Sundquist v. Bank of
Filed 9/5/13 Sundquist v. Bank of America CA3
NOT TO BE PUBLISHED
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opinion has not been certified for publication or ordered published for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.
IN THE COURT OF
APPEAL OF THE STATE OF CALIFORNIA
THIRD APPELLATE
DISTRICT
(Placer)
----
ERIK SUNDQUIST et al.,
Plaintiffs and Appellants,
v.
BANK OF AMERICA,
N.A., etc.,
Defendant and Respondent.
C070291
(Super. Ct. No.
SCV0029401)
In this
action, plaintiffs Erik and Renee Sundquist sued Bank of America and various
other defendants for the consequences of a home loan they could not
afford. The
three defendants without leave to amend.
On appeal, we conclude the court erred in sustaining the demurrer as to
some of the causes of action.
Accordingly, we will reverse.
FACTUAL
AND PROCEDURAL BACKGROUND
The
Sundquists are a married couple. In July
2008, they wanted to move to a smaller
home, so they contacted defendant Christopher Harris, an employee of defendant
Ella Financial, Inc. (Ella), a mortgage loan brokerage firm, to help them
obtain a purchase money loan to buy a home on Feliz
Way in Lincoln. Harris had previously helped them obtain two
refinances and a business loan.
The
Sundquists worked with Harris from July through September to obtain the
loan. They had several telephone calls
with him each week and also faxed and e-mailed documents to him.
When they
spoke with Harris in July, the Sundquists told him they could afford a monthly
loan payment of $2,500; Harris told them he could obtain a loan with that
payment amount. He told them to pay off
their Wells Fargo credit card and their Suburban to reduce their debt so they
would qualify for the loan.
Between
July and September, the terms of the proposed loan, including the interest
rate, were constantly changing. The
first loan Harris presented to the Sundquists was completely different from the
loan they eventually agreed to. The
Sundquists found themselves asking, “ ‘what happened to the loan presented to
us last week?’ â€
The
Sundquists were not happy with the loan they eventually agreed to, but Harris
told them they should just take the loan and get into the new house, and they
could refinance or modify the loan immediately.
During the last few weeks leading up to closing, they felt rushed
because they were told someone else was going to purchase the house with cash
and they would lose it.
As the
closing of the loan neared, the Sundquists began communicating directly with
defendant Mary Kennaugh, a representative of the lender Harris had secured for
them, defendant Mission Hills Mortgage Bankers (Mission Hills). Initially, Kennaugh requested information
about the Sundquists from Harris, but because Harris constantly delayed in responding,
Kennaugh and the Sundquists decided to communicate directly with each
other.
Kennaugh
completed the Sundquists’ uniform residential loan application for them. Kennaugh overstated their income in the
application as being $20,943 per month when she knew it was far less. (Erik, who owned a construction company and a
real estate company, made about $12,000 a month and Renee was a stay-at-home
mother.)
In the end,
the Sundquists borrowed $587,250 from Mission Hills in September 2008 to
purchase the home on Feliz Way. They made a down payment of $125,000. The closing of the loan transaction occurred
at a title company office. The entire
process took about 15 to 20 minutes. No
one explained the terms and consequences of the loan to them, and they did not
have an opportunity to ask questions.
The notary simply told them where they should sign.
The loan
was for 30 years at a fixed interest rate of 6 percent and was secured by a
deed of trust on the property. The
beneficiary of the deed of trust was Mortgage Electronic Registration Systems,
Inc. (MERS) acting as nominee for Mission Hills and its successors and
assigns. The loan was an FHA loan, which
Harris had told them was much easier to modify than a conventional loan.
The monthly
payment on the loan was about $4,500 per month, which was more than the payment
on their previous home. In January 2009,
the Sundquists contacted defendant Bank of America to modify the loan,
but the bank stated that it would not consider a loan modification unless the
Sundquists were in default. To obtain a
loan modification, the Sundquists stopped making their monthly loan
payments. In April 2009, the Sundquists
hired a company to help them obtain a loan modification. Throughout the summer, the Sundquists believed
the company was communicating with Bank of America and had submitted all of
their financial information to obtain a modification. When Renee called Bank of America, however,
the bank said nothing had been done.
In July
2009, a notice of default was recorded
against the house by defendant ReconTrust Company acting as agent for MERS as
the beneficiary under the deed of trust.
The notice stated that the Sundquists were more than $25,000 behind on
their loan payments.
In late
September or early October 2009, Bank of America sent a letter to the
Sundquists informing them that they did not qualify for a loan modification
because their income was too high. After
reviewing some documents, however, the Sundquists realized the loan
modification company had overstated some of their assets, such that the bank
was under the misimpression that they were still making payments on their old
home, some previously owned business real estate, and an airplane. The old home and the business real estate had
both been sold through short sales. The
Sundquists worked with Bank of America to clarify their financial status.
In late
October 2009, ReconTrust recorded a notice of trustee’s sale indicating the
house was to be sold at public auction on November 12. That sale apparently did not go forward,
however. Meanwhile, the Sundquists
remained in contact with Bank of America.
In the
spring of 2010, the Sundquists began working with another company to get a loan
modification. The Sundquists spoke to
Bank of America and provided financial information over the phone. The bank told them, however, that the bank
could not move forward with the loan modification because the arrears were too
high and they were too far in default.
On June 15,
2010, the Sundquists filed for chapter 13 bankruptcy and began making payments
to the bankruptcy trustee for the loan.
That same day, ReconTrust executed a trustee’s deed upon sale to
defendant BAC Home Loans Servicing, LP, formerly known as Countrywide Home
Loans Servicing LP (BAC). Also on that
day, MERS assigned its interest in the deed of trust and the underlying
promissory note to BAC. Both documents
were notarized on June 23 and recorded on June 25.
In July
2010, BAC commenced proceedings to evict the Sundquists from the house. The Sundquists contacted Bank of America, and
the bank admitted the house was sold in error while the Sundquists were in
bankruptcy, but fearing they would be kicked out anyway, the Sundquists moved
out of the house and into a rental home in September 2010. After they moved out, the locks were changed
and “no trespassing†signs were posted on the windows.
In December
2010, a notice rescinding the trustee’s deed upon sale was recorded. The Sundquists did not move back, however,
because the locks had been changed and their children were going to new
schools.
In June
2011, the Sundquists commenced this action by filing a complaint for damages
and equitable and injunctive relief against Mission Hills, Ella, Harris,
Kennaugh, ReconTrust, Bank of America, and BAC.
As relevant here, the complaint alleged four causes of action against
Bank of America as the successor to Mission Hills: deceit, breach of fiduciary
duty, aiding and abetting breach of fiduciary duty, and negligence. The complaint also included Bank of America
as a defendant in a cause of action for civil conspiracy. A cause of action for promissory estoppel was
alleged against BAC, while a cause of action for wrongful foreclosure was
alleged against BAC and ReconTrust.
Finally, all three of these defendants (Bank of America, BAC, and
ReconTrust) were named as defendants in a cause of action for unlawful, unfair
and/or fraudulent business practices under Business and Professions Code
section 17200 (hereafter, unfair competition).
With
respect to Bank of America being the successor to Mission Hills, the complaint
alleged that Bank of America “was the purported to subsequent successor and
assignor of the Subject Loan are [sic]
liable for all acts of MISSION HILLS based on successor liability law and
particularly because it assumed all liability of the original lender by the
terms of which it succeeded to the Subject Loan.†The complaint also alleged that Bank of
America “is liable for all misconduct as successor in interest to MISSION HILLS. Specifically, [Bank of America] assumed all
liabilities on the loan in its purchase of the loan from MISSION HILLS.â€
The deceit
cause of action alleged that Harris had misrepresented to the Sundquists that
they “could refinance or modify immediately after obtaining the loan†and that
Harris or Kennaugh had misrepresented “that the loan application prepared by
Defendant correctly stated the [Sundquists’] income.†The civil conspiracy cause of action alleged
that the various defendants “conspired and agreed to implement a scheme to
defraud and victimize [the Sundquists] through the predatory lending practices
and other unlawful conduct alleged herein.â€
The breach of fiduciary duty cause of action was based on the same two
misrepresentations as the deceit cause of action, as well as Harris’s failure
to disclose that Ella and Harris “received a financial benefit from the lender
MISSION HILLS for convincing [the Sundquists] to sign the loans with their
particular terms.†The negligence cause
of action was likewise based on the origination of the loan.
The
promissory estoppel cause of action alleged that BAC “stated they would not
consider a modification until [the Sundquists] defaultedâ€; the Sundquists
relied on that statement by ceasing to make their monthly loan payments; and
the Sundquists were injured because they were denied the loan modification,
“wasted time repeatedly calling Defendants’ agents,†and “will lose their home
and it will be unlikely that [they] will be able to purchase a new home.â€
Bank of
America, acting for itself and as successor by merger to BAC, and ReconTrust,
demurred to the complaint. With respect
to the first six causes of action (all but the
foreclosure claims), which Bank of America characterized as “relat[ing]
entirely to the loan’s origination,†Bank of America asserted that it could not
be held liable for conduct in which it did not take part based on “[a]
conclusory allegation that [Bank of America] simply assumed [Mission Hills’]
liability when it was assigned the loan.â€
Bank of America also asserted that:
(1) the deceit claim failed because the Sundquists did not allege
detrimental reliance or damages; (2) the conspiracy claim failed because they
did not allege any underlying wrongdoing; (3) the breach of fiduciary duty and
aiding and abetting breach of fiduciary duty claims failed because the bank did
not owe the Sundquists a fiduciary duty; (4) the negligence claim failed
because the bank did not owe the Sundquists a legal duty and because it was
time-barred; (5) the unfair competition claim failed because they did not
allege wrongful conduct and lacked standing; (6) the promissory estoppel claim
failed because the Sundquists did not allege promissory estoppel; and (7) the
wrongful foreclosure claim failed because they did not allege tender, they did
not allege that the bank had notice of the bankruptcy, and the court lacked
jurisdiction over that claim.
The trial
court sustained the demurrer on all of the grounds asserted by the bank and,
finding that the Sundquists had “failed to make a showing that the amendments
they suggest would change the legal effect of the pleading,†denied them leave
to amend. A judgment of dismissal was entered
on November 10, 2011. The Sundquists
timely appealed.
DISCUSSION
I
“On appeal
from a judgment dismissing an action after sustaining a demurrer without leave
to amend, the standard of review is well settled. The reviewing court gives the complaint a
reasonable interpretation, and treats the demurrer as admitting all material
facts properly pleaded.
[Citations.] The court does not,
however, assume the truth of contentions, deductions or conclusions of
law. [Citation.] The judgment must be affirmed ‘if any one of
the several grounds of demurrer is well taken.
[Citations.]’ [Citation.] However, it is error for a trial court to
sustain a demurrer when the plaintiff has stated a cause of action under any
possible legal theory. [Citation.] And it is an abuse of discretion to sustain a
demurrer without leave to amend if the plaintiff shows there is a reasonable
possibility any defect identified by the defendant can be cured by
amendment.†(Aubry v. Tri-City Hospital Dist. (1992) 2 Cal.4th 962, 966-967.)
II
With
respect to the first six causes of action (deceit, civil conspiracy, breach of
fiduciary duty, aiding and abetting breach of fiduciary duty, negligence, and
unfair competition), the trial court found that the Sundquists had “set[] forth
no factual or legal authority for the conclusory allegation that Bank of
America assumed liability for affirmative causes of action related to the
origination of the loan when it became successor and assignor of the subject
loan.â€
tort or statutory liability the original lender, Mission Hills, may have had to
the Sundquists with relation to the origination of the loan, the Sundquists had
not adequately alleged (or shown that they could adequately allege) a factual
basis for concluding that Bank of America assumed or succeeded to that
liability.
On appeal,
the Sundquists contend the trial court erred because they alleged in their
complaint that Bank of America was liable for the wrongdoing of Mission Hills “
‘based on successor liability law,’ †because the bank “ ‘assumed all liability
of [Mission Hills] by the terms of which it succeeded to the Subject Loan,’ â€
and because the bank “ ‘assumed all liabilities on the loan in its
purchase of the loan from MISSION HILLS.’ †In their view, these allegations were
“neither conclusory nor do[ they] lack sufficient facts.â€
The
Sundquists’ allegation that Bank of America was “liable for all acts of MISSION
HILLS based on successor liability law†is not an allegation of fact; rather,
it is a conclusion of law. As such, we
disregard it for purposes of assessing the sufficiency of the Sundquists’
complaint. (See Aubry v. Tri-City Hospital Dist., supra, 2 Cal.4th at p. 967.)
That leaves the allegations that the bank “assumed all liabilities on
the loan in its purchase of the loan from MISSION HILLS†and that the bank
“assumed all liability of the original lender by the terms of which it
succeeded to the Subject Loan.†Taken
together, and giving them “a liberal construction with a view to substantial
justice between the parties†(Miglierini
v. Havemann (1966) 240 Cal.App.2d 570, 572), these allegations can be read
to assert that pursuant to the specific terms under which Bank of America
purchased the Sundquists’ loan from Mission Hills, Bank of America agreed to
assume all liability to which Mission
Hills was subject in connection with that loan.
Such a broad assumption of liability would include tort liability
arising from the conduct of Mission Hills and/or its agents in the origination
of the loan.
Defendants
admit that “the tort liability of one corporation can be ‘assumed voluntarily
by contract’ by another corporation.â€
(See Henkel Corp. v. Hartford
Accident & Indemnity Co. (2003) 29 Cal.4th 934, 941.) They contend, however, that “the Sundquists
fail to identify a contract through which Bank of America assumed liability for
Mission Hills’ torts.†But as we have
explained, the allegations of Sundquists’ complaint, liberally construed, can
be read to assert that Bank of America assumed this liability under the terms
of the agreement by which it purchased the loan from Mission Hills.
Bank of
America points to the assignment of the deed of trust by which MERS assigned
its interest in the deed of trust and the underlying note to BAC in June 2010
and contends that this assignment “does not . . . contain any language through
which Bank of America could be found to have ‘assumed liability’ for the torts of Mission Hills.†The Sundquists did not allege, however, that
this assignment document was the means by which Mission Hills sold the
Sundquists’ loan to Bank of America, so the absence of assumption of liability
language in this particular document does not preclude the possibility -- as
suggested by the Sundquists’ allegations -- that the actual purchase of the
loan by Bank of America occurred through some other vehicle that
The
conclusion that the assignment of deed of trust document was not the means by
which Mission Hills transferred the Sundquists’ loan to Bank of America is also
supported by the fact that the deed of trust itself provided that MERS was
“acting solely as nominee for Lender and Lender’s successors and assigns†in
serving as the beneficiary of the deed of trust. None of the documents appended to the
complaint, nor any of the allegations of the complaint, suggest that the loan
itself was ever transferred to MERS. Instead,
from all that can be determined at this time, MERS was acting as beneficiary
under the deed of trust solely as “nominee†for Mission Hills
assigns.†Thus, it is entirely possible
that Mission Hills sold the loan to Bank of America by means of some other
agreement, and even after that transfer MERS continued to act as “nominee†--
now on behalf of Bank of America instead of Mission Hills -- until June 2010,
when MERS assigned its interest in the deed of trust and the note to BAC.
In short,
the allegations of the Sundquists’ complaint, sparse though they are, suffice
to allege that Bank of America assumed any liability Mission Hills had with
respect to the origination of the Sundquists’ loan. Accordingly, the demurrer to the first six
causes of action was not properly sustained on this basis.
III
The trial
court concluded that the Sundquists had failed to state a cause of action for
deceit because they did not “allege any misrepresentations . . . upon
which [they] justifiably relied, and
were damaged. . . . [¶] As plaintiffs signed the loan application,
statements therein are their representations, not defendants’. The loan application exists to protect the
lender, not the borrower. [Citation.] Statements that plaintiffs would be able to
later modify or refinance the loan are statements of opinion, and refer to a
future fact. A misrepresentation must be
as to a past or existing fact in order to be actionable.â€
On appeal,
the Sundquists contend the trial court erred in finding that the representation
that their income was correctly stated in the loan application was not
actionable because “the broker has a duty not to make false material
statements†and “[t]he existence of a confidential relationship may justify
reliance upon oral misrepresentation of the terms of a contract.â€
The trial
court’s ruling on this point was based on the understanding that the Sundquists
were complaining solely about the representation in the loan application that their income was greater than it
actually was. If that understanding were
correct, then the trial court’s ruling would likewise be correct, because a
statement in a loan application is not a statement by the lender to the
borrowers, but instead is a statement by
the borrowers to the lender, and
obviously a person cannot complain that a statement he made to someone else was
fraudulent. What the Sundquists’
complaint alleged, however, was that either Harris or Kennaugh expressly
misrepresented to them “that the loan
application prepared by [Kennaugh] correctly stated [their] income.†Liberally construed, the complaint further
alleged that the Sundquists relied on this representation by signing the loan
application without reading it (assuming it was in the packet of loan documents
they signed). And the complaint alleged
that if their income had not been inflated in the loan application, the loan
might not have been approved and they would not have suffered the resulting
negative consequences. We conclude these
allegations are sufficient to state a cause of action for deceit.
The Sundquists
also contend the trial court erred in finding that the representation about
their ability to modify or refinance the loan was not actionable. On this point, we also agree.
“To be
actionable, a . . . misrepresentation must ordinarily be as to past or existing
material facts. ‘[P]redictions as to future events, or statements as to future
action by some third party, are deemed opinions, and not actionable fraud.’
†(Tarmann
v. State Farm (1991) 2 Cal.App.4th 153, 158.) “As a general rule the expression of an
opinion cannot constitute fraud.
However, this is not a hard and fast rule.†(Daniels
v. Oldenburg (1950) 100 Cal.App.2d 724, 727.) A person “may not justifiably rely upon mere
statements of opinion, including legal conclusions drawn from a true state of
facts [citations], unless the person expressing the opinion purports to have
expert knowledge concerning the matter or occupies a position of confidence and
trust.†(Seeger v. Odell (1941) 18 Cal.2d 409, 414.)
Relying on
this rule, the Sundquists argue that Harris, the person who told them they
would be able to refinance or modify the loan immediately, “occupied a position
of confidence and trust.†Defendants
offer no argument on this point.
Liberally construing the complaint, we believe the Sundquists have
adequately alleged a cause of action for deceit based on Harris’s statement to
them about the modifiability of the loan he had secured for them from Mission
Hills. They had worked with Harris
before in securing several other loans, and he was acting as their agent in
securing this loan. When they expressed
dissatisfaction with the proposed loan from Mission Hills, Harris told them
they should just take the loan and get into the new house, and they could
refinance or modify the loan immediately.
Having worked with him before, the Sundquists trusted his statements and
believed them to be true and relied on those statements in agreeing to the
loan. As a result, they found themselves
in a loan “they were unable to afford.â€
The negative consequences that followed have been detailed above.
For the
foregoing reasons, we conclude the trial court erred in sustaining the demurrer
to the Sundquists’ cause of action for deceit.
IV
The
Sundquists’ second cause of action alleged that defendants “conspired and
agreed to implement a scheme to defraud and victimize [the Sundquists] through
the predatory lending practices and other unlawful conduct alleged
herein.†Obviously this allegation encompassed
the misrepresentations alleged as the basis for the Sundquists’ cause of action
for deceit.
The trial
court concluded that the Sundquists had not stated a cause of action for civil
conspiracy because they did not “adequately establish a wrongful act that would
support a cause of action without the conspiracy.†This conclusion was apparently based on the
fact that the court had already found that the Sundquists had not stated a
cause of action for deceit. We have
concluded otherwise.
Nevertheless,
“[i]n order to state a cause of action based upon a conspiracy theory the
plaintiff must allege the formation and operation of the conspiracy, the
wrongful act or acts done pursuant to it, and the damage resulting from such
acts. [Citation.] In making such allegations bare legal
conclusions, inferences, generalities, presumptions, and conclusions are
insufficient.†(Nicholson v. McClatchy Newspapers (1986) 177 Cal.App.3d 509, 521.)
Here, the
Sundquists’ allegations of a conspiracy to defraud them amount to no more than
bare legal conclusions. As such, they
are insufficient to withstand demurrer.
Accordingly, the trial court did not err in sustaining the demurrer to
the cause of action for civil conspiracy.
V
The trial
court concluded the Sundquists had failed to state a cause of action for breach
of fiduciary duty because “there is no fiduciary relationship between a
borrower and lender.†On appeal, the
Sundquists assert that “the breach of fiduciary duty was by the broker to
[them] and the liability of the lender [is] based upon their principal/agen[t]
relationship.†Defendants do not address
this point.
In the
trial court, defendants asserted that “[a]s a matter of law, an independent
broker is the borrower’s agent, and does not act for other parties such as lenders
or loan servicers.†The case law
defendants cited, however, provides only that “[a] mortgage loan broker is
customarily retained by a borrower to act as the borrower’s agent in
negotiating an acceptable loan.†(
Cal.3d 773, 782, italics omitted.)
Defendants did not point to any law that necessarily
agent of both the borrower and the lender.
Here, the
Sundquists alleged that there was an agency agreement between Ella and Mission
Hills under which Mission Hills authorized Ella “to represent and bind MISSION
HILLS in the . . . loan transaction.â€
The complaint further alleged that an agency relationship exists because
Mission Hills “directed and authorized the broker’s conduct in connection with
the . . . loan by directing the broker concerning what to tell [the Sundquists]
and prospective borrowers to induce them to enter into the . . . loan with the
bank.†The complaint also contained
numerous other allegations supporting the existence of an agency relationship
between Ella and Mission Hills.
We are
apprised of no authority that precluded Mission Hills from being held
vicariously liable for a breach of fiduciary duty owed by its agent, Ella, to
the Sundquists. And if Mission Hills
could be held liable for that breach, then Bank of America could have assumed
that liability from Mission Hills, as the Sundquists have alleged. For this reason, the trial court erred in
sustaining the demurrer to the cause of action for breach of fiduciary duty.
VI
The trial
court concluded the Sundquists had failed to state a cause of action for aiding
and abetting a breach of fiduciary duty because they “fail[ed] to allege
defendants knew the broker’s conduct constituted a breach of duty and gave
substantial assistance, or that the bank’s own conduct, separately considered,
constituted a breach of duty.†On this
point, the trial court was mistaken.
“California
has adopted the common law rule for subjecting a defendant to liability for
aiding and abetting a tort. ‘ “Liability
may . . . be imposed on one who aids and abets the commission of an intentional
tort if the person (a) knows the other’s conduct constitutes a breach of duty
and gives substantial assistance or encouragement to the other to so act or (b)
gives substantial assistance to the other in accomplishing a tortious result
and the person’s own conduct, separately considered, constitutes a breach of
duty to the third person.†’ †(
Cal.App.4th 1138, 1144.)
As the
Sundquists point out, their complaint expressly alleged that “[d]efendants knew
about one another’s breaches of fiduciary duties owed to [the Sundquists]†and
“[n]onetheless . . . actively, substantially and substantively assisted, aided,
abetted, and advanced one another’s fiduciary breaches by committing the
conduct set forth herein above and below.â€
This allegation was adequate to satisfy the first part of the test set
forth in Casey.
Defendants
contend that the foregoing allegations “fail[ed] to specify any actions Bank of
America took . . . in assistance of any breach of fiduciary duty by the
Sundquists’ broker during the origination of their loan. Nor can they--the Sundquists admit that Bank
of America had no involvement in the origination of their loan.†The flaw in this argument is that the
Sundquists expressly premised Bank of America’s liability for aiding and
abetting a breach of fiduciary duty on the bank’s status as the successor to
Mission Hills, not on the bank’s own actions.
As the original lender, Mission Hills was unequivocally involved in the
origination of the Sundquists’ loan. If
Mission Hills aided and abetted a breach of fiduciary duty in originating the
loan, then Bank of America could have assumed that liability from Mission
Hills, as the Sundquists have alleged.
For this reason, the trial court erred in sustaining the demurrer to the
cause of action for aiding and abetting a breach of fiduciary duty.
VII
The trial
court concluded the Sundquists had failed to state a cause of action for
negligence because “the allegations of the complaint show that this cause of
action is time-barred, and [the Sundquists] fail to specifically allege facts
justifying tolling. [Citation.] Further, [the Sundquists] do not allege that
demurring defendants owed them a duty of care.
A lender does not owe a duty of care to a borrower where the
institution’s involvement in the loan transaction does not exceed the scope of
its conventional role as a mere lender of money.â€
On the
statute of limitations issue, the Sundquists contend (essentially) that they
did not discover, and could not have discovered, their cause of action for
negligence any earlier than October 2009, when Bank of America sent them a
letter telling them they did not qualify for a loan modification because their
income was too high. Thus, according to
them, their complaint filed in June 2011 was “well within the statutory
period.†We disagree.
“Generally
speaking, a cause of action accrues at ‘the time when the cause of action is
complete with all of its elements.’
[Citations.] An important
exception to the general rule of accrual is the ‘discovery rule,’ which
postpones accrual of a cause of action until the plaintiff discovers, or has
reason to discover, the cause of action.
[Citations.]
“A
plaintiff has reason to discover a cause of action when he or she ‘has reason
at least to suspect a factual basis for its elements.’ [Citations.]
Under the discovery rule, suspicion of one or more of the elements of a
cause of action, coupled with knowledge of any remaining elements, will
generally trigger the statute of limitations period. . . . Rather than examining whether the plaintiffs
suspect facts supporting each specific legal element of a particular cause of
action, we look to whether the plaintiffs have reason to at least suspect that
a type of wrongdoing has injured them.â€
(Fox v. Ethicon Endo-Surgery, Inc.
(2005) 35 Cal.4th 797, 806-807.)
Here, the
Sundquists’ negligence cause of action was premised on the allegation that
Mission Hills made a loan to them that they could not afford knowing the loan
was based on an inaccurate and overstated income figure. Although the Sundquists contend they “could
not have discovered the fraud merely by reviewing the documents,†they had to
have known -- or, at the very least,
they had reason to suspect -- no later than when they signed the loan documents
that the monthly loan payment was nearly twice as much as what they had said
they could afford. Also, had they read
the loan application when they signed it -- which they do not allege they were
prevented from doing -- they would have known that it overstated their income. On the facts alleged here, the limitations period
on any negligence cause of action the Sundquists may have had against Mission
Hills began to run no later than when the loan closed in September 2008. Because the Sundquists do not dispute that a
negligence cause of action in this situation is subject to a two-year
limitations period, the statute of limitations ran in September 2010, long
before the Sundquists filed their complaint in June 2011. Accordingly, the trial court properly
sustained the demurrer to the negligence cause of action.
VIII
The trial
court concluded that the Sundquists had failed to state a cause of action for
promissory estoppel because “there is no obligation on loan services to modify
borrowers’ loans. [Citations.] Defendants’ purported promise to consider
[the Sundquists for a loan modification] was at best a conditional promise
which is not clear and unambiguous in its terms. [Citation.]
Further, the allegations of the complaint show that [the Sundquists]
were considered for modification.â€
On appeal,
the Sundquists assert that “a bank or servicer may be held liable for inducing
actions with a promise of a negotiated loan modification.†In support of this assertion, they cite
Cal.App.4th 218.
“ ‘The elements of a promissory estoppel claim
are “(1) a promise clear and unambiguous in its terms; (2) reliance by the
party to whom the promise is made; (3) [the] reliance must be both
reasonable and foreseeable; and (4) the party asserting the estoppel must be
injured by his reliance.†’ †(
Health Services (2010) 182 Cal.App.4th 1661, 1672.)
In
plaintiff had stated a cause of action for promissory estoppel under the
following circumstances: “[P]laintiff, a
married woman, obtained an adjustable rate loan from a bank to purchase real
property secured by a deed of trust on her residence. About two years into the loan, she could not
afford the monthly payments and filed for bankruptcy under chapter 7 of the
Bankruptcy Code [citation]. She intended
to convert the chapter 7 proceeding to a chapter 13 proceeding [citation] and
to enlist the financial assistance of her husband to reinstate the loan, pay
the arrearages, and resume the regular loan payments.
“Plaintiff
contacted the bank, which promised to work with her on a loan reinstatement and
modification if she would forgo further bankruptcy proceedings. In reliance on that promise, plaintiff did
not convert her bankruptcy case to a chapter 13 proceeding or oppose the bank’s
motion to lift the bankruptcy stay.
While the bank was promising to work with plaintiff, it was
simultaneously complying with the notice requirements to conduct a sale under
the power of sale in the deed of trust, commonly referred to as a nonjudicial
foreclosure or foreclosure. [Citation.]
“The
bankruptcy court lifted the stay. But
the bank did not work with plaintiff in an attempt to reinstate and modify the
loan. Rather, it completed the
foreclosure.†(Aceves v. U.S. Bank N.A., supra,
192 Cal.App.4th at p. 221.)
Here, the
Sundquists claim they, too, have stated (or can state) a valid cause of action
for promissory estoppel because they “have alleged and can further allege that
Defendants misled them with the false promise of negotiating in good faith a
loan modification and failing to do so.â€
In fact, that is not what the
Sundquists have alleged. What they have
alleged is that BAC “stated [it] would not consider a modification until [they]
defaulted†on the loan. Such a statement
is not a promise clear and unambiguous in its terms, like the bank’s promise in
Aceves to “ ‘work with [Aceves] on a
mortgage reinstatement and loan modification’ if she no longer pursued relief
in the bankruptcy court.†(
The
Sundquists assert, however, that they “can further allege†a “false promise of
negotiating in good faith a loan modification.â€
Thus, they claim they can amend their complaint to state a valid cause
of action for promissory estoppel.
Defendants
contend that even with this new allegation, “the promissory estoppel cause of
action would still fail because the Sundquists cannot allege that Bank of
America breached such a promise.â€
According to defendants, the existing allegations of the complaint
“refute any notion that Bank of America failed to act in good faith.†We disagree.
The
allegations to which defendants refer are the following:
“In April
2009, Plaintiffs hired ProCity to help them modify their loan. Throughout the summer, ProCity supposedly
communicated with Bank of America and submitted all of Plaintiffs’ financial
information to obtain a modification.
“[¶] . . .
[¶]
“Around
late September and early October 2009, Bank of America sent a letter to
Plaintiffs stating that they did not qualify for a modification, because
Plaintiffs’ income was too high.
“[¶] . . .
[¶]
“Plaintiffs
worked with Bank of America to try to clarify their financial status.
“[¶] . . .
[¶]
“In Spring
2010, Plaintiffs worked with [a] HUD-approved agency, NID Housing Counseling,
to get a modification. They took
Plaintiffs’ financial information and said that they looked good to get a
modification. Plaintiffs spoke to Bank
of America and provided financial information over the phone. However, they were told that since the
arrears were too high and they were too far in default, Bank of America could
not move forward with the modification.â€
Contrary to
defendants’ assertions, the foregoing allegations do not “refute any notion that Bank of America failed to act in good
faith.†In fact, these allegations say
BAC fairly and reasonably considered the Sundquists for a loan
modification. All that the complaint
currently alleges is that the Sundquists asked the bank to modify their loan
but the bank twice refused to do so.
Whether the bank acted in good faith in considering the Sundquists’
requests before denying them is simply beyond the existing allegations.
Based on
the Sundquists’ representation that they “can . . . allege that Defendants
misled them with the false promise of negotiating in good faith a loan
modification and failing to do so,†we believe the Sundquists have shown that
they can amend their complaint to state a valid cause of action for promissory
estoppel. The gist of that cause of
action would be this: The bank told the
Sundquists that if they stopped making the payments on their existing loan, the
bank would consider in good faith a modification of that loan. The Sundquists reasonably and foreseeably
relied on that promise by stopping their loan payments in January 2009 and
attempting to obtain a modification from the bank. The bank, however, never considered the
Sundquists in good faith for a modification of their loan, and they were
injured to their detriment because the bank ultimately told them they did not
qualify for a modification because they were too far in arrears -- a situation
that existed only because they stopped making their loan payments in reliance
on the bank’s promise to consider them for a loan modification in good faith.
Because it
appears the Sundquists can amend their complaint to state a valid cause of
action for promissory estoppel, the trial court abused its discretion in
denying them leave to do so.
IX
The trial
court concluded the Sundquists had failed to state a cause of action for
wrongful foreclosure because they “failed to allege tender of the obligation in
full. [Citation.] To the extent [the Sundquists] allege that
their cause of action for wrongful foreclosure is based on an improper
violation of the bankruptcy stay, such claim must be raised in bankruptcy
court.â€
On appeal,
the Sundquists assert that the “argument that this cause of action must be
adjudicated by a bankruptcy court is a red herring.†According to them, the exclusive jurisdiction
of the bankruptcy court was limited to rescinding the trustee’s sale that was
conducted in violation of the bankruptcy stay.
A claim for damages suffered as a result of the wrongful sale, they
contend, is not within the bankruptcy court’s exclusive jurisdiction because
such a claim “requires the application of State law.†More specifically, the Sundquists contend
their “claims are for violation of Civil Code section 2924 for wrongful
foreclosing on [their] home when they had no authority to do so.â€
Citing
several cases, defendants assert that “[a] cause of action arising from a
purported violation of an automatic bankruptcy stay under Title 11 must be
raised in the bankruptcy court; state courts do not have jurisdiction over such
claims.†Although we do not find the
cases defendants cite particularly persuasive on this point, we ultimately
agree that exclusive jurisdiction over the Sundquists’ wrongful foreclosure
claim lay in federal court.
In the
first case defendants cite, In re Gruntz
(9th Cir. 2000) 202 F.3d 1074, a father who had failed to pay his child support
obligation was convicted of a misdemeanor in state court
County. (Id. at p. 1077.) The father
filed an adversary proceeding against the county in his ongoing bankruptcy “to
declare the state criminal proceedings void as violative of the automatic stay
imposed under 11 U.S.C. § 362.†(
dismissed the complaint as collaterally estopped by the state judgment†and
“[o]n appeal, the district court affirmed the dismissal . . . .†(Id.
at pp. 1077-1078.)
On appeal,
the Ninth Circuit defined one of the issues before it as “whether a state court
modification of the bankruptcy automatic stay binds federal courts.†(In re
Gruntz, 202 F.3d at p. 1077.) The
county argued that “the state court’s judgment [in the criminal case] included
a determination that the automatic stay did not enjoin the state criminal
proceedings. Therefore, the County
reason[ed], if a state court has concluded that the bankruptcy automatic stay
does not apply, the resulting state judgment divests federal courts of
jurisdiction to consider that question.â€
(Id. at p. 1078.) In the course of rejecting this argument, the
court noted that “[n]ot all matters related to bankruptcies fall within the
orbit of those subject to federal plenary power.†(In re
Gruntz, 202 F.3d at p. 1080.)
Nevertheless, the court held that “[b]ecause of the bankruptcy court’s
plenary power over core proceedings, the County’s argument that states have
concurrent jurisdiction over the automatic stay under 28 U.S.C. § 1334(b) is
unavailing.†(Gruntz, at pp.
1082-1083.) Accordingly, the court held
“that federal courts are not bound by state court modifications of the
automatic stay.†(Id. at p. 1077.)
In our
view, nothing in Gruntz supports the
defendants’ argument that the bankruptcy courts have exclusive jurisdiction
over a cause of action arising from a violation of the automatic bankruptcy
stay. In fact, Gruntz does not speak at all,
directly or indirectly, to whether a cause of action for damages based on a
defendant’s violation of the automatic stay must be brought in the bankruptcy
court or may be brought in state court instead.
B. R. 907 is of little more assistance to defendants. In Davis,
a chapter 13 debtor brought an adversary proceeding in the bankruptcy court
alleging willful violation of the automatic stay based on postpetition
foreclosures. (Id. at pp. 909-910.) After
the bankruptcy was dismissed based on the debtor’s failure to propose a
feasible plan of reorganization, the defendants in the adversary proceeding
moved to dismiss the proceeding for lack of subject-matter jurisdiction. (Id.
at p. 910.) The bankruptcy court granted
the motion (albeit on a different ground).
(Ibid.)
On appeal,
the court held that “[t]he bankruptcy court had subject-matter jurisdiction
over all claims alleging willful violation of the automatic stay. Bankruptcy courts have jurisdiction over ‘all
civil proceedings arising under title 11, or arising in or related to cases
under title 11.’ [Citation.] Appellant’s action for willful violation of
the automatic stay is created by [former] section 362(h) of title 11 of the
United States Code [now, 362(k)]. Thus,
the action arises under title 11 and is within the subject-matter jurisdiction
of the bankruptcy court.â€
name="_ftnref3" title="">[3] (In re
Davis, supra, 177 B. R. at p.
912.)
To say, as
the appellate panel did in Davis,
that the bankruptcy court has subject-matter jurisdiction over a particular
type of claim is not to say that the court has such jurisdiction
have jurisdiction over an action for willful violation of the automatic stay
arising under the United States Code does not mean, necessarily, that state
courts do not have concurrent jurisdiction over actions for wrongful
foreclosure premised on violation of the stay.
Accordingly, Davis does not
directly support defendants’ assertion here that a cause of action for damages
based on violation of the automatic stay must be brought in bankruptcy court.
Next,
defendants rely on Abdallah v. United
Savings Bank (1996) 43 Cal.App.4th 1101.
the plaintiffs sued the defendants in state court on various tort claims,
including “claims that [certain real] property was improperly sold in violation
of the automatic stay.†(
following the sustaining of the defendants’ demurrers, the appellate court
concluded “there was no violation of the automatic stay.†(Id.
at p. 1109.) The court then stated as
follows: “Even if the foreclosure had
violated the stay, appellants would have been required to raise that claim in
the bankruptcy court. ‘The bankruptcy court
ha[s] jurisdiction over all claims alleging willful violation of the automatic
stay.’ [Citation.] The existence of a federal remedy for
violation of the stay must be read as an implicit rejection of state court
remedies.†(Ibid.)
In support
of the quoted language regarding the bankruptcy court’s jurisdiction, the
v. United Savings Bank, supra, 43
Cal.App.4th at p. 1109.) As we have
seen, Davis does not speak to the
courts. For its assertion that the
existence of a federal remedy (in bankruptcy court) necessarily implies a
rejection of a remedy in state court, the Abdallah
court cited Idell v. Goodman (1990)
224 Cal.App.3d 262, 270-271.
Accordingly, we turn to that case.
“In
brought an unsuccessful adversary proceeding in bankruptcy court under 11
United States Code section 727(a), alleging the plaintiff’s debts should not be
discharged. The plaintiff then sued
defendants in state court for malicious prosecution of that adversary
proceeding. [Citation.] In holding no state court action could be
maintained, the court in Idell
stated: ‘The existence of federal
sanctions for the filing of frivolous and malicious bankruptcy pleadings must
be read as an implicit rejection of state court remedies. The mere possibility of being sued in tort in
state court, with the potential for substantial damage awards, could deter
persons from exercising their rights in bankruptcy. Thus, it is for Congress and the federal
courts, not state courts, to decide what incentives and penalties shall be
utilized in the bankruptcy process.’ †(
365, 377-378, quoting Idell v. Goodman,
supra, 224 Cal.App.3d at p. 271.)
The court
in Idell drew its rationale for its
ruling from Gonzales v. Parks (9th
Cir. 1987) 830 F.2d 1033, “which upheld a bankruptcy judge’s order vacating a
state court judgment for abuse of process obtained by a bankruptcy creditor
against a debtor.†(
Idell quoted from
matter of exclusive federal jurisdiction.
State courts are not authorized to determine whether a person’s claim
for relief under a federal law, in a federal court, and within that court’s
exclusive jurisdiction, is an appropriate one . . . . That Congress’ grant to the federal courts of
exclusive jurisdiction over bankruptcy petitions precludes collateral attacks
on such petitions in state courts is supported by the fact that remedies have
been made available in the federal courts to creditors who believe that a
filing is frivolous. Debtors filing
bankruptcy petitions are subject to a requirement of good faith [citations],
and violations of that requirement can result in the imposition of sanctions
[citations]. Congress’ authorization of
certain sanctions for the filing of frivolous bankruptcy petitions should be
read as an implicit rejection of other penalties including the kind of
substantial damage awards that might be available in state court tort
suits. Even the mere possibility of
being sued in tort in state court could in some instances deter persons from
exercising their rights in bankruptcy.
In any event, it is for Congress and the federal courts, not the state
courts, to decide what incentives and penalties are appropriate for use in
connection with the bankruptcy process and when those incentives or penalties
shall be utilized.†(
Reasoning
by analogy from Gonzales, the
filing of a section 727 adversary proceeding to block the discharge of debts in
bankruptcy is within the exclusive jurisdiction of the federal courts, and
because sanctions are available to debtors when section 727 proceedings are
filed in bad faith, . . . this malicious prosecution action was preempted by
federal law.†(Idell v. Goodman, supra,
224 Cal.App.3d at p. 271.)
The
question here is whether the rational of Idell
and Gonzales extends to a tort action
for wrongful foreclosure based on foreclosure proceedings initiated in
violation of the automatic stay.
a federal remedy for violation of the stay, there can be no concurrent remedy
of a tort action in state court.
Although the Abdallah court
was short on analysis, we believe it reached the correct result.
The best
expression we have found of why the availability of a damages remedy in federal
court precludes the prosecution of a tort cause of action in state court
arising out of violation of the automatic stay can be found in
(1997) 225 Ga. App. 383. In that case, a
law firm for a construction company obtained a judgment against the plaintiff
(Smith) and then served him with postjudgment discovery. (Id.
at p. 384.) Smith did not respond, but
filed a bankruptcy petition instead. (
The firm successfully moved to have Smith held in contempt and jailed
briefly for violating a court order compelling discovery. (Ibid.) Smith subsequently filed a state court action
against the construction company and its law firm alleging false arrest,
negligence, assault, and intentional infliction of emotional distress, claiming
his arrest violated the automatic stay in his bankruptcy proceeding. (Id.
at pp. 383-384.) The state court granted
summary judgment, in part based on the finding that the action was preempted by
federal law. (Id. at p. 383.)
On appeal,
the appellate court noted the provision of federal law (now 11 U.S.C. §
362(k)(1)) that allows for damages for willful violation of the automatic stay
and noted that whether that provision “preempts state law claims for conduct
violating a stay in bankruptcy [wa]s a question of first impression in
Georgia.†(Smith v. Mitchell Const. Co., Inc., supra, 225 Ga. App. at p. 384.)
In concluding that a state court tort action was preempted, the Georgia appellate court wrote as follows:
“In
deciding whether federal law preempts a state law, the court’s primary
consideration is whether Congress intended to exercise its authority under the
Supremacy Clause. [Citation.] The mere existence of a detailed regulatory
scheme does not alone imply intent to preempt.
[Citation.] However, such intent
may be inferred in an area in which federal legislation is especially pervasive
or the federal interest is ‘so dominant that the federal system will be assumed
to preclude enforcement of state laws on the same subject, or because the
object sought to be obtained by federal law and the character of obligations
imposed by it may reveal the same purpose.’
[Citation.] Other ‘special
features’ may also warrant preemption.
[Citation.]
“Cases in
several jurisdictions hold that the Bankruptcy Code preempts state law claims
for abusive filings in bankruptcy court.
[Citations.] Whether the Code
preempts state law actions for conduct outside bankruptcy court that violates
the automatic stay, however, has been considered in only two cases cited by the
defendants: Koffman v. Osteoimplant Technology, 182 B. R. 115 (D.Md. 1995), and
In re Shape, Inc., 135 B. R. 707
(D.Me. 1992).
“After
Shape, Inc. filed a chapter 11 reorganization petition, a creditor with whom it
continued to do business raised the prices of goods it sold Shape. Shape brought suit against the creditor in
another court, claiming the price increase was a thinly disguised attempt to
recover the price of goods Shape had received, but not paid for, before it
filed its bankruptcy petition. Shape
argued this was both a violation of the automatic stay, compensable under §
362[(k)(1)], and an unfair business practice under state law. [Citation.]
In holding that the Bankruptcy Code preempted the state law claim, the
not allege the price increase to be illegal in itself. Rather, it was an allegedly unfair business
practice only because it violated the bankruptcy stay. [Citation.]
‘Since this federal statute is applicable here, and has its own
enforcement scheme and separate adjudicative framework, it must supersede any
state law remedies.’ [Citation.]
“Similarly,
Smith does not contend that defendants’ efforts to collect on a judgment were
illegal in themselves. Their illegality
arose solely from the fact that Smith had a bankruptcy case pending, which gave
rise to the automatic stay.
holding that such bankruptcy-dependent claims should be preempted as coming
within the Bankruptcy Code, which ‘provides a comprehensive scheme reflecting a
balance, completeness and structural integrity that suggests remedial
exclusivity.’ [Citation.]
“
reach a similar conclusion. After
Osteoimplant Technology, Inc. (‘OTI’) had been placed in an involuntary chapter
7 bankruptcy, Koffman filed a collection suit against it, violating the
stay. Koffman then dismissed the suit
and moved the bankruptcy court to enjoin OTI’s president from leaving the
country, allegedly making bad faith representations about the president’s intended
conduct. After the chapter 7 petition
had been dismissed, OTI sued Koffman, alleging abuse of process and malicious
prosecution. (A third cause of action
was dismissed for lack of evidence.)
[Citation.]
“The
stay is imposed exclusively as a matter of federal bankruptcy law, and the
Bankruptcy Code provides a remedy for willful violations of that stay, 11
U.S.C. § 362[(k)(1)]. State created
rights have nothing to do with the application of the automatic stay. Allowing state tort actions based on
allegedly bad faith bankruptcy filings or violations of the automatic stay to
go forward ultimately would have the effect of permitting state law standards
to modify the incentive structure of the Bankruptcy Code and its remedial
scheme. Because such a result threatens
to erode the exclusive federal authority in this area, and because it would
threaten the uniformity of federal bankruptcy law, the Court finds that OTI’s state
tort suits are preempted by the federal Bankruptcy Code.’ [Citation.]
“We find
the reasoning of Shape and
Meridian Oil (9th Cir. 1996) 74 F.3d 910, 912-915 ], ‘Congress has
expressed its intent that bankruptcy matters be handled in a federal
forum.’ The need for uniformity in
bankruptcy matters was recognized even by the framers of the Constitution, who
granted Congress the power to ‘establish . . . uniform Laws on the subject of
Bankruptcies throughout the United States’ in Art. I, § 8, cl. 4. [Citation.]
From this long-recognized need for uniformity; from the comprehensive
structure of the current Bankruptcy Code; and from Congress’ inclusion in that structure
of § 362[(k)(1)], which provides a remedy for stay violations, we infer
Congress’ intent to effectuate two related principles: Creditors should be held to a uniform
standard of conduct when dealing with bankruptcy debtors, and the bankruptcy
courts are the only institutions capable of fashioning such a uniform
standard. These principles dictate our
holding: § 362[(k)(1)] preempts Smith’s
state law claims against Mitchell Construction and its lawyers for the actions
they took in violation of Smith’s bankruptcy stay. The trial court was correct
in granting summary judgment to the defendants on that basis.†(Smith
v. Mitchell Const. Co., Inc., supra,
225 Ga. App. at pp. 384-386.)
We have
nothing to add to the Georgia court’s analysis.
The Sundquists’ cause of action for wrongful foreclosure is based
entirely on the sale of their property in violation of the automatic stay. Any remedy the Sundquists have for damages
incur
| Description | In this action, plaintiffs Erik and Renee Sundquist sued Bank of America and various other defendants for the consequences of a home loan they could not afford. The trial court sustained the demurrer of three defendants without leave to amend. On appeal, we conclude the court erred in sustaining the demurrer as to some of the causes of action. Accordingly, we will reverse. |
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