Opinion
B181091
5-3-2007
NORDA R. FREEMAN, Plaintiff and Appellant, v. ARLESTER G. KING et al., Defendants and Respondents.
Law Office of Nick A. Alden and Nick A. Alden for Plaintiff and Appellant. Law Offices of Donald S. Sherwyn and Donald S. Sherwyn for Defendant and Respondent Arlester G. King. Anglin, Flewelling, Rasmussen, Campbell & Trytten, Robin C. Campbell and Mark T. Flewelling for Defendant and Respondent Wachovia SBA Lending, Inc.
NOT TO BE PUBLISHED
Plaintiff Norda R. Freeman appeals from judgments dismissing defendants Arlester G. King (King) and Wachovia SBA Lending, Inc. (Wachovia) after the superior court sustained defendants demurrers without leave to amend. As to defendant Wachovia, we affirm. As to defendant King, we reverse the dismissal of the quiet title and declaratory relief claims only and remand for further proceedings on those causes of action. In all other respects, we affirm the judgment as to King.
The parties have informed us that plaintiff has agreed to dismiss Wachovia. We will nonetheless analyze the claims against Wachovia, because Wachovia has not yet been formally dismissed.
BACKGROUND
The following factual summary is drawn from the allegations in the various versions of the complaint.
Norda R. Freeman (Norda) married Donald A. Freeman (Donald) in July 1984. During their marriage, Norda and Donald acquired property located at 15117 Minnesota Avenue, Paramount, California (the Property) subject to a loan in the amount of $280,000, which was secured by a first deed of trust (FDT) in favor of The Money Store. Norda and Donald operated a transportation business on the Property.
To avoid confusion, we refer to the Freemans by their first names throughout this opinion. (See In re Marriage of Smith (1990) 225 Cal.App.3d 469, 475, fn. 1.)
In March 1995, Norda and Donald separated and filed for dissolution of their marriage. Six years later, on May 2, 2001, the family law court entered a judgment of dissolution. That judgment awarded the Property and the transportation business to Donald but, in order to equalize the division of community property, ordered him to pay Norda the sum of $ 315,774, plus interest. The judgment also awarded Norda a security interest in the Property and the transportation business, to secure payment of the $315,774 and interest.
Some time in 2002, when Donald still owed Norda the $315,774 and interest, he stopped making payments on the loan against the Property. Wachovia, which had acquired The Money Story in or about 1999, did not inform Norda that the loan was in default.
On or about August 26, 2002, Donald filed for bankruptcy. During the pendency of Donalds bankruptcy, The Money Store successfully petitioned the bankruptcy court for relief from the automatic stay and recorded a "Notice of Default and Election to Sell under a Deed of Trust" with respect to the Property. Norda neither received a copy of that notice nor was served with The Money Stores application for relief from the automatic stay.
On June 11, 2003, defendant King purchased the FDT from The Money Store/Wachovia for the sum of $263,390.28. King is Donalds "best friend" and made the purchase using $ 267,000 in funds provided to him by Donald.
On October 3, 2003, the bankruptcy court discharged Donalds obligation to pay Norda the $315,774 under the dissolution judgment. The bankruptcy court also ordered Donald to transfer all of his interest in the Property to Norda.
On October 8, 2003, Norda "accidently [sic] learned" of a trustee foreclosure sale of the Property that was to take place on October 10, 2003. The next day, Norda successfully applied ex parte to the family law court for an injunction preventing the foreclosure sale. A few days later, on October 13, 2003, Donald executed a quitclaim deed to the Property in favor of Norda.
One week later, Norda filed her original complaint against King. She subsequently filed a first amended complaint against King, Wachovia, and Millenium Foreclosure Services, LLC (Millenium), alleging claims for (1) declaratory relief and cancellation of note, (2) quiet title, (3) conspiracy to defraud, (4) violation of Business and Professions Code section 17200, (5) breach of fiduciary duties, and (6) intentional infliction of emotional distress. The first amended complaint was then followed by a second amended complaint, which alleged the same claims against the same defendants as the first amended complaint, except that the claim for breach of fiduciary duties was changed to a claim for negligence.
The record does not reflect any participation by Millenium in the proceedings below. In her opening brief on appeal, Norda asserts that Millenium was never served, so no issues are presented on appeal with respect to Millenium.
The trial court sustained demurrers without leave to amend as to four of the six claims in the second amended complaint, granting Norda leave to amend only the claims for quiet title and negligence. Norda then filed her third amended complaint against the same defendants as the second amended complaint, alleging claims for quiet title and negligence. The court sustained demurrers without leave to amend as to the claim for negligence, but with leave to amend as to the claim for quiet title, and Norda then filed her fourth and final amended complaint against King alone, alleging only a claim for quiet title. The court sustained Kings demurrer without leave to amend.
After the trial court entered judgments dismissing King and Wachovia, Norda appealed from both judgments, challenging the trial courts rulings on the demurrers to the second amended complaint, third amended complaint, and fourth amended complaint. She also contends that the trial court abused its discretion when it (1) "elected to ignore" her late-filed oppositions to the demurrers to the second amended complaint, and (2) "did not allow [Nordas] Counsel to make oral argument at the hearing" on the demurrers to the second amended complaint.
When the trial court entered the judgments, it also stayed the trustees foreclosure sale for 10 days to permit this court to make whatever orders we deemed necessary. At Nordas request, this court ultimately ordered the parties and the escrow company to take all necessary steps to close escrow on the sale of the Property, which was pending. This court further ordered that if the net proceeds of the sale of the Property were less than $301,168.41—the amount necessary to pay off the principal balance of the loan plus other costs—escrow could not close. Any proceeds above that amount were to be deposited in a blocked, interest-bearing account, which required the signatures of counsel for the parties or a court order for every transaction. The parties have informed us that escrow did close.
A subsequent order provides that the signatures of counsel are no longer sufficient and that every transaction requires an order of this court.
STANDARD OF REVIEW
When reviewing a judgment of dismissal after a demurrer is sustained without leave to amend, the reviewing court "must assume the truth of the complaints properly pleaded or implied factual allegations." (Schifando v. City of Los Angeles (2003) 31 Cal.4th 1074, 1081.) The court "must also consider judicially noticed matters" (ibid.), and the court may itself take judicial notice under Evidence Code sections 452 and 459 (Sacramento Brewing Co. v. Desmond, Miller & Desmond (1999) 75 Cal.App.4th 1082, 1085, fn. 3).
The task of the reviewing court is to "determine whether the complaint states facts sufficient to state a cause of action." (Schifando v. City of Los Angeles, supra, 31 Cal.4th at p. 1081.) If the demurrer was sustained without leave to amend, the court "must decide whether there is a reasonable possibility the plaintiff could cure the defect with an amendment." (Ibid.) "The plaintiff has the burden of proving that an amendment would cure the defect." (Ibid.)
Finally, "we may affirm a trial court judgment on any basis presented by the record whether or not relied upon by the trial court." (Day v. Alta Bates Medical Center (2002) 98 Cal.App.4th 243, 252, fn. 1.)
DISCUSSION
On appeal, Norda argues that all six of the claims alleged in the second amended complaint, as well as the two claims in the third amended complaint and the one claim in the fourth amended complaint, are valid and that it was therefore error for the trial court to sustain the demurrers. With respect to the quiet title and declaratory relief claims only, we agree that, if granted leave to amend, Norda may be able to allege valid causes of action based on the judgment or orders of the bankruptcy court, as discussed post.
Before turning to those issues, however, we first address Nordas contention that the trial court abused its discretion by refusing to consider Nordas admittedly late written oppositions to the demurrers to the second amended complaint and not permitting Nordas counsel to present oral argument in opposition to those demurrers. The record, as augmented by respondents, shows that Nordas contention is incorrect.
By the time of the hearing on the demurrers to the second amended complaint, the trial court had prepared a tentative ruling, without considering Nordas untimely oppositions. But at the hearing, the court expressly offered to withdraw the tentative, consider the oppositions, and postpone the hearing. As the court stated, "The court will consider the opposition in the following terms and conditions; that is, we will put the hearing over on the demurrer. The court will consider the opposition. Youll pay counsels time for being here today, if thats acceptable. Then the court will put it over. If thats not acceptable, the tentative will stand."
Nordas counsel did not accept the courts offer. Instead, counsel responded, "Your Honor, Id like to address the tentative. I dont have a problem . . . ." The court interjected, "Excuse me. So you wish to address the tentative today?" When counsel responded "Yes," the court concluded that its offer had been rejected: "We are not going to consider the opposition. We will proceed with the hearing today. Proceed." The court then heard oral argument from Nordas counsel to the effect that Norda should again be granted leave to amend. But the court did not allow Nordas counsel to argue the merits of the demurrers.
Thus, the actual course of proceedings belies Nordas contention that the trial court refused to consider Nordas oppositions and did not permit oral argument on the demurrers. On the contrary, the court offered to consider the oppositions and to hear oral argument on the merits at a later date, but Nordas counsel refused the courts offer. Because Nordas contention is not supported by the record, we reject it.
I. Quiet Title
In her claim for quiet title (the only claim that survived to the fourth amended complaint), Norda sought to quiet title to the Property against King. She alleged that King "is a straw man who has no interest in the Property," and on that basis she sought "to quiet title against the claims of defendant King as to the First Deed of Trust."
On appeal, Norda explains her theory as follows: King is a "straw man" who bought the FDT for Donald and using Donalds funds. King accordingly does not really own the FDT. Rather, when King purchased the FDT from The Money Store, Donald became the real owner of the FDT. Accordingly, because Donald was then the owner of both the Property and the FDT, the loan on the Property was extinguished and the FDT "merged" with the title to the Property—in effect, Donald had paid off the loan on the Property and consequently owned it free and clear. Thus, after Donald quitclaimed the Property to Norda, she owned it free and clear.
Norda also suggests the following alternative theory: When Donald quitclaimed all his interest in the Property to Norda, she acquired the FDT, which Donald had previously purchased through King. The upshot of that theory is the same as the theory described in the text, i.e., after Donald quitclaimed the Property to Norda, she owned it free and clear.
The problem with Nordas theory is that in effect it seeks to modify the judgment of the bankruptcy court. When the bankruptcy court ordered Donald to transfer all of his interest in the Property to Norda, the court thought it was awarding Norda a property that was subject to a loan of over $ 260,000, secured by an FDT which the court thought was owned by someone other than Donald. Nordas quiet title claim now seeks to extinguish that loan obligation. But if the bankruptcy court had thought that the Property was not subject to that loan obligation, or that Donald owned the FDT, the court might not have awarded Donalds entire interest in the Property to Norda.
In substance, what Norda is trying to do is recover the $267,000 which, she alleges, Donald somehow concealed from the bankruptcy court and gave to King to purchase the FDT. Norda may or may not have a valid claim to some or all of that money—we express no opinion on the matter—but it is a claim she must pursue in bankruptcy court. If Norda is successful in Donalds reopened bankruptcy case, the bankruptcy court can grant appropriate relief.
After oral argument and submission of this case for decision, submission was vacated and the matter referred to the bankruptcy court so that it could take whatever action it deemed appropriate. The bankruptcy court subsequently informed us that it would act only upon application of a party, not sua sponte. Norda then petitioned the bankruptcy court to reopen Donalds bankruptcy case, and the court granted the petition.
The bankruptcy court might, however, determine that some further proceedings should be conducted in the superior court, perhaps relating to enforcement. We therefore reverse the trial courts dismissal of Nordas quiet title claim against King and remand with directions that Norda be granted 90 days leave to amend to allege that the bankruptcy court has permitted further proceedings in the superior court. The superior court may extend the 90-day period upon a showing of good cause.
II. Declaratory Relief and Cancellation of Note
In her claim for declaratory relief and cancellation of note, Norda apparently seeks some sort of judicial invalidation of both the loan against the Property and the FDT securing it. But in both her original complaint, the first amended complaint, and the second amended complaint, Nordas only stated basis for seeking such relief was her allegation that she "will suffer irreparable and substantial harm if the Loan Agreements and the Deeds of Trust, signed by Plaintiff on January 31, 1994, are not rescinded, because plaintiff was defrauded in the transaction." Thus, the claim evidently seeks to cancel the promissory note and FDT on the basis of fraud in the original loan transaction that took place when Norda and Donald purchased the Property.
The problem with this claim is that Norda has never alleged or otherwise indicated, either in the trial court or on appeal, any factual basis for her assertion that she was defrauded in the original loan transaction in 1994. Rather, all of her allegations of fraud or other misconduct relate to events that took place after the marriage dissolution judgment in 2001.
On appeal, Norda abandons the cancellation of note claim and presents a different basis for the declaratory relief claim: She argues that there is an actual controversy between her and King as to which of them owns the FDT. Her claim to ownership of the FDT is based on essentially the same theory as her quiet title claim—King purchased the FDT for Donald, who then quitclaimed it to Norda. For the same reasons that we reverse the dismissal of the quiet title claim, we reverse the dismissal of the declaratory relief claim as well, with directions to grant leave to amend as described in Part I, ante.
III. Negligence
Nordas negligence claim sought to recover damages that were allegedly caused by Wachovias failure to give Norda notice of the default on the loan and the proposed foreclosure sale. The claim fails as a matter of law for multiple reasons, so the demurrer was properly sustained without leave to amend.
On appeal, Norda clarifies that the negligence claim is alleged against Wachovia alone.
First, Wachovia was under no duty to give Norda notice. Wachovias duties to give notice of the default and foreclosure are specified by Civil Code section 2924b, as Norda herself seems to acknowledge. Summarized briefly, the statute requires Wachovia to give notice to anyone who records a request for notice, as well as to any of the parties listed in Civil Code section 2924b, subdivision (c)(2). Despite repeated opportunities to do so, Norda has never alleged that she recorded a request for notice. Instead, she contends that "Wachovia, as the holder of the FTD, had a duty under the Civil Code § 2924 & Seq., to inform Appellant of any default," but she never explains which statutory provision entitled her to notice. By their terms, none of the provisions of subdivision (c)(2) applies. Moreover, another district of this court has previously explained that the parties entitled to notice under Civil Code section 2924b do not include "junior lien claimants . . . such as judgment creditors." (Perez v. 222 Sutter St. Partners (1990) 222 Cal.App.3d 938, 946 [discussing the legislative history and statutory language in detail].) In sum, Wachovia was under no statutory duty to give Norda notice.
This conclusion also disposes of Nordas argument that Wachovia committed negligence per se. Negligence per se requires a statutory violation (Evid. Code, § 669, subd. (a)(1)), but Wachovias failure to give Norda notice did not violate the statutes Norda cites.
SPENCER, P. J., Concurring and Dissenting.
While I concur in the judgment as far as it goes, I would in addition direct the trial court to overrule Kings and Wachovias demurrers as to Nordas cause of action for conspiracy to defraud.
Second, even if Wachovia had been under a statutory or common law duty to give Norda notice and had breached such a duty, Nordas claim would still fail as a matter of law because she had actual notice of the default. On March 6, 2003, Nordas counsel took Donalds deposition, apparently in connection with Donalds bankruptcy. At the deposition, Donald testified that he had not paid the "mortgage" on the Property in "probably a few months," and when asked "So are you going to let the property go in foreclosure? The bank take it back?" he responded, "I dont see what choices I have at this point." We may, and do, take judicial notice of the questioning and testimony that took place at Donalds deposition that is reflected in the augmented record on appeal. (Evid. Code, § 452, subd. (h).) As a matter of law, Donalds testimony constitutes actual notice to Nordas counsel that the loan was in default and the Property was in, or headed for, foreclosure. And because Nordas counsel is her agent, notice to him constitutes notice to her. (Civ. Code, § 2332.) Norda therefore had actual notice of the default and the prospect of foreclosure. As a result, Wachovias failure to give Norda notice cannot have caused her any harm. Norda had notice, regardless of what Wachovia did or did not do, so the alleged fact that she did not receive notice from Wachovia cannot have made any difference.
Third, the only damages Norda alleged against Wachovia were her attorneys fees for her ex parte application to stop the foreclosure sale. But Wachovias allegedly negligent failure to give notice did not cause Norda to incur those attorneys fees. Rather, Donalds default on the loan caused them. That is, once Donald defaulted on the loan, the FDTs owner—be it The Money Store, Wachovia, or King—had the right to foreclose and was sure to exercise that right. If Norda wished to stop the foreclosure, she then had to apply to a court for an injunction and had to incur attorneys fees in the process. Norda has not alleged any manner in which Wachovias failure to give notice increased the fees she was bound to incur in order to stop the foreclosure. Thus, for this reason as well, the failure to give notice cannot have caused the damages Norda seeks to recover.
For all of the foregoing reasons, Nordas negligence claim fails as a matter of law, so we affirm the order sustaining the demurrer without leave to amend.
IV. Conspiracy to Defraud
Nordas claim for conspiracy to defraud adds nothing of consequence to the theories we have already discussed: She alleges that Donald, King, Wachovia, Millenium, and perhaps others conspired to defraud her by arranging for the sale of the FDT to King with Donalds money, by failing to give her the notice to which she was allegedly entitled, and by thus inducing her to believe that Donald had not defaulted on the loan.
This claim fails for the reasons already explained. First, Norda was not harmed by Kings alleged use of Donalds money to purchase of the FDT. Rather, she may have been harmed by Donalds alleged concealment of $267,000 from the bankruptcy court—a claim she is now pursuing in that court. Second, Wachovia had no duty to notify Norda of the default and foreclosure sale. Third, Norda had actual notice of the default, so Wachovias failure to notify her cannot have caused her harm. And fourth, Nordas alleged damages (i.e., her attorneys fees incurred in obtaining an injunction to stop the foreclosure) were not caused by a failure to give proper notice, but rather were caused by Donalds default on the loan. But Donald did not owe Norda a tort duty to continue to make payments on the loan on the property, and, indeed, Norda has never argued that Donald did owe her such a duty.
The trial court correctly sustained the demurrers to this claim without leave to amend.
V. Business and Professions Code Section 17200
Nordas claim against Wachovia for violation of Business and Professions Code section 17200 fails for similar reasons. It is based on the same alleged misconduct, namely, Wachovias failure to give Norda notice, which we have already held was not unlawful. This claim therefore fails as a matter of law as well, so the demurrer to it was properly sustained without leave to amend.
VI. Intentional Infliction of Emotional Distress
Nordas claim against Wachovia for intentional infliction of emotional distress also fails for the same reasons. Norda has not alleged facts sufficient to constitute a cause of action because she has not alleged and cannot allege any outrageous conduct by Wachovia—Wachovias failure to give notice was not unlawful or otherwise wrongful, let alone outrageous. The demurrer to this claim was properly sustained without leave to amend.
VII. Kings Motion to Dismiss and for Sanctions
After briefing on this appeal was completed, King filed a motion to dismiss the appeal and for an award of sanctions against Norda. In support of the motion, King argues that Nordas appeal is frivolous because it is based on knowing misrepresentations of material facts, namely, (1) contrary to Nordas representations on appeal, the trial court did offer to consider the oppositions to the demurrers to the second amended complaint and to hear oral argument on the merits, and (2) contrary to Nordas representations on appeal, Norda did have actual notice of Donalds default on the loan soon after the notice of default was recorded.
Nordas appeal is sufficiently meritorious to warrant a partial reversal, so, a fortiori, it is not frivolous. Accordingly, we deny the motion to dismiss the appeal.
As for sanctions, by statute we have authority to award sanctions if "the appeal was frivolous or taken solely for delay." (Code Civ. Proc., § 907.) We have already found that the appeal was not frivolous, and King does not argue that the appeal was taken solely for purposes of delay. We therefore deny the request for sanctions as well.
We nonetheless note that appellant has not been candid in her factual representations regarding the trial courts alleged refusal to consider late-filed oppositions, its alleged refusal to allow oral argument on the demurrers, and appellants alleged lack of knowledge that the FDT payments were in default. We do not award sanctions on this basis, however, because we are aware of no clear statutory or decisional authority for us to do so. (See Schneider v. Friedman, Collard, Poswall & Virga (1991) 232 Cal.App.3d 1276, 1284 &fn. 7.)
DISPOSITION
The judgment of dismissal as to Wachovia is affirmed. The judgment of dismissal as to King is reversed as to the quiet title and declaratory relief claims only and is otherwise affirmed, and the case is remanded for proceedings consistent with this opinion. This courts order of June 26, 2006, requiring plaintiffs counsel to provide quarterly reports concerning the status of the bankruptcy proceedings is vacated. That portion of the Writ of Supersedeas, as previously modified, requiring "an order of this Court for every transaction" is hereby modified to require "the signature of counsel for each party or court order for every transaction." The relief previously granted by this court concerning the proceeds of the sale of the Property shall otherwise remain in effect pending further order of the bankruptcy court or the superior court. The motion to dismiss the appeal and for sanctions is denied. All parties shall bear their own costs on appeal.
I concur:
MALLANO, J.
FACTUAL AND PROCEDURAL BACKGROUND
I restate the facts and procedural background to include additional facts not set forth in the majority opinion. Additionally, I note that on appeal from a dismissal following the sustaining of a demurrer, the facts are those pleaded in the complaint and those of which judicial notice may be taken. (Williams v. Housing Authority of Los Angeles (2004) 121 Cal.App.4th 708, 719.) The facts set forth below include Nordas allegations in her fourth amended complaint and documents filed in the relevant dissolution and bankruptcy proceedings, which may be judicially noticed. (Evid. Code, § 452, subd. (d).)
As stated in the majority opinion, Norda married Donald in July 1984. During their marriage, Norda and Donald acquired a property located at 15117 Minnesota Avenue in Paramount (the Property). They obtained a loan in the amount of $280,000, which was secured by a first trust deed (FTD) on the Property in favor of The Money Store. Norda and Donald used the Property to operate a transportation business, Agape Transportation.
Norda alleged that on November 3, 1994, The Money Store assigned its interest in the FTD to Marine Midland Bank, which in 1999 was acquired by HSBC. A copy of an assignment of deed of trust states that the FTD was assigned to Pacific Title Guaranty Company. There is nothing in the record to indicate how, when, or even if the FTD was ever reassigned to The Money Store.
Norda further alleged that defendant Wachovia acquired The Money Store in 1999, at which time The Money Store ceased to exist as a separate entity. Records of the Department of Corporations, of which we may take judicial notice (Evid. Code, § 452, subd. (c)), show that The Money Store voluntarily surrendered its right to do business in California on December 27, 2004.
In March 1995, Norda and Donald separated, and Norda filed for dissolution of their marriage. At that time, Donald threatened Norda that if she received a monetary judgment in the dissolution action, he would file for bankruptcy. Six years later, on May 2, 2001, the family law court entered a judgment of dissolution. That judgment awarded the Property and the transportation business to Donald but, in order to equalize the division of community property, ordered him to pay Norda the sum of $315,774 plus interest at 10 percent, payable at $4,000 per month. The judgment also awarded Norda a security interest in the Property and the transportation business in order to secure payment of the $315,774 and interest.
Following the judgment, Donald paid nothing toward the award equalizing division of community property. Instead, he shut down Agape Transportation. Sometime in 2002, he stopped making payments on the loan secured by the FTD against the Property. Wachovia did not inform Norda that the loan was in default.
On February 11, 2002, Millennium, purportedly on behalf of The Money Store, recorded a "Notice of Default and Election to Sell under a Deed of Trust" with respect to the Property. Norda was not given a copy of the notice. On May 19, 2002, Millennium recorded a "Notice of Trustee Sale" to take place more than a year later on June 5, 2003.
Norda alleged in her second amended complaint that Millennium was "engaged in a business of helping spouses hide assets during dissolution proceedings." We may take judicial notice of facts alleged in earlier pleadings. (Cantu v. Resolution Trust Corp. (1992) 4 Cal.App.4th 857, 877.)
According to Nordas allegations, The Money Store had been acquired by Wachovia prior to the recordation of the notice of default.
Civil Code section 2924 requires a three-month delay between notice of default and notice of sale. During this time, the mortgagor or trustor may cure the default by payment of arrearages, interest and costs. (Ibid.; id., § 2924c.) Thereafter, the mortgagee or trustee may demand payment of the entire balance of the mortgage. (Id., § 2924c.) After the notice of sale, the mortagee or trustee may sell the property 20 days after posting notice of sale. (Id., § 2924f.)
While Norda alleges that the notice of trustees sale was recorded on May 19, 2002, a copy of a notice of trustees sale attached to a declaration in support of a motion by Norda for relief from the automatic stay in Donalds subsequent bankruptcy proceedings is dated May 12, 2003. It is unclear whether there was more than one notice of trustees sale or if one of the dates is incorrect. What is clear is that there was a significant delay—substantially longer than that required by statute—between the notice of default and the scheduled sale.
Norda alleged in her second amended complaint that the timing of the sale was to ensure that it took place after the Property was awarded to Norda in Donalds subsequent bankruptcy proceedings.
On June 14, 2002, while Donald was in default on the FTD and after the notice of trustee sale had been recorded, Donald entered into a contract with a company operated by defendant King, purportedly for repair of the buildings on the property. Donald was to pay King $58,520 for the repair work. The contract called for an initial $9,000 payment upon signing, which Donald allegedly paid. King had been a friend of Norda and Donald during their marriage and became a good friend of Donald following his separation from Norda.
King claimed in his deposition in the dissolution proceedings that he did the work specified in the contract, completing it in October or November 2002. He also claimed, however, that he did not remember all the work that was done and he did not know whether he had any documents, such as purchase orders for materials or an accounting, showing that he did the work.
King also stated in his deposition that other than Donalds initial payment of $9,000, he had not been paid for his work. After the deposition, he amended his answers to state, "The balance of my money was used to buy the first trust deed."
About two months later, on August 26, 2002, Donald filed for bankruptcy. On November 21, 2002, The Money Store filed a motion in the bankruptcy court for relief from the automatic stay in order to foreclose on the FTD. The Money Store did not reveal to the bankruptcy court that it previously had made a deal to sell the FTD to King. On January 29, 2003, the bankruptcy court granted The Money Stores motion for relief from the automatic stay. Although Norda was a party to the bankruptcy proceedings and was represented by counsel in those proceedings, neither Norda nor her attorney was served with a copy of The Money Stores motion for relief from the automatic stay or the order granting the motion.
In papers filed with the bankruptcy court, Donald estimated the value of the Property at $300,000, although its value was significantly higher. After filing for bankruptcy, on November 15, 2002, Donald filed an order to show cause re modification in the dissolution proceedings, claiming a negative monthly cash flow of $6,546.
In the bankruptcy filings, Donald did not list Kings company as one of his creditors. When questioned about this by Nordas attorney at his deposition in the bankruptcy proceedings, Donald stated he would have to discuss the matter with his attorney. Donald stated that King in essence completed the work on the Property, although there was a dispute as to some of the work, and Donald owed him payment under the contract.
The previously-scheduled trustees sale did not take place on June 5, 2003. Rather, on June 11, 2003, The Money Store assigned its interest in the FTD to King. On June 13, The Money Store sold the FTD to King for $263,390.28. Norda believed that Donald provided King with the money to make the purchase. King admitted in a deposition taken on June 2, 2004 in connection with the dissolution proceedings that he did not use his own money to purchase the FTD but he obtained the money to purchase the FTD from the "Freeman Family." Donald or his mother—he could not remember who—had told him that a woman would contact him. A woman later contacted him and gave him three cashiers checks, totaling $ 267,000. King alleged that he could not remember the womans name, address or telephone number, and he did not know how to contact her. He later amended his answers to state that "the money that was owed to me [under the repair contract with Donald] was used to buy the first trust deed." He stated that he purchased the FTD with the money the woman gave him in order to protect his ability to be paid the money owed to him.
Although Norda alleged that The Money Store made the assignment, a copy of an assignment of deed of trust lists the assignor as Wachovia as successor in interest to The Money Store. Norda alleged that The Money Store sold the FTD to King. There is no copy of any documents related to the transaction in the record, however, to show whether The Money Store or Wachovia was the assignor.
On October 3, 2003, the bankruptcy court discharged Donalds obligation to pay Norda the $315,774 under the dissolution judgment. The bankruptcy court also ordered Donald to transfer all of his interest in the Property to Norda "subject to all liability secured thereby."
On October 8, 2003, Norda and her attorney learned that a trustee foreclosure sale of the Property was scheduled for October 10. The next day, Norda successfully applied ex parte to the family law court for an injunction preventing the foreclosure sale. A few days later, on October 13, 2003, Donald executed a quitclaim deed to the Property in favor of Norda.
While Norda alleged that she learned of the trustee foreclosure sale by accident on October 8, 2003, it appears that she was aware before then that Donald was in default and the Property was in foreclosure. Documents filed in conjunction with Donalds order to show cause re modification in the dissolution action include a February 25, 2003 letter to Nordas attorney, Nick Alden, from Donalds attorney in the bankruptcy proceedings, Daniel B. Herbert, stating that Attorney Alden acknowledged that Norda was aware the Property was in foreclosure.
In addition, at Donalds March 6, 2003 deposition in the bankruptcy proceedings, Attorney Alden questioned Donald about the foreclosure and the last time he had made a mortgage payment on the Property.
PROCEDURAL BACKGROUND
On October 20, 2003, Norda filed a complaint against King for quiet title, cancellation of note, conspiracy to defraud and intentional infliction of emotional distress. A first amended complaint filed on February 5, 2004 against King, Wachovia, and Millenium alleged causes of action for declaratory relief and cancellation of note, quiet title, conspiracy to defraud, violation of Business and Professions Code section 17200, breach of fiduciary duties, and intentional infliction of emotional distress. Norda filed a second amended complaint on July 23, 2004, deleting the cause of action for breach of fiduciary duties and adding a cause of action for negligence.
After filing the second amended complaint in the instant action, Norda joined King as a third party creditor in the dissolution action. Norda sought the same relief against King as she seeks in the instant action.
King and Wachovia filed demurrers to the second amended complaint. The trial court sustained the demurrers without leave to amend as to the causes of action for declaratory relief and cancellation of note, conspiracy to defraud, violation of Business and Professions Code section 17200, and intentional infliction of emotional distress. It sustained the demurrers but granted Norda leave to amend as to her causes of action for quiet title and negligence.
Norda filed her third amended complaint on September 17, 2004, alleging causes of action for quiet title against King and negligence against King, Wachovia and Millennium. King and Wachovia demurred. The court sustained Kings demurrer without leave to amend as to the cause of action for negligence but with leave to amend as to the cause of action for quiet title. It sustained Wachovias demurrer without leave to amend.
Norda filed her fourth amended complaint against King on December 7, 2004, alleging a cause of action for quiet title only. King demurred. The court sustained Kings demurrer without leave to amend.
On January 12, 2005, the trial court entered a judgment of dismissal in favor of Wachovia. On February 8, 2005, it entered a judgment dismissing the action as to King. At the same time, it stayed the trustees foreclosure sale for 10 days to permit this court to make whatever orders it deemed necessary.
On March 3, 2005, we issued a writ of supersedeas staying the foreclosure sale pending resolution of this appeal or further order of this court. The stay did not apply to the sale of the Property, which was represented to be in escrow for sale to Quality Fence Co., Inc. The proceeds of the sale were to be deposited in a blocked, interest-bearing account, which required the signatures of counsel for the parties or a court order for every transaction. On April 27, 2005, we ordered the parties to immediately execute all documents, including a reconveyance of the FTD, and to forward all sums necessary to effect a close of escrow to Golden Eagle Escrow Company, Escrow Number 04-1418. We directed Golden Eagle Escrow Company to take the steps necessary to close escrow. We further ordered that if the net proceeds of the sale of the Property were less than $301,168.41—the amount necessary to pay off the principal balance plus other costs—escrow could not close. Any proceeds above that amount were to be deposited in a blocked, interest-bearing account, which required the signatures of counsel for the parties or a court order for every transaction.
After a number of delays, escrow closed on May 25, 2005. The sum of $307,159 was deposited in an interest-bearing account in the names of King, Norda and their attorneys. An additional $44,480 was placed in an interest-bearing account in the name of attorney Donald S. Sherwyn, for King and Donald. This was to cover an award of sanctions against Norda in the dissolution action. Norda appealed the award, however, and on August 22, 2005, it was reversed. (In re Marriage of Freeman (2005) 132 Cal.App.4th 1, 10, rehg. den. Sep. 20, 2005, review den. Nov. 30, 2005.)
Attorney Sherwyn represents King on appeal.
On December 16, 2005, we issued an order vacating submission of this case. We observed that "[a] fair determination of the issues involved herein will require intervention of the bankruptcy court and a reopening of Bankruptcy Court Case No. LA0234333-EC, Order No. LA02-02671-EC. [¶] This conclusion is predicated upon the allegation that Donald . . . , Bankruptcy Debtor in said case, concealed at least $267,000 from the court and from bankruptcy creditor Norda . . . and possibly from other creditors. This Court does not have jurisdiction over Donald." We sent a copy of this order to the bankruptcy court, as well as to the parties counsel. We ordered the case resubmitted upon receipt of a new order or judgment from the bankruptcy court or notice that the bankruptcy court had declined to reopen the case.
On January 12, 2006, we issued an order to show cause why the money held in Attorney Sherwyns trust account should not be released to Norda following her successful appeal of the sanctions award. After reading and considering the responses filed by the parties, on February 1, 2006 we ordered the money released to Norda.
On February 3, 2006, Norda moved to reopen the bankruptcy case based on fraud. The bankruptcy court granted her motion on April 14, 2006, indicating that the case would remain open until July 31, 2006. That date passed, and the case remained open, with various proceedings taking place, including discovery.
On September 24, 2006, Attorney Alden wrote to us, requesting that we lift the "stay" of the proceedings, as he believed it was necessary to take additional discovery. Attorney Sherwyn responded that we should deny Attorney Aldens request, affirm the trial courts judgment and issue the remittitur. Kings trial attorney, Mark Waecker, also responded, reporting that Donalds attorney in the bankruptcy proceedings has been conducting discovery, and bank records have been provided to the bankruptcy trustee. He expected that the bankruptcy proceedings would be concluded by the end of the year. He therefore requested that we allow the bankruptcy court to conclude the proceedings. We have heard nothing further regarding the bankruptcy proceedings.
DISCUSSION
I agree with the majoritys discussion as to the trial courts denial of Nordas application to continue the hearing on the demurrers to her second amended complaint and do not address this contention. I do address her contentions as to the various causes of action alleged in her second and fourth amended complaints. I also agree with the majority as to Kings motion to dismiss and request for sanctions.
Quiet Title
In her quiet title cause of action, Norda sought to quiet title to the Property against King. She claims that King is a "straw man" who bought the FTD for Donald using Donalds funds. King accordingly does not own the FTD. Rather, when King purchased the FTD from The Money Store, Donald became the owner of the FTD. Inasmuch as Donald was then the owner of both the Property and the FTD, the loan on the Property was extinguished and the FTD merged with the title to the Property. In effect, Donald had paid off the loan on the Property and consequently owned it free and clear. After Donald quitclaimed the Property to Norda, she then owned it free and clear.
Under the merger doctrine, where one party owns both legal and equitable interests in a piece of property, the equitable interest will be merged with the title. (4 Witkin, Summary of Cal. Law (10th ed. 2005) Security Transactions in Real Property, § 120, p. 911.) The equitable interest is then extinguished. (4 Miller & Starr, Cal. Real Estate (3d ed. 2000) Deeds of Trust, § 10:41, pp. 138-139.)
Norda adequately has alleged facts supporting the application of the merger doctrine. She has alleged that Donald, the legal owner of the property, through King purchased the equitable interest in the property, i.e., the FTD. His purpose in doing so was to proceed with the foreclosure sale and thus eliminate Nordas security interest in the property, consistent with his earlier threat that she would receive nothing from him in payment of the dissolution judgment. Clearly, Donalds actions were intended to flagrantly evade the judgment of the family law court. The equities of the situation support application of the merger doctrine. (4 Miller & Starr, Cal. Real Estate, supra, Deeds of Trust, § 10:41, p. 139.)
Applying the merger doctrine, when Donald quitclaimed all of his interest in the Property to Norda, the interest transferred was ownership of the property in its entirety, not subject to the FTD. King held no interest in the property. Norda therefore has stated a cause of action for quiet title against King (Code Civ. Proc., § 760.020; 5 Witkin, Cal. Procedure (4th ed. 1997) Pleading, §622, p. 87), and the trial court erred in sustaining Kings demurrer to that cause of action (Schifando v. City of Los Angeles (2003) 31 Cal.4th 1074, 1081).
Declaratory Relief and Cancellation of Note
In her cause of action for declaratory relief and cancellation of note, Norda sought judicial invalidation of both the loan against the Property and the FTD securing it. In both her original complaint, the first amended complaint, and the second amended complaint, however, Nordas only stated basis for seeking such relief was her allegation that she "will suffer irreparable and substantial harm if the Loan Agreements and the Deeds of Trust, signed by Plaintiff on January 31, 1994, are not rescinded, because plaintiff was defrauded in the transaction."
Norda has never alleged or otherwise indicated, either in the trial court or on appeal, any factual basis for her assertion that she was defrauded in the original loan transaction in 1994. Rather, all of her allegations of fraud or other misconduct relate to events that took place after the marriage dissolution judgment in 2001.
On appeal, Norda abandons the cancellation of note claim and presents a different basis for the declaratory relief claim: She argues that there is an actual controversy between her and King as to which of them owns the FTD. Her claim to ownership of the FTD rests on the same theory as her quiet title claim—King purchased the FTD for Donald, who then quitclaimed it to Norda. For the same reasons that the sustaining of Kings demurrer to the quiet title cause of action must be reversed, the sustaining of the demurrer to the declaratory relief cause of action must be reversed as well.
Negligence
I agree with the majoritys discussion as to Nordas cause of action for negligence. She failed to state such a cause of action, so the trial court properly sustained Wachovias demurrer thereto.
Conspiracy to Defraud
In her cause of action for conspiracy to defraud, Norda alleged that Donald, King, Wachovia, Millenium, and perhaps others conspired to defraud her by arranging for the sale of the FTD to King with Donalds money, by failing to give her the notice to which she was allegedly entitled, and by thus inducing her to believe that Donald had not defaulted on the loan.
It appears clear that there was a conspiracy involving Donald, King, Wachovia and Millennium. That Donald and King conspired together is evidenced by the $58,520 repair contract the two entered into after Donald defaulted on the mortgage, after notice of sale and shortly before he declared bankruptcy. It appears from Kings amended answers at his deposition that the only reason for entering into this contract was to provide an explanation for Kings purchase of the FTD; Donald would have had no reason for repairing property he was in fact in danger of losing through foreclosure or bankruptcy. Kings purchase of the FTD with money received from an emissary of the "Freeman Family," his claimed lack of knowledge as to who he received the money from and his changing explanation for the purchase also support a claim of conspiracy.
Wachovias and Millenniums participation is shown by the 16-month delay between the notice of default and the scheduled trustee sale; the motion for relief from the automatic stay once Donald filed bankruptcy and then the failure to hold a public trustee sale when scheduled; and the subsequent assignment and private sale of the FTD to King.
It is reasonably inferable that the conspiracy began with Donalds inexplicable default on the loan shortly after the family law courts award to Norda and continued through the inexplicably delayed trustees sale, the assignment and sale of the FTD to King with funds provided by Donald and the attempt to hold the trustees sale after Donalds interest in the Property was transferred to Norda all of which was in order to eliminate her interest in the Property. Norda was damaged not only by the attorneys fees and costs she incurred in attempting to stop the foreclosure but also by the loss to her of the failure to hold a public sale with the value of the equity in the property going to her as a junior lienholder. I therefore would hold that the trial court erred in sustaining the demurrers without leave to amend to this cause of action. (Schifando v. City of Los Angeles, supra, 31 Cal.4th at p. 1081.)
Business and Professions Code Section 17200I agree with the majority that Norda has failed to state a cause of action against Wachovia for violation of Business and Professions Code section 17200. The demurrer to this cause of action thus properly was sustained without leave to amend.
Intentional Infliction of Emotional Distress
Again, I agree with the majority that Norda has failed to state a cause of action for intentional infliction of emotional distress. The trial court therefore properly sustained the demurrers to this cause of action without leave to amend.
CONCLUSION
I would reverse the judgments of dismissal and direct the trial court to vacate its orders sustaining Kings demurrers as to the quiet title, declaratory relief and conspiracy causes of action and Wachovias demurrer as to the conspiracy cause of action, and to enter a new and different order overruling the demurrers as to those causes of action. I also would direct the trial court to permit the parties to conduct further discovery prior to trial, as requested by Norda. I agree with the denial of Kings motion to dismiss the appeal and request for sanctions.