Opinion
B302004
06-17-2021
WILLIAM DULANY HILL, Plaintiff and Appellant, v. NEWREZ LLC ET AL., Defendants and Respondents.
William Dulany Hill, in pro. per.; and Michael Yesk for Plaintiff and Appellant. Wright, Finlay & Zak, Jonathan D. Fink, and Kristina M. Pelletier for Defendants and Respondents.
NOT TO BE PUBLISHED
APPEAL from a judgment of the Superior Court of Los Angeles County No. 19TRCV00318, Laura C. Ellison and Deirdre H. Hill, Judges. Affirmed in part, reversed in part.
William Dulany Hill, in pro. per.; and Michael Yesk for Plaintiff and Appellant.
Wright, Finlay & Zak, Jonathan D. Fink, and Kristina M. Pelletier for Defendants and Respondents.
HOFFSTADT, J.
A homeowner took out a $2 million loan in 2004 and stopped making payments in 2007. In the intervening 12 years, he filed three bankruptcies to stave off foreclosure. Now he has sued the mortgage holder and servicer for compensatory damages, punitive damages, and other relief. The trial court dismissed his lawsuit on demurrer. This was incorrect because the homeowner alleged facts sufficient to state a claim on two of his seven causes of action, so we affirm in part and reverse in part.
FACTS AND PROCEDURAL BACKGROUND
I. Facts
A. Initial loan and default
On June 25, 2004, William Dulany Hill (plaintiff) borrowed $2 million from Countrywide Home Loans, Inc. (Countrywide). The loan was memorialized in a promissory note, and secured with a deed of trust on his personal residence in Manhattan Beach, California (the property). Although the lender was Countrywide, the beneficiary named in the deed of trust was Mortgage Electronic Registration Systems, Inc. (MERS) on behalf of Countrywide, and the trustee was CTC Real Estate Services.
In 2007, plaintiff stopped making payments on the loan. His loan balance has been outstanding since the January 1, 2008 installment.
B. The loan changes hands
On May 3, 2012, MERS assigned its beneficial ownership in the deed of trust to the Bank of New York Mellon as trustee for other entities (BONY). The assignment was recorded on May 14, 2012.
Those entities are the certificate holders of CWMBS, Inc., CHL Mortgage Pass-Through Trust 2004-HYB4, and Mortgage Pass-Through Certificates, Series 2004-HYB4.
On March 1, 2014, Newrez LLC dba Shellpoint Mortgage Servicing (Shellpoint) took over as the servicer of BONY's loan.
On October 26, 2015, Shellpoint, as BONY's agent, substituted a new trustee under the deed of trust-namely, MTC Financial Inc. dba Trustee Corps (Trustee Corps).
C. First foreclosure halted by bankruptcy
On January 7, 2015, a notice of default was recorded regarding the deed of trust recounting that plaintiff still owed approximately $1, 133, 433.92 on the loan.
On October 6, 2016, Trustee Corps filed a notice of trustee's sale to foreclose on the property.
On November 8, 2016, plaintiff filed a chapter 13 bankruptcy petition in federal court. The initial petition did not contain any schedules of assets, but did list Shellpoint as a creditor. A week after filing the petition, plaintiff converted his petition to a chapter 7 bankruptcy. Plaintiff did not list his potential causes of action against BONY and Shellpoint as assets.
On January 17, 2019, the bankruptcy court issued plaintiff an order of discharge. The order specified that the discharge would not apply to “some debts which the debtor[] did not properly list.”
D. Second foreclosure halted by two more bankruptcies
On February 25, 2019, Trustee Corps filed another notice of trustee's sale to foreclose upon the property at a sale scheduled for March 28, 2019.
Plaintiff then filed two more bankruptcy petitions back to back. He filed one on March 28, 2019 (the day scheduled for the foreclosure sale), which was dismissed on April 15, 2019. And he filed one on April 24, 2019, which was dismissed in early June 2019.
II. Procedural Background
On April 2, 2019, plaintiff sued BONY and Shellpoint (collectively, defendants).
In the operative and verified first amended complaint, plaintiff asserts four categories of claims. First, he asserts a claim for violation of the Rosenthal Fair Debt Collection Practices Act (Rosenthal Act) (Civ. Code, § 1788 et seq.) premised on allegations that defendants engaged in “abusive collection efforts” because, in effecting the foreclosures, they were not the “true beneficiary or creditor” under the deed of trust and thus had “improperly attempt[ed] to collect amounts that were not due to them.” Second, plaintiff asserts claims for violation of sections 2924.17 and 2924, subdivision (a)(6), cancellation of instruments, and declaratory relief, all of which are premised on the alleged invalidity of the 2012 assignment of the deed of trust and the 2015 notice of default. Third, plaintiff asserts a claim for violation of sections 2934a, subdivision (a)(1)(A)(C), and 2941.9 premised on the alleged invalidity of the 2015 substitution of trustee to the deed of trust. Fourth, plaintiff asserts a claim for violation of the unfair competition law (Bus. & Prof. Code, § 17200 et seq.) premised on the above-stated violations.
All further statutory references are to the Civil Code unless otherwise indicated.
Plaintiff also asserted a claim for violations of the Consumer Credit Reporting Agencies Act (§ 1785.1 et seq.), but does not defend this claim on appeal. We deem it abandoned. (Buller v. Sutter Health (2008) 160 Cal.App.4th 981, 984, fn 1.)
Defendants demurred. Following a full round of briefing and a hearing, the trial court issued an eight-page order sustaining the demurrer without leave to amend.
Following entry of a judgment of dismissal, plaintiff filed this timely appeal.
DISCUSSION
Plaintiff argues that the trial court erred in sustaining the demurrer to his first amended complaint without leave to amend.
“In reviewing a trial court's order sustaining a demurer without leave to amend, we must ask (1) whether the demurrer was properly sustained, and (2) whether leave to amend was properly denied.” (Schep v. Capital One, N.A. (2017) 12 Cal.App.5th 1331, 1335.) The first question requires us to “independently evaluate whether the operative complaint states facts sufficient to state a cause of action.” (Alborzian v. JPMorgan Chase Bank, N.A. (2015) 235 Cal.App.4th 29, 34.) In so doing, we accept as true “all material facts properly pled” in that complaint, although we discount and ignore pled facts that are contrary to documents subject to judicial notice. (Winn v. Pioneer Medical Group, Inc. (2016) 63 Cal.4th 148, 152; Evans v. City of Berkeley (2006) 38 Cal.4th 1, 20.) A complaint does not state a claim if the plaintiff lacks standing (Martin v. Bridgeport Community Assn., Inc. (2009) 173 Cal.App.4th 1024, 1031 (Martin)) or if the claim is foreclosed as a matter of law (California Dept. of Tax & Fee Administration v. Superior Court (2020) 48 Cal.App.5th 922, 938). The second question “requires us to decide whether ‘“‘there is a reasonable possibility that the defect [in the operative complaint] can be cured by amendment.'”'” (McClain v. Sav-On Drugs (2017) 9 Cal.App.5th 684, 695, affd. (2019) 6 Cal.5th 951.)
I. Was the Demurrer Properly Sustained?
We conclude that (1) the demurrer was properly sustained as to those claims for which plaintiff lacks standing, but that (2) the demurrer should have been overruled as to plaintiff's Rosenthal Act claim and derivative unfair competition law claim because, contrary to defendants' arguments, those claims are not barred as a matter of law.
A. Claims for which plaintiff lacks standing
To bring a claim, the plaintiff must be the real party in interest. (Code Civ. Proc., § 367; Cloud v. Northrop Grumman Corp. (1998) 67 Cal.App.4th 995, 1004 (Cloud); see also Apartment Assn. of Los Angeles County, Inc. v. City of Los Angeles (2006) 136 Cal.App.4th 119, 128 [“A litigant's standing to sue is a threshold issue to be resolved before the matter can be reached on its merits”].) When a person prosecutes a petition for chapter 7 bankruptcy, the bankruptcy trustee, as the representative of the bankruptcy estate, becomes the real party in interest over the debtor's “‘pre-petition'” causes of actions or claims because those causes of actions or claims, upon the debtor's filing for bankruptcy, “bec[a]me [the] property of the bankruptcy estate.” (Bostanian v. Liberty Savings Bank (1997) 52 Cal.App.4th 1075, 1081 (Bostanian); M & M Foods, Inc. v. Pacific American Fish Co. (2011) 196 Cal.App.4th 554, 562 (M & M Foods); Cloud, at p. 1001; 11 U.S.C. § 541(a)(1) [bankruptcy estate includes “all legal or equitable interests of the debtor in property as of the commencement of the case”]; see also United States v. Whiting Pools, Inc. (1983) 462 U.S. 198, 203-205 & fn. 9 [causes of action are part of the “broad range of property” included in the bankruptcy estate].)
As a result, the trustee-and only the trustee-has standing to assert any prepetition claims unless and until the trustee abandons those claims. (Bostanian, at pp. 1081-1082; M & M Foods, at p. 562; Seinfeld v. Allen (2d Cir. 2006) 169 Fed.Appx. 47, 49 [property includes “‘causes of action'”].) A prepetition claim encompassed within the debtor's bankruptcy estate may be abandoned in three ways, one of which is relevant here-namely, a claim disclosed by the debtor in schedules filed with the bankruptcy court, but which was not administered by the trustee at the time of closing of the case, is deemed abandoned by operation of law. (11 U.S.C. § 554(c).) However, if a bankruptcy debtor in a chapter 7 bankruptcy does not disclose in the schedules filed with the bankruptcy court the prepetition claim(s) he possesses, the bankruptcy court's discharge order does not constitute an abandonment of those claims by the trustee; instead, those claims remain in the closed bankruptcy estate in a sort of jurisprudential purgatory and do not revert back to the debtor. (In re JZ L.L.C. (Bankr. 9th Cir. 2007) 371 B.R. 412, 418 [“property of the estate that is not scheduled and not otherwise administered before a case is closed is not abandoned to the debtor at the time of closing, but rather remains property of the estate-forever”]; 11 U.S.C. § 554(d); Voss v. Knotts (9th Cir. 2014) 570 Fed.Appx. 720, 721 [so holding]; Cusano v. Klein (9th Cir. 2001) 264 F.3d 936, 945-946; Cloud, at p. 1003.) “Until the debtor [returns to bankruptcy court and] secures an abandonment of the claim, the debtor lacks standing to pursue it.” (Bostanian, at p. 1083.)
In light of this authority, and because plaintiff converted his initial bankruptcy filing to a chapter 7 bankruptcy and did not list any potential causes of action related to the property as assets of his estate, plaintiff lacks standing to assert any and all claims that had accrued at the time he filed his first bankruptcy in November 2016. This means he lacks standing to assert (1) his claims for violation of sections 2924.17 and 2924, subdivision (a)(6), for cancellation of instruments, and for declaratory relief, because they all are based on the alleged invalidity of the 2012 assignment of the deed of trust and the 2015 notice of default, and (2) his claim for violation of sections 2934a, subdivision (a)(1)(A)(C), and 2941.9 because it is based on the alleged invalidity of the 2015 substitution of trustee.
At oral argument, plaintiff for the first time asserted that all of these claims are now moot or untimely. Because these assertions are inconsistent with the arguments in his briefs, we disregard them.
Plaintiff responds that he has standing to assert these claims because he listed the property as an asset during the bankruptcy and, plaintiff continues, that asset was deemed abandoned by operation of law pursuant to the bankruptcy court's discharge order. (See 11 U.S.C. § 554(c).) This point is of no avail. The claims plaintiff asserts here are separate and distinct from the property itself, as they represent potential violations of law that would entitle plaintiff to compensatory damages, punitive damages, statutory damages, and attorney fees. (Accord, In re Robinson (Bankr. E.D.Ark. 2007) 373 B.R. 612, 628 [fraud cause of action is a “different and separate property interest” from real property], revd. on other grounds In re Robinson (E.D.Ark., Apr. 10, 2008, No. 4:07MC0005) 2008 U.S. Dist. LEXIS 109390, affd. Lewellen v. Wildlife Farms II, LLC (8th Cir. 2009) 557 F.3d 593; Myrette-Crosley v. Ditech Home Loans (N.D.Cal., June 28, 2018, No. 3:17-cv-05528-JD) 2018 U.S. Dist. LEXIS 108610, *5 [plaintiff lacks standing to assert Truth-In-Lending Act claims that accrued prior to bankruptcy].)
B. Plaintiff's Rosenthal Act and derivative unfair competition law claims survive demurrer
Although plaintiff also lacks standing to assert his Rosenthal Act claim and unfair competition law claim to the extent those claims rest on violations preceding the first bankruptcy, it is well established that a “demurrer does not lie to a portion of a cause of action” (PH II, Inc. v. Superior Court (1995) 33 Cal.App.4th 1680, 1682) and that if any portion of a cause of action is properly pleaded, the demurrer must be overruled as to that cause of action (Campbell v. Genshlea (1919) 180 Cal. 213, 217). As to those portions of his Rosenthal Act claim and derivative unfair competition law claim for which plaintiff has standing, he has stated facts in his operative complaint sufficient to constitute those claims. The trial court accordingly erred in sustaining defendants' demurrer as to those two claims.
The Rosenthal Act was enacted “to prohibit debt collectors from engaging in unfair or deceptive acts or practices in the collection of consumer debts....” (§ 1788.1, subd. (b).) To effectuate this goal, the act delineates what conduct by “debt collectors” in the course of “debt collection” is to be actionable under the Act. (§§ 1788.10-1788.18.) Because a mortgage debt is a “consumer debt” under the Act (§ 1788.2, subd. (f); Best v. Ocwen Loan Servicing LLC (2021) 64 Cal.App.5th 568, 579 (Best); Davidson v. Seterus, Inc. (2018) 21 Cal.App.5th 283, 298-300 (Davidson); Obduskey v. McCarthy & Holthus LLP (2019) __U.S.__ [139 S.Ct. 1029, 1036] (Obduskey)) and because an entity prosecuting a mortgage debt may be a “debt collector” (Davidson, at pp. 289-290), “a nonjudicial foreclosure can be ‘debt collection' by a ‘debt collector' so as to trigger the protections of the Rosenthal Act” (Best, at p. 580).
Here, plaintiff alleges that defendants violated the Rosenthal Act (and thereby also violated the unfair competition law) by engaging in (1) “abusive collection efforts” consisting of not being the “true beneficiary or creditor” under the deed of trust and thus “improperly attempting to collect amounts... not due to them, ” and (2) “deceptive” conduct such as “misrepresenting... the status of the debt, ” “attempting to collect illegal fees and costs not authorized by law or the contract, ” “misrepresenting the amounts owed for escrow, ” “declaring the loan in default status, ” “threatening to proceed with a foreclosure sale due to lack of payment on the debt obligation, ” “assessing illegal foreclosure fees, ” and “assessing escrow overdraft charges and improper corporate advances, fees, and costs in their dunning letters, acceleration notices, reinstatement letters, and payoff letters.” Because this alleged conduct is prohibited by the Rosenthal Act (§ 1788.17; 15 U.S.C. §§ 1692d, 1692e(10), 1692f(6)), plaintiff has stated facts sufficient to constitute a cause of action under the act.
Defendants resist this conclusion with what boils down to three arguments.
First, they argue that “the current weight of the law” provides that “foreclosing on a property pursuant to a deed of trust is not the collection of a debt within the meaning of the” Rosenthal Act unless the beneficiary or loan servicer engages in acts “beyond the scope of the ordinary foreclosure process.” (Rosal v. First Fed. Bank of California (N.D.Cal. 2009) 671 F.Supp.2d 1111, 1135; Sipe v. Countrywide Bank (E.D.Cal. 2010) 690 F.Supp.2d 1141, 1151; Champlaie v. BAC Home Loans Servicing, LP (E.D.Cal. 2009) 706 F.Supp.2d 1029, 1054; Mohanna v. Carrington Mortgage Services LLC (N.D.Cal., Aug. 6, 2018, No. 18-cv-02563-WHO) 2018 U.S. Dist. Lexis 132053, at *10-*11; Walters v. Fidelity Mortgage of California, Inc. (E.D.Cal. 2010) 730 F.Supp.2d 1185, 1203; Rockridge Trust v. Wells Fargo, N.A. (2013) 985 F.Supp.2d 1110, 1164.) Although the federal district court cases defendants cite adopt the above-stated rule, those cases derive their rule from an analysis of the federal Fair Debt Collection Practices Act (15 U.S.C. § 1692 et seq.), which-unlike the Rosenthal Act-excludes from its definition of “debt collector” those who engage only in nonjudicial foreclosure proceedings, and subjects them only to a subset of restrictions. (15 U.S.C. §§ 1692a(6), 1692f(6); Obduskey, supra, 139 S.Ct. at p. 1038.) The inapplicability of this federal authority on which defendants rely was recently confirmed in Best, supra, 64 Cal.App.5th at pp. 576-577, 578-579.
Second, defendants argue that they are exempt from liability under section 2924, subdivision (b). The trial court also sustained defendants' demurrer to the Rosenthal Act claim on this basis. However, section 2924 exempts trustees from Rosenthal Act liability when they follow foreclosure procedures pursuant to a deed of trust. (§ 2924, subd. (b).) Because defendants are the beneficiary and the loan servicer-not the trustees of the deed of trust-section 2924's immunity does not extend to them.
Lastly, defendants argue that plaintiff's allegations are conclusory and therefore insufficient to support his claim. But at the pleading stage, plaintiff does not have to “spell out the details” of his claim to avoid a demurrer; he only has to allege the “ultimate facts” to state a cause of action. (Diodes, Inc. v. Franzen (1968) 260 Cal.App.2d 244, 252.) Plaintiff's complaint would benefit from more specificity, but we must read the complaint “as a whole” to give it a “reasonable interpretation.” (Moore v. Regents of University of California (1990) 51 Cal.3d 120, 125.) When we do so, we conclude that the allegations are sufficient to state a cause of action under the Rosenthal Act (and a derivative cause of action under the unfair competition law).
II. Leave to Amend
Where an “action is barred as a matter of law, the demurrer is properly sustained without leave to amend.” (Cal. Auto. Dismantlers Assn. v. Interinsurance Exch. (1986) 180 Cal.App.3d 735, 742.) Because plaintiff lacks standing as a matter of law to assert those claims that accrued before he filed his first bankruptcy, the trial court did not abuse its discretion in denying plaintiff leave to amend those claims.
Plaintiff suggests more broadly that he should be permitted to amend his complaint to allege a claim for wrongful foreclosure. A plaintiff cannot bring a wrongful foreclosure claim until there has been a wrongful foreclosure sale (e.g., Sciarratta v. U.S. Bank N.A. (2016) 247 Cal.App.4th 552, 561-562), and, on the record before us, the creditor in this case has yet to make it to a foreclosure sale. For the first time at oral argument, plaintiff represented that there has been a foreclosure sale. This representation is outside the record and not subject to a request for judicial notice. We defer to the trial court's discretion on remand whether plaintiff should be permitted to amend his complaint to add this claim. (Code Civ. Proc., § 473, subd. (a)(1).)
In light of our analysis, we have no occasion to reach any of plaintiff's attacks on the other rationales cited by the trial court. (See Martin, supra, 173 Cal.App.4th at p. 1031 [affirm if there is any ground on which demurrer can be properly sustained].) Because plaintiff offers no argument or authority in support of his contention that a trial court should not sustain a demurrer before allowing the plaintiff to conduct discovery, we deem that argument to be waived. (Rutledge v. Hewlett-Packard Co. (2015) 238 Cal.App.4th 1164, 1171, fn. 3.)
DISPOSITION
The judgment is affirmed with regard to (1) plaintiff's second cause of action for violation of sections 2924.17 and 2924, subdivision (a)(6); (2) plaintiff's third cause of action for violation of sections 2934a, subdivision (a)(1)(A)(C), and 2941.9; (3) plaintiff's fourth cause of action for cancellation of instruments; (4) plaintiff's fifth cause of action for declaratory relief; and (5) plaintiff's seventh cause of action for violation of the Consumer Credit Reporting Agencies Act. The judgment is reversed with respect to plaintiff's first and sixth causes of action for violations of the Rosenthal Act and unfair competition law, respectively. The parties are to bear their own costs on appeal.
We concur: LUI, P. J., CHAVEZ, J.