Opinion
D075087
09-05-2019
ANGELICA PERALES, Plaintiff and Appellant, v. SELECT PORTFOLIO SERVICING, N.A., et al., Defendants and Respondents.
Law Offices of Aaron Berger and Aaron Berger; Law Offices of Natalie Aghavni Panossian-Bassler and Natalie Aghavni Panossian-Bassler for Plaintiff and Appellant. Kutak Rock and Steven M. Dailey, for Defendants and Respondents.
NOT TO BE PUBLISHED IN OFFICIAL REPORTS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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.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. RIC1603194) APPEAL from a judgment of the Superior Court of Riverside County, Sunshine Sykes, Judge. Affirmed. Law Offices of Aaron Berger and Aaron Berger; Law Offices of Natalie Aghavni Panossian-Bassler and Natalie Aghavni Panossian-Bassler for Plaintiff and Appellant. Kutak Rock and Steven M. Dailey, for Defendants and Respondents.
Plaintiff Angelica Perales appeals a judgment of dismissal based on an order sustaining without leave to amend the demurrer of defendants Select Portfolio Servicing (SPS) and The Bank of New York Mellon (BONY) (sometimes collectively defendants) to plaintiff's third amended complaint (TAC). In her TAC, plaintiff alleged causes of action for negligent and intentional misrepresentation, and violation of the Unfair Competition Law (Bus. & Prof. Code § 17200 et. seq., UCL) in connection with foreclosure proceedings on her residential property.
In sustaining the demurrer without leave to amend, the trial court found the TAC was a sham pleading because it omitted material allegations from plaintiff's second amended complaint (SAC) that she was a de facto borrower on the note signed only by her former husband, which was secured by a deed of trust (DOT) they both signed. In a previous ruling that plaintiff did not appeal, the court sustained without leave to amend all borrower-related causes of action in the SAC, after finding plaintiff as a matter of law was not in a borrower-lender relationship with defendants.
On appeal, plaintiff contends the allegations that she was a borrower were immaterial for purposes of the sham pleading doctrine, and that she should have been granted leave to amend the TAC to add an explanation for her omitted allegations.
We independently conclude the demurrer to the TAC was properly sustained without leave to amend because as defendants also argue, (1) plaintiff's complaint includes myriad allegations that lack sufficient factual particularity to support any valid cause of action (see Yvanova v. New Century Mortgage Corp. (2016) 62 Cal.4th 919, 924 (Yvanova)); (2) plaintiff lacked standing to assert any cause of action based on defendants' servicing of her former husband's loan, including any possible modification thereto, because as noted, she did not sign the note, nor did she attempt to assume the loan or qualify on her own for a loan; (3) the TAC was a sham pleading, as found by the trial court; and (4) plaintiff's three causes of action separately fail as a matter of law, as we explain. As such, we conclude the court properly exercised its discretion in refusing to grant plaintiff leave to amend her complaint a fourth time. Affirmed.
FACTUAL BACKGROUND
A. Allegations in the TAC and Facts Subject to Judicial Notice
In 2007, plaintiff and her then husband Francisco Perales (Francisco) acquired residential real property subject to a mortgage loan secured by the DOT. Although both plaintiff and Francisco were parties to the grant deed and cosigned the DOT, only Francisco signed the note securing the DOT. Defendant SPS was the mortgage servicer of, and defendant BONY was the beneficiary under, the loan.
The DOT in part provided: "Borrower covenants and agrees that Borrower's obligations and liability shall be joint and several. However, any Borrower who co-signs this Security Instrument but does not execute the Note (a 'co-signer' [i.e., plaintiff]): (a) is co-signing this Security Instrument only to mortgage, grant and convey the co-signer's interest in the Property under the terms of this Security Instrument; (b) is not personally obligated to pay the sums secured by this Security Instrument; and (c) agrees that Lender and any other Borrower [i.e., Francisco] can agree to extend, modify, forbear or make any accommodations with regard to the terms of this Security Instrument or the Note without the co-signer's consent." (Italics added.)
In November 2014, a notice of default was recorded against the property. The trustee's sale for the property was scheduled for April 2015, then postponed to June 2015, and later cancelled. On May 28, 2015, a grant deed was recorded by Francisco transferring his interest in the property to plaintiff as her sole and separate property.
In September 2015, plaintiff alleged she spoke with Gabriella Luna, a representative of defendant SPS. Luna represented "the foreclosure sale would be postponed until the loan modification review was complete." In November 2015, SPS sent a letter to the property addressed to Francisco stating that SPS had reviewed and denied a loan modification for the property.
We note neither the TAC nor plaintiff's brief mentions the November 2015 loan-modification denial. At oral argument before this court, plaintiff's counsel represented that she was uncertain of its existence, despite its inclusion in the record.
Because the loan modification to which SPS responded in November 2015 was not included in the record, it is unclear whether plaintiff or Francisco or both submitted this particular application. A declaration of an SPS employee in opposition to the request for temporary restraining order and preliminary injunction sought by plaintiff attributed the loan modification to plaintiff, based on her own and other residents' financial information that was provided and reviewed by SPS.
On January 17, 2016, plaintiff submitted her own loan modification application. On January 21, 2016, a notice of trustee's sale (NTS) was recorded against the property with a sale date of March 2, 2016. Plaintiff thereafter moved for an injunction to stop the sale, as noted ante. The court at a May 2016 hearing refused to issue an injunction, finding plaintiff had not shown a probability of prevailing on any of her claims. The property was sold at auction in June 2016 and granted to defendant BONY.
As was the case with the previously submitted and denied loan modification request, the record does not include a copy of this particular application, nor any documentation supporting it, as discussed post.
As noted, plaintiff's TAC alleged three causes of action. Plaintiff asserted standing as legal owner of the property.
In the general allegations of the TAC, plaintiff asserted her case concerned a "massive scheme" of wrongful and fraudulent business practices "carried out by the Defendants related to the foreclosure of California properties." She further asserted that as part of this scheme, defendants failed to "properly, adequately, and fairly communicate with defaulted borrowers regarding alternatives to foreclosure"; that defendants also "systematically fail[ed] to provide proper notice of foreclosure sales, and fail[ed] to review loan modification applications in violation of California pre-foreclosure statutes"; and that the conduct of defendants was "specifically designed to increase the likelihood of foreclosure among California's hardship[-]stricken borrowers and assure that borrowers, like the Plaintiff in the instant matter, [were] never afforded consideration for programs, which would provide an alternative to foreclosure."
Plaintiff further asserted that the mortgage secured by the property was "highly unfavorable and [an] unduly risky loan product, the proliferation of which would later come to be directly associated with the worst economic crash in United States history since the Great Depression"; that defendants "established and implemented a policy of deception and failed to disclose material facts about the underlying loan"; and that defendants "knew that this scale of lending based upon inflated property values, without income verification and in violation of numerous other underwriting guidelines, would lead to widespread declines in property values, thereby putting Plaintiff into the grave situation whereby she would lose any equity in the subject property and have no means of refinancing or selling the subject property during the resulting market collapse."
Plaintiff's general allegations further asserted that she had "no experience beyond basic financial matters"; that she was "never explained the full terms of the underlying loan, including but not limited to the rate of interest, how the interest rate would be calculated, what the amortization schedule would be, the risks and disadvantages of the loan, the prepayment penalties or the maximum amount of the monthly loan payment"; and that she was the "victim of bait-and-switch practices whereby favorable loan terms were negotiated and were supplanted by less favorable terms at the time of closing."
Plaintiff asserted that the NTS recorded against the property was "void and improper" because she was then in the process of "negotiating terms for a loan modification with SPS"; that on January 17, 2016, she allegedly had "submitted a completed, legible and satisfactory loan modification application electronically to SPS through SPS'[s] online document portal"; that despite the fact the "loan mod was under review, SPS continued to advance foreclosure proceedings by filing the NTS on January 21, 2016"; that she suffered "damages and harm" caused by SPS's "fail[ure] to communicate with [her] regarding alternatives to foreclosure," based on "SPS's substandard contact, servicing, and operations protocols"; and that, although she allegedly was "willing and able to tender funds to satisfy the alleged deficiency, and was prepared to make that tender if necessary to stop a foreclosure sale," she did not do so because she "was informed by Defendants that the trustee's sale was not to take place, and therefore no tender was necessary."
In addition to the general allegations, in her first cause of action for negligent misrepresentation plaintiff asserted defendants owed a duty to "provide her with accurate information about the status of her mortgage loan accounts"; a "duty of care to deal reasonably with [her] as a borrower in default and try to effectuate a workable loan modification"; and a duty to her as "a borrower not to make material misrepresentations about the status of an application for a loan modification or about the date, time, or status of a foreclosure sale." Plaintiff, however, did not allege defendants owed her a duty based on her being merely a cosigner to the DOT.
Plaintiff also asserted in her first cause of action that defendants breached the duties owed her by allowing the foreclosure sale to go forward in June 2016, despite the representations of Luna in September 2015 that the "sale would be postponed until the loan modification review was complete"; that her own January 17 loan modification was pending at the time of sale; that Luna's representations therefore were "false, negligent and material"; and that she relied on such misrepresentations by "submitting a complete and legible loan modification application" and by not "explor[ing] or pursu[ing] any other foreclosure prevention options."
As a result of these misrepresentations, plaintiff asserted her "outstanding loan balance ballooned with accrued interest, penalties, and late fees, making reinstatement of the loan unaffordable." Plaintiff further asserted her reliance was reasonable because she was "ignorant of the loan modification and foreclosure process and trusted SPS, a company . . . that was responsible for servicing the loan secured by the Subject Property."
In her second cause of action for fraud and deceit, plaintiff incorporated the general allegations and the allegations from her first cause of action, and reiterated that she "offered to tender the full amount owed to SPS"; that "Luna represented to Plaintiff that it would be more advantageous for her to get a loan modification"; and that "Luna's representations, on behalf of SPS, were intentional, false, and fraudulent."
Plaintiff further asserted that "Luna intentionally made the misrepresentations as part of Defendants' pattern and practice to deceive borrowers such as Plaintiff into relying to their detriment, so that Defendants could foreclose on homes before borrowers could seek other remedies or options." In addition to compensatory, general, and special damages, plaintiff sought punitive damages "for the sake of example and by way of punishing the Defendants as they committed fraud on multiple occasions with malice and blatant disregard for the law."
In her third cause of action for violation of the UCL, plaintiff asserted that defendants "engaged in a pattern of fraudulent conduct, which include[d] the active misrepresentation of loan modification opportunities to the Plaintiff." Specifically, she alleged that "SPS fraudulently misrepresented the fact that they were considering Plaintiff for a loan modification by requiring her to submit documentation and financials, on many different occasions, claiming such documents were being sent in to support a loan modification."
Plaintiff in connection with this cause of action also asserted that defendants "engaged in deceptive business practices with respect to mortgage loan servicing, assignments of notes and deeds of trust, foreclosure of residential properties and related matters by: [¶] (a) Assessing improper or excessive late fees; [¶] (b) Improperly characterizing customers' accounts as being in default or delinquent status to generate unwarranted fees; [¶] (c) Instituting improper or premature foreclosure proceedings to generate unwarranted fees; [¶] (d) Misapplying or failing to apply customer payments; [¶] (e) Failing to provide adequate monthly statement information to customers regarding the status of their accounts, payments owed, and/or basis for fees assessed; [¶] (f) Seeking to collect, and collecting, various improper fees, costs and charges, that are either not legally due under the mortgage contract or California law, or that are in excess of amounts legally due; [¶] (g) Mishandling borrowers' mortgage payments and failing to timely or properly credit payments received, resulting in late charges, delinquencies or default; [¶] (h) Treating borrowers as in default on their loans even though the borrowers have tendered timely and sufficient payments or have otherwise complied with mortgage requirements or California law; [¶] (i) Failing to disclose the fees, costs and charges allowed under the mortgage[;] [¶] (j) Ignoring grace periods; [¶] (k) Executing and recording false and misleading documents; and [¶] (l) Acting as beneficiaries and trustees without the legal authority to do so."
Following the above list of "deceptive business practices," plaintiff also asserted that defendants "engage[d] in a uniform pattern and practice of unfair and overly[] aggressive servicing that result[ed] in the assessment of unwarranted and unfair fees against California consumers, and premature default often resulting in unfair and illegal foreclosure proceedings"; that, as a result, "the public at large [was] likely to be deceived" and "face[d] a growing foreclosure crisis"; that defendants failed "to perform statutorily mandated obligations to provide defaulted borrowers with options to avoid foreclosure"; that she and "California consumers have suffered and [would] continue to suffer damages in the form of unfair and unwarranted late fees and other improper fees and charges"; and that based on defendants' unlawful, unfair, and fraudulent acts and practices, she "lost her home in an illegal foreclosure sale conducted by the Defendants."
B. Demurrer to the TAC and the Court's Ruling
Defendants demurred to the entire TAC, and separately on myriad grounds to each of the three causes of action in the TAC for failure to state facts sufficient to constitute any cause of action, some of which are discussed post. With respect to the former, they stated: "Defendants demur to the entire TAC because Plaintiff lacks standing to assert any cause of action related to the Subject Loan and therefore fails to state facts sufficient to constitute any cause of action under California Code of Civil Procedure section 430.10(e).[] As a non-signatory to the Subject Note, Plaintiff is not a 'real party in interest' under California Code of Civil Procedure Section 367.[] As such, Plaintiff cannot maintain any cause of action in this lawsuit."
Code of Civil Procedure section 430.10 provides in relevant part: "The party against whom a complaint or cross-complaint has been filed may object, by demurrer or answer as provided in Section 430.30, to the pleading on any one or more of the following grounds: . . . (e) The pleading does not state facts sufficient to constitute a cause of action."
Code of Civil Procedure section 367 provides: "Every action must be prosecuted in the name of the real party in interest, except as otherwise provided by statute."
In their points and authorities in support of their demurrer, defendants argued the TAC was a sham pleading because plaintiff removed material allegations from the SAC that she was a de facto borrower based on principles of "novation and assumption of the Subject Note." In addition to many others, they also argued that plaintiff was not the real party in interest under Code of Civil Procedure section 367 because she did not sign the note securing the DOT.
The court adopted its tentative order on the TAC, summarily ruling at the unreported hearing as follows:
"GRANT request for judicial notice. [¶] SUSTAIN Demurrer without leave to amend. Plaintiff's omissions of all references to her loan without explanation make this a sham pleading under Vallejo Dev. Co. v. Beck Dev. Co., 24 Cal.App.4th 929, 946 (1994)."
The court then entered judgment and in favor of defendants.
DISCUSSION
Before reaching the merits, we note what is not before us or in dispute: plaintiff did not appeal the court's ruling sustaining without leave to amend the demurrer to certain causes of action in the SAC as a result of her not being a de facto borrower on the note securing the DOT. Nor did she directly raise any such borrower-related issues in connection with the instant appeal.
Moreover, at oral argument before this court, plaintiff conceded she was not a borrower on the loan. When asked at argument what gave her standing to pursue a loan modification with the servicing agent if she was not a borrower, she stated it was the result of her being on title to the property and her "assum[ing] the loan" through divorce. When it was pointed out that the record was silent regarding whether plaintiff on her own had attempted to qualify for a loan, she responded she had not, and stated that is why she submitted a loan modification on the note executed by Francisco.
I
Standards Governing Review of a Demurrer
We review de novo a judgment of dismissal based on a sustained demurrer. (Doan v. State Farm General Ins. Co. (2011) 195 Cal.App.4th 1082, 1091 (Doan).) In so doing, we employ two separate standards of review on appeal. (Blank v. Kirwan (1985) 39 Cal.3d 311, 318 (Blank).) First, the complaint is reviewed de novo to determine whether it contains sufficient facts to state a cause of action. (Hill v. Miller (1966) 64 Cal.2d 757, 759.) We accept as true all properly pleaded material factual allegations of the complaint, together with facts that may be properly judicially noticed, "but not contentions, deductions, or conclusions of fact or law," as noted ante. (Yvanova, supra, 62 Cal.4th at p. 924.) Reversible error exists only if facts are alleged showing entitlement to relief under any possible legal theory. (Crowley v. Katleman (1994) 8 Cal.4th 666, 672.)
Second, where the demurrer is sustained without leave to amend, we determine whether the trial court abused its discretion in doing so. (Kilgore v. Younger (1982) 30 Cal.3d 770, 781.) On review of the trial court's refusal to grant leave to amend, we will only reverse for abuse of discretion if we determine there is a reasonable possibility the pleading can be cured by amendment. (Hernandez v. City of Pomona (1996) 49 Cal.App.4th 1492, 1497-1498.) "The burden of proving such reasonable possibility is squarely on the plaintiff." (Blank, supra, 39 Cal.3d at p. 318.)
"[O]rdinarily on appeal we determine whether any of the grounds raised by the defendant's demurrer justifies the court's ruling." (B & P Development Corp. v. City of Saratoga (1986) 185 Cal.App.3d 949, 959 (B & P).) "A judgment of dismissal after a demurrer has been sustained without leave to amend will be affirmed if proper on any grounds stated in the demurrer, whether or not the court acted on that ground." (Carman v. Alvord (1982) 31 Cal.3d 318, 324 (Carman); see B & P, at p. 959 [noting a reviewing court "review[s] the validity of the ruling and not the reasons given"].)
II
Plaintiff's TAC Includes Myriad Allegations that Lack Sufficient Factual Particularity to
Support Any Cause of Action
Although the court relied on the sham pleading doctrine in sustaining the demurrer to the TAC without leave to amend, on appeal we determine whether any of the grounds raised by the defendants' demurrer justifies the court's ruling. (See Carman, supra, 31 Cal.3d at p. 324; B & P, supra, 185 Cal.App.3d at p. 959.)
In dissent, our colleague would allow plaintiff to file a fourth amended complaint to allege the same claims that were alleged in the TAC (i.e., negligent and intentional misrepresentation and a violation of the UCL). In so doing, the dissent describes plaintiff's allegations as follows: that in September 2015, plaintiff offered to tender the full amount of arrears, but Luna said it would be more advantageous for her to get a loan modification; that Luna further represented that a loan modification application would postpone the foreclosure sale; that plaintiff submitted a loan modification application in January 2016; and that Luna's representations turned out to be false because defendants continued to advance foreclosure proceedings, filing the NTS just days after plaintiff submitted her own loan modification.
We view the record somewhat differently and accord much less, if any, weight to many of the allegations credited by the dissent.
We note plaintiff in her TAC did not allege that Luna represented the foreclosure sale would be postponed until review of plaintiff's loan application was complete, which plaintiff submitted about four months after this representation. Rather, in paragraph 40 of the TAC, plaintiff alleged that Luna represented the foreclosure sale "would be postponed until the loan modification review was complete." (Italics added.) Plaintiff made a nearly identical allegation in paragraph 57 of the TAC, when she alleged that Luna "represented that the foreclosure sale would be postponed until the review was complete." (Italics added.)
This is not an issue of mere semantics.
Indeed, as we have noted, the record shows that in September 2015 when plaintiff allegedly spoke to Luna, there was a modification application pending for the property, or one was submitted shortly thereafter, inasmuch as the record also shows that SPS in November 2015 denied a loan-modification request for the property. Thus, the record clearly shows that defendants did consider a loan modification before moving forward with the foreclosure sale; and that Luna did not expressly condition the foreclosure sale on review of plaintiff's yet-to-be-made loan application.
In addition, other than plaintiff's bald assertions in the TAC that she was ready, willing, and able to tender the full amount in arrears, as she alleged in the TAC and as credited by the dissent, the record is silent regarding her ability to do so. The lack of such record evidence is significant; if plaintiff had any documentation to support her ability to tender the full amount in arrears, she undoubtedly would have included that documentation in one or both of the loan modification applications, and certainly in connection with her request for issuance of a TRO to stop the sale, which request was heard and denied in May 2016. At that point in time, at the very latest, plaintiff no longer could reasonably rely on the representation of Luna—made about eight months earlier—that the sale would not go forward until after the loan modification review was complete.
But as noted, plaintiff did not include either loan modification request in the record. With respect to the loan modification application that was the subject of the November 2015 denial, we are left guessing as to who made it; when it was made; and the basis for it (i.e., hardship and the type of hardship). We also have no information regarding the assets and liabilities of the applicant or applicants, including any income documentation supporting the application, such as (redacted) bank statements, pay stubs, and the like.
We lack the same sort of information with respect to the January 17 modification, on which plaintiff's case against defendants is based. We note, however, plaintiff in her TAC alleged that, in reliance on Luna's September 2015 representations, plaintiff submitted a "complete and legible loan modification application." Plaintiff also alleged that, based on these same representations, she was required "to submit documentation and financials, on many different occasions" in support of her loan modification. However, there is no "complete[d]" loan application in the record, nor are there any "documentation and financials" plaintiff submitted on "many different occasions," or even once, to support these generalized allegations.
Unlike the dissent, we conclude plaintiff's general allegations regarding (i) her ability to tender, (ii) her decision not to pursue "other foreclosure prevention options," (iii) her submission of a "complete and legible" loan modification application on January 17, and (iv) her ability to qualify for loan modification based on that application, lack sufficient factual particularity to support any cause of action. (See Yvanova, supra, 62 Cal.4th at p. 924.) Devoid of properly pleaded allegations, we independently conclude the court correctly sustained the demurrer to the TAC without leave to amend.
The dissent claims we are asking too much of plaintiff at the demurrer stage by allegedly requiring her to plead "evidentiary" as opposed to "ultimate" facts to support any cause of action. However, the distinction between evidentiary and ultimate facts "is by no means free from difficulty" (In re Bixler's Estate (1924) 194 Cal. 585, 589), and is " 'at most a matter of degree.' " (Perkins v. Superior Court (1981) 117 Cal.App.3d 1, 6 [noting that, while not precisely defined, ultimate facts lie somewhere between detailed evidentiary facts and conclusions of law; the difference between evidentiary facts and ultimate facts " 'involves at most a matter of degree,' "] quoting Burks v. Poppy Construction Co. (1962) 57 Cal.2d 463, 473.)
The case of Rossberg v. Bank of America (2013) 219 Cal.App.4th 1481 (Rossberg) informs our analysis on the specificity required to state a cause of action under facts similar to those in the instant case. The plaintiff borrowers in Rossberg asserted myriad causes of action against the defendants arising from what they contended was the wrongful foreclosure of their home. The plaintiffs in their fraud cause of action alleged that the employees of defendant lender Bank of America, N.A. (BofA) repeatedly represented that a loan modification was forthcoming as a result of the multiple applications submitted by the plaintiffs, which representations turned out to be false. In reliance on those representations, the plaintiffs further alleged they decided not to sell their home " 'early on,' " before it lost a significant amount of value. (Id. at p. 1500.)
In sustaining the demurrer without leave to amend, the Rossberg court found that the plaintiffs had "failed to provide facts showing they had sufficient equity in their home and sufficient income" to qualify for a loan modification (Rossberg, supra, 219 Cal.App.4th at p. 1500, italics added); and that the "conclusory allegation they would have obtained a replacement loan does not state a cause of action." (Ibid.)
The Rossberg court also found the plaintiffs' allegations insufficient because, even assuming they had included the " 'early on' " theory of recovery in their amended pleading, they "failed to provide sufficient facts to support" it (Rossberg, supra, 219 Cal.App.4th at p. 1500); "[f]or example, they do not allege the value of their home 'early on,' the value of their home when BofA first promised a loan modification, the amount they owed BofA when it first promised a loan modification, or whether they could have sold their home for more than they owed. The conclusory allegation the Rossbergs could have sold their home and paid off their loans does not state a cause of action." (Ibid.)
Rossberg provides meaningful guidance in the instant case. Although our plaintiff is not a borrower, we agree with Rossberg that some factual specificity is required to state a valid cause of action against a lender for fraud and/or wrongful foreclosure based on a failed loan modification. We need not decide in the instant case "how much" specificity is required, however, because the TAC at issue here failed to include any facts to support plaintiff's general allegations (1) that she could qualify for a loan modification, including any facts (i.e., from a loan modification application) that she had sufficient equity in her home and/or sufficient income to do so (see Rossberg, supra, 219 Cal.App.4th at p. 1500); or (2) that she was ready, willing, and able to tender the full amount in arrears to stop foreclosure. Whether deemed "evidentiary" or "ultimate" facts, plaintiff's TAC lacked the necessary specificity to support any cause of action against defendants.
III
Standing
As noted, defendants demurred to the entire TAC on the ground that plaintiff lacked standing to sue for any alleged misrepresentations Luna may have made in connection with the servicing of Francisco's loan, including any modification thereto, which representations formed the basis of each of plaintiff's three causes of action. (See Carman, supra, 31 Cal.3d at p. 324; B & P, supra, 185 Cal.App.3d at p. 959.) We agree.
It is well settled that only parties with a real interest in a dispute have standing to seek its adjudication. (Code Civ. Proc., § 367.) A real party in interest ordinarily is defined as the person possessing the right sued upon by reason of the substantive law. (Powers v. Ashton (1975) 45 Cal.App.3d 783, 787.) "The question of standing to sue is one of the right to relief and goes to the existence of a cause of action against the defendant [citation]." (Payne v. United California Bank (1972) 23 Cal.App.3d 850, 859.) However, "[w]here the complaint states a cause of action in someone, but not in the plaintiff, a general demurrer for failure to state a cause of action will be sustained." (Parker v. Bowron (1953) 40 Cal.2d 344, 351 (Parker).)
Here, plaintiff had no substantive right in the note executed by Francisco. Although she cosigned the DOT, she lacked standing to modify his loan. Thus, under the circumstances of this case, where plaintiff never sought to qualify for her own loan or worked with BONY to assume Francisco's loan, as a matter of law she lacked standing to base her action on the representations of Luna that the foreclosure sale would be postponed pending review of the modification request on Francisco's loan.
Moreover, the DOT specifically provided that, because plaintiff was a cosigner of the DOT but not of the note securing it, "Lender and any other Borrower [i.e., Francisco, could] agree to extend, modify, forbear or make any accommodations with regard to the terms of this Security Instrument or the Note without the co-signer's [i.e., plaintiff's] consent." (Italics added.) Thus, in return for not being "personally obligated to pay the sums secured" by the DOT, plaintiff as a matter of contract law had no standing with respect to the note, including its extension or modification.
To the extent "someone" (see Parker, supra, 40 Cal.2d at p. 351) was potentially entitled to relief against defendants based on the Luna representations, it was Francisco, who is not a party to this action, and who, in any event, transferred his interest in the property to plaintiff in May 2015. (See Redevelopment Agency of San Diego v. San Diego Gas & Electric Co. (2003) 111 Cal.App.4th 912, 921 [noting the purpose of the real-party-in-interest requirement is to protect a defendant from harassment by other claimants on the same demand].)
Because plaintiff did not sign the note, under the circumstances of this case she lacked standing to maintain an action against defendants based on the modification of a loan that as a matter of law she could never have obtained. We thus independently conclude the trial court properly sustained the demurrer to the TAC without leave to amend. (See Cleveland v. Deutsche Bank Nat. Trust Co. (S.D.Cal. Feb. 2, 2009) 2009 WL 250017, at *2 [dismissing claims including for fraud and violation of the UCL for lack of standing because the borrower to the loan was plaintiff's wife].)
The dissent states plaintiff had standing to "challenge statements" that caused her to lose her home to foreclosure. Specifically, the dissent claims plaintiff could rely on what it describes as Luna's "statements in submitting a second loan modification application to postpone foreclosure." (Italics added.) Relying solely on Turner v. Seterus, Inc. (2018) 27 Cal.App.5th 516, 525 (Turner), the dissent further claims plaintiff, as a nonborrower, "had standing in [a] wrongful foreclosure action."
However, as noted ante, plaintiff did not allege in the TAC that Luna represented the foreclosure sale would be postponed until after defendants had reviewed a "second" loan modification application (i.e., plaintiff's January 2016 submission), as stated by the dissent. Rather, as discussed, the record shows Luna allegedly represented the sale would not go forward until the loan modification review was complete, which, as we have repeatedly noted, occurred in November 2015 when a loan modification for the property was denied.
Moreover, Turner does not stand for the proposition that a nonborrower such as plaintiff has standing to bring an action against a lender and its servicing agent for wrongful foreclosure, as the dissent posits. The facts of Turner are markedly different from those of the instant case because in Turner, the borrower spouse was a named plaintiff along with her nonborrower spouse in their action against the loan servicer and others for wrongful foreclosure. (Turner, supra, 27 Cal.App.5th at p. 520.) We agree with the result in Turner; but that's not our case here, as Francisco—the only borrower on the note—was neither named as a plaintiff in the instant lawsuit nor involved in plaintiff's January 2016 loan modification application, on which plaintiff's TAC is based. We thus conclude under the unique facts of this case that plaintiff lacked standing to assert a wrongful foreclosure action against defendants.
IV
Sham Pleading Doctrine
A. Additional Background
In her SAC, plaintiff alleged standing as follows:
"12. Plaintiff has standing to file the instant action as the real 'party in interest' pursuant to Cal. Civ. Proc. Code § 367, as she is the legal owner of the subject property. Furthermore, Defendants accepted monthly payments towards the loan from Plaintiff's personal account for over a year, which acted as a novation of the contract and assumption of the note by implication."
In ruling on the Defendants' demurrer to the SAC, the court concluded:
"The Demurrer is SUSTAINED without leave to amend as to the 1st, 2nd, 6th, and 7th causes of action. Plaintiff lacks standing to sue for the 1st and 2nd causes of action [for violations of California Civil Code sections 2923.55 and 2923.6 setting forth requirements for mortgage servicers when recording notices of default and offering loan modifications as part of the Homeowner's Bill of Rights (HBOR)] because she was not a 'borrower' within the meaning of the HBOR and is not a signatory to the promissory note on which her misrepresentation claims are based. Plaintiff concedes that the 6th and 7th causes of action have no merit. The Demurrer is SUSTAINED with 20 days leave to amend as to the 3rd, 4th, and 5th causes of action for failure to state sufficient facts to constitute a cause of action."
As noted, plaintiff did not appeal or otherwise contest the court's ruling on the demurrer to the SAC.
In her TAC, as noted plaintiff retained only the first sentence of paragraph 12 of the SAC, deleting the allegations of implied assumption and novation of contract. Plaintiff also deleted the first, second, sixth, and seventh causes of action, and all allegations made therein. Plaintiff's TAC retained language that she executed the DOT on the subject property, but omitted some, but not all, of the myriad allegations that she had rights as a borrower under the note, as summarized ante.
B. Guiding Principles
" ' "Where a verified complaint contains allegations destructive of a cause of action, the defect cannot be cured in subsequently filed pleadings by simply omitting such allegations without explanation." [Citations.] "In such a case the original defect infects the subsequent pleading so as to render it vulnerable to a demurrer." [Citation.] However, we have also made it clear that "a party should be allowed to correct a pleading by omitting an allegation which, it appears, was made as the result of mistake or inadvertence." ' [Citation.] That rule applies even when a complaint is not verified. [Citation.]" (Hendy v. Losse (1991) 54 Cal.3d 723, 742-743 (Hendy).) " 'The court may examine the prior complaint to ascertain whether the amended complaint is merely a sham.' [Citation.] The rationale for this rule is obvious. 'A pleader may not attempt to breathe life into a complaint by omitting relevant facts which made his [or her] previous complaint defective.' " (Vallejo Dev. Co., supra, 24 Cal.App.4th at p. 946.)
Our high court's decision in Hendy, supra, 54 Cal.3d at pp. 727-728, guides our analysis on this issue. There, plaintiff football player was treated by the company's physician for a knee injury. (Ibid.) The plaintiff alleged the defendant physician improperly diagnosed and treated his injury, which resulted in "irreparable and permanent injury," and sued the defendant for medical malpractice. (Id. at p. 728.) The trial court sustained a demurrer on the ground that workers' compensation was plaintiff's exclusive remedy and thus precluded him from suing a coemployee who was acting within the scope of his employment. (Id. at pp. 729-730.)
On appeal, plaintiff for the first time requested he be allowed to amend his complaint to allege that the defendant was in fact an independent contractor and not an employee of the company. (Hendy, supra, 54 Cal.3d at pp. 742-743.) Relying on the sham pleading doctrine, our high court rejected this request, finding the plaintiff had failed to demonstrate "that the allegation that [the defendant] was an employee was the result of inadvertence or mistake, or that he has since discovered a factual basis for alleging that [the defendant] was an independent contractor." (Id. at p. 743.) Thus, even though the plaintiff alleged that the defendant was an employee "on information and belief," the Hendy court refused to grant him leave to amend. (Ibid.)
C. Analysis
Just like the football player in Hendy, we conclude plaintiff in the instant case failed to show that the borrower allegations in the SAC—which rendered portions of that pleading defective as a matter of law—were the result of "inadvertence or mistake, or that [s]he has since discovered a factual basis" for their omission. (See Hendy, supra, 54 Cal.3d at p. 743.)
Indeed, plaintiff in the TAC did not attempt to distance herself from the borrower allegations. Instead, as summarized in detail ante, she embraced them. Moreover, at oral argument she conceded that, if given a chance to amend her complaint a fourth time, she would rely on the same allegations that formed the crux of her TAC, namely that she was misled by defendants when they allegedly represented the foreclosure sale would not go forward until the loan modification review was complete. Thus, far from showing the omitted borrower allegations were the result of mistake or inadvertence, plaintiff continued to rely on them in the TAC, and plans to do so again if given the opportunity to amend.
In addition, plaintiff's position that the alleged omission of her de facto borrower allegations in the TAC were immaterial because they were "false" and "were not facts at all" is belied by that pleading, and contrary to the borrower allegations in paragraph 12 of the SAC, summarized ante. In addition, plaintiff in her opposition to the demurrer to the SAC aggressively argued that her SAC contained sufficient allegations to support her myriad causes of action based on her borrower status, including those arising under HBOR and contract principles of implied assumption and novation of contract.
We thus independently conclude the sham pleading doctrine provided a separate basis to sustain defendants' demurrer to the TAC without leave to amend. (See Hendy, supra, 54 Cal.3d at p. 743; cf. Deveney v. Entropin (2006) 139 Cal.App.4th 408, 426 [holding that the sham pleading doctrine did not apply because the plaintiff's explanation of newly discovered evidence was plausible and the complaint was based on numerous other allegations besides those omitted].)
The dissent concludes plaintiff should be given leave to amend yet again because the borrower allegations in the TAC "amount[ed] to tangential makeweight factual allegations" that may be omitted in an amended pleading. In support of this contention, the dissent relies on JPMorgan Chase Bank, N.A. v. Ward (2019) 33 Cal.App.5th 678 (Ward).
The issue in Ward was whether the plaintiff bank could amend its complaint to omit allegations in its original complaint that the execution of a deed of trust by the sole successor trustee in his individual capacity was unenforceable because, at the time of its execution, the property was owned by the trust. (Ward, supra, 33 Cal.App.5th at pp. 681-682.) In concluding the sham pleading doctrine did not apply, the Ward court recognized that this omitted allegation was a misstatement of the law, not one of fact, inasmuch as a signature by the sole trustee and beneficiary of an inter vivos revocable trust was sufficient to convey good title to property held by a trust. (Id. at p. 685.)
The Ward court therefore found the sham pleading doctrine did not apply to prevent the plaintiff bank from omitting "its allegations of mistake in a reformulated action" (Ward, supra, 33 Cal.App.5th at p. 692), inasmuch as the original complaint had been drafted by prior counsel, and the bank had "immediately distanced itself from such allegations in responding to the demurrer" (ibid.). In so finding, the court reasoned the omitted allegation could "best [be] read as a characterization of [the trustee's] signature on the underlying [deed of trust], not as the assertion of a foundational fact that should bind [the bank] in all subsequent pleadings." (Ibid.)
The dissent also relies on Avalon Painting Co. v. Alert Lumber Co. (1965) 234 Cal.App.2d 178 (Avalon). There, Avalon cross-complained against the manufacturer (Synkoloid) and the retailer (Alert) of allegedly defective paint. The only causes of action that Avalon asserted against Alert were for breach of warranty. Avalon's original cross-complaint alleged that Alert was Synkoloid's agent (Avalon, at p. 181); however, its amended cross-complaint omitted this allegation. (Id. at pp. 181-182.) The trial court sustained a demurrer without leave to amend. (Id. at p. 182.)
In reversing, the Avalon court noted that, if Alert was indeed Synkoloid's agent, it could not be held liable for the alleged breach of warranty. (Avalon, supra, 234 Cal.App.2d at p. 182.) It ruled, however, that Avalon was not bound by its previous allegation of agency: "The pleadings before us . . . pose a real question as to whether respondent was one of many retailers selected to sell Synkoloid products as a separate and independent entity or an entity which was in the relationship of an agent to Synkoloid, in the legal connotation and implication of that relationship. A Ford dealer or retailer may in a layman's view be an agent of the Ford Motor Co., but he [or she] is not an agent in the legal sense of that relationship. [Citation.]
"While the existence of agency is generally considered a question of fact, [citation] it is also true that the term 'agent' is a conclusion based on a study of all the evidence concerning the relationship of the parties involved[ citations]. [¶] . . . [W]e are dealing with an allegation of agency which amounts to a conclusion of law and is not only subject to differing constructions but it is one which in the original pleadings was coupled with an allegation that the party or parties in question were retailers and other facts indicating that Synkoloid, the original source, sold its products only through certain outlets.
"This is not a situation in which the omission, substitution, or contradiction of an original allegation carries with it the onus of untruthfulness. Indeed, the cases show that the determination of the existence of agency may be a complex and difficult task. A final conclusion can be reached on the decisive fact in question only after evidence has been taken." (Avalon, supra, 234 Cal.App.2d at p. 184.)
In Jackson v. Pacific Gas & Electric Co. (1949) 95 Cal.App.2d 204 (Jackson), also relied on by the dissent, the plaintiff sustained serious personal injuries when the truck he was riding in came in contact with high-power electric wires. In his original complaint, per the court the plaintiff "inadvertently alleged that [he] was employed by and under the supervision and control of defendant, thus barring him from maintaining his action" under the Workmen's Compensation Act. (Id. at p. 206.) Before the defendant even appeared in the action, plaintiff amended his complaint and alleged he was employed by a different company, which company's employees, pursuant to a contract between company and defendant, were " 'acting under the immediate direction, supervision and control of defendant.' " (Ibid.) The trial court sustained the demurrer to the amended complaint without leave to amend, finding the employment allegation in the prior complaint fatal, as it was a "statement against interest" that the plaintiff could not contradict in subsequent pleadings. (Ibid.)
The Jackson court reversed, finding that the "question of the relationship of the parties as employer and employee is ordinarily one of fact to be determined by the court from the evidence. An employee may be working in a dual capacity. If he is injured in the performance of services which are not compensable under the Workmen's Compensation Act, he may maintain an action for the tort independently of that act. [Citations.]" (Jackson, supra, 95 Cal.App.2d at p. 208.) Thus, the Jackson court concluded the trial court had abused its discretion in not allowing the plaintiff to amend further his complaint because the trial court could not, by the plaintiff's mere inadvertent statement in a prior pleading, make a finding that the plaintiff was in fact an employee of defendant under the circumstances of that case. (Id. at p. 209.)
Turning to the instant case, we conclude that Ward, Avalon, and Jackson are inapposite. The instant case is unlike Ward, where the plaintiff bank merely omitted from its amended pleading certain allegations that were based on an incorrect statement of the law; where the underlying foundational facts did not change as a result of the amendment; and where it would have been unfair to apply the sham pleading doctrine "mechanically" to bind the bank to an error of law when that error was promptly detected by new counsel. (See Ward, supra, 33 Cal.App.5th at p. 690 [noting it was "[c]ritical[]" not to apply the sham pleading doctrine " 'mechanically,' " quoting Avalon, supra, 234 Cal.App.2d at p. 185.) In the instant case, however, plaintiff's defective borrower allegations in the SAC were an assertion of foundational facts, and plaintiff by no means attempted to distance herself from such defective allegations, as is evident from the TAC and her concession to this court at oral argument.
Also, unlike the circumstances in Avalon and Jackson, in the instant case there were no complex questions of fact to be decided based on all the evidence in determining the nature of the legal relationship between plaintiff and defendants SPS and BONY. Unlike the situation in those two cases and in Ward, we conclude it is not unfair to bind plaintiff at the pleading stage to the defective allegations she was a de facto borrower under the note signed by Francisco. We thus independently conclude the court properly applied the sham pleading doctrine in sustaining the demurrer to the TAC without leave to amend.
V
Additional Reasons for Sustaining the Demurrer to the TAC Without Leave to Amend
A. The First and Second Causes of Action for Negligent and Intentional Misrepresentation, Respectively, Fail for Lack of Reliance
At common law, an action for fraud or deceit (intentional misrepresentation) consists of the following elements: "(1) a false representation (2) fraudulently made (3) with the intention of inducing another to rely thereon; if such misrepresentation (4) induces reliance (5) and the reliance is justified and (6) causes damage." (Hale v. George A. Hormel & Co. (1975) 48 Cal.App.3d 73, 82 (Hale).) The representation must be fraudulent, meaning there is an "intentional, conscious misrepresentation." (Ibid.) A cause of action for negligent misrepresentation consists of the same elements, with the exception that instead of an intentional misrepresentation, the defendant had to have "made the representation without reasonable ground for believing it to be true." (Majd v. Bank of Am., N.A. (2015) 243 Cal.App.4th 1293, 1307.)
In their demurrer, defendants contended that plaintiff's reliance was unjustified as a matter of law because she waited about four months after the alleged misrepresentation to file a loan modification application. They assert: "Her hopeful expectation that the non-judicial foreclosure process would not continue during the time she fail[ed] to submit a loan modification application is insufficient to support a fraud claim."
As noted, however, a loan modification on the property "was completed" and denied in November 2015, months before the June 2016 foreclosure sale. Although plaintiff submitted her own loan modification request in January 2016, without a copy of that application or any documentation supporting it, we conclude she failed to allege sufficient factual, as opposed to conclusory, allegations to establish justifiable reliance on Luna's representations. (See Yvanova, supra, 62 Cal.4th at p. 924; Rossberg, supra, 219 Cal.App.4th at p. 1500 [noting the "conclusory allegation [the homeowners] would have obtained a replacement loan does not state a cause of action"].) For this separate reason, the demurrer to both causes of action was properly sustained without leave to amend.
Because we conclude that plaintiff has failed to state sufficient facts to constitute justifiable reliance, we decline to address defendants' arguments as to the remaining elements, including that the representation was not false, defendants lacked intent to induce reliance, there was not a causal relationship between defendants' action and plaintiff's damages, and the representation related to future promises rather than past or existing facts.
B. The Negligent Misrepresentation Cause of Action Separately Fails for Lack of Duty
"California courts have been liberal in allowing recovery against persons providing false information causing injury, loss or damages under the theories of deceit and negligence." (Hale, supra, 48 Cal.App.3d at p. 84.) However, to establish liability for negligent misrepresentation, the plaintiff must show that his or her "interests are entitled to legal protection against the defendants' conduct" by the existence of a legal duty owed to the plaintiff. (Id. at p. 86.)
"In California, negligent misrepresentation is given statutory recognition as a form of deceit: Under section 1710, subdivision 2, of the Civil Code, it is the assertion, as a fact, of that which is not true, by one who has no reasonable ground for believing it to be true; under section 1572, subdivision 2, of the Civil Code, it is the positive assertion by a contracting party, in a manner not warranted by the information of the person making it, of that which is not true, though he believes it to be true." (Hale, supra, 48 Cal.App.3d at p. 84.)
In their demurrer, defendants cite to Eddy v. Sharp (1988) 199 Cal.App.3d 858, 864 for the proposition that they did not owe a legal duty to plaintiff to support her negligent misrepresentation claim: "As is true of negligence, responsibility for negligent misrepresentation rests upon the existence of a legal duty, imposed by contract, statute or otherwise, owed by a defendant to the injured person." Defendants also cite Nymark v. Heart Fed. Savings & Loan Assn. (1991) 231 Cal.App.3d 1089, 1096 for the well-established rule that "a financial institution owes no duty of care to a borrower when the institution's involvement in the loan transaction does not exceed the scope of its conventional role as a mere lender of money."
Following the passage of HBOR, California courts have analyzed whether, and under what circumstances, a loan modification application may give rise to a duty of care by the lender or its representative to a borrower, separate and apart from any contractual duties based on the underlying loan transaction. (See, e.g., Rossetta v. CitiMortgage, Inc. (2017) 18 Cal.App.5th 628, 638-640 (Rosetta) [imposing a duty of care when an existing relationship exists between the borrower and lender but making clear that a duty of care does not arise "merely because a lender receives or considers a loan modification application"]; Lueras v. BAC Home Loans Servicing, L.P. (2013) 221 Cal.App.4th 49, 69 [finding a lender has no duty to offer or approve a loan modification or to explore foreclosure alternatives, but that a claim for negligent misrepresentation might arise if the lender engages in "inaccurate or untimely communication about a foreclosure sale or about the status of a loan modification application"]; Alvarez v. BAC Home Loans Servicing, L.P. (2014) 228 Cal.App.4th 941, 949 [imposing a duty of care on lenders in "their dealings with borrowers seeking a loan modification" in the context of the mishandling of loans]; Daniels v. Select Portfolio Servicing, Inc. (2016) 246 Cal.App.4th 1150, 1180-1183 [applying the duty factors found in Biakanja v. Irving (1958) 49 Cal.2d 647, 650 (Biakanja) to conclude lenders owe borrowers a duty of care with respect to the loan modification process]; Jolley v. Chase Home Finance, LLC (2013) 213 Cal.App.4th 872, 906 [finding a lender owed a duty of care to the borrower as to representations made regarding the likelihood of modification].)
"The determination whether in a specific case the defendant will be held liable to a third person not in privity is a matter of policy and involves the balancing of various factors, among which are the extent to which the transaction was intended to affect the plaintiff, the foreseeability of harm to him [or her], the degree of certainty that the plaintiff suffered injury, the closeness of the connection between the defendant's conduct and the injury suffered, the moral blame attached to the defendant's conduct, and the policy of preventing future harm." (Biakanja, supra, 49 Cal.2d at p. 650.)
However, we need not decide in the instant case whether defendants may have owed plaintiff such a duty of care because the TAC specifically sets out the duty or duties owed her, including the duty to (i) provide her with accurate information about the "status of her mortgage loan accounts"; (ii) "deal reasonably with [her] as a borrower in default"; (iii) "effectuate a workable loan modification"; and (iv) be truthful to her as "a borrower [and] not . . . make material misrepresentations about the status of an application for a loan modification . . . ."
As is clear from the TAC, the duties plaintiff alleges were owed by defendants arose as a result of her status as borrower, and not as a result of her cosigning the DOT. Because plaintiff as a matter of law was not in a borrower-lender relationship with defendants, we conclude this cause of action fails as a matter of law.
C. The UCL Claim Also Fails for Lack of an Independent Wrong
" 'Unlawful business activity' proscribed under [the UCL] includes ' "anything that can properly be called a business practice and that at the same time is forbidden by law." ' " (Farmers Ins. Exchange v. Superior Court (1992) 2 Cal.4th 377, 383 (Farmers Ins.).) " '[A]n action based on Business and Professions Code section 17200 to redress an unlawful business practice "borrows" violations of other laws and treats these violations, when committed pursuant to business activity, as unlawful practices independently actionable under section 17200 et seq. and subject to the distinct remedies provided thereunder.' " (Farmers Ins., at p. 383.)
Because a UCL claim is derivative and we have concluded plaintiff's other two causes of action fail as a matter of law, her UCL claim similarly fails. Therefore, the trial court properly sustained the demurrer to this claim without leave to amend.
VI
Leave to Amend
Finally, we consider whether the trial court should have granted plaintiff leave to file a fourth amended complaint in this case. "On appeal from a judgment of dismissal entered after a demurrer has been sustained without leave to amend, unless failure to grant leave to amend was an abuse of discretion, the appellate court must affirm the judgment if it is correct on any theory. [Citations.] If there is a reasonable possibility that the defect in a complaint can be cured by amendment, it is an abuse of discretion to sustain a demurrer without leave to amend. [Citation.] The burden is on the plaintiff, however, to demonstrate the manner in which the complaint might be amended." (Hendy, supra, 54 Cal.3d 723, 742-743; see Fuller v. First Franklin Financial Corp. (2013) 216 Cal.App.4th 955, 962 [noting the plaintiff bears the "burden on appeal to show in what manner it would be possible to amend a complaint to change the legal effect of the pleading," and further noting a court of review "otherwise presume[s] the pleading has stated its allegations as favorably as possible"].)
As already noted, at oral argument plaintiff stated that, if given leave to file a fourth amended complaint, she again would rely on the Luna representations as the basis of her action against defendants. For this reason alone, we conclude leave to amend would be futile. (See Vaillette v. Fireman's Fund Ins. Co. (1993) 18 Cal.App.4th 680, 685 [recognizing the rule that "leave to amend should not be granted where . . . amendment would be futile"]; see also Ivanoff v. Bank of America, N.A. (2017) 9 Cal.App.5th 719, 726 [same].)
Moreover, both on appeal and in the trial court, plaintiff has not offered a satisfactory explanation as to how amendment would cure the multiple defects in her pleading, including with respect to her failure to plead any facts with sufficient particularity to support her causes of action; standing (or lack thereof); the sham pleading doctrine; and lack of justifiable reliance and duty. We thus conclude the court properly exercised its discretion in refusing plaintiff leave to file a fourth amended complaint.
DISPOSITION
Affirmed. Defendants to recover their costs of appeal.
BENKE, Acting P. J. I CONCUR: GUERRERO, J. DATO, J. dissenting.
At its core, this case isn't complicated. Under well-settled standards on demurrer, we evaluate whether a complaint alleges facts sufficient to state a cause of action under "any possible legal theory," including one we identify for the first time on appeal. (Gutierrez v. CarMax Auto Superstores California (2018) 19 Cal.App.5th 1234, 1244 (Gutierrez).) The factual allegations at the crux of plaintiff Angelica Perales's operative third amended complaint (TAC) suffice to state a basic fraud-based action. Plaintiff, a nonborrower homeowner, was told by Gabriella Luna, an employee of loan servicer Select Portfolio Servicing (SPS), that a loan modification application would postpone the foreclosure of her home and be more advantageous than a full tender of arrears. Heeding this advice, she submitted a loan modification application. Yet SPS and The Bank of New York Mellon (BONY) (collectively defendants) continued with foreclosure, and she lost her home. A fraud action requires no more at the pleading stage.
The majority opinion does not address the "any possible legal theory" standard in reaching a contrary result. In doing so, it faults plaintiff for not pleading evidentiary facts, when even a fraud plaintiff need only plead ultimate facts. Questions such as whether a nonborrower could reasonably rely on Luna's statements are not before us on demurrer. Nor do unnecessary makeweight allegations render the TAC a sham pleading. While hardly a model complaint, a pared down, decluttered version of the TAC withstands demurrer. In my view, plaintiff should be given leave to amend. For these reasons, I respectfully dissent.
A
The standards of review are well settled. A general demurrer tests the legal sufficiency of a complaint. On appeal from an order sustaining a demurrer, we give the complaint a reasonable interpretation, considering all material facts that are properly pleaded and matters that may be judicially noticed, but not contentions, deductions, or conclusions of fact or law. (Blank v. Kirwan (1985) 39 Cal.3d 311, 318; Yvanova v. New Century Mortgage Corp. (2016) 62 Cal.4th 919, 924.) We independently review "whether the complaint alleges 'facts sufficient to state a cause of action under any possible legal theory.' " (Gutierrez, supra, 19 Cal.App.5th at p. 1244 [collecting cases].) This inquiry is expansive, encompassing even "legal theories first raised by the reviewing court." (Id. at pp. 1244-1245.) If a demurrer is sustained without leave to amend, we see if there is a reasonable possibility the defect can be cured by amendment. (Blank, at p. 318.) If there is, the court abused its discretion in denying leave to amend. (Ibid.) We reach this issue even if the plaintiff did not seek amendment below or claim on appeal that leave to amend was improperly denied. (Aubry v. Tri-City Hosp. Dist. (1992) 2 Cal.4th 962, 971.)
These standards reflect our strong preference for resolving disputes on their merits, and I believe they direct the proper result. Plaintiff alleges she contacted SPS in September 2015 to discuss the loan delinquency and spoke with a representative named Gabriella Luna. When she offered to tender the full amount of arrears, Luna told her it would be more advantageous to seek a loan modification. Luna further stated that a foreclosure sale would be postponed until review of her loan modification application was complete.
Plaintiff says she submitted a loan modification application on January 17, 2016 rather than pursuing other (unspecified) foreclosure prevention options. Apparently contradicting what Luna had told her, defendants continued to advance foreclosure proceedings, filing a notice of trustee's sale just four days later while her application remained under review. By relying on Luna's misstatements, plaintiff alleges the home she owned was lost at foreclosure.
The TAC asserts just three causes of action—intentional misrepresentation, negligent misrepresentation, and unfair business practices stemming from the former (Bus. & Prof. Code, § 17200 et seq.). Intentional misrepresentation requires (1) a misrepresentation of material fact; (2) knowledge of falsity; (3) intent to induce reliance; (4) justifiable reliance; and (5) resulting damages. (West v. JPMorgan Chase Bank, N.A. (2013) 214 Cal.App.4th 780, 792 (West).) Only the second element differs for negligent misrepresentation—a plaintiff must show that the defendant made the misrepresentation without reasonable ground for believing it was true. (Ibid.) Drawing reasonable inferences from the TAC's core factual allegations, plaintiff has alleged enough facts to satisfy each of these required elements at the pleading stage.
The majority opinion comments that negligent misrepresentation presupposes a legal duty (Eddy v. Sharp (1988) 199 Cal.App.3d 858, 864), and notes that the TAC only alleges duties owed to loan borrowers. But our job is to consider whether the complaint states a cause of action under any possible legal theory, even one the plaintiff hasn't specifically identified. (Gutierrez, supra, 19 Cal.App.5th at pp. 1244-1245.) At this stage, it is sufficient to observe that even where there is no duty to speak, a defendant who opts to do so in response to a plaintiff's inquiry must make a full and fair disclosure. (Rogers v. Warden (1942) 20 Cal.2d 286, 289.)
Similarly, we may question whether a nonborrower like plaintiff could reasonably rely on Luna's alleged statements in submitting a second loan modification application to postpone foreclosure, but that presents a question of fact inappropriate for resolution on demurrer. (West, supra, 214 Cal.App.4th at p. 794.) The majority opinion draws various conclusions outside the four corners of the TAC to find plaintiff lacks standing—e.g., she "never sought to qualify for her own loan or worked with BONY to assume Francisco's loan" and "the record shows Luna allegedly represented the sale would not go forward until the [first] loan modification review was complete." Even if accepted, these points at best go toward justifiable reliance at a later stage, not standing. Plaintiff had standing as a homeowner and signatory to the deed of trust to challenge statements that allegedly caused her to lose her home. (See, e.g., Turner v. Seterus, Inc. (2018) 27 Cal.App.5th 516, 525 ["the fact that [nonborrower husband] was not a party to the note and deed of trust on the property does not deprive him of standing in this [wrongful foreclosure] action" based on his community interest in the property].)
B
In reaching a different result, the majority opinion appears to overlook a basic rule of pleading. A plaintiff in a civil action must plead ultimate facts, not evidentiary facts. (Doe v. City of Los Angeles (2007) 42 Cal.4th 531, 550.) Fraud actions require greater detail—a plaintiff must allege "facts which show how, when, where, to whom and by what means the representations were tendered." (Gutierrez, supra, 19 Cal.App.5th at p. 1260.) The purpose of the specificity requirement is to give a fraud defendant notice and help the court weed out meritless actions. (Committee on Children's Television, Inc. v. General Foods Corp. (1983) 35 Cal.3d 197, 216-217 (Committee on Children's TV).) But requiring particularity for fraud does not change the basic pleading rule. "Pleading facts in ordinary and concise language is as permissible in fraud cases as in any others, and liberal construction of the pleading is as much a duty of the court in these as in other cases." (Witkin, Cal. Procedure (5th ed. 2008) Pleading, § 714, p. 129.) "[W]hile it seems sound to require specific pleading of the facts of fraud rather than general conclusions, the courts should not look askance at the complaint, and seek to absolve the defendant from liability, on highly technical requirements of form in pleading." (Ibid., accord Committee on Children's TV, at p. 216, fn. 17 [quoting Witkin].)
Plaintiff satisfies the specificity requirement. She alleges that Luna, an SPS representative, made certain misstatements to her during a conversation in September 2015. Relying on those misstatements, plaintiff submitted a loan modification application through SPS's online portal on January 17, 2016. The portal confirmed receipt of her documents. No greater detail was required. (See West, supra, 214 Cal.App.4th at p. 793; Wald v. TruSpeed Motorcars, LLC (2010) 184 Cal.App.4th 378, 394.) She did not need to plead evidentiary facts to overcome a general demurrer. Her failure to submit a copy of her loan modification application or provide "documentation to support her ability to tender the full amount in arrears" did not render the TAC's allegations "conclusory."
Rossberg v. Bank of America (2013) 219 Cal.App.4th 1481 does not suggest otherwise. Rossberg was a pre-foreclosure case. (Id. at p. 1489.) Borrower plaintiffs alleged they executed loan modification papers and disclosed confidential information to their lender, who had no intention of approving a modification. (Id. at pp. 1499-1500.) Even if true, the plaintiffs failed to sufficiently plead how executing papers and continuing to make loan payments harmed them. (Ibid.) The analysis differs here, where Perales alleges she lost her home after she relied on Luna's statements.
C
Nor can plaintiff's attempt to state a narrowed claim be dismissed as a "sham pleading." In earlier pleadings, plaintiff alleged standing as the homeowner and as a de facto borrower who had made payments on the note. The trial court sustained defendants' demurrer to the second amended complaint with leave to amend, concluding plaintiff was not the borrower on the underlying loan and therefore lacked standing to assert violations of the Homeowner Bill of Rights. Plaintiff tried a different tack in the TAC, asserting standing solely as a homeowner who signed the deed of trust securing the loan. Nevertheless, scattered throughout the TAC are references to borrowers—assertions that "borrowers" like her were misled; duties owed by lenders and servicers to borrowers; and general background on unlawful lending and loan servicing practices connected to the 2008 financial crisis. Likewise, the TAC lists as unfair business practices a host of allegedly deceptive mortgage loan servicing practices that would be irrelevant to a nonborrower.
Effective January 1, 2013, the California Homeowner Bill of Rights prohibits practices such as "dual track" foreclosures, in which a servicer continues with foreclosure while a borrower's loan modification application is pending. (Stats. 2012, ch. 86, §§ 1-25; Stats. 2012, ch. 87, §§ 1-25; Lueras v. BAC Home Loans Servicing, LP (2013) 221 Cal.App.4th 49, 86, fn. 14.)
We recently had occasion to consider the sham pleading doctrine in JPMorgan Chase Bank, N.A. v. Ward (2019) 33 Cal.App.5th 678, 690 (Ward). As we explained in Ward, the doctrine prevents a plaintiff from attempting to cure a defective pleading by simply omitting without explanation the defective allegations in an amended complaint. But this rule must be applied consistent with its purpose, which is to prevent an amended pleading that is only a sham when it is apparent that no cause of action can truthfully be stated. (Ibid.) Courts do not apply the sham pleading doctrine where the proposed amendment does not carry the onus of untruthfulness or impugn the credibility of plaintiff's cause of action. (Id. at pp. 690-692.)
Plaintiff's selective-but-incomplete omission of certain "borrower" allegations in the TAC does not render it a sham pleading. Instead, these borrower-related allegations amount to tangential, makeweight factual allegations that do not implicate the sham pleading rule. (See McGee v. McNally (1981) 119 Cal.App.3d 891, 897; see, e.g., Ward, supra, 33 Cal.App.5th at p. 692 [lender could omit an erroneous characterization of the capacity in which a borrower signed a trust deed]; Avalon Painting Co. v. Alert Lumber Co. (1965) 234 Cal.App.2d 178, 184, 185 [plaintiff could remove an allegation of agency fatal to its breach of warranty claim]; Jackson v. Pacific Gas & Electric Co. (1949) 95 Cal.App.2d 204, 207 [plaintiff could omit an allegation of an employment relationship fatal to his personal injury claim].)
Hendy v. Losse (1991) 54 Cal.3d 723, cited by the majority, stands for the well accepted proposition that a plaintiff must provide an adequate explanation to drop fatal allegations from an amended pleading. Here, judicially noticeable facts establish that plaintiff is not the borrower on the underlying loan. She admits as much and has abandoned her de facto borrower theory of standing. Boilerplate allegations about risky underwriting practices precipitating the financial crisis, the effects of post-crisis foreclosure practices on borrowers, and counsel's offer to add more allegations along these lines by amendment simply do not amount to "foundational facts" central to plaintiff's fraud action. Omitting them in an amended pleading would not impugn the trustworthiness of her action so as to trigger the sham pleading rule.
Hendy involved a professional football player who sued his team doctor for injuries, alleging the doctor was a coemployee. This allegation was fatal, making worker's compensation the exclusive remedy. The plaintiff could not amend to allege the doctor was an independent contractor because he had not shown that the earlier allegation was the result of inadvertence or mistake. (Hendy v. Losse, supra, 54 Cal.3d at p. 743.)
D
The question presented is whether the TAC contains facts sufficient to state a cause of action under any possible legal theory, including one we may identify on our own. (Gutierrez, supra, 19 Cal.App.5th at p. 1244.) In my view, faithful application of that standard requires reversal because the TAC can be simplified, decluttered, and reframed to state a viable fraud-based action. Admittedly, this plausible legal theory is buried under a mountain of unnecessary clutter in the TAC. Recognizing that the pleadings frame the issues to be tried (Committee on Children's TV, supra, 35 Cal.3d at pp. 211-212), in my view the proper course is to allow plaintiff to amend the TAC to articulate in plain and simple terms a fraud-based action resting on Luna's alleged misstatements to her, a homeowner who signed the deed of trust securing the loan.
DATO, J.