Opinion
G052402
01-27-2017
MICHAEL LONG et al., Plaintiffs and Appellants, v. FREEDOM ESCROW, Defendant and Respondent.
Kellie Long and Michael Long, in pro. per., for Plaintiffs and Appellants. Law Offices of Gregory S. Page and Gregory S. Page for Defendant and Respondent.
NOT TO BE PUBLISHED IN OFFICIAL REPORTS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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.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. 30-2014-00700351) OPINION Appeal from a judgment of the Superior Court of Orange County, Frederick P. Aguirre, Judge. Affirmed. Kellie Long and Michael Long, in pro. per., for Plaintiffs and Appellants. Law Offices of Gregory S. Page and Gregory S. Page for Defendant and Respondent.
Kellie and Michael Long (the Longs) sued Freedom Escrow (Freedom) for fraud, breach of contract, and unlawful business practices pertaining to the purchase of their home in 2005. The trial court sustained Freedom's demurrer to the Longs' third amended complaint without leave to amend. The Longs appeal, arguing their complaint is not barred by the statute of limitations, among other things. We agree with the trial court that the Longs' complaint is barred by the applicable statute of limitations and affirm the judgment.
FACTS
"In conducting our de novo review, we 'must "give[] the complaint a reasonable interpretation, and treat[] the demurrer as admitting all material facts properly pleaded." [Citation.] Because only factual allegations are considered on demurrer, we must disregard any "contentions, deductions or conclusions of fact or law alleged . . . . "' [Citation.]" (WA Southwest 2, LLC v. First American Title Ins. Co. (2015) 240 Cal.App.4th 148, 151.)
The Longs purchased a home in Costa Mesa (the Property) in September 2005 for $911,000. Freedom served as their escrow company in the property transaction. The Longs believed they set up an escrow account to impound their property taxes with their lender, Paul Financial (Paul). This apparently did not happen.
Although it is referred to as an "escrow" account, the Longs do not allege Freedom was responsible for setting up or managing this account.
The Longs received a property tax bill of over $18,000 for 2006. They contacted the Orange County (County) Treasurer-Tax Collector (TTC) and informed TTC the taxes were based upon a purchase price of $991,000, an $80,000 discrepancy in the purchase price of the Property. The Longs alleged the excess property tax bill was a clerical error by the TTC. They tried to appeal the bill, but were told they had to wait until 2007 to do so. The Longs filed an appeal of their property assessment in August 2007.
The Longs alleged Paul sold their mortgage prior to escrow closing. At some point, the Longs alleged Indy Mac became their lender. In 2008, before the Longs received a response on their property assessment appeal, IndyMac paid the balance due on property taxes from 2005-2008. IndyMac amortized the amount over 12 months and as a result the Longs' monthly mortgage payment went from $2,800 to $9,352. The Longs informed IndyMac the taxes paid were under review and they were waiting for a response from TTC. The Longs asked to continue making their $2,800 payment while the reassessment was verified. IndyMac refused. The Longs claim IndyMac advised them to apply for a loan modification. In order to do so, IndyMac told the Longs they had to be in default on their mortgage. The Longs went into default and then applied for a loan modification. IndyMac eventually initiated eviction proceedings and sold the Longs' house.
In April 2010, the Longs filed suit against Paul for wrongful foreclosure, among other allegations. They alleged their purchase price was misrecorded, which, in turn, inflated their property taxes. The Longs claimed the tax issue was County error.
The Longs filed suit against Freedom in January 2014, alleging breach of contract, fraud, and unlawful business practices. The Longs claimed Freedom, along with Paul, forged the Longs' signatures on documents recorded in the County recorder's office. The Longs also alleged they did not discover the purported forgery until January 25, 2011. They contend they pulled documents from the recorder's office on that date, which demonstrated they were the victims of fraud, forgery, and a conspiracy. The documents they contend evidence these claims are the Preliminary Change of Ownership Report (PCOR) and a California Impound Disclosure/Waiver (CID). The Longs' complaint does not explain why they waited until 2011, nearly five and a half years after they closed escrow on the Property, to pull the PCOR or the CID.
The Longs filed a first, second, and third amended complaint, and Freedom demurred to all of the pleadings. The third amended complaint (TAC) alleged the Longs sent Freedom a request "to copy the escrow file" in 2009. The TAC purported to attach a "true and correct copy" of the request as exhibit 3. Exhibit 3 contained no such request. In a later filed notice of errata, the Longs attached a new exhibit 3, which showed they simply requested original mortgage documents and not, as was claimed in the TAC, a copy of the entire escrow file. The Longs further alleged "Freedom . . . provided [the Longs] with a sanitized version of the original mortgage documents omitting the PCOR and the CID to conceal the fraud from [the Longs]" and "Freedom . . . clearly knew the PCOR and CID were altered and forged and intentionally withheld the production of these documents to conceal the fraud."
The Longs also contended Freedom admitted it withheld the PCOR, attaching Freedom's response to requests for admission as exhibit 5 of the TAC as evidence. Exhibit 5 of the TAC, however, contains no such admission. The Longs asked Freedom to admit it did not provide them with a copy of the PCOR in response to an October 2009 request "for a copy of the escrow file." The Longs' October 2009 request, however, did not request the escrow file, but instead asked for "copies of our original mortgage documents." Freedom acknowledged this discrepancy in its response to the Longs' request for admission, stating: "Admit, that Freedom did not, in response to [the Longs'] letter of October 15, 2009, send [the Longs] a copy of the [PCOR] . . . because a [PCOR] is not . . . an 'original mortgage document.'"
Other than the purported exhibit 3, the TAC contained allegations similar, if not identical, to those in the previous pleadings. The Longs failed to allege the names of any employees or agents of Freedom who were involved in forging the Longs' names on documents, which forms the basis for every cause of action asserted. Instead, Freedom, Paul, and two other individual defendants are lumped together collectively as "defendants" for each cause of action.
The trial court sustained Freedom's demurrer to the Longs' TAC without leave to amend. The court determined the delayed discovery doctrine was not applicable, and the Longs' causes of action were barred by the applicable statutes of limitations. The trial court concluded: "[The Longs] clearly knew something was wrong in 2010 when they filed suit against the lender and servicer for wrongful foreclosure and other irregularities. [The Longs] have had four opportunities to allege viable causes of action but have failed to allege facts showing their inability to have made earlier discovery despite reasonable diligence."
DISCUSSION
We review a trial court's order sustaining a demurrer de novo and apply the abuse of discretion standard in reviewing the court's denial of leave to amend the complaint. (Blank v. Kirwan (1985) 39 Cal.3d 311, 318; Alexander v. Exxon Mobil (2013) 219 Cal.App.4th 1236, 1250-1252.) "We treat the demurrer as admitting all material facts properly pleaded, but not contentions, deductions or conclusions of fact or law. [Citation.] We also consider matters which may be judicially noticed." (Serrano v. Priest (1971) 5 Cal.3d 584, 591.) "In addition, we give the complaint a reasonable interpretation, and read it in context. [Citation.] If the trial court has sustained the demurer, we determine whether the complaint states facts sufficient to state a cause of action. If the court sustained the demurrer without leave to amend, as here, we must decide whether there is a reasonable possibility the plaintiff could cure the defect with an amendment. [Citation.] If we find that an amendment could cure the defect, we conclude that the trial court abused its discretion and we reverse; if not, no abuse of discretion has occurred. [Citation.] The plaintiff has the burden of proving that an amendment would cure the defect. [Citation.]" (Schifando v. City of Los Angeles (2003) 31 Cal.4th 1074, 1081.)
Discovery Rule Did Not Toll Statute of Limitations Accrual
On its face, the TAC clearly shows the limitations period has run on each of the Longs' three claims because they waited nearly eight and a half years after escrow closed on their Property to file this action. (Code Civ. Proc., § 338, subd. (d) [three-year limitations period for fraud]; § 337, subd. (1) [four-year limitations period for breach of contract]; Bus. & Prof. Code, § 17208 [four-year limitations period for unlawful business practices].) The Longs argue the discovery rule exception to the typical statute of limitations defense should apply here. We disagree.
All further statutory references are to the Code of Civil Procedure, unless otherwise indicated.
"A complaint disclosing on its face that the limitations period has expired in connection with one or more counts is subject to demurrer. [Citation.]" (Fuller v. First Franklin Financial Corp. (2013) 216 Cal.App.4th 955, 962.) Generally, a limitations period begins to run when the cause of action accrues at "'the occurrence of the last element essential to the cause of action.' [Citations.]" (Aryeh v. Canon Business Solutions, Inc. (2013) 55 Cal.4th 1185, 1191.) One exception to this general rule is the discovery rule, which "only delays accrual until the plaintiff has, or should have, inquiry notice of the cause of action." (Fox v. Ethicon Endo-Surgery, Inc. (2005) 35 Cal.4th 797, 807.) Under the discovery rule, a plaintiff must plead facts demonstrating a lack of knowledge and an inability to obtain knowledge after exercising reasonable diligence. (Lee v. Escrow Consultants, Inc. (1989) 210 Cal.App.3d 915, 920 (Lee).) "'[W]hen the plaintiff has notice or information of circumstances to put a reasonable person on inquiry, or has the opportunity to obtain knowledge from sources open to his investigation (such as public records or corporation books), the statute [of limitations] commences to run.' [Citation.]" (Ibid.)
The Longs alleged they did not, and could not, have discovered facts pertinent to their claims until "they pulled the PCOR and the CID" from the recorder's office "on January 25, 2011." They further alleged both of these documents were forged by "defendants." Notably absent from the claims in the TAC are any allegations regarding what entity or person purportedly forged the documents or why the Longs waited nearly five and a half years after they closed escrow on the Property to seek copies of the PCOR and CID. Indeed, these documents were always available to the Longs from the County. The Longs contend they did not suspect "defendants" had committed fraud, and they were under a relaxed duty to investigate because they relied on "defendants" representations who purportedly "conspired to conceal the fraud." The Longs failed to allege any misrepresentation made by Freedom that would have caused them not to file their complaint within the applicable limitations period.
The Longs cite Lee for the proposition they had a relaxed duty to investigate or suspect fraud because Freedom is an escrow company. While the general proposition may be true, Lee is readily distinguishable on its facts. In Lee, plaintiff sued the escrow company for fraud, among other things, and the trial court sustained the escrow company's demurrer without leave to amend. (Lee, supra, 210 Cal.App.3d at p. 919.) The Court of Appeal reversed, finding the fiduciary relationship between plaintiff and the escrow company relaxed plaintiff's duty to investigate the escrow company's alleged fraud. (Id. at 921.) Plaintiff's cause of action was premised on "the improper withdrawal of funds from the escrow due to an allegedly forged amendment to the escrow instructions." (Ibid.) Plaintiff also alleged he did not become suspicious about the transaction because the escrow company made assurances to him there was no problem with the deal, which turned out to be false. (Id. at pp. 921-922.) The appellate court determined plaintiff was under a relaxed duty of diligence to discover the purported fraud because the escrow holder was a fiduciary, and plaintiff was entitled to assume his escrow instructions were being followed. (Id. at p. 922.) The court noted, however, "since the fiduciary relationship between plaintiff and defendant is limited to defendant carrying out the escrow instructions, so, too, must the relaxed duty of plaintiff to inquire be limited in such a manner." (Id. at p. 921.)
Contrary to the issue in Lee, the Longs made no allegations the forged documents pertained to Freedom carrying out the escrow instructions on the Property. The Longs similarly failed to allege any specific assurances made by Freedom that prevented them from discovering the purported fraud. Quite the contrary, the Longs alleged they knew about a problem with the purchase price of their Property soon after escrow closed, when they received a property tax bill of over $18,000 in the first year. They claim, without explanation, they believed the purchase price discrepancy was the result of a "clerical error."
In sum, the delayed discovery rule does not save the Longs' claims. They bear the burden to show inability to have made earlier discovery despite reasonable diligence, and they have failed to do so. The Longs also fail to explain why they could not have requested their entire escrow file from Freedom in their October 2009 letter, or at any other point. The Longs chose to limit their request to "original mortgage documents," but should have investigated the purchase price discrepancy further given their actual notice of the defect. Indeed, the Longs fail to explain why they could not have requested the PCOR and the CID at any point in time from the County, which is ultimately how they obtained the documents. There was no impediment to obtaining the documents, and Freedom's status as an escrow company did not alleviate the Longs' responsibility of reasonable diligence. While it is likely the Longs had notice of the purchase price defect as soon as 2006, they clearly had notice of the error at the foreclosure sale in 2009 and certainly in 2010 when they filed suit against the lender and servicer for wrongful foreclosure. The three-year and four-year limitation periods on all of the Longs' claims against Freedom have expired.
Equally fatal to the Longs' argument is the fact they have completely failed to carry their burden of demonstrating how they would amend their complaint and the manner in which that amendment would change the legal effect of the pleading. (Cooper v. Leslie Salt Co. (1969) 70 Cal.2d 627, 636.) Merely insinuating wrongs allegedly committed by Freedom fails to carry this burden. (Id. at p. 637.)
Trial Court Did Not Improperly Weigh Evidence on Demurrer
"For purposes of reviewing a demurrer, we accept the truth of material facts properly pleaded in the operative complaint, but not contentions, deductions, or conclusions of fact or law. We may also consider matters subject to judicial notice." (Yvanova v. New Century Mortgage Corp. (2016) 62 Cal.4th 919, 924.) However, allegations that are contrary to the law or to a fact of which judicial notice may be taken are to be "treated as a nullity." (Fundin v. Chicago Pneumatic Tool Co. (1984) 152 Cal.App.3d 951, 955.) "If the allegations in the complaint conflict with the exhibits, we rely on and accept as true the contents of the exhibits." (SC Manufactured Homes, Inc. v. Liebert (2008) 162 Cal.App.4th 68, 83.)
The Longs claim the trial court abused its discretion by improperly weighing evidence on demurrer by determining PCOR was not a mortgage document. Not so. The Longs' TAC failed to specifically allege the PCOR and the CID were original mortgage documents. It also failed to allege Freedom was required to produce the PCOR and CID in response to the Longs' October 2009 request for original mortgage documents. At most, the TAC contained bare factual assertions and contradictory allegations the court was not required to accept as true.
The most glaring example of a contradictory allegation was the Longs sought the "entire escrow file" in their October 2009 document request to Freedom, and even attached an erroneous exhibit that purported to demonstrate a request for the entire escrow file. In reality, the request was simply for "original mortgage documents." The Longs' inconsistent allegations, the exhibits to the TAC, and the documents the court took proper judicial notice of, all demonstrate the PCOR and the CID were not original mortgage documents.
In any event, as discussed ante, the Longs were on actual notice of the property tax defect and had the burden to investigate. The PCOR and CID were available from sources other than Freedom, including the County (where the Longs obtained the copies in 2011). Even accepting all of the allegations in the TAC as true, including the conclusory and contradictory ones, the Longs may not rely on one October 2009 letter to Freedom asking for original mortgage documents to relieve them of their duty. Based upon the Longs' inconsistent pleadings and their inability to plead around the applicable statutes of limitation, the court properly sustained the demurrer without leave to amend.
DISPOSITION
The judgment is affirmed. Freedom is entitled to its costs on appeal.
O'LEARY, P. J. WE CONCUR: MOORE, J. ARONSON, J.