Opinion
NOT TO BE PUBLISHED
APPEAL from a judgment of the Superior Court of Los Angeles County No. MC020173, Randolph Rogers, Judge.
Law Offices of John H. Bakhit and Nicola Scott for Plaintiff and Appellant.
The Ryan Firm, Timothy M. Ryan and Michael W. Stoltzman, Jr., for Defendant and Respondent.
JACKSON, J.
INTRODUCTION
Plaintiff Emertha Jones appeals from a judgment of dismissal entered after the trial court sustained the demurrer of defendant Fremont Investment & Loan without leave to amend. Plaintiff contends the trial court abused its discretion in denying her leave to amend. We agree in part.
FACTUAL AND PROCEDURAL BACKGROUND
Plaintiff filed this action on February 20, 2009, alleging seven causes of action for violation of the Truth in Lending Act (TILA, 15 U.S.C. § 1601 et seq.), violations of sections 2923.5 and 2923.6 of the Civil Code, violation of Business and Professions Code section 17200, breach of the implied covenant of good faith and fair dealing, unfair debt collection practices and wrongful foreclosure. Defendant demurred, and the trial court sustained its demurrer with leave to amend. It issued a detailed, 12-page statement of decision explaining the bases for its ruling.
Plaintiff then filed the operative first amended complaint, containing the same seven causes of action. In it, she alleged as follows:
In setting forth the allegations of the complaint, we consider only the properly pleaded factual allegations and matter of which judicial notice may be taken. We do not consider conclusions of fact or law. (Schifando v. City of Los Angeles (2003) 31 Cal.4th 1074, 1081; California Logistics, Inc. v. State of California (2008) 161 Cal.App.4th 242, 247.)
On March 7, 2006, plaintiff obtained an adjustable rate mortgage from defendant to refinance her existing loan on a piece of real property located on Oro Circle in Palmdale. When she obtained the loan, she was provided with one notice of right to cancel, which was not filled out.
A copy of the notice of right to cancel was attached to the complaint. It lists the date of the transaction as March 7, 2006 and contains standard language stating that the borrower has “a legal right under federal law to cancel this transaction, without cost, within three business days” of the last of three events, including the date of the transaction. It does not include the date by which notice must be sent if the borrower cancels by mail or telegram.
Also attached to the complaint is a copy of the adjustable rate note secured by the mortgage. It states at the top that it “contains provisions allowing for changes in my interest rate and my monthly payment.” Under the section entitled payments, it states, “see balloon payment rider attached hereto and made a part hereof.”
The balloon payment rider is not attached to the complaint.
In addition, a truth in lending statement is attached to the complaint. It lists the annual percentage rate, finance charge, amount financed and total of payments.
Plaintiff’s loan subsequently was assigned to HomEq Servicing (HomEq).
HomEq was a defendant below but is not a party to this appeal.
On September 8, 2008, plaintiff notified defendant and HomEq of her election to rescind the loan based on TILA violations. She offered to make arrangements for any tender that might be required under TILA.
Defendant and HomEq did not rescind the loan or terminate their security interest in the property. Instead, they recorded a notice of default and a notice of trustee sale. The notice of default indicated that plaintiff was $9,268.56 behind in her payments as of July 31, 2008. Prior to recording the notice of default, defendant and HomEq did not contact plaintiff to discuss options to foreclosure, offer plaintiff a loan modification or file a declaration under Civil Code section 2923.5.
At the trustee sale, the property was sold to Wells Fargo, the investor on the loan transaction. Plaintiff alleged that she has the ability to tender the amount due on the loan through a loan modification.
Defendant again demurred. Prior to the filing of plaintiff’s opposition, her counsel requested to be relieved due to a conflict with plaintiff. At a hearing on the matter, plaintiff agreed to counsel’s request. Plaintiff also acknowledged to the court that she purchased the property in 1998 for $98,000. She acknowledged that she had refinanced it three times since then.
At the hearing on the demurrer, the court indicated its tentative decision was to sustain the demurrer without leave to amend. It explained that the first amended complaint did not state a cause of action. In addition, the equities did not favor plaintiff with respect to leave to amend because “there had been multiple refinances and... the house is probably encumbered two to three times the amount of the actual value.”
The court then sustained the demurrer without leave to amend and dismissed the action. In its statement of decision, the court explained that while plaintiff had stated a cause of action under TILA, the cause of action was nonetheless barred by TILA’s one-year statute of limitations. Additionally, TILA’s right of rescission terminated upon sale of the property at a foreclosure sale.
The court found Civil Code section 2923.5 inapplicable, in that the notice of default was recorded prior to the operative date of the statute. Additionally, a letter attached to plaintiff’s original complaint indicated that defendant did, in fact, engage in the negotiations required under the code section.
The court found Civil Code section 2923.6 inapplicable, in that it applied to members of a loan pool, not individual borrowers. Therefore, defendant had no duty under that section. Additionally, as in the case of Civil Code section 2923.5, defendant did engage in the required negotiations. Since the TILA and Civil Code causes of action failed, plaintiff’s cause of action under Business and Professions Code section 17200, based on those statutes, also failed.
As to plaintiff’s cause of action for breach of the implied covenant of good faith and fair dealing, the court found that a borrower cannot generally assert such a cause of action against a lender. Additionally, despite the wording of the complaint and conclusory language, the facts alleged related to the formation of the contract and thus could not support such a cause of action.
The court found the first amended complaint “devoid of factual allegations” supporting a cause of action for unfair debt collection practices. Further, plaintiff did not state a cause of action for wrongful foreclosure, in that she failed to allege an unconditional tender of the secured debt.
The court acknowledged that “[g]enerally, it would be an abuse of discretion for this court to deny leave to amend where a plaintiff could conceivably state a claim.” However, plaintiff had already had two opportunities to state a cause of action but failed to do so. Additionally, the equities favored defendant. As the court had noted earlier, the property was worth only a fraction of what plaintiff owed on it. Furthermore, the court had learned at the hearing on the demurrer “that the property at issue is not even [plaintiff’s] residence but has been leased to a Section 8 Tenant who [defendant] will not be able to evict until the tenancy ends at the end of August. It appears, therefore, that throughout the foreclosure proceedings [plaintiff] has been collecting rent from the County which has not been remitted to the [defendant].”
DISCUSSION
A. Standard of Review
A demurrer tests the sufficiency of the plaintiff’s complaint, i.e., whether it states facts sufficient to constitute a cause of action upon which relief may be based. (Code Civ. Proc., § 430.10, subd. (e); Friedland v. City of Long Beach (1998) 62 Cal.App.4th 835, 841-842.) In determining whether the complaint states facts sufficient to constitute a cause of action, the trial court may consider all material facts pleaded in the complaint and those arising by reasonable implication therefrom; it may not consider contentions, deductions or conclusions of fact or law. (Moorev.Conliffe (1994) 7 Cal.4th 634, 638; Montclair Parkowners Assn. v. City of Montclair (1999) 76 Cal.App.4th 784, 790.) The trial court also may consider matters of which it may take judicial notice. (Code Civ. Proc., § 430.30, subd. (a); City of Atascadero v. Merrill Lynch, Pierce, Fenner & Smith, Inc. (1998) 68 Cal.App.4th 445, 459.) However, it may not consider in making its ruling the available evidence, the plaintiff’s ability to prove the allegations in the complaint or other extrinsic matters. (Perduev.Crocker National Bank (1985) 38 Cal.3d 913, 922; see City of Atascadero, supra, at p. 459.)
A demurrer should not be sustained without leave to amend if the complaint, liberally construed, can state a cause of action under any theory or if there is a reasonable possibility the defect can be cured by amendment. (Aubry v. Tri-City Hospital Dist. (1992) 2 Cal.4th 962, 967; Jagerv.County of Alameda (1992) 8 Cal.App.4th 294, 297.) The demurrer should be sustained and leave to amend denied only “where the facts are not in dispute, and the nature of the plaintiff’s claim is clear, but, under the substantive law, no liability exists. Obviously no amendment would change the result.” (5 Witkin, Cal. Procedure (5th ed. 2008) Pleading, § 991, p. 402; accord, City of Atascadero v. Merrill Lynch, Pierce, Fenner & Smith, Inc., supra, 68 Cal.App.4th at p. 459.) The demurrer also may be sustained without leave to amend where the nature of the defects and previous unsuccessful attempts to plead render it probable plaintiff cannot state a cause of action. (Krawitzv.Rusch (1989) 209 Cal.App.3d 957, 967; 5 Witkin, supra, § 992, at p. 403.)
On appeal, we review the trial court’s sustaining of a demurrer without leave to amend de novo, exercising our independent judgment as to whether a cause of action has been stated as a matter of law and applying the abuse of discretion standard in reviewing the trial court’s denial of leave to amend. (Williams v. Housing Authority of Los Angeles (2004) 121 Cal.App.4th 708, 718-719; Montclair Parkowners Assn. v. City of Montclair, supra, 76 Cal.App.4th at p. 790.) Plaintiff bears the burden of proving the trial court erred in sustaining the demurrer or abused its discretion in denying leave to amend. (City of Atascadero v. Merrill Lynch, Pierce, Fenner & Smith, Inc., supra, 68 Cal.App.4th at p. 459; Coutin v.Lucas (1990) 220 Cal.App.3d 1016, 1020.) To show abuse of discretion, plaintiff must show in what manner the complaint could be amended and how the amendment would change the legal effect of the complaint, i.e., state a cause of action. (Goodman v. Kennedy (1976) 18 Cal.3d 335, 349; J.B. Aguerre, Inc. v. American Guarantee & Liability Ins. Co. (1997) 59 Cal.App.4th 6, 18.) This showing may be made either in the trial court or on appeal. (Careau & Co.v.Security Pacific Business Credit, Inc. (1990) 222 Cal.App.3d 1371, 1386.)
B. TILA
Plaintiff contends the trial court abused its discretion in denying her leave to amend, in that she can state a cause of action under TILA. Specifically, she claims (1) “under the true spirit of TILA, rescission of a note is automatic and there is no actual mortgage to pay, because the mortgagee no longer holds a secured interest with the mortgaged property”; and (2) rescission of the note is not the sole remedy under TILA, so sale of the property at a foreclosure sale did not absolve defendant of liability. In her reply brief, in response to defendant’s claim that her TILA cause of action is barred by the statute of limitations, plaintiff argues that she is entitled to monetary damages, since the statute of limitations had not expired due to equitable tolling or delayed discovery.
Section 1635 of title 15 of the United States Code provides a right of rescission of transactions subject to TILA. However, the right of rescission terminates upon sale of the property. (Id., § 1635(f).) (Smith v. Jenkins (D.Mass. 2009) 626 F.Supp.2d 155, 167.) “A cause of action for money damages under TILA may be available if [plaintiff] is able to overcome a statute of limitations defense asserted by [defendant].” (Id. at pp. 167-168.)
Under 15 United States Code section 1640(e), an action for damages under TILA must be brought “within one year from the date of the occurrence of the violation.” Where the claimed violation is a failure to disclose, the limitations period begins to run at the time the disclosure should have been made. (Oldroyd v. Associates Consumer Discount Co./PA (E.D.Pa. 1994) 863 F.Supp. 237, 240-241.)
However, “‘the doctrine of equitable tolling may, in the appropriate circumstances, suspend the limitations period until the borrower discovers or had reasonable opportunity to discover the fraud or nondisclosures that form the basis of the TILA claim.’ [Citation.] Equitable tolling is ‘appropriate where the plaintiff is actively misled by the defendant about the cause of action or is prevented in some extraordinary way from asserting his [or her] rights.’ [Citation.]” (Deaville v. Capital One Bank (W.D.La. 2006) 425 F.Supp.2d 744, 752; see also Bakerv.Beech Aircraft Corp. (1974) 39 Cal.App.3d 315, 323.)
Plaintiff did not allege, and does not claim she can allege, facts showing she was actively misled by defendant. Rather, she claims that “being a lay person not knowing the law in regards to purchasing real estate, she did not discover the injury until after the expiration of the limitations period.” She cites no authority for the proposition that her mere ignorance of the law tolls the statute of limitations. “This is simply not a case where Plaintiff was bamboozled by Defendant[] and equitable tolling is not necessary. Plaintiff was never misled about the application of the statute of limitations and normal operation of the statutory bar is fatal to Plaintiff’s TILA claims.” (Deaville v. Capital One Bank, supra, 425 F.Supp.2d at p. 753.)
Inasmuch as plaintiff has not stated or demonstrated that she can state a cause of action for violation of TILA, the trial court properly sustained defendant’s demurrer as to that cause of action without leave to amend. (J.B. Aguerre, Inc. v. American Guarantee & Liability Ins. Co., supra, 59 Cal.App.4th at p. 18; City of Atascadero v. Merrill Lynch, Pierce, Fenner & Smith, Inc., supra, 68 Cal.App.4th at p. 459.)
C. Civil Code Section 2923.6
Plaintiff contends the trial court misinterpreted Civil Code section 2923.6 as inapplicable to individual borrowers. As to defendant’s position that this section does not provide a private cause of action, she states that since the trial court did not address this issue, it is not in dispute in this appeal and “[i]t was intentionally left out of [her] opening brief for this reason.”
Civil Code section 2923.6 provides: “(a) The Legislature finds and declares that any duty servicers may have to maximize net present value under their pooling and servicing agreements is owed to all parties in a loan pool, or to all investors under a pooling and servicing agreement, not to any particular party in the loan pool or investor under a [pooling] and servicing agreement, and that a servicer acts in the best interests of all parties to the loan pool or investors in the pooling and servicing agreement if it agrees to or implements a loan modification or workout plan for which both of the following apply: [¶] (1) The loan is in payment default, or payment default is reasonably foreseeable. [¶] (2) Anticipated recovery under the loan modification or workout plan exceeds the anticipated recovery through foreclosure on a net present value basis.
“(b) It is the intent of the Legislature that the mortgagee, beneficiary, or authorized agent offer the borrower a loan modification or workout plan if such a modification or plan is consistent with its contractual or other authority....”
Subdivision (a) of Civil Code section 2923.6 by its terms applies only to parties in a loan pool or investors in a pooling and servicing agreement. (Pantoja v. Countrywide Home Loans, Inc. (N.D.Cal. 2009) 640 F.Supp.2d 1177, 1188.) Plaintiff does not allege or claim to be able to allege she is either of those.
Subdivision (b) of Civil Code section 2923.6 imposes no substantive duty on lenders to offer loan modifications or workout plans. (Mabry v. Superior Court (2010) 185 Cal.App.4th 208, 222; Pantoja v. Countrywide Home Loans, Inc., supra, 640 F.Supp.2d at p. 1188.) Absent a duty, there is no cause of action for violation of the statute. (Pantoja, supra, at p. 1188.) That the trial court did not sustain defendant’s demurrer on this basis does not preclude us from doing so; in reviewing the sustaining of the demurrer, we exercise our independent judgment to determine whether a cause of action has been or can be stated as a matter of law. (Williams v. Housing Authority of Los Angeles, supra, 121 Cal.App.4th at pp. 718-719; Montclair Parkowners Assn. v. City of Montclair, supra, 76 Cal.App.4th at p. 790.)
D. Business and Professions Code section 17200
Plaintiff contends that the alleged violations of TILA and Civil Code section 2923.6 also constitute violations of the Unfair Competition Law (UCL, Bus. & Prof. Code, § 17200 et seq.). Additionally, since the UCL has a four-year statute of limitations (id., § 17208), her cause of action under the UCL is not time-barred with respect to the violation of TILA.
In order to state a cause of action for unfair competition, a plaintiff must plead an “unlawful, unfair or fraudulent business act or practice, ” “unfair, deceptive, untrue or misleading advertising, ” or a violation of section 17500 et seq. of the Business and Professions Code” (Bus. & Prof. Code, § 17200; see Farmers Ins. Exchange v. Superior Court (1992) 2 Cal.4th 377, 383). An unlawful business act or practice is “‘“‘“anything that can properly be called a business practice and that at the same time is forbidden by law.”’”’” [Citation.] A practice is forbidden by law if it violates any law, civil or criminal, statutory or judicially made [citation], federal, state or local [citation]. [¶] By extending to business acts or practices which are ‘unlawful, ’ ‘the UCL permits violations of other laws to be treated as unfair competition that is independently actionable. [Citation.]’” (McKell v. Washington Mutual, Inc. (2006) 142 Cal.App.4th 1457, 1474-1475.)
Defendant claims that plaintiff cannot state a UCL cause of action for violation of TILA or Civil Code section 2923.6, in that the UCL does not permit a plaintiff to, “‘in effect, “plead around” absolute barriers to relief by relabeling the nature of the action as one brought under the unfair competition statute.’ [Citation.] A bar against an action ‘may not be circumvented by recasting the action as one under [the UCL].’ [Citation.]” (Cel-Tech Communications, Inc. v. Los Angeles Cellular Telephone Co. (1999) 20 Cal.4th 163, 182.) We would agree this principle applies to plaintiff’s attempt to state a cause of action for violation of the UCL based on the alleged violation of Civil Code section 2923.6, subdivision (b), which provides no basis for a claim for relief.
Insofar as plaintiff’s TILA cause of action is concerned, however, the foregoing principle does not necessarily bar plaintiff’s cause of action. As plaintiff points out, “[t]he UCL has a four-year statute of limitations, which applies even if the borrowed statute has a shorter limitations statute.” (Blanks v. Seyfarth Shaw LLP (2009) 171 Cal.App.4th 336, 364.) Thus, to the extent plaintiff’s TILA cause of action is barred by the statute of limitations, a UCL claim based on the TILA violation may proceed if filed within the UCL’s four-year limitations period.
The trial court found that plaintiff “has alleged facts sufficient to state a claim under TILA... upon which relief may be granted.” However, it found her cause of action, filed nearly three years after the alleged TILA violation, was barred by TILA’s one-year statute of limitations. Since the UCL has a limitations period of four years, it appears that plaintiff may be able to state a cause of action under the UCL based on the alleged TILA violation. The trial court therefore abused its discretion in denying plaintiff leave to amend as to her UCL cause of action. (Aubry v. Tri-City Hospital Dist., supra, 2 Cal.4th at p. 967; Williams v. Housing Authority of Los Angeles, supra, 121 Cal.App.4th at p. 719.)
E. Breach of the Implied Covenant of Good Faith and Fair Dealing
A covenant of good faith and fair dealing is implied in every contract. (Foley v. Interactive Data Corp. (1988) 47 Cal.3d 654, 683-684; Ocean Services Corp. v. Ventura Port Dist. (1993) 15 Cal.App.4th 1762, 1780.) Pursuant to this covenant, the parties agree not to do anything which injures the right of the other parties to receive the benefits of the contract. (Ocean Services Corp., supra, at p. 1780.)
This “implied covenant of good faith and fair dealing rests upon the existence of some specific contractual obligation.” (Racine & Laramie, Ltd. v. Department of Parks & Recreation (1992) 11 Cal.App.4th 1026, 1031; accord, Foley v. Interactive Data Corp., supra, 47 Cal.3d at pp. 683-684, 689-690.) That is, it “‘protect[s] the express covenants or promises of the contract, ’” rather than general public policy. (Racine & Laramie, Ltd., supra, at p. 1031.) Additionally, because the implied covenant is read into the contract, it does not extend to negotiations prior to entry into the contract. (McClain v. Octagon Plaza, LLC (2008) 159 Cal.App.4th 784, 799; Racine & Laramie, Ltd., supra, at pp. 1034-1035.)
In asserting that she has stated a cause of action for breach of the implied covenant of good faith and fair dealing, plaintiff relies on paragraph 16 of the deed of trust, which addresses governing law. It provides that the deed of trust “shall be governed by federal law and the law of the jurisdiction in which the Property is located. All rights and obligations contained in this Security Instrument are subject to any requirements and limitations of Applicable Law. Applicable Law might explicitly or implicitly allow the parties to agree by contract or it might be silent, but such silence shall not be construed as a prohibition against agreement by contract....”
Plaintiff argues that the contract is silent as to the disclosures required under TILA. Therefore, “[t]he silent agreement made by the parties was to uphold TILA and have [defendant] provide the correct disclosures to [plaintiff]. If the disclosures are not made, “then the Deed of Trust is breached as to this silent agreement in this contract.” Plaintiff concludes, “[n]ow that a silent contractual clause in the Deed of Trust has been asserted, and a breach to this clause has been shown, a breach of the implied covenant of fair dealing is implicit in this breach due to the violation of TILA.”
Paragraph 16 acknowledges the applicable law and allows the parties to agree by contract so long as the applicable law does not prohibit such an agreement. The paragraph cannot be construed as containing a “silent agreement” to uphold TILA or any other provision of law. Moreover, plaintiff cites no authority for the proposition that breach of a “silent agreement” in a contract constitutes breach of the implied covenant of good faith and fair dealing.
Plaintiff also seems to suggest that violation of the law governing foreclosure translates to a breach of the implied covenant of good faith and fair dealing. In the absence of any further explication of this thought or authority to support it, we reject it. (In re Marriage of Falcone & Fyke (2008) 164 Cal.App.4th 814, 830; Benach v. County of Los Angeles (2007) 149 Cal.App.4th 836, 852.)
In sum, plaintiff has failed to show that she has stated or can state a cause of action for breach of the implied covenant of good faith and fair dealing. The trial court therefore properly sustained defendant’s demurrer to this cause of action without leave to amend. (City of Atascadero v. Merrill Lynch, Pierce, Fenner & Smith, Inc., supra, 68 Cal.App.4th at p. 459.
F. Wrongful Foreclosure
Plaintiff contends she is able to state a cause of action for wrongful foreclosure by alleging a violation of Civil Code section 2924, subdivision (a)(3), by failing to provide her with the date of the trustee sale. She also would allege that she is able to tender the amount owing on the loan.
As the trial court found, in order to maintain a cause of action based on an irregularity in foreclosure proceedings, a plaintiff must allege tender of the amount of indebtedness. (Abdallah v. United Savings Bank (1996) 43 Cal.App.4th 1101, 1109; Arnolds Management Corp. v. Eischen (1984) 158 Cal.App.3d 575, 580.) Plaintiff alleged that she “has the ability to tender the amount owing on the loan transaction through a loan modification pursuant to Civil Code [section] 2923.6.” An offer to pay through a loan modification is not the requisite “unconditional offer to pay all of the sums necessary to cure the default.” (Arnolds Management Corp., supra, at p. 580.)
Plaintiff now asserts that in order to state a cause of action, she would “omit the inadvertently inserted fragment ‘through a loan modification.’” “‘A plaintiff may not avoid a demurrer by pleading facts or positions in an amended complaint that contradict the facts pleaded in the original complaint or by suppressing facts which prove the pleaded facts false. [Citation.]’ [Citations.]” (McKell v. Washington Mutual, Inc., supra, 142 Cal.App.4th at p. 1491.) While an amended pleading supersedes an existing one, it “does not obliterate the original complaint nor wholly nullify the fact of its filing or its contents.” (Lerner v. Glickfeld (1960) 187 Cal.App.2d 514, 525.)
A party may “‘“be allowed to correct a pleading by omitting an allegation which, it appears, was made as the result of mistake or inadvertence.”’” (Hendy v. Losse (1991) 54 Cal.3d 723, 743.) In order to do so, the party must present very satisfactory evidence to show the earlier pleading clearly was the result of mistake or inadvertence. (American Advertising & Sales Co. v. Mid-Western Transport (1984) 152 Cal.App.3d 875, 879.)
Plaintiff’s description of “through a loan modification” as an “inadvertently inserted fragment” does not make it so. She has presented no evidence of mistake or inadvertence. Accordingly, there was no error in sustaining defendant’s demurrer as to the wrongful foreclosure cause of action and denying leave to amend. (American Advertising & Sales Co. v. Mid-Western Transport, supra, 152 Cal.App.3d at p. 879.)
Plaintiff does not challenge the sustaining of the demurrer without leave to amend as to her cause of action based on Civil Code section 2923.5 and her cause of action for unfair debt collection practices.
DISPOSITION
The judgment of dismissal is reversed. The trial court is directed to vacate its order sustaining defendant’s demurrer without leave to amend and to enter a new and different order, granting plaintiff leave to amend as to her cause of action for violation of the UCL only. The parties are to bear their own costs on appeal.
We concur: PERLUSS, P. J., ZELON, J.