Shay v. Berger
Filed 1/14/13 Shay v. Berger
CA2/7
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits
courts and parties from citing or relying on opinions not certified for
publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for
publication or ordered published for purposes of rule 8.1115
IN
THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND
APPELLATE DISTRICT
DIVISION
SEVEN
ALLEN B. SHAY, et al.,
Plaintiffs
and Appellants,
v.
DAVID M. BERGER, et al.,
Defendants
and Respondents.
B234498
(Los Angeles County
Super. Ct. No. GC032876)
APPEAL from a judgment
of the Superior Court of
County, Joseph F. DeVanon Jr., Judge. Affirmed.
Allen B. Shay, in pro.
per., for Plaintiff and Appellant.
Jamie Williams, in pro.
per., for Plaintiff and Appellant.
Melonee Williams, in
pro. per., for Plaintiff and Appellant.
Betty S. Chain for
Defendants and Respondents David M. Berger and Seth Caplan.
Fidelity National Law
Group and Jacky P. Wang for Defendants and Respondents Chicago Title Insurance
Company and Diana Duval.
____________________________
INTRODUCTION
The plaintiff
homeowners filed a complaint alleging the defendant mortgage broker, investor,
escrow officer and escrow company conspired to defraud them by recording
unnecessary liens against their property as part of a scheme to steal the
equity in the property. Following a
bench trial, the trial court entered judgment in favor of the defendants,
finding the plaintiffs had failed to carry their burden of proof and the
claims. The homeowners appeal. We affirm.
SUMMARY
On October 24,
2003, successive property owners Melonee Williams, Jamie Williams and Allen
Shay filed a complaint against Seth Caplan, David Berger, Diana Duval and
Chicago Title Insurance Company (among others not party to this appeal),
alleging the defendants had engaged in a conspiracy to defraud them of the
equity in their property.
name="_ftnref1" title="">[1] In a prior appeal (Shay v. Berger (Jul. 24, 2007, B186013) [nonpub. opn.]), we
reversed the trial court’s dismissal of the action after sustaining without
leave to amend the defendants’ demurrers to the operative fourth amended
verified complaint on statute of limitations and other grounds, including Shay’s
lack of standing.
According to the
complaint, Melonee met with Caplan of SunCoast Home Loans to refinance her
existing home loan with a new first mortgage.
Escrow was opened for Melonee to sell the property to Jamie for
$275,000, with a first mortgage in the amount of $192,500 and “cash through
escrow†in the amount of $82,500. Even
though escrow was opened with Jamie as the buyer, escrow officer Duval and
Chicago Title requested the recording of an $82,000 note in Melonee’s name
(payable to SunCoast) against the property, but there is no evidence Melonee
received the funds and none of her creditors were paid. According to amended escrow instructions, the
sale to Jamie would consist of a $192,500 first mortgage with Long Beach
Mortgage Company (subsequently purchased by Washington Mutual Bank) with no
mention or authorization of any second deed of trust. However, without obtaining Jamie’s signature
or permission and without ever transferring any money to her escrow or giving
her the proceeds, SunCoast (through Chicago Title) recorded a fraudulent
$40,000 trust deed Jamie did not execute, and SunCoast later assigned its
interest to Berger. Jamie did not sign
or authorize the $40,000 trust deed, the defendants concealed it from her, and
she did not discover it until Berger appeared at a creditor’s meeting in the
midst of Jamie’s bankruptcy proceedings in March 2002. Jamie sold the property to Shay subject to
all liens, claims and defenses, and Shay was ultimately forced to pay Berger
$79,000 on the fraudulent second trust deed and was deprived of the opportunity
to rehabilitate the property, sell it and share the proceeds with Jamie.
The defendants
subsequently answered, and the parties conducted discovery before proceeding to
a bench trial on causes of action for (1) fraud and conspiracy to commit fraud
(against all defendants), (2) constructive fraud (against all defendants), (3)
breach of the implied covenant of good faith and fair dealing (against Chicago
Title and Duval), (4) negligent training or supervision (against Chicago Title)
and (5) breach of fiduciary duty (against Chicago Title, Duval and Caplan).
and documentary evidence.
For nearly 20
years, Melonee owned real property located at 242 to 248 Wapello in Pasadena. By late 1999, because of health and financial
problems in her family, she was delinquent on a first mortgage with Wendover, a
second with the Small Business Administration and a third with Aames. Foreclosure proceedings were underway. At the time, she believed she owed Wendover
about $127,000, the SBA about $22,000 and Aames about $42,000 (a total of
$191,000). She had received notice of
default indicating her home would be sold on November 18, 1999, and the amount needed to cure the default was $270,077.73. In an effort to prevent foreclosure and save
her home, Melonee had filed a number of bankruptcy
petitions, and on her attorney’s advice, quitclaimed a 50 percent interest
in the property to one of her daughters (Lorna Riley) on November 17, the day
before the scheduled foreclosure sale.
Title was later restored to Melonee’s name alone.
Melonee’s
bankruptcy attorney referred her to Seth Caplan, a mortgage broker with SunCoast,
and said he could get her a new loan.
Melonee had previously met with another mortgage broker (Bright
Financial) but rejected that loan offer because the lender required an
“exorbitant†origination fee.
Initially, the plan
was to “do a refinance†for Melonee.
Caplan noted some equity in the property, but there were a number of
obstacles to obtaining financing, including multiple defaults on multiple
encumbrances, multiple bankruptcy filings and delinquent taxes. Melonee’s credit was very poor. Caplan proposed a short-term loan through
SunCoast in the amount of $82,000 ($83,250 with loan costs). Melonee recalled Caplan telling her she would
need a “bridge loan†in order to take care of the pending defaults given the
foreclosure threat. She acknowledged a
handwritten note she had directed to Diane Duval, an escrow officer with
Chicago Title, requesting that Duval proceed with SunCoast and the lenders it
brought in and disregard communications from any other brokers, especially
Denise Moore with Citizen Funding, because the SunCoast transaction was better
for her.
The SunCoast loan
was handled “outside of escrow.â€
name="_ftnref3" title="">[3] The February 21, 2000,
deed of trust signed by Melonee bears the following stamp: “This document is being recorded as an
accommodation only and Chicago Title Insurance Company assumes no
responsibility for the correctness or validity thereof.†None of the funds from the loan were ever
received or paid out of the escrow Duval handled. SunCoast assigned the deed of trust to
Synergy Holdings, LLC, and Berger, with interests of 78 percent and 22 percent
respectively. According to Caplan, the
SunCoast loan did not change the debt load much, but it brought all loans
current (reducing the Wendover demand by $35,000), paid off some of the debts
(including the Aames loan and property taxes) and was used for some remediation
on the property. Caplan said he was
unable to locate the SunCoast file but testified the documents from Chicago
Title’s file effectively evidenced the same information, including the
documented reductions in outstanding loan balances and payoffs in full as a
result of the bridge loan. Duval
confirmed that between February and April 2000, Wendover’s demand was reduced
by $35,460.85 although Melonee had not made any payments. Duval also confirmed that, after an initial
payoff demand of $37,671.57, there was no further demand from Aames (and
neither Melonee nor Jamie were ever contacted by Aames again). The SBA loan was in arrears in February but,
following a paydown by cashier’s check in the amount of $1,624.15 to cure the
arrearages, was no longer in default by August.
At the time Melonee
signed the SunCoast loan documents (in February 2000), the discussion related
to the pending notice of sale and demand of more than $200,000; no one realized
then that by adding Lorna Riley’s name to the property, an $18,000 judgment and
a tax lien against her had attached to the property as well. Also, there was a significant amount of fire
damage to one of the residences on the property, and an institutional lender
would not lend where a property is found to be in such “substandardâ€
condition. The fire damage had to be
remediated at least enough to bring the property into “working order.â€
At some point, it
was agreed that Melonee would sell the property to Jamie who had good credit
and a good job to keep the property in the family, and Melonee would continue
to live there. Caplan was familiar with
Long Beach Mortgage Company’s lending policies and knew it would not lend more
than 70 percent of value under the circumstances. The property was appraised for $275,000, so a
loan in the amount of $192,500 was requested on Jamie’s behalf. SunCoast opened escrow with Chicago Title for
this transaction. Melonee was unsure
about how much she owed on her outstanding obligations or how far behind she
was in making payments; she said SunCoast was handling everything. Berger, who had acquired a 22 percent
interest in the SunCoast loan, negotiated a reduction in the $18,000 Lorna
Riley judgment which was paid out of escrow and satisfied for $11,000.
Robert Silverman
worked as a loan processor for SunCoast (which is no longer in business) at the
time. He testified that he assisted
Melonee and Jamie in the course of gathering the necessary paperwork for the
Long Beach loan, and it was explained to them and was always clear that because
of the shortfall in paying off the existing obligations, a second lien would be
necessary. After the Long Beach mortgage
was approved, Duval and Chicago Title obtained demands from existing
lienholders. Adding the Wendover
remaining balance of $87,509.05, the SBA remaining balance of $19,339.28, the
$82,000 bridge loan, the judgment against Lorna Riley of $11,000 (reduced from
$18,000), the remaining $400.63 due on Lorna Riley’s tax lien, $11,484 in loan
fees and $2,656.75 for various title and escrow fees left a balance of
$214,389.71 (before adding property taxes, prepaid interest or other
outstanding obligations) which could not be satisfied out of the $192,500 Long
Beach loan so one or more of the demands had to be reduced for the Long Beach
escrow to close.
Duval then prepared
a closing statement that identified as “credits†the shortfall necessitating
the $40,000 deed of trust to Berger recorded outside of escrow – $25,369.83 and
$13,465.25 plus costs. These “creditsâ€
were not a discount or forgiveness of debt but rather a means to balance the
escrow; similarly, the “gift†of equity did not mean a transfer of cash into
escrow.
Jamie signed the
documents relating to these transactions.
After the close of escrow, Melonee continued to reside at the property
and made payments on the Long Beach loan as well as five payments on the second
trust deed, beginning in October 2000, made payable to “D.B. Servicing Co.â€
which collected the payments for Berger, writing in Jamie’s name on her
checks. During that time, Jamie called
to ask about D.B. Servicing and confirmed that it was the payee for the $40,000
second. Melonee ultimately fell behind
on the payments, and Jamie had lost her job by the following year; Long Beach
pursued foreclosure on the property.
Without including
Melonee in the discussion, Jamie spoke with Shay, a real estate broker and
friend since middle school. She was
concerned with her obligation on the property and about her mother’s
displacement if the property were sold.
Shay said the earlier property appraisal for $275,000 was “fraud,†told
Jamie there was no equity in the property and said “blatant fraud†existed in
the transaction. Although he said the
one-to-four family property was worthless, for tax purposes, Shay gave Jamie
$500 in exchange for the property (a 22,000 sq. ft. lot, with three
structures—a 2,500 sq. ft. primary residence, another structure where tenants
were living and the fire-damaged unit).
Shay did not fix up the property at all but sold it for $475,000 less
than 18 months later. Melonee moved in
with Jamie in Palmdale. Shay did not
give Jamie or Melonee any of the proceeds.
In a letter to Shay
in June 2003, Berger reiterated the second deed
of trust was created because of debt already incurred which could not be
paid out of the Long Beach first mortgage amount. Shay was advised the amount then outstanding
on the second was $45,200 but that, given the circumstances, Berger was willing
to accept a lower amount. Shay
maintained the second deed of trust was fraudulent. Ultimately Shay had to pay Berger $79,000
pursuant to an indemnification agreement to clear the title. He acknowledged that he was familiar with
transactions “outside of escrow†which meant the escrow company did not have
responsibility for the transaction and did not have to reflect it within the
escrow.
The parties
presented their closing arguments in written briefs and, after taking the
matter under submission, the trial court issued its ruling. The trial court observed (in part), “It is
clear from trial testimony that the $82,000 ‘Bridge’ loan was not handled through
the Chicago Title escrow. [¶] Without the SunCoast file it is impossible to
specifically calculate the exact amount that was paid out to satisfy the lien
amounts. Circumstantially, it can be
inferred that many of the liens and tax debts were satisfied through the
‘Bridge’ loan inasmuch as many of the liens no longer show up on the HUD-1 form provided at the close of
escrow. (What is more difficult to
calculate is the discount, if any, that was negotiated.)
“At trial, Melonee
admitted to signing the $82,000 ‘Bridge’ loan and knew that the money was being
used to take care of the defaults.
SunCoast handled the ‘Bridge’ loan, but now claims to be unable to find
their file. Testimony at trial
established that the ‘Bridge’ loan was not part of the Chicago Title
escrow. The escrow was only for the
purpose of transferring title from Melonee and Jamie applying for new
financing. Seth Caplan testified at
trial that the ‘Bridge’ loan was used to bring the Wendover loan current, pay
off the Aames home loan, and bring current the SBA loans. All this was done outside of escrow. Inasmuch as Melonee testified at trial that
she did not make any payments to the above lenders/creditors, the unavoidable
conclusion is that the ‘Bridge’ loan paid off or at least paid down $74,756.57
of defaulted debt. This allowed Jamie to
apply for the Long Beach Mortgage for a new deed of trust.
“The $40,000 loan
or silent second that was testified to during trial was also outside the
Chicago Title escrow. The $40,000 silent
second was recorded after the close of the sale of the property to Jamie. Jamie testified at trial that she signed the
‘silent’ second loan documents, including both the note and the deed of trust,
but claimed not to understand their significance. Within a year after escrow closed, the Williams[es]
defaulted on both the ‘silent’ second and the Long Beach Mortgage.
“Melonee and Jamie,
again facing foreclosure, brought in family friend and real estate broker Allen
Shay to assist them. In what appears to
the court to be the most questionable transaction of all transactions involved,
Shay purchased the Williamses’ home for $500, brought the Long Beach Mortgage
current and paid off the $40,000 second.
Then, without making any improvements or repairs, he sold the property
for $475,000 with no proceeds going to either Melonee or Jamie. . . .â€
The trial court
found the evidence did not support any of the plaintiffs’ causes of action and
that the statute of limitations also barred their claims.
An amended judgment
was entered in May 2011.
Melonee, Jamie and
Shay appeal.
As Melonee, Jamie
and Shay concede, a judgment supported by substantial evidence will not be
reversed on appeal.
title="">[4] (Winograd
v. American Broadcasting Co. (1998) 68 Cal.App.4th 624, 632.)
All of Melonee’s claims
were barred by the statutes of limitations.
The original complaint was filed on October 24, 2003. The $40,000 trust deed was recorded on August
2, 2000, Jamie called Silverman on September 8, 2000, to confirm the payment on
the second and the first payment on the $40,000 second was made on October 2,
2000. More than three years had passed
since Melonee had notice of facts that would have put a reasonably prudent
person on inquiry notice of the facts she claimed constituted fraud. (Sun ‘n
Sand, Inc. v. United California Bank (1978) 21 Cal.3d 671, 701-702;
Angeles (2003) 112 Cal.App.4th 950, 962.)
The resolution of the statute of limitations issue is typically a
question of fact. (Cleveland v. Internet Specialties West, Inc. (2009) 171 Cal.App.4th
24, 30-31.) Substantial evidence
supports the trial court’s determination that the statutes of limitations
barred Melonee’s claims.
name="_ftnref5" title="">[5] (Code Civ. Proc., § 338, subd. (d) [An action
for relief on the ground of fraud or mistake “is not deemed to have accrued
until the discovery, by the aggrieved party, of the facts constituting the
fraud or mistakeâ€].)
Moreover,
substantial evidence supports the trial court’s determination Melonee had
failed to establish any of her causes of action. Most fundamentally, for purposes of her
fraud, constructive fraud, breach of implied covenant of good faith and fair
dealing and breach of fiduciary duty claims, Melonee failed to present evidence
to establish she was actually defrauded, notwithstanding her belief the bridge
loan would take care of all debts and no second deed of trust would be
necessary. (SCC Acquisitions Inc. v. Central Pacific Bank (2012) 207 Cal.App.4th 859, 864.) The bridge loan and $40,000 second were
“outside of escrow,†and the trial court’s determination Melonee failed to
establish her negligent supervision cause of action against Chicago Title is
supported by substantial evidence as well.
(Summit Financial Holdings, Ltd.
v. Continental Lawyers Title Co. (2002) 27 Cal.4th 705, 711.)
The judgment is affirmed. Respondents are entitled to their costs of
appeal.
WOODS,
J.
We concur:
PERLUSS,
P. J. ZELON,
J.
name="_ftn1" title="">[1] Because two parties
share the same last name, we refer to Melonee Williams and Jamie Williams by
their first names, as the parties have done.
name="_ftn2" title="">[2] The second cause of
action for “false certificate of acknowledgement of execution of trust deed
pursuant to scheme to defraud†was abandoned.
