Opinion
B300663
05-01-2020
GABRIELA ROEL, Plaintiff and Appellant, v. CAPITAL ONE, N.A., Defendant and Respondent.
Law Office of Terence J. Mix and Terence J. Mix for Plaintiff and Appellant. Severson & Werson and Jan T. Chilton for Defendant and Respondent.
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115. (Los Angeles County Super. Ct. No. BC707816) APPEAL from a judgment of the Superior Court of Los Angeles County. Michele Williams Court, Judge. Affirmed. Law Office of Terence J. Mix and Terence J. Mix for Plaintiff and Appellant. Severson & Werson and Jan T. Chilton for Defendant and Respondent.
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Gabriela Roel appeals following the successful summary judgment motion of respondent Capital One, N.A. (Capital One). Capital One compelled a trustee's sale of Roel's rental property in June 2010 after Roel defaulted on her loan. The following January, Capital One sent Roel a 1099-C tax form stating that Capital One had canceled $148,000 of debt that Roel owed on her loan. In fact, Capital One had purchased Roel's property at the trustee's sale for the full amount of Roel's outstanding debt.
Roel actually obtained the loan from ING Bank, FSB, which later merged with Capital One. We refer to both entities as Capital One.
Over seven years later, in May 2018, Roel filed this action seeking damages for the emotional distress she claims she suffered during the several months between the time she received the 1099-C form and the time she learned from her accountant that she would owe no additional taxes on the $148,000. The trial court granted summary judgment on the ground that the statute of limitations had run on each of Roel's claims.
We affirm. Roel argues on appeal that the applicable statutes of limitations did not begin to run until March 2018, when she first learned from an unsolicited attorney's letter that Capital One should not have reported any canceled debt on the form 1099-C. However, the form itself provided a reason to suspect that it was incorrect, and therefore created a duty to conduct a reasonable investigation. Such an investigation would have revealed that Roel's property had sold for the full amount of her loan obligation. Under the theory of her complaint, that was the key fact establishing that she had no canceled debt and that Capital One therefore should not have issued the form 1099-C reporting such debt.
BACKGROUND
1. The Trustee's Sale and the 1099-C Tax Form
In 2007, Roel borrowed $340,000 from Capital One to purchase a rental property. She defaulted on the loan in 2009.
Capital One pursued nonjudicial foreclosure, and the property was sold at a trustee's sale in June 2010. Capital One purchased the property by paying the full amount of Roel's indebtedness, which at the time was $371,572.72, including interest and fees.
In January 2011, Capital One sent Roel a 1099-C tax form. In a box identifying the "amount of debt canceled," the form reported the amount of $148,000. In a box identifying the "fair market value of property," the form reported a value of $240,000.
2. Roel's Claims
Roel filed her complaint in this case on May 25, 2018. Roel alleged that, as a result of Capital One's full credit bid for her property "and the antideficiency statutes of California," she had no further personal liability on her loan and her debt "had been paid in full." Roel alleged that Capital One's statement on the form 1099-C that it had canceled $148,000 of her debt was therefore false.
A full credit bid is a bid equal to the unpaid principal and interest of the mortgage debt, along with the costs, fees and other expenses of the foreclosure. (Alliance Mortgage Co. v. Rothwell (1995) 10 Cal.4th 1226, 1238.) A lender who makes such a bid at a nonjudicial foreclosure sale "does so in the capacity of a purchaser." (Ibid.) If a full credit bid is successful, "the lender pays the full outstanding balance of the debt and costs of foreclosure to itself and takes title to the security property, releasing the borrower from further obligations under the defaulted note." (Ibid.)
Roel claimed that, after receiving the form, she believed that she faced income tax liability on the $148,000 and suffered emotional distress as result. Roel asserted claims against Capital One for negligent and intentional infliction of emotional distress and fraud.
Roel also asserted a cause of action for breach of duty against Cal-Western Reconveyance Corporation, the foreclosure trustee, which she later dismissed.
Capital One filed a demurrer, arguing that the applicable statutes of limitations had run. The trial court sustained the demurrer with leave to amend.
Roel filed an amended complaint asserting the same causes of action but adding an allegation that there was no reason for her to suspect that the form 1099-C was incorrect even after she learned from her tax preparer that she would not owe taxes on that amount. She alleged that her tax preparer had simply "provided her with an exemption" for the $148,000 and had not told her that the form 1099-C was "in any way improper."
3. Capital One's Summary Judgment Motion
Capital One moved for summary judgment, asserting the statutes of limitations and other grounds. In opposition, Roel submitted a declaration in which she stated that she did not learn the 1099-C form was improper until 2018. She testified that she gave the form 1099-C to her tax preparer in March 2011. When she received her completed tax returns from him in "late March 2011 or early April 2011," she was relieved to see that she owed no taxes as a result of the form 1099-C. However, her tax preparer did not say that the 1099-C form was incorrect. Rather, he reported the $148,000 as excluded gross income on Roel's tax return. This confirmed to Roel that the form 1099-C had been properly prepared.
Roel testified that neither she nor her husband "were in attendance at the foreclosure sale on June 30, 2010, and had no knowledge of what took place at the auction beyond the fact that [Capital One] had acquired title to my Property." She stated that she "never knew" what Capital One had paid for the property until she received a letter from her current attorney in March 2018 explaining that the 1099-C form was improper.
The trial court granted summary judgment. The court rejected Roel's argument that the statutes of limitations did not begin to run until Roel learned that the 1099-C form was incorrect. The trial court found that the "defects plaintiff raises here with the form [1099-C]" were "based on facts plaintiff knew at the time she received the form." The court also noted that it was "undisputed that plaintiff knew and trusted her tax preparer, yet she failed to ask any questions regarding the 1099-C form."
DISCUSSION
1. Standard of Review
We apply a de novo standard of review to the trial court's summary judgment ruling. We interpret the evidence in the light most favorable to Roel as the nonmoving party and resolve all doubts about the propriety of granting the motion in her favor. (Lonicki v. Sutter Health Central (2008) 43 Cal.4th 201, 206.) We consider all the evidence before the trial court except that to which objections were made and properly sustained. (Pipitone v. Williams (2016) 244 Cal.App.4th 1437, 1451-1452.) Although we independently review Capital One's motion, Roel has the responsibility as the appellant to demonstrate that the trial court's ruling was erroneous. (Nealy v. City of Santa Monica (2015) 234 Cal.App.4th 359, 372.)
In exercising our independent review, we apply the standards applicable to summary judgment motions. A defendant moving for summary judgment has an initial burden of production to make a prima facie showing that there are no triable issues of material fact. (Code Civ. Proc., § 437c, subd. (p)(2); Aguilar v. Atlantic Richfield Co. (2001) 25 Cal.4th 826, 850-851 (Aguilar).)
Subsequent undesignated statutory references are to the Code of Civil Procedure.
Once the moving party does so, the burden of production shifts to the opposing party to show the existence of material disputed facts. (§ 437c, subd. (p)(2); Aguilar, supra, 25 Cal.4th at pp. 850-851.) The opposing party must make that showing with admissible evidence. (§ 437c, subd. (d); Jambazian v. Borden (1994) 25 Cal.App.4th 836, 846.)
2. The Trial Court Correctly Ruled that the Statutes of Limitations Had Run on Roel's Claims
Claims typically accrue, and the statute of limitations begins to run, when "the cause of action is complete with all of its elements." (Fox v. Ethicon Endo-Surgery, Inc. (2005) 35 Cal.4th 797, 806 (Fox), quoting Norgart v. Upjohn Co. (1999) 21 Cal.4th 383, 397 (Norgart).) Roel's causes of action were complete in 2011 after Capital One had issued the form 1099-C and she allegedly suffered emotional distress as a result.
The statute of limitations on Roel's claims for negligent and intentional infliction of emotional distress is two years, and the statute of limitations on her fraud claim is three years. (§§ 335.1, 338, subd. (d).) Thus, all her claims would be untimely if they accrued in 2011 when she suffered her alleged harm.
Roel does not dispute this. Rather, she relies on the discovery rule, which is an "important exception to the general rule of accrual." (Fox, supra, 35 Cal.4th at p. 807.) Under that rule, accrual of a cause of action is postponed "until the plaintiff discovers, or has reason to discover, the cause of action." (Ibid.) Actual discovery of the facts underlying a plaintiff's claim is not necessary. The statute of limitations is triggered when a plaintiff has a "suspicion of one or more of the elements of a cause of action, coupled with knowledge of any remaining elements." (Ibid.) "Elements" in this context means the " 'generic' elements of wrongdoing, causation, and harm." (Ibid., quoting Norgart, supra, 21 Cal.4th at p. 397.)
Thus, a cause of action begins to run when plaintiffs have "reason to at least suspect that a type of wrongdoing has injured them." (Fox, supra, 35 Cal.4th at p. 807.) At that point, a plaintiff has "inquiry notice of the cause of action." (Ibid.) Plaintiffs "are required to conduct a reasonable investigation after becoming aware of an injury, and are charged with knowledge of the information that would have been revealed by such an investigation." (Id. at p. 808.)
The same duty of inquiry applies to the statutory discovery rule governing fraud claims. (See Miller v. Bechtel Corp. (1983) 33 Cal.3d 868, 875 (Miller) [if the plaintiff alleging fraud "became aware of facts which would make a reasonably prudent person suspicious, she had a duty to investigate further, and she was charged with knowledge of matters which would have been revealed by such an investigation"].)
Section 338, subdivision (d) provides that a cause of action for fraud or mistake "is not deemed to have accrued until the discovery, by the aggrieved party, of the facts constituting the fraud or mistake."
Here, the key fact supporting each of Roel's claims is that Capital One made a successful full credit bid for her property at the foreclosure sale in June 2010. Roel alleges that this bid satisfied her loan obligation to Capital One, leaving no canceled debt for purposes of the tax laws.
Capital One disputes this theory. In an alternative argument challenging the merits of Roel's fraud claim, Capital One argues that it based its calculation of Roel's canceled debt on the fair market value of her property. Capital One claims that it knew its bid exceeded the fair market value of the property, but it nevertheless made a full credit bid to protect against "its collateral from selling for a substantially reduced amount." Capital One cites various tax decisions for the proposition that although the sale price of a foreclosed property is generally presumed to be its fair market value for purposes of a form 1099-C, that presumption may be rebutted. (See Frazier v. Commissioner (1998) 111 T.C. 243, 248; Community Bank v. Commissioner (1982) 79 T.C. 789, 792, affd. (9th Cir. 1987) 819 F.2d 940.) In light of our disposition, we need not consider the merits of this argument.
As mentioned, in opposition to Capital One's summary judgment motion Roel testified that she was not aware of the price that Capital One paid for her property at the foreclosure sale. For purposes of summary judgment, we credit that testimony. However, the record shows that she had ample reason to inquire about what had occurred at that sale.
The form 1099-C itself provided such a reason. The form stated that the fair market value of Roel's property was $240,000. Even if Roel believed that figure and assumed that Capital One had purchased her property for that amount, the numbers on the form did not add up. The $240,000 plus the $148,000 that Capital One reported as Roel's canceled debt equals $388,000, well in excess of the $371,572.72 that Roel actually owed to Capital One, including interest and fees. The fact that Capital One reported any canceled debt provided a basis for a reasonable person to inquire what had occurred at the foreclosure sale; the fact that the numbers Capital One reported did not seem to make sense gave Roel reason to suspect that the form was not accurate.
In a section entitled, "Instructions for Debtor," the form 1099-C explained that "[g]enerally, the gross foreclosure bid price is considered to be the FMV."
According to evidence that Capital One submitted in support of summary judgment, for reasons that are unclear from the record it applied a 20 percent discount to the fair market value of Roel's property before calculating Roel's canceled debt. --------
Yet Roel did nothing to investigate. Her declaration does not state that she did anything to inquire about the numbers that Capital One reported. The sale price of her property was disclosed on the trustee's deed recorded after the foreclosure sale. That was a public document that she easily could have obtained. (See Miller, supra, 33 Cal.3d at p. 875 [plaintiff could have discovered the facts underlying her claim by consulting public records once her suspicions had been aroused].) As far as the evidence shows, Roel did not even ask Capital One what it had paid for her property. Nor did she inquire about the basis for its calculation of her alleged canceled debt.
Because Roel was on inquiry notice of the facts underlying her claims, the discovery rule did not delay the accrual of those claims. Each of her causes of action was therefore barred by the applicable statutes of limitations.
DISPOSITION
The judgment is affirmed. Capital One is entitled to its costs on appeal.
NOT TO BE PUBLISHED.
LUI, P. J. We concur:
ASHMANN-GERST, J.
HOFFSTADT, J.