Graham v. Bank of Am., N.A., D063779

CourtCalifornia Court of Appeals
Writing for the CourtMcCONNELL
Citation226 Cal.App.4th 594,172 Cal.Rptr.3d 218
PartiesMarvin B. GRAHAM, Plaintiff and Appellant, v. BANK OF AMERICA, N.A., et al., Defendants and Respondents.
Docket NumberD063779
Decision Date23 May 2014

226 Cal.App.4th 594
172 Cal.Rptr.3d 218

Marvin B. GRAHAM, Plaintiff and Appellant,
BANK OF AMERICA, N.A., et al., Defendants and Respondents.


Court of Appeal,
Fourth District, Division 1, California.

Filed May 23, 2014

APPEAL from a judgment of the Superior Court of San Diego County, Timothy M. Casserly, Judge.
Affirmed. (Super.Ct. No. 37–1012–00051304)
Law Offices of Thomas Gillen, Thomas W. Gillen, Fullerton, and Richard L. Barthel for Plaintiff and Appellant.

Bryan Cave, Stuart W. Price, Sean D. Muntz, Allan P. Bareng, Irvine, and Jigar S. Vakil for Defendants and Respondents.


[226 Cal.App.4th 599]

Marvin B. Graham borrowed money to purchase a house in 2004. Approximately seven years later, he defaulted on his loan and received a notice of sale. Graham filed this action to halt foreclosure proceedings and to cancel the note. He contends the “defendants' Lending Personnel” 1 made fraudulent misrepresentations or omissions by stating the appraised fair market value of his home in 2004 was “increasing” and that the loan was “good for [him],” while allegedly knowing the appraisal was “outrageously speculative.” Taking

[226 Cal.App.4th 600]

issue with industry-wide mortgage banking practices, Graham seeks to hold the defendants responsible for the decline in his property value as well as the collapse of the real estate market.

Graham appeals a judgment of dismissal after the court sustained a demurrer to his second amended complaint (SAC) without leave to amend. He contends he sufficiently alleged facts to support his causes of action for fraud and deceit, violations of Business and Professions Code section 172002 and declaratory relief. He also contends it was an abuse of discretion to deny further leave to amend. We affirm.


We derive the facts from the complaints and the documents of which the court took judicial notice.3 ( Howard Jarvis Taxpayers Assn. v. City of La Habra (2001) 25 Cal.4th 809, 814, 107 Cal.Rptr.2d 369, 23 P.3d 601.)

The Loans

Graham borrowed $391,200 in 2004 from First Franklin Financial Corporation (First Franklin) to purchase a home in Vista, California for $489,000. A deed of trust on the property secured the loan in first priority. He obtained a second loan for $97,800, secured by the property in second priority. American National Lending, Inc., (American National) was the loan broker for the transaction. American National's appraiser assessed the fair market value of the property at the time at $525,000.

In 2011 after Graham fell behind in his payments, First Franklin substituted ReconTrust Company, N.A. (ReconTrust) 4 a subsidiary of Bank of America, N.A. (BofA) as the trustee and assigned its interests under the deed of trust to “Deutsche Bank National Trust Company as trustee for the certificate holders of the FFMLT 2005 FF2 Trust, mortgage pass-through certificates, series 2005–FF2 (Deutsche Bank).” ReconTrust recorded a notice of default and election to sell indicating he owed more than $100,000 for past

[226 Cal.App.4th 601]

due payments and costs. Several months thereafter, ReconTrust sent a notice of trustee's sale indicating an intention to sell the property at auction.

The Pleadings


In 2012 Graham sued BofA, ReconTrust, Deutsch Bank, First Franklin and American National (collectively defendants).5 The original complaint set out “preliminary facts” describing changes in mortgage banking practices from 2001 to 2008, which allegedly affected home values by driving prices up before they collapsed in 2007. Graham alleged the defendants knew the $525,000 appraisal for his house was speculative and they falsely represented the value of the home would appreciate to permit a sale or refinance at a substantial profit before adjustable rate mortgage payments were required. He asserted causes of action for (1) fraud, negative fraud, and deceit, (2) an order terminating foreclosure proceedings and cancellation of the notes, and (3) violation of section 17200.

Graham amended his original complaint after defendants filed a demurrer. He alleged identical “preliminary facts” and nearly identical allegations for the fraud cause of action, but in the section 17200 cause of action he added allegations the defendants failed to disclose “the true cost of the loan” and “negative features of [adjustable-rate mortgage (ARM) ] loans” and they misrepresented the “true value of the home” and “using the lure of early low monthly payments induced [Graham] to execute a loan package that clearly was not needed nor good for him.” He contended the Lending Personnel were “equally complicit in their lending practices in approving the $489,000 loan package without regard to the actual fair market value” of the home.

Graham attached to the first amended complaint (FAC) the consent judgment entered against five institutional lenders, including BofA, to settle a suit filed by the federal government and 49 states, including California, regarding mortgage foreclosure and modification practices. Graham requested declaratory relief “as to the applicability of the Settlement to the terms of [his] home loan and how the present litigation should proceed in the face of the provisions outlined in the national Settlement.”

Defendants demurred arguing the FAC did not state a cause of action for fraud, negative fraud or deceit because Graham failed to plead the elements

[226 Cal.App.4th 602]

of fraud with sufficient specificity. Defendants argued the FAC did not state a cause of action for violation of section 17200 because the fraud claims fail and Graham did not plead facts demonstrating a violation of a constitutional, statutory or regulatory provision to render the alleged conduct “unfair.” Defendants additionally argued Graham lacks standing because he has not “lost money or property.” Defendants also asserted Graham is not entitled to declaratory or injunctive relief because he did not allege a present and actual controversy or the necessary elements for injunctive relief. The court sustained the demurrer with leave to amend.


Graham filed a second amended complaint (SAC) with substantial changes. 6 The SAC alleges four causes of action: (1) negative fraud and deceit and affirmative fraud; (2) violation of section 17200; (3) legal and equitable relief based on fraud and public policy against defendants; and (4) declaratory relief.

The SAC includes additional “preliminary facts” purporting to outline historical procedures of home financing since 1945 and asserting legal arguments about how financial institutions have “destroyed the home financing methodology” by various practices such as “fragmentation and repacking” of notes and substitutions of trustees on deeds of trust. According to Graham, this conduct along with conduct of the Federal Reserve, Congress, Fannie Mae, Freddie Mac, and government-sponsored entities caused average national home values to appreciate from 5 percent per year in the late 1990s to 15 percent per year before collapsing in 2007. He alleges the “financial elite”

[226 Cal.App.4th 603]

knew the potential for disaster based upon warnings from government officials, calls for legislation and other events from 2001 through 2008. While Graham cites publically available information, he alleges he could not have suspected the pending collapse of the real estate market because the market was the victim of “financial engineering” and a “Wall Street ponzi scheme” and defendants, as well as others, were “players, engineers, and manipulators in this endemic and collusive fraud on California homeowners.”

Graham alleges the Lending Personnel made the following representations related to his loans: (a) the home had an “increasing and revised upwards—value of $525,000”; (b) such was the fair market value (FMV) of the home; (c) such “rapid increase in the FMV” of the home “demonstrated the security of the purchase”; (d) the FMV of the home “was ever-increasing, such that the [home] could be ‘turned for a profit’ in the near future, or refinanced to obtain better terms”; (e) the loan was “good” for Graham when defendants knew the $525,000 appraisal was speculative. He alleges the $525,000 appraisal was false because it was an “artificially inflated and engineered rate that was impossible to justify by any historical data” and “the appraiser justified the valuation by the use of comparable sales, which were all tainted by the activities described ... [and] were ... part of the pervasive industry-wide fraud.” In addition, Graham alleges Lending Personnel knew he planned to keep the home for a long time and did not intend to sell or “flip” the house for a profit. He also alleges the Lending Personnel knew he was an unsophisticated borrower, his loan was “unsustainable,” he “would not be able to pay back such loan” and they “steamroll[ed] the loan transaction” even though they knew the loan was misaligned with Graham's stated interests.

In the second cause of action for violation of section 17200, Graham alleges the same representations regarding the appraised value of the property constitute unlawful, unfair or fraudulent business practices. He also makes generalized allegations regarding industry-wide business practices contending the defendants: (1) created “mass loans for profit”; (2) colluded with other institutional lenders, appraisers and credit rating agencies “to monetize and support the entire lending industry's ruse/hoax of an ever-increasing and expanding real estate market”; (3) created and used MERS “as a straw-man entity” and “to circumvent and unseat the real property recording requirements”; (4) engineered a system of splitting up deeds from notes to “subvert[ ] the integrity of the judicial system and real property recording system” to rely exclusively on the deed to “perpetrate foreclosure”; (5) foreclosing on homes “with no cause, with defective notice, with improper purpose, without proper authority”; and (6)...

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