U.S. Bank Trust, N.A. v. Tran CA2/2 ( 2021 )

Filed 10/1/21 U.S. Bank Trust, N.A. v. Tran CA2/2
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions
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IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND APPELLATE DISTRICT
DIVISION TWO
U.S. BANK TRUST, N.A., as Trustee, B307390
etc., (Los Angeles County
Super. Ct. No.
Plaintiff and Appellant, LC106464)
v.
LAN TRAN et al.,
Defendants and Respondents.
APPEAL from a judgment of the Superior Court of Los
Angeles County, C. Virginia Keeny, Judge. Reversed with
directions.
Perkins Coie, Brien McMahon and Aaron Goldstein for
Plaintiff and Appellant.
Meylan Davitt Jain Arevian & Kim and Troy H. Slome for
Defendants and Respondents.
_____________________________________
This appeal concerns a fraud perpetrated upon appellant
U.S. Bank, N.A. (Bank) and on respondents.1 A forged trustee’s
deed upon sale (TDUS) was recorded on real property securing
Bank’s 2006 deed of trust (2006 DOT). Bank’s agents learned of
the fraudulent TDUS in 2015 but took no action. Respondents
made a loan in 2016 based on the fraudulent TDUS, mistakenly
believing their lien on the property had first priority.
The trial court ruled that Bank is estopped from claiming
its 2006 DOT has priority over respondents’ 2016 encumbrance.
The court placed a duty on Bank to correct the public record to
protect potential victims from third party fraudsters. Though
Bank was a victim of fraud, it lost lien primacy to respondents,
whom the court viewed as more innocent than Bank.
We conclude that an innocent encumbrancer has no duty to
act upon learning that a wrongdoer has recorded a forged deed on
property securing a mortgage loan. Rightful property owners and
encumbrancers have no ongoing duty to detect and correct fraud.
A party who did not create a peril is not required to protect
others from the peril, absent a special relationship between them.
Without such a duty, Bank cannot be found negligent and there
is no basis for applying equitable estoppel. We reverse and
remand with directions to enter judgment for appellant Bank.
1Bank filed suit as Trustee for LSF9 Master Participation
Trust. Respondents are Lan Tran, Bassam Mustafa, Ahlam
Mustafa, and Nabil Abudayeh.
2
FACTS2
Defendant Miriam Shashikyan owns the Sherman Oaks
property at issue in this appeal. She obtained a loan for $650,000
secured by the 2006 DOT. Respondents agree that Bank “is and
at all times relevant was the beneficiary of the 2006 DOT.”
By 2014, Shashikyan was in default on the loan. Bank’s
servicer, Caliber Home Loans (Caliber), appointed Quality Loan
Service Corporation (Quality) as trustee to foreclose on the
property. Quality recorded a notice of sale in September 2015. A
public auction set for October 1 was postponed when Quality
received notice that an entity claiming a junior lien on the
property was in bankruptcy.
In late 2015, Quality conducted a title search and found a
TDUS recorded November 4, 2015, conveying title to the property
to AA Consulting & Management (AA) following a purported
foreclosure sale on October 1, 2015. Bank did not record the
TDUS or authorize its agents to do so.
Quality immediately knew the sale was fraudulent. It had
postponed the foreclosure sale and did not prepare, execute or
record a TDUS purportedly signed by Bradley McNair, who had
not worked for Quality for over five years. By December 2, 2015,
Quality knew someone had recorded a fraudulent TDUS on the
property securing the Bank’s 2006 DOT.
Quality consulted with a title company and Caliber about
the fraudulent TDUS. Quality considered recording a rescission
but was advised this would not provide insurable marketable title
to Bank and would be ineffective because Quality did not record
2The facts are drawn primarily from the trial court’s
statement of decision. The court wrote that “[m]uch of the
evidence presented was undisputed.”
3
the TDUS in the first place. Caliber instructed Quality to
proceed with judicial foreclosure. No proceeding was initiated
because of the bankruptcy stay.3
In January 2016, Shashikyan began a loan modification
plan, which became permanent in June 2016. Bank felt the
modification obviated the need to foreclose on the 2006 DOT.
It is undisputed that Quality and Caliber did nothing about
the fraudulent TDUS. They did not record a rescission to alert
potential purchasers or encumbrancers to the rogue deed or seek
to quiet title. Caliber acknowledged that the fraudulent TDUS
would eventually have to be set aside but the company felt no
urgency because the TDUS was “void.”
On December 28, 2015, AA conveyed its purported interest
in the property under the fraudulent TDUS to defendant Larisa
Kirakosian. She financed the “purchase” with a $740,000 loan,
then refinanced with respondents for $760,000 in October 2016.
Respondents’ loan broker inspected the property and met
Kirakosian, believing she was the rightful owner. He claimed no
knowledge of Bank’s interest in the property. The title company
that prepared a report for respondents found no documents
reflecting Bank’s unrepaid loan and 2006 DOT encumbering the
property. Had Bank filed a notice of rescission, the title officer
would have stated in his report that Bank’s DOT was in first
position. Had respondents known Bank claimed its 2006 DOT
had priority, they would not have funded a loan to Kirakosian.
3 The bankruptcy court lifted the automatic stay on
December 30, 2015, finding that the bankruptcy petition was part
of a scheme to defraud creditors by transferring ownership of the
secured property without Bank’s consent or court approval.
4
In 2017, Shashikyan defaulted on her payments to Bank.
The 2006 DOT was referred to foreclosure. Caliber checked title
and learned that AA transferred title to Kirakosian, who
obtained loans secured by the property.
Kirakosian defaulted on her loan from respondents, who
began foreclosure and recorded a notice of trustee’s sale in July
2017. On August 17, 2017, Kirakosian recorded a grant deed
gifting the property for no consideration to Miriam Shashikyan
and Tigran Shashikyan.
PROCEDURAL HISTORY
In November 2017, Bank filed suit against respondents
seeking declaratory relief, cancellation of instruments, an
equitable lien, and to quiet title.4 Bank moved for summary
judgment, arguing that the fraudulent 2015 TDUS and
respondents’ 2016 deed of trust were void ab initio. The court
denied the motion. It agreed that fraud had occurred and the
TDUS was void ab initio as a document forged by a person
without authority. However, it ruled that there was a triable
issue of fact as to whether Bank had a duty to warn prospective
encumbrancers like respondents.
TRIAL AND JUDGMENT
In its statement of decision following a bench trial, the
court wrote, “there is no dispute that the TDUS was forged;
hence, it is void ab initio.” It acknowledged that a void deed
cannot pass valid title and all transactions based upon it,
including encumbrances, are a nullity. Nevertheless, it invoked
equity to extinguish Bank’s lien priority.
4Named defendants included Shashikyan, her son Tigran,
and Kirakosian. They did not answer and defaults were entered
against them. They did not appeal.
5
The court found respondents “had no knowledge that the
TDUS was fraudulent. There was nothing on the face of the
TDUS which would alert anyone that it was fraudulent. Nothing
had been recorded by [Bank] to put the public on notice that the
TDUS purportedly recorded by an officer of [Quality] was bogus.”
Though Bank and respondents were victims of fraud, the
court found Bank culpable for its negligent failure to act once the
fraudulent TDUS was brought to its attention in December 2015.
Bank could have recorded a notice of rescission or other document
to reflect that Quality did not conduct a trustee’s sale, to put
third parties on notice of the fraud. The court concluded that
Bank is estopped to assert that its 2006 DOT is senior in right
and priority to respondents’ 2016 trust deed.
The court found “uncontroverted evidence” that the
Shashikyans participated in Kirakosian’s fraud, which estops
them from denying the liens asserted by Bank and respondents.
DISCUSSION
Bank does not challenge the court’s findings of fact, which
were largely undisputed. When decisive facts are undisputed,
the issue on appeal becomes a question of law subject to de novo
review. (Ghirardo v. Antonioli (1994) 8 Cal.4th 791, 799–801; J.
Arthur Properties, II, LLC v. City of San Jose (2018) 21
Cal.App.5th 480, 489 [de novo review in equitable estoppel case].)
The question is: As the undisputed beneficiary of a valid
deed of trust, is Bank subject to equitable estoppel for failing to
correct public records after discovering a fraudulent TDUS on the
chain of title to the encumbered property? The answer is “no.”
Bank had no duty to take action to protect strangers who might
be deceived by a wrongdoer’s fraud.
6
The doctrine of equitable estoppel is codified in California,
since 1872. (Long Beach v. Mansell (1970) 3 Cal.3d 462, 488–
489.) The statute reads, “Whenever a party has, by his own
statement or conduct, intentionally and deliberately led another
to believe a particular thing true and to act upon such belief, he
is not, in any litigation arising out of such statement or conduct,
permitted to contradict it.” (Evid. Code, § 623.)
Estoppel may arise from silence as well as from words or
conduct; however, this occurs only where there is a duty to act or
speak. (People v. Ocean Shore Railroad (1948) 32 Cal.2d 406,
421–422; Elliano v. Assurance Co. of America (1970) 3 Cal.App.3d
446, 451.) As we shall see, Bank had no duty to act or speak.
Division Three of this district, in WFG National Title Ins.
Co. v. Wells Fargo Bank, N.A. (2020) 51 Cal.App.5th 881 (WFG),
forbade the use of equitable estoppel in a fraud scheme akin to
the one we have here, holding that a lender holding a first trust
deed has no duty to act to remove subsequent fraudulent deeds.
The WFG opinion is directly on point.
In WFG, a “seller” conveyed property to a buyer who
obtained a mortgage loan. “As it turned out, the seller did not
own the property because the recorded trustee’s deed upon sale
that appeared to convey title to the seller was forged.” (WFG,
supra, 51 Cal.App.5th at p. 884.) The defrauded lender sued the
senior encumbrancer, Wells Fargo, alleging that it negligently
failed to rescind the forged TDUS to protect third parties from
being defrauded. Wells Fargo prevailed on summary judgment,
asserting it had no legal obligation to monitor title or take
affirmative steps to rid public records of improperly recorded
documents. (Ibid.)
7
The court affirmed the judgment for Wells Fargo. It wrote,
“ ‘A deed is void if the grantor’s signature is forged.’ ” The forgery
passes no title. This applies to purchasers and encumbrancers.
(WFG, supra, 51 Cal.App.5th at p. 890.) WFG’s deed of trust was
derived from a forged TDUS. Because the entire transaction was
fraudulent, neither the purported property purchaser nor WFG
as its lender obtained a valid interest in the property. (Ibid.;
Gioscio v. Lautenschlager (1937) 23 Cal.App.2d 616, 619–920 [a
“forged deed is absolutely void, and even in the case of a person
claiming in good faith thereunder, is inoperative, either to divest
the purported grantor's title or to vest any right or title in the
grantee or claimant [citations], and being a void deed it could not
operate as an estoppel [citation], nor would the fact that it was
duly recorded create an estoppel”].)
The court in WFG addressed whether Wells Fargo was
estopped from disputing the superiority of WFG’s trust deed
because WFG was innocent and Wells Fargo had the best chance
of preventing loss.5 WFG asserted that there was a triable issue
regarding the bank’s awareness of the forged deed and failure to
act to correct public records. (WFG, supra, 51 Cal.App.5th at p.
892.) The court wrote that the party urging application of
equitable estoppel or Civil Code section 3543 must show that the
other party “was, at a minimum, negligent.” Negligence requires
breach of a duty. The existence of a duty is a question of law.
(WFG, at pp. 892–893.)
5 WFG cited Civil Code section 3543: “Where one of two
innocent persons must suffer by the act of a third, he, by whose
negligence it happened, must be the sufferer.” Civil Code section
3543 is “ ‘basically an estoppel theory.’ ” (South Beverly Wilshire
Jewelry & Loan v. Superior Court (2004) 121 Cal.App.4th 74, 81.)
8
The court concluded that Wells Fargo had no duty to
correct public records even if it “had actual knowledge of the
forged deed.” (WFG, supra, 51 Cal.App.5th at p. 893.) No statute
or case states that a property owner or trust deed beneficiary
“has an ongoing duty to monitor public records to detect, and
correct, a fraudulent or erroneous recording.” (Ibid.)
The absence of a duty to remove known fraudulent deeds
from public records is a principle of long standing. Our Supreme
Court held 150 years ago that a rightful owner “is justified in
relying upon his title; and he is under no obligation to proceed
against all persons who may assert a hostile title, although
another person might be deceived by the apparent genuineness of
such hostile title.” (Meley v. Collins (1871) 41 Cal. 663, 678
(Meley).) Meley has not been repudiated and cannot be “replaced”
by intermediate appellate court opinions, contrary to the trial
court’s view. (Auto Equity Sales, Inc. v. Superior Court (1962) 57
Cal.2d 450, 455; see WFG, supra, 51 Cal.App.5th at p. 894 [Meley
is not “obsolete” and age “does not constitute a valid ground to
disregard it”].)
In Meley, the plaintiff knew by 1860 that a forged deed was
recorded on her property. She did nothing to correct the public
record before Collins “purchased” the property in 1866, based on
the forged deed. (Meley, supra, 41 Cal. at pp. 675–676.) Because
Ms. Meley did not authorize the forgery, she was not estopped to
assert her valid interest against a person deceived by it. The
court wrote, “[I]t cannot be said that the plaintiff, by any act or
neglect, induced the purchase by the defendant. It was not her
duty, if her own interests did not require it, to take the necessary
steps to have the [fraudulent] deed to [the forger] annulled. It is
true that a purchaser from him, relying on the record, might be
9
injured, but he could readily protect himself by exacting from his
vendor the necessary covenants.” (Id. at p. 679.)
The rule announced in Meley applies to encumbrancers
whose loans are based on forged deeds. In Bryce v. O’Brien
(1936) 5 Cal.2d 615, 616, the court wrote, “[T]he mere fact that an
encumbrancer acted in good faith in dealing with persons who
apparently held the legal title is not in itself a sufficient basis for
relief.” Encumbrancers victimized by forged deeds can protect
themselves with title insurance. (Wutzke v. Bill Reid Painting
Serv. (1984) 151 Cal.App.3d 36, 44, fn. 5.)
A fundamental tenet of law—and the main impediment to
asserting estoppel here—is that “there is generally no duty to
protect others from the conduct of third parties.” (Regents of
University of California v. Superior Court (2018) 4 Cal.5th 607,
627 (Regents).) “This general rule . . . ‘derives from the common
law’s distinction between misfeasance and nonfeasance, and its
reluctance to impose liability for the latter.’ ” (Brown v. USA
Taekwondo (2021) 11 Cal.5th 204, 214 (Brown).) The law
punishes “ ‘active misconduct working positive injury to others,’ ”
not passive failure “ ‘to take positive steps to benefit others, or to
protect them from harm not created by any wrongful act of the
defendant.’ ” (Id. at pp. 214–215.)
As described by our Supreme Court, “[E]ach person has a
duty to act with reasonable care under the circumstances.
[Citations.] However, ‘one owes no duty to control the conduct of
another, nor to warn those endangered by such conduct.’
[Citation.] ‘A person who has not created a peril is not liable in
tort merely for failure to take affirmative action to assist or
protect another unless there is some relationship between them
which gives rise to a duty to act.’ ” (Regents, supra, 4 Cal.5th at
10
p. 619.) “A special relationship between the defendant and the
victim is one that ‘gives the victim a right to expect’ protection
from the defendant, while a special relationship between the
defendant and the dangerous third party is one that ‘entails an
ability to control [the third party’s] conduct.’ ” (Brown, supra, 11
Cal.5th at p. 216.)
The court in WFG concluded that there “is no evidence of a
relationship, special or otherwise, between Wells Fargo and
plaintiff.” (WFG, supra, 51 Cal.App.5th at p. 893.) Wells Fargo
did not cause the peril; a forger caused peril with a fraudulent
TDUS. Thus, “estoppel does not apply to Wells Fargo because it
had no duty to protect plaintiff from the consequence of relying
on a forged deed.” (Id. at p. 894.) In so holding, the court
rejected WFG’s contention that the law imposes an affirmative
duty on lien holders to protect their interest in avoiding loss and
to suffer the consequences of their inaction. (Ibid.)
The framework set forth by our Supreme Court and applied
in WFG guides us here. Bank did not create a peril nor was Bank
complicit in a fraudulent scheme.6 Bank has no legal duty to
6 Cases cited by respondents and the trial court are
inapposite because the party being estopped was complicit in
fraud. (See, e.g. Crittenden v. McCloud (1951) 106 Cal.App.2d 42[estoppel applies when a wife forged her husband’s signature on a
deed while he was in prison; he ratified the forgery by accepting a
share of the proceeds]; Merry v. Garibaldi (1941) 48 Cal.App.2d
397 [family members forged a deed of trust, then hid the fraud
from the lender; they were estopped from challenging the deed];
Wurzl v. Holloway (1996) 46 Cal.App.4th 1740 [owners allowed
their brokers to convey their property to a fraudster].) The
property owners in the cited cases played a part in fraudulent
dealings. By contrast, Bank was uninvolved in any fraud.
11
protect others who might be injured by a fraudster. There is no
special relationship between Bank and respondents giving
respondents a right to expect Bank’s protection, nor does Bank
have an ability to control fraudsters.
Bank did not have a “duty to disavow” the TDUS because
Quality did not prepare, execute, or record it. Bank cannot be
bound by the acts of miscreants who had no relationship with
Bank. Nor did Bank ratify the misconduct. Respondents argue
that “[v]oluntary retention of benefits with knowledge of the
unauthorized nature of the act constitutes ratification.” Bank did
not receive, let alone retain, benefits from the fraudulent TDUS.
Ignoring the fraud was not ratification of it.
In short, Bank had no duty to act. Bank is not estopped
from denying the validity of the fraudulent TDUS, which is void
ab initio, as are all subsequent transactions based on the void
TDUS. Bank’s 2006 DOT has priority. Respondents “must seek
their recourse against the fraudulent defendants who occasioned
the loss.” (Trout v. Taylor (1934) 220 Cal. 652, 657.)
12
DISPOSITION
The judgment is reversed. The case is remanded with
directions to the trial court to enter judgment for appellant U.S.
Bank, as Trustee for LSF9 Master Participation Trust. Appellant
is entitled to recover its costs on appeal from respondents.
NOT TO BE PUBLISHED.
LUI, P. J.
We concur:
ASHMANN-GERST, J.
CHAVEZ, J.
13