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Adme Found. Tr. v. Deutsche Bank Nat'l Tr. Co. Am's.

California Court of Appeals, Second District, Third Division
Aug 30, 2023
No. B311780 (Cal. Ct. App. Aug. 30, 2023)

Opinion

B311780

08-30-2023

ADME FOUNDATION TRUST et al., Plaintiffs and Appellants, v. DEUTSCHE BANK NATIONAL TRUST COMPANY AMERICAS et al., Defendants and Respondents

Galperin & Hensley and Yury Galperin for Plaintiffs and Appellants. Troutman Pepper Hamilton Sanders and Jared D. Bissell for Defendants and Respondents.


NOT TO BE PUBLISHED

APPEAL from a judgment of the Superior Court of Los Angeles County No. 19STCV35698, Stephanie M. Bowick, Judge. Affirmed.

Galperin & Hensley and Yury Galperin for Plaintiffs and Appellants.

Troutman Pepper Hamilton Sanders and Jared D. Bissell for Defendants and Respondents.

LAVIN, J.

INTRODUCTION

Plaintiffs ADME Foundation Trust and its trustee, Michael Finnucci, (ADME) appeal from a judgment following an order sustaining without leave to amend the demurrer filed by Nationstar Mortgage LLC (Nationstar), Mortgage Electronic Registration Systems, Inc. (MERS), and Deutsche Bank Trust Company (Deutsche Bank) to ADME's first amended complaint. Aztec Foreclosure Corporation (Aztec) joined the demurrer. ADME argues the court erred in sustaining the demurrer because: (1) Deutsche Bank was not named in the first amended complaint and, therefore, lacked standing to bring the demurrer; and (2) ADME alleged facts sufficient to state each of the causes of action asserted in its first amended complaint. We affirm.

FACTUAL AND PROCEDURAL BACKGROUND

1. The Foreclosure Proceedings

In May 2007, Camille and Ulysses Carter obtained a $1.12 million loan from First National Bank of Arizona (Loan). The loan was evidenced by a promissory note (Note) and secured by a deed of trust (Deed of Trust) on property the Carters owned in Los Angeles (Property). The Deed of Trust identifies Lawyers Title as the trustee and MERS as the beneficiary.

We use the Carters' first names when referring to them individually.

Ulysses died in February 2014. Several months later, Camille granted the Property to herself and ADME as joint tenants. Around February 2015, ADME and Camille defaulted on the Loan.

In April 2015, ADME and Camille sent a "Notice of Rescission" to "Deutsche Bank National Trust Company" (Deutsche National). The Notice of Rescission stated that ADME and Camille exercised their "right to rescind" the Loan, claiming they weren't provided complete disclosures concerning their rights under the loan. In May 2015, ADME and Camille sent a copy of the Notice of Rescission to Nationstar.

On July 8, 2015, MERS assigned the Deed of Trust to Deutsche National, "as Trustee for Mortgage Asset-Backed PassThrough Certificates, Series 2007-QH7."

On September 9, 2015, ADME and Camille recorded the Notice of Rescission. Later that month, Nationstar acknowledged receipt of the notice. Nationstar claimed the notice was "ineffective" because it was not filed within three years of when the Loan originated. According to Nationstar, the Loan would "continue to be ... serviced appropriate to its status." Nationstar also informed ADME and Camille that they were "approximately eight payments delinquent" on the loan.

In October 2015, ADME and Camille recorded a Notice of Intent to Preserve an Interest in the Property.

In November 2015, Deutsche National executed a Substitution of Trustee, substituting Aztec as the successor trustee under the Deed of Trust. That same month, Aztec recorded a Notice of Default and Election to Sell. The Notice of Default stated ADME and Camille failed to pay the February 2015 installment of principal and interest under the Loan, as well as all subsequent installments, late charges, and other costs and fines permitted under the Deed of Trust. As of November 12, 2015, ADME and Camille owed more than $42,000 in past due installments, late charges, and other costs and fines.

In February 2016, Aztec recorded a Notice of Trustee's Sale, stating it intended to sell the Property at a public auction the next month.

2. ADME and Camille's Lawsuit

In May 2016, ADME and Camille filed a complaint against Nationstar, Aztec, Deutsche Bank, and MERS, asserting claims for declaratory relief, illegal trustee sale, enforcement of rescission, and violations of the California Homeowner Bill of Rights and the Business and Professions Code (2016 Lawsuit). In their complaint, ADME and Camille alleged Deutsche Bank and Deutsche National are the same entity. In September 2018, ADME and Camille dismissed their lawsuit.

3. The Current Lawsuit

Camille died in September 2019. That same month, Aztec filed a second Notice of Trustee's Sale against the Property.

In October 2019, ADME filed this lawsuit, suing Deutsche National, MERS, Nationstar, Aztec, and others for claims arising out of the foreclosure of the Property. In June 2020, ADME filed the operative first amended complaint, which asserts the following causes of action: (1) cancellation of written instruments (Count 1); (2) declaratory relief (Count 2); (3) fraud (Count 3); (4) slander of title (Count 4); and (5) quiet title (Count 5). ADME did not name Deutsche Bank as a defendant in this case.

In March 2020, the court found this case was related to the 2016 Lawsuit.

ADME's claims arise primarily out of allegations that the defendants lacked authority to foreclose on the Property because, by the time foreclosure proceedings were initiated, the Notice of Rescission had extinguished ADME's and Camille's obligations under the Loan. Specifically, ADME alleged the Loan was rescinded and the Deed of Trust and Note were "voided" by the "mailing of the Statutory Notice of Rescission" and the defendants' failure to formally oppose the notice. Once the loan was rescinded, ADME and Camille owned the Property free and clear of any encumbrance. Consequently, the defendants had no power to foreclose on the property, and the foreclosure instruments, such as the Notice of Default and Notice of Trustee's Sale, were fraudulent, void, and subject to cancellation.

Nationstar, MERS, and Deutsche Bank-claiming it was erroneously sued as Deutsche National-demurred to the first amended complaint. They argued, among other things, that each of ADME's claims failed because the Notice of Rescission was untimely and, as a result, ineffective. Specifically, under title 15 of the United States Code section 1635(f), the Carters were required to rescind the Loan within three years of its consummation, after which time their right to rescind the loan would extinguish. Since ADME and Camille did not attempt to rescind the loan until April 2015, or nearly eight years after the loan was consummated, the Notice of Rescission was untimely and did not void the Note or the Deed of Trust or otherwise affect Aztec's rights to foreclose on the Property. Although ADME opposed the demurrer, its opposition is not included in the record on appeal.

The court sustained the demurrer without leave to amend. As a threshold matter, the court found Deutsche Bank had standing to bring the demurrer, even though it wasn't named as a defendant in this case. Specifically, the court found Deutsche Bank was a "proper party" because ADME and Camille claimed in their 2016 Lawsuit that "the demurring Defendant here [i.e., Deutsche Bank] and the Defendant named in this lawsuit [i.e., Deutsche National] are one and the same."

On the merits of the demurrer, the court found ADME failed to allege facts to state any of its claims. Specifically, allegations in the first amended complaint established that ADME and Camille did not deliver the Notice of Rescission within three years of the Loan's consummation, as required under title 15 of the United States Code section 1635(f). Since the Notice of Rescission was untimely, the Loan was never rescinded, the demurring defendants had no duty to respond to the notice, and ADME and Camille continued to be bound by their obligations under the Loan. The court denied ADME leave to amend the first amended complaint because "there is no reasonable probability that [ADME] can cure the timeliness defect with respect to the [Notice of Rescission] and the 'Statutory Rescission' that affect all of the causes of action."

The court entered judgment in favor of Nationstar, Deutsche Bank, MERS, and Aztec and dismissed with prejudice ADME's claims against them.

ADME timely appealed from the judgment.

DISCUSSION

We deny ADME's request for judicial notice of a December 21, 2021 Notice of Trustee's Sale and a March 8, 2022 Trustee's Deed Upon Sale, both of which were executed and recorded after the court entered its judgment below, because neither document is relevant to the issues raised in this appeal. (See Ragland v. U.S. Bank National Assn. (2012) 209 Cal.App.4th 182, 194.)

1. ADME hasn't shown the court erred in finding Deutsche Bank is a party to this lawsuit.

As a preliminary matter, ADME contends the court erred in sustaining the demurrer to the first amended complaint because Deutsche Bank is not a party to this lawsuit. We disagree.

When ruling on a demurrer, trial and appellate courts may take judicial notice of a party's earlier pleadings and positions, including those from prior lawsuits. (Cantu v. Resolution Trust Corp. (1992) 4 Cal.App.4th 857, 877 (Cantu); see also Evid. Code, § 452, subd. (d); Code Civ. Proc., § 430.70.) Under the principle of "truthful pleading," the plaintiff may not plead facts that contradict, or are inconsistent with, the facts or positions that the plaintiff pled in an earlier, related action. (Cantu, at p. 877.) Unless the plaintiff explains the discrepancy between the prior pleading and the challenged complaint, the trial court may disregard contrary or inconsistent facts pleaded in the challenged complaint and read into that complaint facts alleged in the prior pleading. (Id. at pp. 877-878; Vallejo Development Co. v. Beck Development Co. (1994) 24 Cal.App.4th 929, 946 (Vallejo).)

Here, the court properly took judicial notice of ADME and Camille's complaint from the 2016 Lawsuit, which arose out of the same foreclosure proceedings at issue in this case. (Evid. Code, § 452, subd. (d); see also Cantu, supra, 4 Cal.App.4th at p. 877.) In that complaint, ADME and Camille named Deutsche Bank as a defendant, and they alleged Deutsche Bank and Deutsche National were the same entity. In the first amended complaint filed in this case, however, ADME omitted any reference to Deutsche Bank, naming only Deutsche National as a defendant. Thus, the burden was on ADME to explain why it omitted from the first amended complaint allegations that Deutsche Bank and Deutsche National are the same entity. (Vallejo, supra, 24 Cal.App.4th at p. 946.) ADME hasn't shown it met that burden.

Although it opposed defendants' demurrer below, ADME hasn't provided us a copy of its opposition or any other record of the arguments it made in opposition to the demurrer. And while the court noted in its ruling that ADME opposed Deutsche Bank's standing to bring the demurrer, nothing in the record shows what effort, if any, ADME made to explain its decision to omit from this lawsuit allegations that Deutsche Bank is the same entity as Deutsche National. (Sutter Health Uninsured Pricing Cases (2009) 171 Cal.App.4th 495, 498 ["To the extent the record is incomplete, we construe it against [the appellant]."].) Consequently, ADME hasn't shown the court erred when it found, based on allegations contained in ADME and Camille's complaint from the 2016 Lawsuit, that Deutsche Bank is a party to this lawsuit and had standing to demur to the first amended complaint. (Cantu, supra, 4 Cal.App.4th at pp. 877-878.)

2. ADME hasn't shown the court erred in sustaining without leave to amend the demurrer to the first amended complaint.

ADME next contends the court erred in sustaining the demurrer without leave to amend because ADME alleged facts sufficient to state all the causes of action asserted in the first amended complaint. We disagree.

2.1. Standard of Review and General Principles of Appellate Review

We independently review an order sustaining a demurrer to determine whether the operative complaint alleges facts sufficient to state a cause of action. (Ivanoff v. Bank of America, N.A. (2017) 9 Cal.App.5th 719, 725 (Ivanoff).) We assume the truth of all properly pled factual allegations and matters that are judicially noticeable, liberally construing the complaint's allegations with a view toward substantial justice. (Ibid.; Quelimane Co. v. Stewart Title Guaranty Co. (1998) 19 Cal.4th 26, 43, fn. 7.)

A court may sustain a demurrer based on an affirmative defense, such as a statute of limitations defense, where the complaint's allegations clearly disclose the defense or bar to recovery. (Ivanoff, supra, 9 Cal.App.5th at p. 726.) And where the complaint's allegations contradict, or are inconsistent with, judicially noticed facts or facts included in exhibits attached to the complaint, we rely on the judicially noticed facts or contents of the exhibits. (Ibid.)

2.2. The court properly sustained the demurrer as to Count 1.

In Count 1, ADME asserted a claim to cancel the July 2015 Assignment of the Deed of Trust, the November 2015 Substitution of Trustee, the November 2015 Notice of Default, the 2016 Notice of Trustee's Sale, and the September 2019 Notice of Trustee's Sale, as well as any "instruments previously or subsequently executed or otherwise recorded by or on behalf of Defendants, and each of them, with respect to the [Property]" (Foreclosure Instruments). To prevail on a claim to cancel an instrument, the plaintiff must prove: (1) the instrument is void or voidable due to some illegality, such as fraud; and (2) there is a reasonable apprehension of serious injury including pecuniary loss or the prejudicial alteration of one's position. (Weeden v. Hoffman (2021) 70 Cal.App.5th 269, 294.) ADME alleged the Foreclosure Instruments were void based on its rescission theory-i.e., that ADME and Camille obtained unencumbered title to the Property after they delivered the first Notice of Rescission to Deutsche National.

Congress passed the Truth in Lending Act (15 U.S.C. § 1601 et seq.) (Act) to "help consumers 'avoid the uninformed use of credit, and to protect the consumer against inaccurate and unfair credit billing.'" (Jesinoski v. Countrywide Home Loans, Inc. (2015) 574 U.S. 259, 261 (Jesinoski).) Under the Act, a borrower has an unconditional right to rescind a loan "until midnight of the third business day following the consummation of the transaction or the delivery of the [disclosures required by the Act], whichever is later, by notifying the creditor, in accordance with regulations of the [Federal Reserve] Board, of his intention to do so." (15 U.S.C. § 1635(a); Jesinoski, at p. 261.) If a lender fails to satisfy the Act's disclosure requirements, the "right of rescission" expires "three years after the date of consummation of the transaction or upon the sale of the property, whichever comes first." (15 U.S.C. § 1635(f).) A transaction is "consummated" for purposes of the Act once the borrower becomes contractually obligated on the credit transaction. (12 C.F.R. § 226.2(a)(13) (2017).)

To rescind a loan, the borrower need not file suit within three years of the loan's consummation; it is sufficient if the borrower provides "written notice" of their intention to rescind the loan within the three-year period. (Jesinoski, supra, 574 U.S. at p. 264.) But if a borrower does not exercise its right of rescission within the three-year period, that right is "completely extinguishe[d]." (Beach v. Ocwen Federal Bank (1998) 523 U.S. 410, 411-412 (Beach).)

In its operative complaint, ADME does not allege when the Carters obtained the underlying loan, but it describes the underlying loan documents as the "2007 Deed of Trust" and the "2007 Promissory Note," indicating the Carters obtained the loan in 2007. ADME also attached to the complaint a copy of the Deed of Trust, which is dated May 14, 2007 and was recorded on May 22, 2007. And, at defendants' request, the court took judicial notice of the Note, which the Carters signed on May 15, 2007. Thus, the Carters "consummated" the Loan in May 2007. (See 12 C.F.R. § 226.2(a)(13) (2017); see also Ivanoff, supra, 9 Cal.App.5th at p. 725 [we assume the truth of judicially noticed facts and the content of exhibits attached to the complaint].)

ADME alleges, however, that it did not attempt to rescind the loan until April 2015-when it mailed the first Notice of Rescission to Deutsche National-or nearly eight years after the loan was consummated. Thus, the operative complaint establishes on its face that ADME did not try to rescind the loan until well after the three-year statutory deadline expired. (15 U.S.C. § 1635(f).)

ADME argues it doesn't matter that it failed to timely exercise its right to rescind the Loan. In ADME's view, its Notice of Rescission went into effect when defendants took no steps to set it aside. This argument is meritless. As the United States Supreme Court held, a borrower's right to rescind a loan under the Act is "completely extinguishe[d]" if the borrower does not exercise that right within three years of the loan's consummation. (Beach, supra, 523 U.S. at pp. 411-412.) Because the allegations in the first amended complaint establish ADME did not timely exercise its right to rescind the Loan, that right was "completely extinguished" by the time ADME mailed the first Notice of Rescission to Deutsche National in April 2015. (Ibid.) In other words, the Notice of Rescission was untimely, had no legal effect, and did not void any of the Foreclosure Instruments, even if none of the defendants formally opposed it.

ADME next argues the court ignored its allegations in the first amended complaint that "other issues ... also equally voided" the Foreclosure Instruments. We disagree.

In its ruling, the court noted that ADME conceded in its opposition that its claim to cancel the Foreclosure Instruments was based entirely on its theory that it had rescinded the Loan in 2015. The court then quoted the opposition, in which ADME stated that it" 'does not necessarily challenge the validity, or seek to set aside, any transfers. [ADME] is simply taking the position that [the foreclosure] documents were fraudulent[] . because Defendants, as well as the actual lender/creditor[,] failed to act in order to dispute a Notice of Rescission in order to "set aside" the effect, by operation of law, of a written and delivered [Notice of Rescission,] which at the very least made void the security instrument.' "

As we noted above, ADME omitted from the appellate record a copy of its opposition or any other record of the arguments it asserted in opposition to the demurrer. Thus, the record before us indicates ADME conceded that its claim to cancel the Foreclosure Instruments was premised entirely on its rescission theory and disavowed any other theories on which it may have based that claim. Because ADME makes no effort to explain why it did not abandon all alternative theories it may have alleged to support its claim in Count 1 to cancel the Foreclosure Instruments, it has forfeited any arguments on appeal that are based on those theories. (See Landry v. Berryessa Union School Dist. (1995) 39 Cal.App.4th 691, 699-700 (Landry) [issue that is not supported by pertinent or cognizable legal argument may be deemed abandoned].)

In sum, because the first amended complaint discloses facts establishing ADME did not try to rescind the Loan until well after its right to do so was extinguished, ADME failed to allege facts sufficient to state its claim to cancel the Foreclosure Instruments. The court, therefore, did not err in sustaining the demurrer to Count 1.

2.3. ADME has forfeited its challenge to the court's ruling dismissing Counts 2 through 5.

ADME next contends the court erred in dismissing Counts 2 through 5 because it alleged sufficient facts to support its rescission theory, which underpins all its claims asserted in the first amended complaint. ADME also argues it alleged sufficient facts to support Counts 2 through 5 based on other theories challenging the underlying foreclosure proceedings. As we explain, ADME hasn't shown the court erred in dismissing Counts 2 through 5.

First, for the reasons we just explained, the facts alleged in the first amended complaint establish ADME and Camille failed to timely rescind the Loan. Consequently, the Notice of Rescission was a legal nullity and did not affect any of the defendants' authority to foreclose on the Property. Thus, to the extent Counts 2 through 5 rely on the same rescission theory supporting Count 1, the court properly found ADME failed to allege facts sufficient to state any of its claims based on that theory.

Second, while ADME contends it sufficiently pled claims for declaratory relief (Count 2), fraud (Count 3), slander of title (Count 4), and quiet title (Count 5), it fails to address any of these causes of action in detail in its opening brief. That is, ADME fails to identify the elements of any of the claims asserted in Counts 2 through 5 or otherwise explain how its allegations in the first amended complaint would, if proven, satisfy those claims.

It is a fundamental principle of appellate review that the challenged judgment is presumed correct, and the reviewing court must indulge all presumptions in its favor. (Dietz v. Meisenheimer &Herron (2009) 177 Cal.App.4th 771, 799.) The appellant, therefore, must provide reasoned argument and citations to pertinent legal authority to support its contentions. (Ibid.) If the appellant fails to meet this burden, it forfeits any issues that are not properly raised or supported by meaningful argument or citations to authority. (Ibid.) It is not our responsibility to" 'construct theories or arguments to undermine the judgment and defeat the presumption of correctness.'" (Ibid.; see also Behr v. Redmond (2011) 193 Cal.App.4th 517, 538 [failure to brief issue constitutes a waiver or abandonment of the issue on appeal].)

Because ADME doesn't discuss the elements of any of its claims asserted in Counts 2 through 5 or otherwise develop meaningful argument or cite legal authority to show why the court erred in sustaining the demurrer to those claims, it has forfeited its challenge to the court's ruling dismissing those claims. (Landry, supra, 39 Cal.App.4th at pp. 699-700.)

3. The court did not abuse its discretion in denying ADME leave to amend the first amended complaint.

When a demurrer is sustained without leave to amend, we must determine whether there is a reasonable possibility that the plaintiff can amend its complaint to cure the defect. (Blank v. Kirwan (1985) 39 Cal.3d 311, 318 (Blank).) If the defect can be cured, "the trial court has abused its discretion and we reverse; if not, there has been no abuse of discretion and we affirm." (Ibid.) "The burden of proving such reasonable possibility is squarely on the plaintiff." (Ibid.) Such a showing can be made for the first time on appeal. (Smith v. State Farm Mutual Automobile Ins. Co. (2001) 93 Cal.App.4th 700, 711.) As we explain, the court properly denied ADME leave to amend the first amended complaint.

Each claim asserted in the first amended complaint relies on the theory that ADME and Camille obtained unencumbered title to the Property after they delivered the Notice of Rescission, thereby voiding any of the defendants' efforts to foreclose on the Property. But, as we discussed above, the complaint discloses on its face that ADME and Camille first delivered the Notice of Rescission to Deutsche National well after their right to rescind the Loan was extinguished. Thus, it is not reasonably probable that ADME could amend its complaint to cure this defect in its rescission theory. (See Honig v. San Francisco Planning Dept. (2005) 127 Cal.App.4th 520, 524 ["A demurrer is properly sustained without leave to amend when the pleading discloses on its face that the action is barred by the applicable statute of limitations."].) In any event, ADME fails to explain what facts it could allege in an amended pleading to cure the defects in its first amended complaint. ADME, therefore, hasn't shown the court abused its discretion in denying it leave to amend. (See Blank, supra, 39 Cal.3d at p. 318 [the appellant bears the burden to show how it could amend its complaint to allege sufficient facts to state a claim].)

DISPOSITION

The judgment of dismissal is affirmed. Nationstar, MERS, and Deutsche Bank shall recover their costs on appeal.

WE CONCUR: EDMON, P. J., ADAMS, J.


Summaries of

Adme Found. Tr. v. Deutsche Bank Nat'l Tr. Co. Am's.

California Court of Appeals, Second District, Third Division
Aug 30, 2023
No. B311780 (Cal. Ct. App. Aug. 30, 2023)
Case details for

Adme Found. Tr. v. Deutsche Bank Nat'l Tr. Co. Am's.

Case Details

Full title:ADME FOUNDATION TRUST et al., Plaintiffs and Appellants, v. DEUTSCHE BANK…

Court:California Court of Appeals, Second District, Third Division

Date published: Aug 30, 2023

Citations

No. B311780 (Cal. Ct. App. Aug. 30, 2023)