Opinion
E074386
05-21-2021
Charles W. BEST, Jr., et al., Plaintiffs and Appellants, v. OCWEN LOAN SERVICING, LLC et al., Defendants and Respondents.
Charles W. Best Jr. and Robbie Johnson Best, Plaintiffs and Appellants in pro. per.; Yesk Law and Michael Yesk, Pleasant Hill, for Plaintiffs and Appellants. [Retained.] Bryan Cave Leighton Paisner, Sara L. Markert, and Kristin S. Webb, Irvine, for Defendants and Respondents.
Certified for Partial Publication.
Pursuant to California Rules of Court, rules 8.1105(b) and 8.1110, this opinion is certified for publication with the exception of parts II, IV, VI, and VII.C-F.
Charles W. Best Jr. and Robbie Johnson Best, Plaintiffs and Appellants in pro. per.; Yesk Law and Michael Yesk, Pleasant Hill, for Plaintiffs and Appellants. [Retained.]
Bryan Cave Leighton Paisner, Sara L. Markert, and Kristin S. Webb, Irvine, for Defendants and Respondents.
OPINION
RAMIREZ, P.J.
Plaintiffs Charles W. Best Jr. and Robbie Johnson Best allege that defendants — which we will call "Deutsche" and "Ocwen" (collectively the Bank) — have attempted to collect a debt secured by the Bests' home, despite having no legal right to do so. They further allege that, in the process, the Bank has engaged in unlawful, unfair, and fraudulent debt collection practices. Based on these allegations, they assert six causes of action, including one under the Rosenthal Fair Debt Collection Practices Act (Rosenthal Act) ( Civ. Code, § 1788 et seq. )
This entity's full name is Deutsche Bank National Trust Company, as Trustee for New Century Home Equity Loan Trust, Series 2005-D, Asset Backed Pass-Through Certificates.
This entity's full name is Ocwen Loan Servicing, LLC.
The trial court sustained the Bank's demurrer to the entire complaint on the ground of res judicata; it ruled that the Bests were asserting the same cause(s) of action as in a prior federal action that they brought, unsuccessfully, against the Bank.
The Bests appeal. In the nonpublished portion of this opinion, we will hold that, as to three of the Best's causes of action — including their Rosenthal Act cause of action — the trial court erred by sustaining the demurrer based on res judicata. As to the other three, the Bests do not articulate any reason why res judicata does not apply; thus, they have forfeited any such contention. ( Ko v. Maxim Healthcare Services, Inc. (2020) 58 Cal.App.5th 1144, 1147, fn. 3, 272 Cal.Rptr.3d 906.)
In the trial court, however, the Bank also demurred on the ground that the Rosenthal Act does not apply to conduct in connection with a nonjudicial foreclosure. In the published portion of this opinion, we will hold that the Rosenthal Act can apply to a nonjudicial foreclosure; the lower federal court opinions on which the Bank relies have been superseded by controlling decisions of the United States Supreme Court, the Ninth Circuit, and the California Courts of Appeal.Accordingly, we will affirm in part and reverse in part.
I
STATEMENT OF FACTS
Consistent with the standard of review (see part V, post ), we assume that the following facts, as alleged in the operative complaint or as shown by judicial notice (see part IV, post ), are true.
In 2005, the Bests took out a loan for $555,000, secured by a deed of trust on their home in Lake Elsinore. The lender, and thus the original beneficiary under the trust deed, was New Century Mortgage Corporation (New Century).
In March 2009, an assignment was recorded which stated that New Century assigned the note and trust deed to "Deutsche Bank National Trust Company, trustee for New Century."
In November 2009, a second assignment was recorded which stated that "Deutsche Bank National Trust Company, trustee for New Century" assigned the note and trust deed to Deutsche.
The Bests alleged that the March and November 2009 assignments conveyed the trust deed but not the note. The assignments themselves, however, stated that they conveyed both the note and the trust deed.
In December 2010, due to financial hardship, the Bests stopped making payments on the loan.
In April 2012, Ocwen notified the Bests that it had become the servicer of the loan.
In April 2014, a third assignment was recorded which stated that Ocwen, as agent of New Century, assigned the trust deed — but not the note — to Deutsche.
Meanwhile, in January 2013, a substitution of trustee was recorded which stated that Ocwen, as agent for Deutsche, named Western Progressive, LLC (Western Progressive) as trustee. In September 2015, Western Progressive recorded a notice of default. In November 2018, Western Progressive recorded a notice of trustee's sale. In December 2018, the house was sold in a trustee's sale.
See footnote *, ante .
III
THE PRESENT ACTION
The Bests filed this action in December 2018.
The operative (first amended) complaint alleged that the March 2009, November 2009, and April 2014 assignments were invalid. "Plaintiffs adamantly dispute[ ] the contents and truthfulness of" these assignments.
It did not specify why the March 2009 assignment was invalid. It alleged that the November 2009 assignment was invalid because the March 2009 assignment had been invalid. It alleged that the April 2014 assignment was invalid for two reasons: (1) the March and November 2009 assignments had been invalid; and (2) an agent had signed it without subscribing the name of his principal (see Civ. Code, § 1095 ).
It further alleged that the January 2013 substitution of trustee was invalid. "Plaintiffs adamantly dispute the contents of this [substitution of trustee]." It stated three reasons: (1) the Bank had no interest in the loan; (2) the beneficiaries had not signed and recorded a majority action affidavit ( Civ. Code, § 2941.9 ); and (3) an agent had signed it without adding the name of his principal.
The operative complaint asserted six causes of action: (1) violation of the Rosenthal Act; (2) improper substitution of trustee ( Civ. Code, § 2934a, subd. (a) ); (3) unfair competition ( Bus. & Prof. Code, § 17200 ); (4) negligent misrepresentation; (5) cancellation of instruments; and (6) intentional infliction of emotional distress.
The Bank demurred to the first amended complaint, arguing that:
(1) The first cause of action, for violation of the Rosenthal Act, did not allege any prohibited debt collection practice and was untimely.
(2) The second cause of action, for improper substitution of a trustee ( Civ. Code, § 2934a, subd. (a)(l)(A)-(C) ), failed to allege any statutory violation.
(3) The third cause of action, for unfair competition, did not allege any unlawful, unfair, or fraudulent business practice and was untimely.
(4) The fourth cause of action, for negligent misrepresentation, failed to allege misrepresentation with sufficient specificity and was untimely.
(5) The fifth cause of action, for cancellation of instruments, failed to allege that any of the instruments were void or voidable.
(6) The sixth cause of action, for intentional infliction of emotional distress, failed to allege severe emotional distress.
(7) The entire complaint was barred by res judicata.
The trial court sustained the demurrer, without leave to amend, based solely on res judicata. Accordingly, it entered a judgment of dismissal.
See footnote *, ante .
V
STANDARD OF REVIEW
"On appeal from a judgment dismissing an action after sustaining a demurrer without leave to amend, the standard of review is well settled. We give the complaint a reasonable interpretation, reading it as a whole and its parts in their context. [Citation.] Further, we treat the demurrer as admitting all material facts properly pleaded, but do not assume the truth of contentions, deductions or conclusions of law. [Citations.] When a demurrer is sustained, we determine whether the complaint states facts sufficient to constitute a cause of action. [Citation.] And when it is sustained without leave to amend, we decide whether there is a reasonable possibility that the defect can be cured by amendment: if it can be, the trial court has abused its discretion and we reverse. [Citation.]" ( City of Dinuba v. County of Tulare (2007) 41 Cal.4th 859, 865, 62 Cal.Rptr.3d 614, 161 P.3d 1168.) Our standard of review is de novo. ( People ex rel. Harris v. Pac Anchor Transportation, Inc. (2014) 59 Cal.4th 772, 777, 174 Cal.Rptr.3d 626, 329 P.3d 180.)
See footnote *, ante .
VII
ALTERNATIVE GROUNDS FOR THE DEMURRER
A. Introduction.
Besides demurring to the complaint based on res judicata, the Bank also demurred to each cause of action on grounds that were specific to that cause of action. The trial court did not rule on these grounds. Nevertheless, "[a] judgment of dismissal after a demurrer has been sustained without leave to amend will be affirmed if proper on any grounds stated in the demurrer, whether or not the court acted on that ground. [Citations.]" ( Carman v. Alvord (1982) 31 Cal.3d 318, 324, 182 Cal.Rptr. 506, 644 P.2d 192.)
In part VI, ante , we held that three causes of action — under the Rosenthal Act, for unfair competition, and for cancellation of instruments — were not barred by res judicata. Here, then, we consider whether the demurrer to these causes of actions should have been sustained on the alternative grounds that the Bank asserted below.
B. Foreclosure as a Violation of the Rosenthal Act.
The Bank demurred to the Rosenthal Act cause of action on the ground that "[c]onduct undertaken in connection with the foreclosure of a deed of trust is not actionable under [the Rosenthal Act]." The Bests contend that the demurrer could not have been sustained on this ground.
The Rosenthal Act is intended "to prohibit debt collectors from engaging in unfair or deceptive acts or practices in the collection of consumer debts and to require debtors to act fairly in entering into and honoring such debts ...." ( Civ. Code, § 1788.1, subd. (b).) It prohibits specified conduct by a "debt collector" who is attempting to collect a "consumer debt." ( Civ. Code, §§ 1788.10, 1788.11, 1788.12, 1788.13, 1788.14, 1788.15, 1788.16, 1788.17, 1788.30.) "Debt collector" is defined as "any person who, in the ordinary course of business, regularly, on behalf of that person or others, engages in debt collection." ( Civ. Code, § 1788.2, subd. (c).) "Debt collection" is defined as "any act or practice in connection with the collection of consumer debts." (Id. , subd. (b).) "Consumer debt" is defined as "money, property, or their equivalent, due or owing or alleged to be due or owing from a natural person by reason of a consumer credit transaction." (Id. , subd. (f).) And "consumer credit transaction" is defined as "a transaction between a natural person and another person in which property, services, or money is acquired on credit by that natural person from the other person primarily for personal, family, or household purposes." (Id. , subd. (e).)
The Rosenthal Act is modeled on the federal FDCPA. It incorporates the FDCPA, so that a violation of the FDCPA is per se a violation of the Rosenthal Act. ( Civ. Code, § 1788.17.) However, it is more extensive than the FDCPA. For example, the FDCPA does not apply to creditors seeking to collect their own debts; however, the Rosenthal Act does, "so long as they do so ‘in the ordinary course of business, regularly.’ " ( Huy Thanh Vo v. Nelson & Kennard (E.D. Cal. 2013) 931 F.Supp.2d 1080, 1090, quoting Civ. Code § 1788.2, subd. (c).)
The Bank asserts that the Rosenthal Act does not apply to foreclosure on a trust deed, citing federal district court opinions. There are indeed a host of such opinions, although they were mostly decided during a very short time period — 2008 to 2014. However, they have been undermined by subsequent decisions of the Supreme Court, the Ninth Circuit, and the California Courts of Appeal.These district court opinions analogized the Rosenthal Act to the federal FDCPA, and relied on earlier cases holding that the FDCPA did not apply to foreclosure of a trust deed. ( Ines v. Countrywide Home Loans, Inc. (S.D. Cal., Nov. 3, 2008, No. 08CV1267WQH(NLS)) 2008 WL 4791863, at *2-*3, 2008 U.S. Dist. LEXIS 88739, at *6 ["California incorporated the FDCPA into the [Rosenthal Act ...."]; Tina v. Countrywide Home Loans, Inc. (S.D. Cal., Oct. 30, 2008, No. 08 CV 1233 JM (NLS)) 2008 WL 4790906, at *7, 2008 U.S. Dist. LEXIS 88302, at *19 ["the Rosenthal Act incorporates the majority of its substantive provisions from the FDCPA, creating similar substantive protections."].)
We list only the published opinions that we have found: Avila v. CitiMortgage, Inc. (D.D.C. 2014) 45 F.Supp.3d 110, 120 ; Rockridge Trust v. Wells Fargo, N.A. (N.D. Cal. 2013) 985 F.Supp.2d 1110, 1164 ; Altman v. PNC Mortg. (E.D. Cal. 2012) 850 F.Supp.2d 1057, 1071 ; Hamilton v. Bank of Blue Valley (E.D. Cal. 2010) 746 F.Supp.2d 1160, 1176-1177 ; Clark v. Countrywide Home Loans, Inc. (E.D. Cal. 2010) 732 F.Supp.2d 1038, 1048 ; Jensen v. Quality Loan Service Corp. (E.D. Cal. 2010) 702 F.Supp.2d 1183, 1200 ; Sipe v. Countrywide Bank (E.D. Cal. 2010) 690 F.Supp.2d 1141, 1151 ; Saldate v. Wilshire Credit Corp. (E.D. Cal. 2010) 711 F.Supp.2d 1126, 1132 ; Gardner v. American Home Mortg. Servicing, Inc. (E.D. Cal. 2010) 691 F.Supp.2d 1192, 1198-1199 ; Castaneda v. Saxon Mortg. Services, Inc. (E.D. Cal. 2009) 687 F.Supp.2d 1191, 1197 ; Keen v. American Home Mortg. Servicing, Inc. (E.D. Cal. 2009) 664 F.Supp.2d 1086, 1095 ; Rosal v. First Federal Bank of California (N.D. Cal. 2009) 671 F.Supp.2d 1111, 1135 ; Izenberg v. ETS Services, LLC (C.D. Cal. 2008) 589 F.Supp.2d 1193, 1199.
A few nonpublished stragglers decided after 2014 engaged in no substantive analysis, merely citing the 2008-2014 cases. (E.g., Kizler v. Budget Finance Company (C.D. Cal., Apr. 1, 2020, No. CV 5:20-0296-DOC-KK) 2020 WL 4037212, at *3, 2020 U.S. Dist. LEXIS 128026, at *7-*8.)
Those earlier FDCPA cases had reasoned that "[f]oreclosing on a trust deed is distinct from the collection of the obligation to pay money. The FDCPA is intended to curtail objectionable acts occurring in the process of collecting funds from a debtor. But, foreclosing on a trust deed is an entirely different path. Payment of funds is not the object of the foreclosure action. Rather, the lender is foreclosing its interest in the property." ( Hulse v. Ocwen Federal Bank, FSB (D. Or. 2002) 195 F.Supp.2d 1188, 1204.)
To the extent that those opinions stated any grounds based on the Rosenthal Act itself, they were that a debt secured by a trust deed was not a "consumer debt," i.e., not taken out "primarily for personal, family, or household purposes" ( Civ. Code, § 1788.2, subds. (e), (f) ). ( Ricon v. Recontrust Co. (S.D. Cal., Aug. 4, 2009, No. 09CV937-IEG-JMA), 2009 WL 2407396 at *3-*4, 2009 U.S. Dist. LEXIS 67807 at *9 ; Pittman v. Barclays Capital Real Estate, Inc. (S.D. Cal., Apr. 24, 2009, No. 09 CV 02241 JMAJB), 2009 WL 1108889 at *4, 2009 U.S. Dist. LEXIS 34885 at *11.)
In 2019, in Obduskey v. McCarthy & Holthus LLP (2019) ––– U.S. ––––, 139 S.Ct. 1029, 203 L.Ed.2d 390, the Supreme Court effectively overruled the cases cited above holding that foreclosure is not debt collection, although it came to a similar result by different reasoning — it held that a business engaged in nonjudicial foreclosure proceedings is not a "debt collector" within the meaning of the FDCPA. ( Id. at pp. 1033, 1035-1040.)
It relied on a provision of the FDCPA that is significantly different from the corresponding provision of the Rosenthal Act. The definition of "debt collector" in the FDCPA provides: "For the purpose of section 1692f(6) of this title, such term also includes any person who uses any instrumentality of interstate commerce or the mails in any business the principal purpose of which is the enforcement of security interests." ( 15 U.S.C. § 1692a(6).) Section 1692f(6), in turn, contains specific prohibitions applicable solely to nonjudicial foreclosures. The Supreme Court concluded that, by negative implication, "debt collector" did not include a "business the principal purpose of which is the enforcement of security interests" for purposes of any of the other prohibitions of the FDCPA. ( Obduskey v. McCarthy & Holthus LLP, supra , 139 S.Ct. at pp. 1036-1037.)
In the course of so holding, however, the court also indicated that a loan secured by a deed of trust is a " ‘debt’ ... primarily for personal, family, or household purposes" (see 15 U.S.C. § 1692a(5) ); moreover, but for the FDCPA's negative implication to the contrary, a business engaged in nonjudicial foreclosure proceedings would be a "debt collector" (see 15 U.S.C. § 1692a(5) ). Specifically, it stated:
"[A] home loan is an obligation to pay money, and the purpose of a mortgage is to secure that obligation. [Citation.] Foreclosure, in turn, is ‘the process in which property securing a mortgage is sold to pay off the loan balance due.’ [Citation.] In other words, foreclosure is a means of collecting a debt. And a business pursuing nonjudicial foreclosures would, under the capacious language of the Act's primary definition, be one that ‘regularly collects or attempts to collect, directly or indirectly, debts.’ [Citation.]
"It is true that ... nonjudicial foreclosure does not seek ‘a payment of money from the debtor ’ but rather from sale of the property itself. [Citation.] But nothing in the primary definition requires that payment on a debt come ‘from a debtor.’ The statute speaks simply of the ‘collection of any debts ... owed or due.’ [Citation.] Moreover, the provision sweeps in both ‘direc[t]’ and ‘indirec[t]’ debt collection. [Citation.] So, even if nonjudicial foreclosure were not a direct attempt to collect a debt, because it aims to collect on a consumer's obligation by way of enforcing a security interest, it would be an indirect attempt to collect a debt." ( Obduskey v. McCarthy & Holthus LLP, supra , 139 S.Ct. 1029, 1036-1037.)
And this makes sense. It seems absurd to say that "[p]ayment of funds is not the object of the foreclosure action." (But see Hulse v. Ocwen Federal Bank, FSB, supra , 195 F.Supp.2d at p. 1204.) "[A] creditor's true objective in foreclosure is satisfaction of the underlying debt, not obtaining possession of the secured property.... [¶] ... [F]oreclosed property is sold at public sale, and the proceeds from the sale are then applied to the outstanding debt. Thus, like any debt collection, the payment of money is the ultimate result of foreclosure. In foreclosure there merely happens to be an additional step required to obtain that payment, namely, sale of the secured property. Regardless, the ultimate result of foreclosure is that the debtor's obligation is satisfied through the payment of money." (Marshall, The Protective Scope of the Fair Debt Collection Practices Act: Providing Mortgagors the Protection They Deserve from Abusive Foreclosure Practices (2010) 94 Minn. L. Rev. 1269, 1297, fns. omitted.) Meanwhile, in 2018, Davidson v. Seterus, Inc. (2018) 21 Cal.App.5th 283, 230 Cal.Rptr.3d 441 ( Davidson ) held that a loan secured by a trust deed can be a "consumer debt" within the meaning of the Rosenthal Act. ( Id. at pp. 298-300, 230 Cal.Rptr.3d 441.) This definitive construction of state law effectively overruled the contrary federal cases. (See also Gilliam v. Levine (9th Cir. 2020) 955 F.3d 1117, 1123 [loan secured by real property, which aunt (as trustee of a trust) had taken out to repair the home of niece (the beneficiary of the trust), was "consumer debt" under the Rosenthal Act].) Here, the Bests specifically allege that they took out the loan "for personal, family, or household purposes ...."
As if Davidson were not enough, our Legislature recently amended the Rosenthal Act so as to state that: "The term ‘consumer debt’ includes a mortgage debt." ( Civ. Code, § 1788.2, subd. (f), Stats. 2019, ch. 545, § 2, p. 5004.) This amendment took effect on January 1, 2020; however, the Legislature stated that it "do[es] not constitute a change in, but [is] declaratory of, existing law." (Stats. 2019, ch. 545, § 1, p. 5004.) Labeling an amendment "declaratory" means, at a minimum, that the Legislature intends it to apply to existing causes of action. ( Western Security Bank v. Superior Court (1997) 15 Cal.4th 232, 244-245, 62 Cal.Rptr.2d 243, 933 P.2d 507.) Hence, the amendment applies to the Bests' complaint.
At oral argument, counsel for the Bank conceded that a mortgage is a consumer debt, or, at least, that it was not contending that a mortgage is not a consumer debt.
In a fallback argument, the Bank seeks to distinguish the conduct involved in Davidson , such as harassing phone calls ( Davidson., supra , 21 Cal.App.5th at pp. 291-292, 230 Cal.Rptr.3d 441 ), from conduct authorized by the foreclosure statutes, such as recording a document. Like Chicken Little, it vaguely suggests the sky will fall if the Rosenthal Act is applied so broadly. However, it suggests no statutory basis for such a distinction. Moreover, it identifies no actual conflict between the foreclosure statutes and the Rosenthal Act. For example, while the foreclosure statutes authorize the recordation of a substitution of trustee ( Civ. Code, § 2934a, subd. (a)(1) ), they do not authorize or require the substitution of trustee to contain a "false representation." (See 15 U.S.C.A. § 1692e(10) ; see also Civ. Code, § 1788.17 [incorporating 15 U.S.C.A. § 1692e ].)
At oral argument, counsel for the Bank noted that the FDCPA, as incorporated by the Rosenthal Act, prohibits a debt collector (with some exceptions) from communicating "in connection with the collection of any debt, with any person other than the consumer ...." ( 15 U.S.C.A. § 1692c(b).) Counsel argued that this would prevent a trustee from giving notice of sale. (See Civ. Code, §§ 2924, subd. (a)(3), 2924f.) However, the provision of the Rosenthal Act incorporating the FDCPA states, "every debt collector collecting or attempting to collect a consumer debt shall comply with" the FDCPA. ( Civ. Code, § 1788.17.) As already discussed, under Obduskey , a business engaged in nonjudicial foreclosure proceedings is not a "debt collector" within the meaning of the FDCPA and therefore is not forbidden to communicate with third parties. Thus, even though such a business is a "debt collector" under the Rosenthal Act, it can contact third parties without violating the FDCPA, and hence without violating the Rosenthal Act. We therefore conclude that a nonjudicial foreclosure can be "debt collection" by a "debt collector" so as to trigger the protections of the Rosenthal Act.
Finally, we note that the Bests have alleged violations of the Rosenthal Act that go beyond the scope of an ordinary foreclosure. These include "unethical mismanagement of the escrow account" and "refusal to correct accounting errors." Even those federal cases that have accepted that foreclosure cannot violate the Rosenthal Act have conceded that debt collection activities "beyond the scope of the ordinary foreclosure process" can violate the Rosenthal Act. ( Mulato v. Wells Fargo Bank, N.A. (N.D. Cal. 2014) 76 F.Supp.3d 929, 955 ; Rockridge Trust v. Wells Fargo, N.A., supra , 985 F.Supp.2d at pp. 1164-1165 ; Walters v. Fidelity Mortg. of Cal., Inc. (E.D. Cal. 2010) 730 F.Supp.2d 1185, 1203.)
See footnote *, ante .
VIII
DISPOSITION
The judgment is reversed with respect to the first (Rosenthal Act), third (unfair competition), and fifth (cancellation of instruments) causes of action. The judgment is affirmed with respect to the second (improper substitution of trustee), fourth (negligent misrepresentation), and sixth (intentional infliction of emotional distress) causes of action. The Bests are awarded costs on appeal.
We concur:
MILLER, J.
RAPHAEL, J.