Bank of N.Y. Mellon v. Citibank, N.A.

Decision Date16 February 2017
Docket NumberB262899
Citation8 Cal.App.5th 935,214 Cal.Rptr.3d 504
Parties BANK OF NEW YORK MELLON, Plaintiff and Appellant, v. CITIBANK, N.A., Defendant and Respondent.
CourtCalifornia Court of Appeals Court of Appeals

Garrett & Tully, Ryan C. Squire, Pasadena, Zi C. Lin and John C. Tully, for Plaintiff and Appellant.

Lewis Brisbois Bisgaard & Smith, Roy G. Weatherup and Daniel G. Bath, Los Angeles, for Defendant and Respondent.

EPSTEIN, P.J.

Bank of New York Melon appeals from the judgment of dismissal of its lawsuit against respondent Citibank, N.A. The case arose out of the simultaneous refinancing of a home equity line of credit by two different lenders in 2006, which resulted in a dispute over the priority of their recorded deeds of trust. Appellant challenges the orders sustaining respondent's demurrers to appellant's first and second amended complaints. The demurrers alleged that all of appellant's causes of action were barred by the three-year statute of limitations in Code of Civil Procedure section 338 (hereafter, section 338 ). We reverse the judgment because appellant has stated a claim for equitable subrogation, which is not subject to that statute.

FACTUAL AND PROCEDURAL SUMMARY

In May 2005, respondent's predecessor in interest, Citibank (West) FSB (hereafter, Citibank West) issued a home equity line of credit of up to $500,000 (hereafter, first line of credit) to James and Cathleen Lima and recorded a deed of trust securing that line of credit against the Limas' home in Pacific Palisades.

In January 2006, the Limas simultaneously negotiated a refinancing of the first line of credit with both Citibank West and appellant's predecessor in interest, Countrywide Home Loans, Inc. (hereafter, Countrywide) First American Lenders Advantage (hereafter, First American) was Countrywide's escrow agent for the refinancing. The agreement with the Limas was that Countrywide would pay off Citibank West's first line of credit, obtain a reconveyance of Citibank West's deed of trust, and receive a second deed of trust on the property as security for its loan.1 Unbeknownst to Countrywide, on January 17, 2006, the Limas signed loan documents to refinance the first line of credit with a new line of credit from Citibank West (hereafter, second line of credit). The second line of credit had a limit of up to $600,000 and was secured by a deed of trust recorded on January 31, 2006.

On January 19, 2006, Citibank West issued a payoff statement for $508,527.65, without disclosing that the first line of credit was being refinanced. The payoff statement indicated that the account on the first line of credit had been "frozen." The instruction sheet accompanying the statement specified that an enclosed "close/termination letter" was to "accompany the payoff funds in order to acquire a release of lien. If this letter is not returned with the payoff funds, the line will remain OPEN and will be considered a paydown only." The termination letter similarly directed the borrowers to request "that the account be closed and the lien released along with your payoff to ensure proper processing of your transaction."

The Limas' February 7, 2006 loan application to Countrywide sought a line of credit of up to $1 million. It disclosed Citibank West's first, but not its second, line of credit. The second line of credit was not picked up in the preliminary title report on which Countrywide relied. Also on February 7, the Limas executed a line of credit agreement and deed of trust in favor of Countrywide. Countrywide recorded its deed of trust on the Limas' property on February 13, 2006, the day escrow closed on its line of credit. The next day, First American disbursed the $508,567.65 payoff to Citibank West, $181,289.35 in cash to the Limas, and the remaining funds to other creditors of the Limas. First American transferred the Limas' signed termination letter to Citibank West. The letter instructed the bank to close the first line of credit, which was identified by its account number.

In March 2006, Citibank West returned the $508,567.65 payoff amount to First American, notifying it that the first line of credit had been closed. At First American's request, Citibank West issued a payoff statement for the second line of credit in the amount of $612,513.98. Like the first, the second payoff statement indicated that the relevant account was frozen and warned that the line of credit would remain open unless the Limas submitted a signed termination letter with their payoff. After negotiating down the amount due on the second line of credit, First American obtained a partial refund from the Limas and disbursed $599,567.65 to Citibank West; as a result, Citibank West reduced the account balance on the second line of credit to zero. The Limas did not sign the termination letter that accompanied Citibank West's payoff statement as to the second line of credit, and Citibank West did not close that account and did not reconvey the deed of trust by which it was secured.

In 2007, the Limas borrowed $600,000 on their second line of credit with Citibank West. In January 2011, Citibank West's trustee issued a notice of default and election to sell the Limas' home. In March 2013, appellant filed this action against Citibank West and the Limas. The first amended complaint substituted respondent as Citibank West's successor in interest. Against respondent, appellant asserted claims for declaratory relief based on violation of statute or statutory subordination (Civ. Code, § 2943 ), equitable subordination or subrogation, unjust enrichment, and constructive fraud; against the Limas, it asserted a claim of actual fraud.

Respondent demurred on the sole ground that all causes of action were barred by the three-year statute of limitations in section 338, subdivisions (a) (violation of duty imposed by statute) and (d) (fraud or mistake). Appellant opposed the demurrer, arguing that Citibank West's lien was discharged by operation of law, that there was no actual controversy until respondent claimed priority in 2011 and appellant discovered its claims for fraud and unjust enrichment, and that the 10- or 60-year statute of limitations for enforcing a power of sale in a deed of trust (Civ. Code, § 882.020 ) applied to its equitable subrogation and subordination claims.

The court, Judge Allan J. Goodman, ruled Civil Code section 882.020 did not apply because appellant's claims were not based on the power of sale in a deed of trust, and the first amended complaint did not plead facts consistent with delayed discovery. The court sustained the demurrer as to all causes of action and allowed amendment only as to the causes of action for unjust enrichment and fraud.

Accordingly, the only causes of action asserted against respondent in the second amended complaint were for unjust enrichment and constructive fraud. For the first time in that complaint, appellant alleged that First American "and its escrow officer were not agents of Countrywide in undertaking actions [to pay off the second line of credit], without Countrywide's knowledge and authorization, after the Countrywide loan closed and after the Countrywide deed of trust was recorded." Once again, respondent demurred on statute of limitation grounds, and the court, Judge H. Chester Horn, sustained the demurrer without leave to amend. The court rejected appellant's attempt to plead around its original allegations in order to bring its claims within the delayed discovery rule.

This appeal followed the entry of judgment dismissing respondent from the action.

DISCUSSION

We review a ruling on demurrer de novo to determine whether the complaint states a cause of action under any legal theory. (Quelimane Co. v. Stewart Title Guaranty Co. (1998) 19 Cal.4th 26, 38, 77 Cal.Rptr.2d 709, 960 P.2d 513.) In doing so, we are not bound by the trial court's reasoning and may consider new legal theories or pure questions of law presented by undisputed facts for the first time on appeal. ( Pierce v. San Mateo County Sheriff's Dept . (2014) 232 Cal.App.4th 995, 1006, 181 Cal.Rptr.3d 816 ; B & P Development Corp. v. City of Saratoga (1986) 185 Cal.App.3d 949, 959, 230 Cal.Rptr. 192.)

We construe the complaint liberally, take all properly pled facts as true, and draw all reasonable inferences in favor of the plaintiff. (Coleman v. Medtronic, Inc. (2014) 223 Cal.App.4th 413, 422, 167 Cal.Rptr.3d 300 ; Berg & Berg Enterprises, LLC v. Boyle (2009) 178 Cal.App.4th 1020, 1034, 100 Cal.Rptr.3d 875.) Inconsistent allegations in amended complaints are disregarded unless the inconsistency is explained. (Holland v. Morse Diesel Internat., Inc. (2001) 86 Cal.App.4th 1443, 1447, 104 Cal.Rptr.2d 239.) Exhibits attached to the complaint take precedence to the extent they contradict allegations in the complaint. (Ibid . )

To determine which statute of limitations applies to a particular action, we consider the "gravamen" of the action rather than its form or the relief demanded. (Yee v. Cheung (2013) 220 Cal.App.4th 184, 194, 162 Cal.Rptr.3d 851.) The gravamen of an action depends on the nature of the right sued upon or the principal purpose of the action. (Davies v. Krasna (1975) 14 Cal.3d 502, 515, 121 Cal.Rptr. 705, 535 P.2d 1161.)

I

Contrary to respondent's perception, appellant has not abandoned the claims in its first amended complaint, to which respondent's first demurrer was sustained without leave to amend. Appellant's opening brief makes clear that it challenges the sustaining of both demurrers on the ground that the three-year statute of limitations in section 338 does not apply to any of its claims. We, therefore, consider whether section 338 applies to the claims for declaratory relief asserted in the first amended complaint.

A claim for declaratory relief is subject to the same statute of limitations as the legal or equitable claim on which it is based. (Mangini v. Aerojet-General Corp. (1991) 230 Cal.App.3d 1125, 1155, 281 Cal.Rptr....

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