Shetty v. Ameriquest Mortgage Co. CA2/2

Filed 1/26/23 Shetty v. Ameriquest Mortgage Co. 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NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS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
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has not been certified for publication or ordered published for purposes of rule 8.1115.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
SECOND APPELLATE DISTRICT
DIVISION TWO
NIKI-ALEXANDER SHETTY B315537
et al.,
(Los Angeles County
Plaintiffs and Appellants, Super. Ct. No.
20STCV38255)
v.
AMERIQUEST MORTGAGE
COMPANY et al.,
Defendants and
Respondents.
APPEAL from the order of the Superior Court of Los
Angeles County, Laura A. Seigle, Judge. Affirmed.
Law Office of Richard L. Antognini and Richard L.
Antognini for Plaintiffs and Appellants.
Buchalter and Pooya E. Sohi for Defendant and Respondent
Ameriquest Mortgage Company.
Bryan Cave Leighton Paisner, Alexandra C. Whitworth,
and Jasdeep S. Atwal for Defendant and Respondent Citi
Residential Lending, Inc.
Houser, Robert W. Norman, Jr., Emilie K. Edling, and Neil
J. Cooper for Defendants and Respondents Litton Loan Servicing
LP, Ocwen Financial Services, Inc., PHH Mortgage Corporation,
Individually and as Successor to Ocwen Loan Servicing LLC, and
Deutsche Bank National Trust Company, as Trustee for
Ameriquest Mortgage Securities, Inc., Asset-Backed Pass-
Through Certificates, Series 2004-FR1.
******
In litigation in 2009, 2012, and 2013, a husband or wife
unsuccessfully challenged the validity of a 2004 loan and deed of
trust on their residential property. In 2020, they brought a
lawsuit to invalidate the same 2004 loan and deed of trust. Alas,
the fourth time is not the charm. The trial court dismissed the
2020 lawsuit as barred by res judicata. This was undoubtedly
correct, so we affirm.
FACTS AND PROCEDURAL BACKGROUND
I. Facts
A. Residential property and initial loans
In 1996, Satish Shetty (husband) acquired a residential
property on La Barca Drive in Tarzana, California (the property).
Husband’s name is on the grant deed.
2
In 1998, husband borrowed $500,000 from Ameriquest
Mortgage Company; the loan was secured by a deed of trust
against the property.
In 1999, husband refinanced the mortgage by acquiring a
$500,000 loan from Ocwen Financial Services, Inc. and using a
portion of the loan’s proceeds to pay off the prior, Ameriquest
loan. The Ocwen loan was secured by a deed of trust against the
property.
In 2003, husband paid off the Ocwen loan in full.
B. The 2004 Ameriquest loan
In February 2004, Ameriquest “contacted” and “pursued”
Adina Zaharescu (wife) to get her to refinance the property. By
this time, husband had signed a deed quitclaiming the property
to La Barca Irrevocable Trust, and named wife as the “trustee.”
Also at this time, husband was in federal prison after pleading
guilty to bank fraud and money laundering charges.1 Wife
transferred the property to herself as an individual, and on the
same day took out a $600,000 loan from Ameriquest (the 2004
loan). The loan was secured by a deed of trust on the property.
Husband and wife assert that the 2004 loan was the
product of an unspecified “fraudulent representation.”
The loan servicer for the 2004 loan changed over time:
From 2004 to 2005, it was Ameriquest Mortgage Servicing, Inc.;
from 2005 to 2006, it was Ameriquest Special Servicing; and from
2006 to 2008, it was Citi Residential Lending, Inc.
1 Although husband alleges that his convictions were
overturned in 2011, an unpublished district court case
summarizing the proceedings in Shetty’s criminal case shows
that allegation to be false. (United States v. Shetty (C.D.Cal. Dec.
11, 2014, No. SACV 07-0427-DOC) 2014 U.S.Dist. Lexis 197548.)
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C. Attempts to foreclose on the property
In 2007, after husband was released from prison, he
changed his name to Niki-Alexander Shetty and also told wife to
stop making payments on the 2004 loan.
In 2009, Ameriquest assigned the 2004 loan to Deutsche
Bank National Trust Company, as the trustee for a securitized
fund (Deutsche Bank). Despite the assignment, however, the
loan servicer remained the same: From 2008 through 2012, it
was Litton Loan Servicing LP, which is a wholly owned
subsidiary of the Ocwen Financial Corporation. In 2012, Ocwen
Loan Servicing, LLC took over as the loan servicer.
Due to wife’s refusal to make any further payments on the
2004 loan, Deutsche Bank sought to foreclose on the property by
fixing nonjudicial foreclosure sale dates for April 16, 2009, July 5,
2011, and February 14, 2012.
Wife thwarted each attempt to foreclose by filing for
bankruptcy—on April 15, 2009, July 1, 2011, and February 13,
2012. Husband also filed for bankruptcy on February 8, 2013.
D. Parallel litigation
1. 2009 federal lawsuit
In April 2009, and as pertinent here, wife filed a lawsuit in
federal court (specifically, the Central District of California)
against, among others, Deutsche Bank, Litton Loan Servicing LP,
and Ameriquest Mortgage Company (the 2009 federal lawsuit).
The lawsuit alleged claims for (1) cancellation of written
instruments, (2) fraud, (3) declaratory relief, (4) injunctive relief,
(5) rescission, (6) violations of the federal Truth in Lending Act,
(7) quiet title, and (8) violations of the federal Real Estate
Settlement Procedures Act (RESPA). At the core of the lawsuit
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were the “material misrepresentations of fact [made] to [wife] . . .
to induce her to enter into” the 2004 loan.
After two rounds of dismissals with leave to amend, the
federal court in November 2009 dismissed with prejudice all of
the claims except the RESPA claim; the court ruled that wife’s
fraud and declaratory relief claims were untimely. In March
2010, the court dismissed the RESPA claim with prejudice.
The 2009 federal lawsuit became final after wife
voluntarily dismissed her appeal to the Ninth Circuit Court of
Appeals in March 2010, and did not thereafter seek a further
appeal.
2. 2012 adversarial proceeding in bankruptcy
As part of wife’s third bankruptcy, wife in July 2012 filed
an adversarial proceeding against, among others, (1) Deutsche
Bank, (2) Ameriquest Mortgage Company, (3) Ameriquest
Mortgage Securities, Inc., (4) Litton Loan Servicing LP, and (5)
Ocwen Loan Servicing, LLC (the 2012 adversarial proceeding).
Wife’s complaint alleged claims for (1) declaratory relief, (2)
negligence, (3) unjust enrichment, and (4) violations of Title 15,
United States Code, section 1692. The basis for the adversarial
proceeding was the invalidity of the 2004 loan.
In November 2012, the bankruptcy court dismissed the
adversarial complaint on res judicata grounds as duplicative of
the 2009 lawsuit.
The 2012 adversarial proceeding became final in April 2015
after the federal district court and Ninth Circuit affirmed the
bankruptcy court’s ruling.
3. 2013 adversarial proceeding in bankruptcy
As part of wife’s third bankruptcy, husband in February
2013 filed an adversarial proceeding against, among others, (1)
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wife, in her capacity as trustee of the La Barca Irrevocable Trust,
(2) Deutsche Bank, (3) Ameriquest Mortgage Company, (4)
Ameriquest Mortgage Securities, Inc., (5) Litton Loan Servicing,
LP, (6) Ocwen Financial Services, Inc., and (7) Ocwen Loan
Servicing, LLC (2013 adversarial proceeding). As part of the 65-
page, 277-paragraph complaint, husband alleged that defendants
had “intentionally and deceptively induced [wife] without intent
to fund the purported [2004] loan transaction to sign and execute
the loan documents and transfer title to herself in order to
facilitate the purported loan refinancing transaction”; alleged
that the 2004 loan “d[oes] not exist,” and sought $12 million in
damages.
In August 2013, the bankruptcy court dismissed the
adversarial complaint on res judicata grounds as duplicative of
the 2009 lawsuit.
The 2013 adversarial proceeding became final in September
2017 after the federal district court affirmed the bankruptcy
court’s ruling and the Ninth Circuit dismissed husband’s appeal
as improper. The Ninth Circuit also declared husband to be a
“vexatious litigant.”
E. 2018 loan modification
In 2018, Deutsche Bank offered wife the opportunity to
modify the 2004 loan in order to remain current on her payments.
In December 2018, wife signed the loan modification. From 2018
until October 2020, the 2004 loan as modified by the 2018
modification was serviced by PHH Mortgage Services, which in
2019 merged with Ocwen Loan Servicing, LLC to become PHH
Mortgage Corporation.
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II. Procedural Background
A. Pleadings
In October 2020, husband and wife (collectively, plaintiffs)
sued (1) several Ameriquest entities—namely, (a) Ameriquest
Mortgage Company, (b) Ameriquest Mortgage Servicing, Inc., and
(c) Ameriquest Special Servicing, (2) Citi Residential Lending,
Inc., and (3) several other entities—namely, (a) Litton Loan
Servicing LP, (b) Ocwen Financial Services, Inc., (c) Ocwen Loan
Servicing, LLC, (d) PHH Mortgage Services, and (e) Deutsche
Bank. Collectively, all three groups are referred to as
“defendants.”
In the operative first amended complaint, plaintiffs alleged
that (1) defendants violated California’s unfair competition law
(Bus. & Prof. Code, § 17200 et seq.) because (a) the 2004 loan was
fraudulent, unfair, and unlawful, as wife had been “deceived” into
signing the loan documents and had no authority to do so, and (b)
the 2018 loan modification was “illegal, deceptive, or unfair
because it was based on the illegal, unfair, and deceptive . . . 2004
promissory note and deed of trust” (italics added), (2) plaintiffs
were entitled to a declaratory judgment that defendants had
violated the unfair competition law, and (3) defendant had
violated the Rosenthal Act (Civ. Code, § 1788 et seq.) because the
“2004 loan [had been] based on deceptive statements.” Plaintiffs
sought equitable relief barring enforcement of the 2004 loan, the
2004 deed of trust, and the 2018 loan modification.
B. Demurrer
All three groups of defendants demurred to the first
amended complaint. After receiving a late-filed opposition,
receiving replies from each group of defendants, and entertaining
oral argument, the trial court issued an order sustaining the
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demurrers without leave to amend. Specifically, the court ruled
that (1) the current lawsuit was barred by res judicata because
(a) it was “based on the same primary right” as the claims
brought in the now-final 2009 federal lawsuit and 2012
adversarial proceeding—namely, the “right to be free from the
allegedly illegal 2004 loan and the damages caused by that loan,”
and (b) all three lawsuits involved the same parties or their
privities, and (2) the current lawsuit was filed outside the
applicable statutes of limitations. The court rejected plaintiffs’
argument that the current lawsuit’s allegations regarding the
2018 loan modification made res judicata inapplicable because, as
the court noted, the operative complaint makes clear that “[t]he
claim based on the 2018 [loan] modification wholly depends on
the claim that the 2004 loan was illegal,” which was the same
primary right previously adjudicated in the 2009 federal lawsuit
and 2012 adversarial proceeding.
C. Appeal
After the entry of judgment, plaintiffs filed this timely
appeal.
DISCUSSION
Plaintiffs argue that the trial court erred in sustaining
defendants’ demurrers without leave to amend. In assessing
whether the trial court erred in this ruling, we ask two questions:
“(1) Was the demurrer properly sustained; and (2) Was leave to
amend properly denied?” (Shaeffer v. Califia Farms, LLC (2020)
44 Cal.App.5th 1125, 1134 (Shaeffer).) In answering the first
question, “we ask whether the operative complaint ‘“states facts
sufficient to constitute a cause of action”’ [citation] and, if it does,
whether that complaint nevertheless ‘“disclose[s] some defense or
bar to recovery.’”” (California Dept. of Tax & Fee Administration
8
v. Superior Court (2020) 48 Cal.App.5th 922, 929 (Tax & Fee
Administration).) Res judicata is a bar to recovery that may be
adjudicated on demurrer. (Brosterhous v. State Bar (1995) 12
Cal.4th 315, 324.) “In undertaking the inquiry, we accept as true
all “‘“‘“material facts properly pleaded”’”’” and consider any
materials properly subject to judicial notice.” (Tax & Fee
Administration, at p. 929.) In answering the second question, we
ask “‘“whether ‘“‘there is a reasonable possibility that the defect
[in the operative complaint] can be cured by amendment.”’”’”’
(Shaeffer, at p. 1134.) We review the trial court’s ruling
regarding the first question de novo, and review its ruling
regarding the second for an abuse of discretion. (People ex rel.
Harris v. Pac Anchor Transportation, Inc. (2014) 59 Cal.4th 772,
777; Branick v. Downey Savings & Loan Assn. (2006) 39 Cal.4th
235, 242.)
I. Was the Demurrer Properly Sustained?
The doctrine of res judicata bars claims that were or could
have been litigated in a prior case from being relitigated in a new
case. (Kim v. Reins International California, Inc. (2020) 9
Cal.5th 73, 92-93.) A claim is barred by res judicata if it involves
(1) the same cause of action (2) between the same parties or their
privities (3) after a final judgment on the merits in a prior
proceeding. (DKN Holdings LLC v. Faerber (2015) 61 Cal.4th
813, 824; People v. Barragan (2004) 32 Cal.4th 236, 252-253.)
Res judicata applies even if the litigant (or its privity) in the prior
proceeding was self-represented (e.g., Iwachiw v. N.Y. City Board
of Educ. (E.D.N.Y. 2002) 194 F.Supp. 2d 194, 202; see also Nwosu
v. Uba (2004) 122 Cal.App.4th 1229, 1246-1247), and even if the
prior litigation was terminated at the pleadings stage (Pollock v.
University of Southern California (2003) 112 Cal.App.4th 1416,
9
1427-1428). Where, as here, the claims in the current case are
grounded in California law and the claims in the prior cases are
grounded in California law, we look to the California law of res
judicata—even if the prior litigation occurred in federal court.
(Gamble v. General Foods Corp. (1991) 229 Cal.App.3d 893, 898;
Balasubramanian v. San Diego Community College Dist. (2000)
80 Cal.App.4th 977, 991; Burdette v. Carrier Corp. (2008) 158
Cal.App.4th 1668, 1681-1682; Hardy v. America’s Best Home
Loans (2014) 232 Cal.App.4th 795, 805-806.)2 We accordingly
examine the three elements of res judicata under California law.
A. Does this lawsuit involve “the same cause of
action” as the prior three lawsuits?
In assessing whether the same cause of action is involved
in the current lawsuit and in prior lawsuits, California follows
the primary rights theory. (Boeken v. Philip Morris USA, Inc.
(2010) 48 Cal.4th 788, 797 (Boeken).) This theory provides that
2 Even if we looked to the federal law of res judicata, the
outcome would be the same. In assessing whether a claim can be
relitigated, federal courts examine “(1) whether rights or
interests established in the prior judgment would be destroyed or
impaired by prosecution of the second action; (2) whether
substantially the same evidence is presented in the two actions;
(3) whether the two suits involve infringement of the same right;
and (4) whether the two suits arise out of the same transactional
nucleus of facts.” (Costantini v. Trans World Airlines (9th Cir.
1982) 681 F.2d 1199, 1201-1202.) Because these factors are
largely designed to ferret out whether the same right is at issue
in the prior and current litigation, courts have found “little
difference” between the federal and California law of res judicata
when it comes to assessing whether the same right is at issue.
(Butcher v. Truck Ins. Exchange (2000) 77 Cal.App.4th 1442,
1460, fn. 16.)
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““‘one injury gives rise to only one claim for relief’”” (id. at p. 798),
and accordingly prohibits a plaintiff from suing twice to vindicate
the same primary right (Mycogen Corp. v. Monsanto Co. (2002) 28
Cal.4th 888, 904). A ‘“primary right is simply the plaintiff’s right
to be free from the particular injury suffered.”’ (Ibid.) As a
general matter, “the same primary right” is at stake “[w]hen two
actions involving the same parties [or their privities] seek
[redress] for the same harm.” (Boeken, at p. 798.) Because a
primary right turns on the right to be free from a particular
injury suffered, a primary right is not defined by the legal theory
asserted or by the remedy sought. (Cal Sierra Development, Inc.
v. George Reed, Inc. (2017) 14 Cal.App.5th 663, 676-678; Crowley
v. Katleman (1994) 8 Cal.4th 666, 681.)
Plaintiffs’ current lawsuit involves the same primary right
as the 2009 federal lawsuit, the 2012 adversarial proceeding, and
the 2013 adversarial proceeding. The three prior proceedings all
rested on husband’s and wife’s purported right to be free from the
obligations imposed by the 2004 loan and deed of trust due to
fraud. (Accord, Estate of Dito (2011) 198 Cal.App.4th 791, 804
[noting plaintiff’s “primary right . . . to remain free from . . .
fraud”].) As plaintiffs have admitted time and again, the current
lawsuit rests on the very same primary right to be free from the
allegedly fraudulent 2004 loan: Plaintiffs’ operative complaint
alleges that defendants’ conduct violates the unfair competition
law due to the “illegal, unfair, and deceptive . . . 2004 promissory
note and deed of trust”; plaintiff’s opposition to the demurrers
frankly acknowledges that “[t]he core of the [operative] complaint
is that Ameriquest originated a fraudulent loan in 2004”; and
plaintiff’s opening brief on appeal likewise asserts that the “core”
11
of the operative complaint is that “Ameriquest originated a
fraudulent loan in 2004.”
Plaintiffs’ sole response is that their current lawsuit also
involves the 2018 loan modification, which occurred after the
prior three lawsuits and, in their view, thus cannot involve the
same primary right. For support, they cite Favila v. Pasquarella
(2021) 65 Cal.App.5th 934 (Favila). To be sure, a lawsuit based
upon improper acts associated with the 2018 loan modification
would likely not involve the same primary right. (Accord, id., at
pp. 940-941, 945-947 [conduct to evade debt collection after prior
lawsuits is not barred by those prior lawsuits].) But plaintiffs
here do not allege any wrongdoing with respect to the 2018 loan
modification. Instead, as noted above, the sole viable ground on
which they attack the 2018 loan modification is, in plaintiffs’ own
words, “because it was based on the illegal, unfair, and deceptive
. . . 2004 promissory note and deed of trust.”3 Contrary to what
plaintiffs suggest, the mere fact that the 2018 loan modification
happened after the prior lawsuits does not mean their current
3 Although plaintiffs also allege that the 2018 loan
modification is “unfair” because they “signed the modification
under duress and coercion because that was the only way they
could prevent a non-judicial foreclosure,” this allegation is not
actionable as a matter of law. Nearly all loan modifications are
signed by homeowners who face the threat of a loss of their
homes; if that economic pressure were sufficient to make a
lender’s offer of a loan modification “unfair” and hence actionable
in court, then every loan modification between the same parties
or their privities would be unlawful. That is most certainly not
the law. At oral argument, plaintiff argued that the 2018 loan
modification was wrongful because the underlying 2004 loan that
was fraudulent, but this argument means that the 2018 loan
modification is not independently wrongful.
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lawsuit rests on a different primary right. On plaintiffs’ logic, a
plaintiff whose challenge to a prior mortgage was rejected in a
final judgment could evade the res judicata bar merely by
engaging in the act of making another payment on that
mortgage. This would all but eviscerate the doctrine of res
judicata.
B. Does this lawsuit involve the same parties or
their privities as the prior lawsuits?
Many of the parties to the prior lawsuits are also parties to
the current lawsuit. On the plaintiff’s side, wife was a party to
the 2009 federal lawsuit and the 2012 adversarial proceeding,
husband was a party to the 2013 adversarial proceeding, and
husband and wife are both parties to the current lawsuit. On the
defendant’s side, Ameriquest Mortgage Company was a party to
all three prior proceedings; Litton Loan Servicing LP was a party
to all three prior lawsuits; Ocwen Financial Services was a party
to the 2013 adversarial proceeding; Ocwen Loan Servicing, LLC
was a party to the 2012 adversarial proceeding and the 2013
adversarial proceeding; and Deutsch Bank was a party to all
three prior proceedings. These particular defendants are also
parties to the current lawsuit.
That leaves a handful of defendants who are named in this
lawsuit, but who were not parties to any of the prior three
lawsuits. Those defendants are Ameriquest Mortgage Servicing,
Inc., Ameriquest Special Servicing, Citi Residential Lending, Inc.,
and PHH Mortgage Services. But each of those defendants is in
privity with the parties to the prior lawsuits. For purposes of res
judicata, a nonparty to a prior lawsuit is a “privity” of a party to
that prior lawsuit—and hence potentially bound by the prior
lawsuit’s ruling—if the nonparty and party ‘“share[] “an identity
13
or community of interest”’”—that is, if they share “‘an interest so
similar . . . that the party [to the prior lawsuit] acted as the
nonparty’s “‘“virtual representative”’” in the [prior] action.’”
(Grande v. Eisenhower Medical Center (2022) 13 Cal.5th 313,
326.) All four of the defendants here who were not parties to the
prior litigation acted as the loan servicer for the 2004 loan;
because Ameriquest Mortgage Company, Litton Loan Servicing
LP, and Ocwen Loan Servicing, LLC, were also servicers, and
because all of the servicers have such similar interests that they
acted as virtual representatives of the nonparty defendants,
privity exists. Indeed, plaintiffs do not argue to the contrary.
C. Did the prior lawsuits end in final judgments?
Plaintiffs concede that the 2009 federal lawsuit and the
2012 adversarial proceeding have now reached final judgments.
Although plaintiffs allege that the 2013 adversarial proceeding is
not final, the judicially noticed documents definitively show that
this allegation is false and that this proceeding is also final.
(Genis v. Schainbaum (2021) 66 Cal.App.5th 1007, 1015 [“Where
facts appearing in . . . judicially noticed documents . . . are
inconsistent with[] the complaint’s allegations, we must rely on
the facts in the . . . judicially noticed documents.”]) Thus, all
three prior proceedings are final judgments.
* * *
Because the demurrers were properly sustained on the
basis of res judicata, we have no occasion to consider whether
they might also be sustained as time barred by the applicable
statutes of limitations.
II. Was Leave to Amend Properly Denied?
In their briefing on appeal, plaintiffs seek leave to amend
to add that defendants were “debt collectors” under the Rosenthal
14
Act and to make specific allegations against Citi Residential
Lending, Inc. Because these proposed allegations do not address
the res judicata bar, and because we see no other way to plead
around this bar, there is no “reasonable possibility” that the
defect in the operative complaint can be cured by amendment.
Consequently, the trial court did not abuse its discretion in
denying leave to amend.
DISPOSITION
The judgment is affirmed. Defendants are entitled to their
costs on appeal.
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS.
______________________, J.
HOFFSTADT
We concur:
_________________________, Acting P. J.
CHAVEZ
_________________________, J.*
BENKE
* Retired Associate Justice of the Court of Appeal, Fourth
Appellate District, assigned by the Chief Justice pursuant to
article VI, section 6 of the California Constitution.
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