, Super. Ct. No. CIV210028)
v.
THE BANK OF NEW YORK MELLON et
al.,
Defendants and Respondents.
Plaintiff Fareed Sepehry-Fard appeals the judgment of dismissal following an
order sustaining the demurrer of defendants Bank of New York Mellon, et al.
(collectively, defendants). For the reasons stated here, we will affirm the judgment.
I. TRIAL COURT PROCEEDINGS
Though not disclosed in plaintiff’s first amended complaint or his briefing in this
court, his dispute with defendants apparently arises out of two home loans plaintiff
obtained in 2005 to refinance a residential property in Saratoga. The loans, totaling
$975,800, were secured by deeds of trust1 recorded with the County of Santa Clara in
September 2005. Notice of default does not appear in the record on appeal, and
defendants note no such notice had been recorded against the property and no foreclosure
proceedings had been commenced.
1
The trial court granted defendants’ request for judicial notice of the recorded
deeds of trust. As matter properly noticed by the trial court, we likewise take judicial
notice of the deeds of trust. (Evid. Code, § 459, subd. (a).)
Plaintiff filed an initial complaint in September 2011. Defendants demurred,
which the trial court sustained with leave to amend. After an unsuccessful motion for
reconsideration, plaintiff filed his first amended complaint in September 2012 alleging
seven causes of action: (1) declaratory judgment regarding defendants’ authority to
foreclose; (2) negligence; (3) quasi-contract; (4) violation of 12 U.S.C. § 2605 of the Real
Estate Settlement Procedures Act; (5) violation of 15 U.S.C. § 1692 of the Fair Debt
Collection Practices Act; (6) unfair competition (Bus. & Prof. Code, § 17200); and
(7) action for accounting.
Defendants filed a general demurrer arguing the first amended complaint did not
state facts sufficient to constitute a cause of action. (Code Civ. Proc., § 430.10,
subd. (e).) The trial court sustained the demurrer as to all causes of action, but granted
leave to amend the second, fourth, sixth, and seventh causes of action.
Plaintiff did not amend the first amended complaint and the trial court entered a
judgment of dismissal.
II. DISCUSSION
Before reaching plaintiff’s challenge to the order sustaining defendants’ demurrer
to the first amended complaint, we address and reject plaintiff’s argument that the trial
court lacked personal and subject matter jurisdiction. By voluntarily filing a complaint
and appearing at hearings in the trial court, plaintiff consented to the trial court’s exercise
of personal jurisdiction. (See Rest.2d Conf. of Laws, § 32 [“A state has power to
exercise judicial jurisdiction over an individual who has consented to the exercise of such
jurisdiction.”].) As for subject matter jurisdiction, “[t]he California Constitution confers
broad subject matter jurisdiction on the superior court. (Cal. Const., art. VI, § 10.)”
(Serrano v. Stefan Merli Plastering Co., Inc. (2008) 162 Cal.App.4th 1014, 1029.) While
there are some limitations on the subject matter jurisdiction of the superior court
(e.g., matters of exclusive federal jurisdiction), those limitations do not apply to any
causes of action in the first amended complaint.
2
A. DEMURRER
1. Standard of Review
A general demurrer is proper when “[t]he pleading does not state facts sufficient to
constitute a cause of action.” (Code Civ. Proc., § 430.10, subd. (e).) We review a
judgment of dismissal based on a sustained demurrer de novo. (Doan v. State Farm
General Ins. Co. (2011) 195 Cal.App.4th 1082, 1091.) We will reverse the judgment of
dismissal if the allegations of the complaint state a cause of action “under any legal
theory.” (Ibid.) We assume the truth of all facts alleged in the complaint unless those
facts are contradicted by judicially noticeable materials. (Stoney Creek Orchards v. State
of California (1970) 12 Cal.App.3d 903, 906; SC Manufactured Homes, Inc. v. Liebert
(2008) 162 Cal.App.4th 68, 82–83.) We do not, however, consider conclusory factual or
legal allegations contained in the complaint. (B & P Development Corp. v. City of
Saratoga (1986) 185 Cal.App.3d 949, 953 (B & P Development).)
2. Waiver of Certain Arguments
Defendants argue that plaintiff waived any error made by the trial court by failing
to provide reasoned legal analysis in his appellate briefing. We will not address claims
on appeal that are not supported by reasoned argument and citations to relevant authority.
(Tichinin v. City of Morgan Hill (2009) 177 Cal.App.4th 1049, 1084, fn. 16 (Tichinin).)
Plaintiff has provided sufficient argument related to the first, sixth, and seventh
causes of action for us to determine whether the trial court erred in sustaining the
demurrer to those causes of action. However, plaintiff’s opening brief makes no
argument related to the second, third, fourth, or fifth causes of action. His reply brief is
similarly deficient, making passing reference to those causes of action but no argument
related to them. We therefore find plaintiff has waived his challenge to the order
sustaining the demurrer to the second, third, fourth, and fifth causes of action in the first
amended complaint. (Tichinin, supra, 177 Cal.App.4th 1049, 1084, fn. 16; see also First
American Title Co. v. Mirzaian (2003) 108 Cal.App.4th 956, 958, fn. 1 [“A party
3
proceeding in propria persona ‘is to be treated like any other party and is entitled to the
same, but no greater consideration than other litigants and attorneys.’ ”].) We likewise
do not consider plaintiff’s argument for rescission under 15 U.S.C. § 1635 and Jesinoski
v. Countrywide Home Loans, Inc. (2015) 574 U.S. __, 135 S.Ct. 790—raised for the first
time by motion after the case was fully briefed—because that theory was not raised in
plaintiff’s first amended complaint. (Tichinin, at p. 1084, fn. 16.)
3. Declaratory Relief Regarding Defendants’ Authority to Foreclose
(First Cause of Action)
The first cause of action alleges that defendants are “third party strangers” to
plaintiff and his home loans because he originally obtained the loans from other entities.
By seeking a declaration that none of the defendants “have a secured or unsecured legal,
equitable, or pecuniary interest” in the deeds of trust that secure his home loans,
plaintiff’s first cause of action is a preemptive challenge to the defendants’ authority to
foreclose on his property. As we discuss next, the demurrer to this first cause of action
was properly sustained because the nature of the nonjudicial foreclosure system in
California precludes preemptive challenges to an entity’s authority to disclose.
a. Nonjudicial foreclosure
A deed of trust securing a home loan promissory note establishes a three party
agreement. The trustor-debtor is the homeowner who has possession of the property and
makes periodic payments to the lending institution. The lending institution is referred to
as the beneficiary-creditor and provides the loan that is secured by the deed of trust. The
third party is referred to as the trustee and acts as agent for the beneficiary-creditor while
also serving as a beneficiary to the agreement. (Jenkins v. JP Morgan Chase Bank, N.A.
(2013) 216 Cal.App.4th 497, 508 (Jenkins).)
Unlike a traditional trustee, who has numerous duties, the trustee for a deed of
trust has two mutually exclusive duties. If the trustor-debtor repays the entire amount of
the loan, the trustee transfers legal title to the trustor-debtor. If the trustor-debtor
4
defaults, the trustee must initiate a foreclosure for the benefit of the beneficiary-creditor.
Because of these characteristics, deeds of trust have been described as the “functional
equivalent of ‘a lien on the property.’ [Citation.]” (Jenkins, supra, 216 Cal.App.4th at
p. 508.)
“Sections 2924 through 2924k [of the Civil Code] set forth a ‘comprehensive
framework for the regulation of a nonjudicial foreclosure sale pursuant to a power of sale
contained in a deed of trust.’ ” (Jenkins, supra, 216 Cal.App.4th at p. 508, quoting
Moeller v. Lien (1994) 25 Cal.App.4th 822, 830, italics omitted.) If the trustor-debtor
fails to make all required payments, the trustee, beneficiary, “or any of their authorized
agents” must first record a notice of default and election to sell with the office of the
recorder in the county where the property is located. (Civ. Code, § 2924, subd. (a)(1).)
After allowing the statutorily mandated three months to elapse, “a notice of sale must be
published, posted, recorded and mailed 20 days before the foreclosure sale.” (Jenkins,
supra, at p. 509, citing Civ. Code, §§ 2924, subd. (a)(3), 2924f.) Finally, if all notice
requirements are met, the foreclosed property must be sold to the highest bidder at a
public auction in the county where the property is located. (Civ. Code, § 2924g,
subd. (a).)
The trustor-debtor can prevent a foreclosure sale by exercising the rights of
reinstatement or redemption. To exercise the right to reinstatement, the trustor-debtor
must pay all past-due amounts on the promissory note at any time until five business days
before the sale. (Civ. Code, § 2924c, subd. (e).) Alternatively, the trustor-debtor can
cure the default and exercise the right of redemption by paying the total outstanding debt
at any time before the sale. (Civ. Code, §§ 2903, 2905.)
b. Analysis
Judicial actions challenging nonjudicial foreclosures are limited. Because of the
“ ‘exhaustive nature of this scheme, California appellate courts have refused to read any
additional requirements into the non-judicial foreclosure statute.’ [Citations.]” (Gomes v.
5
Countrywide Home Loans, Inc. (2011) 192 Cal.App.4th 1149, 1154 (Gomes).) Thus,
trustor-debtors may only bring judicial actions alleging “misconduct arising out of a
nonjudicial foreclosure sale when [such a claim is] not inconsistent with the policies
behind the statutes.” (California Golf, L.L.C. v. Cooper (2008) 163 Cal.App.4th 1053,
1070.) Recognizing this limitation, “California courts have refused to delay the
nonjudicial foreclosure process by allowing trustor-debtors to pursue preemptive
judicial actions to challenge the right, power, and authority of a foreclosing ‘beneficiary’
or beneficiary’s ‘agent’ to initiate and pursue foreclosure.” (Jenkins, supra,
216 Cal.App.4th at p. 511, citing Debrunner v. Deutsche Bank National Trust Co. (2012)
204 Cal.App.4th 433, 440–442 (Debrunner); Gomes, at pp. 1154–1157.)
In Gomes, the court affirmed dismissal of a preemptive judicial action challenging
the right to undertake a nonjudicial foreclosure. (Gomes, supra, 192 Cal.App.4th at
p. 1155.) There, the plaintiff brought a declaratory relief action claiming Civil Code
section 2924 allowed for a preemptive action “to test whether the person initiating the
foreclosure has the authority to do so.” (Gomes, at p. 1155.) The Gomes court first noted
that “nowhere does the statute provide for a judicial action to determine whether the
person initiating the foreclosure process is indeed authorized, and we see no ground for
implying such an action.” (Ibid.) The court also refused to imply such a cause of action,
reasoning that to do so “would fundamentally undermine the nonjudicial nature of the
process and introduce the possibility of lawsuits filed solely for the purpose of delaying
valid foreclosures.” (Ibid.) Distinguishing federal foreclosure cases relied on by the
plaintiff, the court noted that the plaintiffs in those cases had alleged “specific factual
bas[es]” supporting their preemptive challenges. (Id. at p. 1156, italics omitted.)
A different panel of this court reached a similar conclusion in Debrunner, supra,
204 Cal.App.4th 433. In that case, the plaintiff argued that the promissory note, as a
negotiable instrument, could not be assigned without a valid endorsement and physical
delivery because of the requirements of the California Uniform Commercial Code. (Id. at
6
p. 440.) We rejected that argument, concluding that the “detailed, specific, and
comprehensive set of legislative procedures the Legislature has established for
nonjudicial foreclosures” should not be displaced by general provisions of the California
Uniform Commercial Code. (Id. at p. 441.)
Debrunner quoted the federal district court which noted in Lane v. Vitek Real
Estate Industries Group (E.D.Cal. 2010) 713 F.Supp.2d 1092 (Lane), that since
foreclosure proceedings can be initiated by “ ‘a trustee, mortgagee, beneficiary, or any of
their agents[,] ... the statute does not require a beneficial interest in both the Note and the
Deed of Trust to commence a non-judicial foreclosure sale.’ ” (Debrunner, supra,
204 Cal.App.4th at p. 441, quoting Lane, at p. 1099.)
Jenkins, supra, 216 Cal.App.4th 497, reached the same result. There, the court
affirmed dismissal of a cause of action which asserted “a right to bring a preemptive
judicial action to determine whether [the defendants] have the authority to initiate
nonjudicial foreclosure on [the plaintiff’s] home ... .” (Id. at pp. 512–513.) As in Gomes
and Debrunner, the Jenkins court noted the lack of an explicit cause of action in the Civil
Code and reasoned that implying a cause of action would be contrary to the intent of the
nonjudicial foreclosure statute because it would involve “the impermissible interjection
of the courts into a nonjudicial scheme enacted by the California Legislature.” (Id. at
p. 513.)
Like the complaints in the foregoing authorities, plaintiff’s first amended
complaint provides no specific factual basis to call into question the ability of defendants
to initiate a nonjudicial foreclosure. Instead, plaintiff merely asserts that defendants are
not the parties from whom he originally obtained his home loans. Because plaintiff may
not preemptively challenge defendants’ authority to foreclose, the trial court properly
sustained defendants’ demurrer to the first cause of action. We also note that any
allegation of misconduct by defendants appears unripe because, based on the record
7
before us, no notice of default had been recorded against either of plaintiff’s deeds of
trust for the Saratoga property.
4. Unfair Business Practices (Bus. & Prof., § 17200; Sixth Cause of Action)
The first amended complaint asserts that defendants’ “acts and practices are
unlawful, unfair, and fraudulent.” From plaintiff’s appellate briefing, we discern two
claims arguably related to this point: (1) a general fraud allegation; and (2) a claim that
defendants pooled plaintiff’s promissory notes with those of other homeowners without
adhering to the requirements of defendants’ own pooling and servicing agreement.
a. Plaintiff did not Plead Fraud with Specificity
To prove fraud, a plaintiff must show: (1) the defendant made a false
representation as to a past or existing material fact; (2) the defendant knew the
representation was false at the time it was made; (3) in making the representation, the
defendant intended to deceive the plaintiff; (4) the plaintiff justifiably relied on the
representation; and (5) the plaintiff suffered resulting damages. (West v. JPMorgan
Chase Bank, N.A. (2013) 214 Cal.App.4th 780, 792 (West).) Fraud causes of action are
held to a higher pleading standard. “[The] plaintiff must allege facts showing how, when,
where, to whom, and by what means the [fraudulent] representations were made, and, in
the case of a corporate defendant, the plaintiff must allege the names of the persons who
made the representations, their authority to speak on behalf of the corporation, to whom
they spoke, what they said or wrote, and when the representation was made.” (Id. at
p. 793.)
An example of a complaint alleging sufficient facts to support a fraud cause of
action in the foreclosure context is seen in West. There, the plaintiff pointed to specific
misrepresentations in agreements and letters between her and the defendant, and attached
copies of those documents to her complaint. (West, supra, 214 Cal.App.4th at p. 793.)
She also described misrepresentations made by representatives of the defendant during
8
phone calls on specific dates. (Id. at pp. 793–794.) From those facts, the court concluded
the plaintiff had sufficiently stated a claim for fraud. (Ibid.)
Plaintiff’s sixth cause of action lists a number of actions allegedly taken by
defendants that plaintiff deems fraudulent, including “[e]xecuting and recording false and
misleading documents” and “[d]emanding and accepting payments for debts that were
non-existent ... .” These conclusory allegations, unsupported by specific factual
allegations, do not meet the specificity required to state a fraud cause of action. Even if
we deemed these statements adequate to plead a false representation of fact, the sixth
cause of action does not contain any factual allegations regarding scienter or detrimental
reliance. Thus, the first amended complaint does not contain facts sufficient to state a
cause of action for fraud.
b. No Standing to Challenge Pooling and Servicing Agreement
The first amended complaint alleges defendants pooled plaintiff’s promissory
notes with those of other homeowners without adhering to the requirements of
defendants’ pooling and servicing agreement. In Jenkins, the court rejected a claim
identical to plaintiff’s based on lack of standing. (Jenkins, supra, 216 Cal.App.4th 497.)
The Jenkins court first noted that any violations of the pooling and servicing agreement
would affect only the holders of the promissory note on the one hand and the third-party
acquirers of the note on the other. (Jenkins, at p. 515.) Because the plaintiff-homeowner
was not a party to the pooling agreements or any promissory note transfers, the court
found she lacked standing to challenge compliance with the agreements. (Ibid.) The
court also explained that even if the plaintiff-homeowner had standing and could show
violations of the pooling and servicing agreement, she would have no cause of action
because “her obligations under the note remained unchanged.” (Ibid.)
Like the homeowner in Jenkins, plaintiff lacks standing to challenge compliance
with defendants’ pooling and servicing agreement because he is not a party to that
agreement and his obligations remain the same regardless of the holder of the note.
9
Plaintiff can show no injury based on the transfer of his promissory notes to other
creditors. “ ‘Because 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 [plaintiff’s]
obligations under the note.’ ” (Jenkins, supra, 216 Cal.App.4th at p. 515, quoting
Herrera v. Federal National Mortgage Assn. (2012) 205 Cal.App.4th 1495, 1507.)
Plaintiff therefore cannot state a cause of action related to the pooling and servicing
agreement and the trial court properly sustained the demurrer to the sixth cause of action.
5. Accounting (Seventh Cause of Action)
The final cause of action in the first amended complaint is plaintiff’s request for an
accounting “of the money due to Plaintiff from Defendants ... .” However, as the trial
court correctly noted, “ ‘[a] right to an accounting is derivative; it must be based on other
claims.’ ” (Quoting Janis v. Cal. State Lottery Com. (1998) 68 Cal.App.4th 824, 833.)
Because the first amended complaint does not state facts sufficient to constitute a cause
of action on any other basis, the accounting claim must fail.
B. DENIAL OF LEAVE TO AMEND
We review a trial court’s decision denying a plaintiff leave to amend a complaint
for abuse of discretion. (Debrunner, supra, 204 Cal.App.4th at p. 439.) We will reverse
the decision if there is a reasonable possibility plaintiff could cure the defects in the
complaint through amendment. (Ibid.) “The plaintiff has the burden of proving that
an amendment would cure the defect.” (Schifando v. City of Los Angeles (2003)
31 Cal.4th 1074, 1081.) However when, as here, “ ‘ “plaintiff is given the opportunity to
amend his [or her] complaint and elects not to do so, strict construction of the complaint
is required and it must be presumed that the plaintiff has stated as strong a case as he [or
she] can.” ’ ” (Moncada v. West Coast Quartz Corp. (2013) 221 Cal.App.4th 768, 792.)
Plaintiff elected not to amend any of the causes of action in his first amended
complaint despite the trial court granting leave to amend the second, fourth, sixth, and
10
seventh causes of action. We therefore presume that he stated as strong a case as he
could on those causes of action and do not consider whether there is a reasonable
possibility he could cure their defects. (Moncada, supra, 221 Cal.App.4th at p. 792.)
Additionally, we do not consider whether the trial court abused its discretion in denying
leave to amend the third and fifth causes of action because plaintiff waived the issues by
failing to raise them on appeal. (Tichinin, supra, 177 Cal.App.4th at p. 1084, fn. 16.)
Remaining for us to decide is whether the trial court abused its discretion in
denying plaintiff leave to amend the first cause of action. It is settled that California
courts will not allow preemptive attacks on nonjudicial foreclosures based solely on
generalized allegations. (See Debrunner, supra, 204 Cal.App.4th at pp. 440–442.) In
dicta, the court in Gomes suggested that a preemptive attack on a nonjudicial foreclosure
might adequately state a cause of action if the complaint provides a “specific factual
basis” to call a defendant’s authority to foreclose into question. (Gomes, supra, 192
Cal.App.4th at p. 1156, italics omitted.) Here, however, plaintiff has failed to set forth a
specific factual basis for his claim despite multiple opportunities to do so. We find no
reasonable possibility plaintiff could cure the defects. The trial court did not abuse its
discretion in denying leave to amend the first cause of action challenging defendants’
authority to foreclose.
III. DISPOSITION
The judgment is affirmed.
11
____________________________________
Grover, J.
WE CONCUR:
____________________________
Rushing, P.J.
____________________________
Márquez, J.
Fareed Sepehry-Fard v The Bank of New York Mellon et al.
H039493