Opinion
F075414
06-01-2020
LARRY BROWN, Plaintiff and Appellant, v. WELLS FARGO BANK, N.A. et al., Defendants and Respondents.
Brian J. Jacobs; Benedon & Serlin and Gerald M. Serlin for Plaintiff and Appellant. Severson & Werson, Bernard J. Kornberg; Houser & Allison, Houser, Emilie K. Edling and Robert W. Norman for Defendants and Respondents Wells Fargo Bank, N.A., and Ocwen Loan Servicing, LLC.
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115. (Super. Ct. No. 15CECG01171)
OPINION
APPEAL from an order of the Superior Court of Fresno County. Kristi Culver Kapetan, Judge. Brian J. Jacobs; Benedon & Serlin and Gerald M. Serlin for Plaintiff and Appellant. Severson & Werson, Bernard J. Kornberg; Houser & Allison, Houser, Emilie K. Edling and Robert W. Norman for Defendants and Respondents Wells Fargo Bank, N.A., and Ocwen Loan Servicing, LLC.
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Plaintiff Larry Brown filed a motion for preliminary injunction to halt a nonjudicial foreclosure sale of real estate securing a home loan. Brown had been assigned a 5 percent ownership interest in the real estate by the homeowner-borrowers, who are not parties in this action. The trial court denied the motion on the ground Brown failed to carry his burden of showing the requisite probability of success on the merits. Brown appealed. While the appeal was pending, the foreclosure sale was completed, the real estate was purchased by a third party, and a trustee's deed upon sale was recorded.
First, we conclude the denial of Brown's motion to enjoin the nonjudicial foreclosure is moot. The completion of the foreclosure sale and the recordation of the trustee's deed upon sale means enjoining the sale would no longer be practical, effective relief. California case law recognizes that issuing an injunction to restrain the defendants from doing an act that has already been accomplished would be an idle act.
Second and more importantly, Brown could not have prevailed on his request for a preliminary injunction because of a procedural defect. Specifically, the homeowner-borrowers who retained a 95 percent ownership interest in the real estate had not been joined as parties to the action. The absence of the homeowner-borrowers violated the interpretation and application of California's compulsory joinder statute adopted by this court in a prior writ proceeding. (See Brown v. Superior Court (2018) 19 Cal.App.5th 1208 (Brown I).) One consequence of this procedural defect is that the merits of the two legal theories underlying Brown's request for a preliminary injunction need not be reached. In other words, the failure to comply with the compulsory joinder statute, by itself, establishes Brown would not have prevailed on his request for a preliminary injunction. Therefore, we decline to reach the merits of Brown's claims that purported assignments of the deed of trust were void. These claims were based on a failure to comply with specific formalities for the execution of documents contained in Civil Code section 1095 and the application of New York Estate Powers and Trusts Law section 7-2.4.
We therefore affirm the order denying the preliminary injunction.
FACTS AND PROCEEDINGS
To briefly summarize the history of this lawsuit, Brown obtained 1,117 borrower assignments transferring him a 100 percent interest in the borrowers' causes of action relating to their home loans and a 5 percent ownership interest in the real estate securing the home loans. (Brown I, supra, 19 Cal.App.5th at p. 1210.) Brown pursued these causes of action in April 2015 by filing this civil action in Fresno Superior Court. (Id. at p. 1213.) The present appeal has a narrow scope. It is limited to a single loan, an attempt to collect that loan through nonjudicial foreclosure, and Brown's request for a preliminary injunction to stop the foreclosure.
Brown's request for a preliminary injunction was directed against defendants Wells Fargo Bank, N.A. (Wells Fargo) and Ocwen Loan Servicing, LLC (Ocwen). They were in the process of foreclosing on a loan made to Sunia and Tunaufai Leka (the Lekas).
In May 2007, the Lekas obtained the loan from BNC Mortgage, Inc., a Delaware corporation. The Lekas executed a note for $488,600 and secured the debt by executing a deed of trust against their residence on Florence Lane in Concord (the Property). Wells Fargo asserts the Lekas's loan was eventually securitized, and the deed of trust was assigned to it, as Trustee for BNC Mortgage Loan Trust 2007-4, Mortgage Pass-Through Certificates, Series 2007-4 (securitized trust). Ocwen serviced the loan.
The deed of trust named the Lekas as the borrowers, BNC Mortgage, Inc., as the lender, and T. D. Service Company as the trustee. In addition, the deed of trust stated Mortgage Electronic Registration Systems, Inc. (MERS) "is a separate corporation that is acting solely as a nominee for Lender and Lender's successors and assigns" and "is the beneficiary under this Security Instrument." Section 20 of the deed of trust stated the note or a partial interest in the note, together with the deed of trust, could be sold one or more times without prior notice to the borrower. Section 24 set forth the procedures for the substitution (i.e., appointment) of a successor trustee.
In June 2016, Brown filed a third amended complaint, which is the operative pleading for purposes of this appeal. The pleading alleged claims for wrongful foreclosure, injunctive relief, declaratory relief, violation of Government Code section 8214 (misconduct or neglect of notary public), violation of Penal Code section 496, subdivision (a) (receiving stolen property), conversion, intentional interference with contract, and an accounting. As to defendant Wells Fargo, the third amended complaint also alleged claims for reformation and cancellation of instruments.
As background for his claims, Brown alleged certain financial institutions utilized MERS as a conduit to hold beneficial interests in the various borrower-assignors' real properties. Brown alleged transfers involving MERS, which made "possible the bundling of vast numbers of mortgages into pools, a process often referred to as 'securitization,'" did not comply with certain statutory and contractual rules. Brown asserted the legal consequence of the failure to follow the rules for the transfer of real property secured interests rendered many of the transfers void. As a further consequence of these failures, Brown argued the foreclosures and related collection activities undertaken by the defendant financial institutions were improper, causing damage to the borrowers.
In this appeal, Brown contends there are two specific violations that support the count for injunctive relief against Wells Fargo and Ocwen. First, Brown contends MERS, in its capacity as the beneficiary under the deed of trust and the nominee of the lender, acted as an attorney in fact for the lender. Civil Code section 1095 provides: "When an attorney in fact executes an instrument transferring an estate in real property, he must subscribe the name of his principal to it, and his own name as attorney in fact." (Italics added.) Brown contends MERS was required to comply with this statute when it executed the assignment of the Lekas's deed of trust, and its failure to comply rendered the assignment void and precluded a foreclosure under the deed of trust.
Second, Brown contends the attempted transfer of the deed of trust into the securitized trust was void under a New York statute because, under the terms of the pooling and servicing agreement governing the securitized trust, the attempted transfer occurred after the deadline for loans to be included in the corpus of the trust. Brown argues "any act of the Trustee [of the securitized trust] in contravention of the [pooling and servicing agreement] is void, especially with respect to the purported acceptance of untimely mortgage loan transfers, which would jeopardize the [securitized t]rust's status as REMIC."
New York Estates, Powers and Trusts Laws section 7-2.4 provides: "If the trust is expressed in an instrument creating the estate of the trustee, every sale, conveyance or other act of the trustee in contravention of the trust, except as authorized by this article and by any other provision of law, is void." (Italics added.) The statutory purpose is "to protect trust beneficiaries from unauthorized actions by the trustee." (Turano, Practice Commentaries, McKinney's Consolidated Laws of New York Annotated (2002) Book 17B, Estates, Powers and Trusts Laws, § 7-2.4, p. 356.)
"REMIC" refers to a Real Estate Mortgage Investment Conduit, which receives pass-through treatment for purposes of federal income tax pursuant to title 26 United States Code sections 860A through 860G.
On September 29, 2016, a substitution of trustee was recorded, naming Western Progressive, LLC as the successor trustee under the Lekas's deed of trust. The next day, Western Progressive, LLC recorded a notice of default and election to sell under deed of trust, which stated the Property was in foreclosure because the Lekas were behind on their payments, the amount needed to bring their account into good standing was $12,817.03, and a foreclosure sale would not occur within the next 90 days. On January 3, 2017, Western Progressive, LLC filed a notice of trustee's sale stating the Property would be sold on February 22, 2017, and estimating the amount of the unpaid balance and other charges at $262,846.13.
A week before the scheduled sale, on February 15, 2017, Brown filed an ex parte application for a temporary restraining order and order to show cause to prevent the sale of the Property by nonjudicial foreclosure. The trial court granted the temporary restraining order, scheduled a hearing for March 8, 2017, and directed Wells Fargo and Ocwen to show cause why a preliminary injunction should not be ordered. As a result, the scheduled trustee's sale was postponed.
On March 8, 2017, the trial court conducted a hearing and issued a minute order adopting its tentative ruling without modification. The court's ruling mentioned defendants' argument that Brown could not pursue injunctive relief without joining the Lekas. The court stated the joinder issue was currently the subject of a writ before the Fifth Appellate District and, therefore, it would express no opinion on the issue. (See Brown I, supra, 19 Cal.App.5th 1208.) The court avoided the joinder issue by assuming (1) Brown had a sufficient interest to have standing to pursue the preliminary injunction, and (2) the issue was neutral on the question of whether Brown was likely to prevail on his request for a preliminary injunction.
The trial court denied the request for a preliminary injunction, stating Brown "has not borne [his] burden of showing any likelihood of success on the merits." The court concluded a deed of trust was a lien and not an estate in real property and, therefore, Civil Code section 1095 did not apply to the transfers of the deed of trust. The court also concluded that, under New York law, it was likely the untimely transfer of the deed of trust into the corpus of the securitized trust would be regarded as merely voidable, not void. Because Brown's unauthorized foreclosure theory depended upon the transfer being void, the court determined Brown was unlikely to prevail. (See Yvanova v. New Century Mortgage Corp. (2016) 62 Cal.4th 919, 935, 937 (Yvanova) [a wrongful foreclosure plaintiff may challenge an assignment to the foreclosing entity as void; plaintiff was "asserting her own interest in limiting foreclosure on her property to those with legal authority to order a foreclosure sale"].)
"A trial court deciding whether to issue a preliminary injunction weighs two interrelated factors—the likelihood the moving party will prevail on the merits and the relative balance of interim harms that are likely to result from the granting or denial of preliminary injunctive relief. [Citations.] Generally, weighing these factors lies within the broad discretion of the superior court." (County of Kern v. T.C.E.F., Inc. (2016) 246 Cal.App.4th 301, 315.)
Later in March 2017, Brown timely appealed the denial of his request for a preliminary injunction. Such an order is appealable pursuant to Code of Civil Procedure section 904.1, subdivision (a)(6).
All unlabeled statutory references are to the Code of Civil Procedure.
DISCUSSION
I. Mootness
A. Basic Principles
Courts decide only justiciable issues. (Wilson & Wilson v. City Council of Redwood City (2011) 191 Cal.App.4th 1559, 1573.) Justiciability means the questions litigated are based on an actual controversy. (Ibid.) Unripeness and mootness describe situations where there is no justiciable controversy. (Ibid.) Unripe cases are those in which an actual dispute or controversy has yet to come into existence. (Ibid.) At the other end of the spectrum, mootness occurs when an actual controversy that once was ripe no longer exists due to a change in circumstances. (Ibid.)
"An appeal is moot if the appellate court cannot grant practical, effective relief." (Citizens for the Restoration of L Street v. City of Fresno (2014) 229 Cal.App.4th 340, 362.) In litigation involving contractual relationships, mootness can occur where there has been a substantive change in the agreement that is the subject of the lawsuit. For example, in a case where the county contract in question had expired, the court could not award that contract to the disappointed bidder and, as a result, the case was moot. (Daily Journal Corp. v. County of Los Angeles (2009) 172 Cal.App.4th 1550, 1557; see County Sanitation Dist. No. 2 v. County of Kern (2005) 127 Cal.App.4th 1544, 1628-1629 [CEQA challenges were moot because contract on which they were based was no longer in effect]; Giles v. Horn (2002) 100 Cal.App.4th 206, 227 [challenge to county contracts was moot where contracts had been fully performed and had expired].)
The general principles governing mootness also are applied in cases involving preliminary injunctions. In Bernard v. Weaber (1913) 23 Cal.App. 532, the plaintiffs unsuccessfully sought a preliminary injunction to restrain the defendant city treasurer from issuing street improvement bonds. The bonds were issued, and the plaintiffs appealed. The appellate court dismissed the appeal as moot, reasoning the plaintiffs would obtain no relief from the reversal of the judgment and the issuance of an injunction. The court stated an injunction restraining the defendant "from doing that which he has already done, would be an idle and frivolous act, since such decision would have no binding authority and would not affect the legal rights of the parties." (Id. at p. 535; see Finnie v. Town of Tiburon (1988) 199 Cal.App.3d 1 [appeal from denial of preliminary injunction to prevent a special election was moot after the election had been held].) In accordance with these cases, a practice guide states that moot claims include appeals from cases seeking injunctive relief where the act sought to be enjoined has been performed. (Eisenberg, Cal. Practice Guide: Civil Appeals and Writs (The Rutter Group 2019) ¶ 5:26, p. 5-8 (Eisenberg).)
B. This Appeal Is Moot
Applying the foregoing principles to the present case is straightforward. On March 8, 2017, the trial court denied Brown's request for a preliminary injunction preventing defendants from foreclosing on the Property. Subsequently, the trustee's sale was conducted. On December 12, 2017, the "Trustee's Deed Upon Sale" from Western Progressive, LLC, as trustee, to Alvernaz Partners LLC was recorded. The trustee's deed states the grantee, Alvernaz Partners LLC, was not the foreclosing beneficiary. Thus, the record shows the foreclosure sale that Brown sought to enjoin has been completed. Under the applicable legal principles, we conclude this appeal has been rendered moot by the completion of the trustee's sale. The issuance of an injunction restraining the defendants from doing that which has already been done would be an idle act, not effective relief.
Furthermore, the Property was purchased by a third party, not Wells Fargo in its capacity as the foreclosing beneficiary under the deed of trust. Thus, it is not possible to issue an injunction compelling a defendant to return the title to real estate to its former owners and their assignee.
Based on our mootness conclusion, we need not reach the questions about the extent to which the nonjudicial foreclosure process is subject to judicial scrutiny and the circumstances in which injunctive relief is, or is not, available. (See generally 5 Miller & Starr, Cal. Real Estate (4th ed. 2019) § 13:254, pp. 13-1078 to 13-1084.) The California Supreme Court's analysis in "Yvanova was expressly limited to a post-foreclosure action ...." (Id. at p. 13-1083.) "The more recent post-Yvanova decisions have denied standing of the trustor to assert that the assignment is void or voidable in a pre-foreclosure action, but upheld both standing and a right to pursue damages in a post-foreclosure action." (Id. at p. 13-1084, fns. omitted.)
C. Consequences of Mootness
Generally, when an appeal is moot, it should be dismissed. (E.g., In re Pablo D. (1998) 67 Cal.App.4th 759, 761; Eisenberg, supra, ¶ 5:22, p. 5-6 [the general rule is that moot appeals are dismissed].) There are discretionary exceptions that allow an appellate court to retain the appeal. (Cucamongans United for Reasonable Expansion v. City of Rancho Cucumonga (2000) 82 Cal.App.4th 473, 479 [three discretionary exceptions].) For example, a moot appeal may be retained "when there may be a recurrence of the controversy between the parties." (Ibid.) We conclude the procedural question relating to the joinder of the borrowers is an issue likely to arise again during the course of this lawsuit. Consequently, we will not dismiss this appeal, but will exercise our discretion and reach the question of whether the Lekas should have been joined as parties. In comparison, we do not reach the two grounds upon which Brown sought the preliminary injunction; they are less likely to recur because Brown must prevail on the procedural question of joinder before the substance of his claims challenging a financial institution's authority to initiate a nonjudicial foreclosure will be addressed.
II. Compulsory Joinder
A. Background
In Brown I, this court considered Brown's petition for writ of mandate challenging the trial court's order granting the defendants' motion to compel joinder of the many borrowers who assigned him their claims. (Brown I, supra, 19 Cal.App.5th at p. 1210.) "[W]e conclude[d], in the unpublished portion of the opinion, that joinder of the borrowers was warranted under subdivision (a)(2)(i) of section 389." (Id. at p. 1211.) In addition, we concluded "section 369, subdivision (a)(3) does not apply and does not authorize Brown to proceed without joining the borrowers." (Ibid.)
Brown I was filed in January 2018. As a result, the trial court did not have the benefit of that decision in March 2017 when it analyzed Brown's request for a preliminary injunction. The trial court prudently avoided the joinder issue and assumed it would not benefit one side or the other in weighing the likelihood of Brown prevailing on the merits.
B. Contentions
Wells Fargo and Ocwen contend Brown's case is defective because he did not join the Lekas as indispensable parties and, therefore, this court need not consider the merits of the instant appeal. Brown's reply brief asserts he "now is resolving the joinder issue in the trial court" and argues the fact "joinder has yet to occur formally, or may not need to occur under this Court's opinion based on amendments Brown has proposed to his requested relief, has nothing to do with resolution of the [Civil Code] section 1095 and [New York Estate Powers and Trusts Laws section 7-2.4] issues on this appeal." In Brown's view, we held that the joinder of borrowers, such as the Lekas, was required because certain of the relief sought could deprive the borrowers of the protections of the antideficiency statutes and those protections are no longer in jeopardy because the nonjudicial foreclosure has been completed. Consequently, Brown contends joinder presents no impediment to this appeal.
C. Analysis
Our evaluation of whether the Lekas were required to be joined as parties to the preforeclosure proceedings in this action is based on the statutory text of California's compulsory joinder statute, section 389. First, the record establishes the Lekas were "subject to service of process" as the phrase is used in subdivision (a) of section 389 because they submitted declarations in support of the request for preliminary injunction and were available to testify at the hearing. Second, nothing in the record suggests their "joinder w[ould] deprive the court of jurisdiction over the subject matter of the action." (§ 389, subd. (a).)
Consequently, joinder of the Lekas in the action was required if one of the statutory conditions for joinder existed. Those statutory conditions are set forth in the language stating parties must be joined "if (1) in [their] absence complete relief cannot be accorded among those already parties or (2) [they] claim an interest relating to the subject of the action and [are] so situated that the disposition of the action in [their] absence may (i) as a practical matter impair or impede [their] ability to protect that interest or (ii) leave any of the persons already parties subject to a substantial risk of incurring double, multiple, or otherwise inconsistent obligations by reason of [their] claimed interest." (§ 389, subd. (a).)
Brown's third amended complaint includes claims attempting to establish the Lekas's deed of trust is void. A proceeding that voids a deed of trust might allow the creditor to sue the borrower personally for the amount of the unsecured debt. (See Security Pacific National Bank v. Wozab (1990) 51 Cal.3d 991 [bank was not precluded from seeking a personal money judgment by its violation of security-first rule in § 726, which operated as a waiver of the security].) Therefore, the absence of the Lekas from the litigation might, as a practical matter, impair their ability to protect their interest in being immune from liability for any deficiency or, alternatively, from being personally liable for the entire loan balance. Accordingly, the Lekas should have been joined as necessary parties to a claim seeking to prevent the nonjudicial foreclosure from taking place. (§ 389, subd. (a)(2)(i).)
Therefore, we conclude the failure to join the Lekas in the action resulted in a procedural impediment that provides a basis for denying the request for a preliminary injunction. In short, without the joinder of the Lekas, Brown's claims asserting defendants lacked the requisite authority to conduct a nonjudicial foreclosure were of little significance because the merits of those claims would not be reached.
Accordingly, we conclude the trial court correctly determined Brown failed to establish a likelihood of prevailing on the merits of his claim, although we have reached this conclusion on a ground explicitly avoided by the trial court.
DISPOSITION
The March 8, 2017, order denying Brown's request for a preliminary injunction is affirmed. Respondents Wells Fargo and Ocwen shall recover their costs on appeal.
PEÑA, J. WE CONCUR: POOCHIGIAN, Acting P.J. SMITH, J.