Bartold v. Glendale Federal Bank, G020529.

• Decision Date: 19 June 2000
• Docket Number: No. G021899.,No. G020529.,G020529.,G021899.
• Citation: 97 Cal.Rptr.2d 226,81 Cal.App.4th 816
• Court: California Court of Appeals Court of Appeals
• Parties: Jo-Ann BARTOLD et al., Plaintiffs and Appellants, v. GLENDALE FEDERAL BANK et al., Defendants and Appellants. Charles Cohen et al., Plaintiffs and Appellants, v. Glendale Federal Bank et al., Defendants and Appellants.

97 Cal.Rptr.2d 226

81 Cal.App.4th 816

Jo-Ann BARTOLD et al., Plaintiffs and Appellants, v. GLENDALE FEDERAL BANK et al., Defendants and Appellants.

Charles Cohen et al., Plaintiffs and Appellants, v. Glendale Federal Bank et al., Defendants and Appellants.

No. G020529.

No. G021899.

Court of Appeal, Fourth District, Division 3.

June 19, 2000.

Rehearing Denied July 18, 2000.

Review Denied Oct. 18, 2000.^*

Law Offices of Jeffrey F. Keller and Jeffrey F. Keller, Kaufman Malchman Kirby & Squire, Alice McInerney, James P. Carroll Jr., Sacramento, Hall, Patterson & Charne, Patrick O. Patterson, Gretchen E. Miller, and Andrea Bierstein, for Plaintiffs and Appellants.

Lewis, D'Amato, Brisbois & Bisgaard, Randall L. Mason, James E. Friedhofer, and Ernest Slome, San Diego, for Defendants and Appellants.

OPINION

SILLS, P.J.

These two appeals arise out of an action by four individual plaintiffs, Jo-Ann Bartold, Kurt Krasne, Dov Hopenstand and Charles Cohen, against Glendale Federal Bank and Verdugo Service Corporation for failure to reconvey their trust deeds as required by Civil Code section 2941. The first appeal, by Bartold, Krasne and Hopenstand, is from the trial court's denial of the plaintiffs' motion to certify a class action; the second is from the summary judgment granted against two of the individual plaintiffs, Cohen and Hopenstand, and for denial of discovery on class issues. The action continues on behalf of the two remaining individual plaintiffs, Bartold and Krasne.¹ Upon reconsideration of appellants' motion to consolidate these two cases, twice denied by this court without prejudice, we consolidate the cases and issue one opinion.

We find the trial court erred in refusing to certify the class, should have allowed discovery on class issues, and erroneously granted summary judgment against Cohen and Hopenstand. Accordingly, we reverse both judgments.

STATUTORY BACKGROUND

Financing or refinancing of real property is generally accomplished in California through a deed of trust. The borrower (trustor) executes a promissory note and deed of trust, thereby transferring an interest in the property to the lender (beneficiary) as security for repayment of the loan. The deed of trust is recorded to give notice to future lenders and purchasers that the property is encumbered by an outstanding loan. Legal title to the property is held by a trustee until the loan is repaid in full. When the beneficiary receives full repayment, it is obligated to execute a request for reconveyance and deliver it to the trustee, who is then obligated to record a full reconveyance within 21 days (unless it receives contrary instructions from the trustor or his escrow), thereby delivering clear title back to the property owner.

Civil Code section 2941 sets out these requirements and provides that if the trustee has not recorded the reconveyance within 75 days of repayment, a title insurance company "may prepare and record a release of the obligation," demonstrating satisfaction of the loan. The statute imposes a $300 penalty on one who fails to fulfill the statutory requirements.²

In Trustors Security Service v. Title Recon Tracking Service (1996) 49 Cal. App.4th 592, 56 Cal.Rptr.2d 793, the court summarized the context in which section 2941 was passed. "Historically, when a lender was paid in full the lender/beneficiary would send the necessary documentation and reconveyance fee to the trustee and request it to execute a reconveyance. If the debtor/trustor continued to own the property the trustee was directed to record the reconveyance in the county recorder's office. Alternatively, if the debtor/trustor had sold or refinanced the property, the trustee executed the reconveyance documents and generally deposited them into escrow for recordation upon close of escrow.

"Prior to 1989 there was no specified time period within which a reconveyance had to be recorded after full payment of the loan. Apparently, lenders were not particularly diligent in ensuring reconveyances were executed and recorded once their loans were satisfied despite civil penalties for failure to do so. [Citation.] The problem was apparently particularly acute with large commercial lenders with in-house trustee departments. [Citation.] As a result many property owners experienced problems selling and clearing title to their property.... [¶] Title insurers experienced problems of their own. During this period these companies employed staff [in some instances, up to 50 percent of their employees] for the sole purpose of confirming old loans appearing as liens against real property had in fact been paid off.... [¶] Consumers made numerous complaints to the Attorney General's office [leading to proposed changes to section 2941.] [¶] ... In its current form, under section 2941 lenders and trustees are subject to both civil and criminal penalties for failing to comply with the statutory deadlines for effecting reconveyances." (Id. at pp. 596-597, 56 Cal.Rptr.2d 793.)

FACTUAL BACKGROUND

Glendale Federal Bank, chartered as a federal savings and loan association, devotes a significant part of its business to originating, selling, purchasing and servicing residential loans. It handles loan payoffs and title reconveyances in all 50 states and Puerto Rico. Verdugo Service Corporation, a wholly owned subsidiary of Glendale, performs real estate trustee services for Glendale.

Bartold, Cohen and Krasne executed deeds of trust identifying Glendale as the lender/beneficiary and Verdugo as the trustee when they borrowed money to purchase or refinance their homes. Hopenstand's loan was from another lender, but Glendale later became his loan servicer. All four plaintiffs refinanced their homes and paid off their loans to Glendale; all but Hopenstand paid Glendale a reconveyance fee. In each case, Verdugo failed to record a reconveyance of the trust deed and the title company handling the refinance transaction was required to record a release of the obligation to clear title.

The plaintiffs filed their second amended complaint against Glendale and Verdugo in February 1996, alleging the foregoing facts and claiming violations of Civil Code section 2941, the Unfair Business Practices Act (Bus. & Prof.Code, § 17200 et seq.), breach of contract, and fraud on behalf of themselves and those similarly situated, both in California and nationwide. On behalf of the California class,³ plaintiffs alleged that Glendale, as beneficiary, failed to deliver the necessary reconveyance documents to Verdugo when class members' loans were satisfied, and that Verdugo, as trustee, failed to record full reconveyances for the class members within 21 days after receipt of the necessary documents. They alleged that Glendale engaged in a general business practice of promising to provide reconveyance services upon payoff, with no intention of performing such services in a timely manner. Instead, Glendale's standard business practice was "to fail to record within a reasonable time period, if at all, ... reconveyances ... resulting] ... in the wrongful clouding of thousands of homeowners' titles." Plaintiffs alleged each class member's entitlement to the statutory penalty of $300, restitution of any reconveyance fees paid, and punitive damages for defendants' breach of duties under section 2941.

In March 1996, plaintiffs moved to compel the production of documents relating to reconveyance services provided by defendants, defendants' practice of charging reconveyance fees, defendants' knowledge of their breach of reconveyance duties, and the identification of the class members and class certification issues. The trial court denied the motion on the ground that each of the requests was "overbroad in scope for the litigation involving these parties and there has been no class action certification."

Thwarted by the denial of discovery, in July 1996, the plaintiffs filed their motion for class certification, proposing a California class "consisting of all persons who had borrowed money secured by a mortgage or deed of trust on real property and: [¶] (a) who repaid their loans after July 1, 1989, within California, at which time [Glendale and Verdugo], through loan origination, purchase or servicing, held the position of beneficiary, assignee of the beneficiary, successor-in-interest, or, upon substitution or designation of itself, trustee and [¶] (b) whose deeds of trust were not reconveyed in accordance with California Civil Code § 2941." The plaintiffs presented evidence that when Glendale is the beneficiary on a deed of trust, its practice and procedure is to wait until it receives the payoff on the underlying loan before processing the reconveyance documents, notwithstanding the typical escrow's request to send the executed request for reconveyance along with the demand statement, thereby enabling escrow to record it concurrently with the closing. When a loan originated by Glendale has been sold to an investor, but the assignment of the loan has not been publicly recorded, Glendale's practice is to retain "signing authority" as the beneficiary.

Defendants obtained a continuance of the class certification hearing until August 15, but on August 1, they asked the court for a longer continuance because they wanted the motion heard with their planned summary judgment motion. They also asked for relief from the limit on the number of pages permissible in their opposition to the class certification. Both requests were denied. On August 6, defendants filed their motion for summary judgment with 450 pages of supporting documents. The next day, defendants filed their opposition to the class certification motion, incorporating by reference their points and authorities and supporting documentation from the summary judgment motion. Plaintiffs objected to the incorporation by reference because it violated the page limitation and improperly injected the merits of the action into the class certification...