Hill v. Newrez LLC

Decision Date17 June 2021
Docket NumberB302004
CourtCalifornia Court of Appeals Court of Appeals
PartiesWILLIAM DULANY HILL, Plaintiff and Appellant, v. NEWREZ LLC ET AL., Defendants and Respondents.

NOT TO BE PUBLISHED

APPEAL from a judgment of the Superior Court of Los Angeles County No. 19TRCV00318, Laura C. Ellison and Deirdre H. Hill Judges. Affirmed in part, reversed in part.

William Dulany Hill, in pro. per.; and Michael Yesk for Plaintiff and Appellant.

Wright, Finlay & Zak, Jonathan D. Fink, and Kristina M Pelletier for Defendants and Respondents.

HOFFSTADT, J.

A homeowner took out a $2 million loan in 2004 and stopped making payments in 2007. In the intervening 12 years, he filed three bankruptcies to stave off foreclosure. Now he has sued the mortgage holder and servicer for compensatory damages, punitive damages, and other relief. The trial court dismissed his lawsuit on demurrer. This was incorrect because the homeowner alleged facts sufficient to state a claim on two of his seven causes of action, so we affirm in part and reverse in part.

FACTS AND PROCEDURAL BACKGROUND
I. Facts
A. Initial loan and default

On June 25, 2004, William Dulany Hill (plaintiff) borrowed $2 million from Countrywide Home Loans, Inc. (Countrywide). The loan was memorialized in a promissory note, and secured with a deed of trust on his personal residence in Manhattan Beach, California (the property). Although the lender was Countrywide, the beneficiary named in the deed of trust was Mortgage Electronic Registration Systems, Inc. (MERS) on behalf of Countrywide, and the trustee was CTC Real Estate Services.

In 2007, plaintiff stopped making payments on the loan. His loan balance has been outstanding since the January 1, 2008 installment.

B. The loan changes hands

On May 3, 2012, MERS assigned its beneficial ownership in the deed of trust to the Bank of New York Mellon as trustee for other entities (BONY).[1] The assignment was recorded on May 14, 2012.

On March 1, 2014, Newrez LLC dba Shellpoint Mortgage Servicing (Shellpoint) took over as the servicer of BONY's loan.

On October 26, 2015, Shellpoint, as BONY's agent, substituted a new trustee under the deed of trust-namely, MTC Financial Inc. dba Trustee Corps (Trustee Corps).

C. First foreclosure halted by bankruptcy

On January 7, 2015, a notice of default was recorded regarding the deed of trust recounting that plaintiff still owed approximately $1, 133, 433.92 on the loan.

On October 6, 2016, Trustee Corps filed a notice of trustee's sale to foreclose on the property.

On November 8, 2016, plaintiff filed a chapter 13 bankruptcy petition in federal court. The initial petition did not contain any schedules of assets, but did list Shellpoint as a creditor. A week after filing the petition, plaintiff converted his petition to a chapter 7 bankruptcy. Plaintiff did not list his potential causes of action against BONY and Shellpoint as assets.

On January 17, 2019, the bankruptcy court issued plaintiff an order of discharge. The order specified that the discharge would not apply to “some debts which the debtor[] did not properly list.”

D. Second foreclosure halted by two more bankruptcies

On February 25, 2019, Trustee Corps filed another notice of trustee's sale to foreclose upon the property at a sale scheduled for March 28, 2019.

Plaintiff then filed two more bankruptcy petitions back to back. He filed one on March 28, 2019 (the day scheduled for the foreclosure sale), which was dismissed on April 15, 2019. And he filed one on April 24, 2019, which was dismissed in early June 2019.

II. Procedural Background

On April 2, 2019, plaintiff sued BONY and Shellpoint (collectively, defendants).

In the operative and verified first amended complaint, plaintiff asserts four categories of claims. First, he asserts a claim for violation of the Rosenthal Fair Debt Collection Practices Act (Rosenthal Act) (Civ. Code, § 1788 et seq.)[2] premised on allegations that defendants engaged in “abusive collection efforts” because, in effecting the foreclosures, they were not the “true beneficiary or creditor” under the deed of trust and thus had “improperly attempt[ed] to collect amounts that were not due to them.” Second, plaintiff asserts claims for violation of sections 2924.17 and 2924, subdivision (a)(6), cancellation of instruments, and declaratory relief, all of which are premised on the alleged invalidity of the 2012 assignment of the deed of trust and the 2015 notice of default. Third, plaintiff asserts a claim for violation of sections 2934a, subdivision (a)(1)(A)(C), and 2941.9 premised on the alleged invalidity of the 2015 substitution of trustee to the deed of trust. Fourth, plaintiff asserts a claim for violation of the unfair competition law (Bus. & Prof. Code, § 17200 et seq.) premised on the above-stated violations.[3]

Defendants demurred. Following a full round of briefing and a hearing, the trial court issued an eight-page order sustaining the demurrer without leave to amend.

Following entry of a judgment of dismissal, plaintiff filed this timely appeal.

DISCUSSION

Plaintiff argues that the trial court erred in sustaining the demurrer to his first amended complaint without leave to amend.

“In reviewing a trial court's order sustaining a demurer without leave to amend, we must ask (1) whether the demurrer was properly sustained, and (2) whether leave to amend was properly denied.” (Schep v. Capital One, N.A. (2017) 12 Cal.App.5th 1331, 1335.) The first question requires us to “independently evaluate whether the operative complaint states facts sufficient to state a cause of action.” (Alborzian v. JPMorgan Chase Bank N.A. (2015) 235 Cal.App.4th 29, 34.) In so doing, we accept as true “all material facts properly pled” in that complaint, although we discount and ignore pled facts that are contrary to documents subject to judicial notice. (Winn v. Pioneer Medical Group, Inc. (2016) 63 Cal.4th 148, 152; Evans v. City of Berkeley (2006) 38 Cal.4th 1, 20.) A complaint does not state a claim if the plaintiff lacks standing (Martin v. Bridgeport Community Assn., Inc. (2009) 173 Cal.App.4th 1024, 1031 (Martin)) or if the claim is foreclosed as a matter of law (California Dept. of Tax & Fee Administration v. Superior Court (2020) 48 Cal.App.5th 922, 938). The second question “requires us to decide whether ‘there is a reasonable possibility that the defect [in the operative complaint] can be cured by amendment.'' (McClain v. Sav-On Drugs (2017) 9 Cal.App.5th 684, 695, affd. (2019) 6 Cal.5th 951.)

I. Was the Demurrer Properly Sustained?

We conclude that (1) the demurrer was properly sustained as to those claims for which plaintiff lacks standing, but that (2) the demurrer should have been overruled as to plaintiff's Rosenthal Act claim and derivative unfair competition law claim because, contrary to defendants' arguments, those claims are not barred as a matter of law.

A. Claims for which plaintiff lacks standing

To bring a claim, the plaintiff must be the real party in interest. (Code Civ. Proc., § 367; Cloud v. Northrop Grumman Corp. (1998) 67 Cal.App.4th 995, 1004 (Cloud); see also Apartment Assn. of Los Angeles County, Inc. v. City of Los Angeles (2006) 136 Cal.App.4th 119, 128 [“A litigant's standing to sue is a threshold issue to be resolved before the matter can be reached on its merits”].) When a person prosecutes a petition for chapter 7 bankruptcy, the bankruptcy trustee, as the representative of the bankruptcy estate, becomes the real party in interest over the debtor's ‘pre-petition' causes of actions or claims because those causes of actions or claims, upon the debtor's filing for bankruptcy, “bec[a]me [the] property of the bankruptcy estate.” (Bostanian v. Liberty Savings Bank (1997) 52 Cal.App.4th 1075, 1081 (Bostanian); M & M Foods, Inc. v. Pacific American Fish Co. (2011) 196 Cal.App.4th 554, 562 (M & M Foods); Cloud, at p. 1001; 11 U.S.C. § 541(a)(1) [bankruptcy estate includes “all legal or equitable interests of the debtor in property as of the commencement of the case]; see also United States v. Whiting Pools, Inc. (1983) 462 U.S. 198, 203-205 & fn. 9 [causes of action are part of the “broad range of property” included in the bankruptcy estate].)

As a result, the trustee-and only the trustee-has standing to assert any prepetition claims unless and until the trustee abandons those claims. (Bostanian, at pp. 1081-1082; M & M Foods, at p. 562; Seinfeld v Allen (2d Cir. 2006) 169 Fed.Appx. 47, 49 [property includes ‘causes of action'].) A prepetition claim encompassed within the debtor's bankruptcy estate may be abandoned in three ways, one of which is relevant here-namely, a claim disclosed by the debtor in schedules filed with the bankruptcy court, but which was not administered by the trustee at the time of closing of the case, is deemed abandoned by operation of law. (11 U.S.C. § 554(c).) However, if a bankruptcy debtor in a chapter 7 bankruptcy does not disclose in the schedules filed with the bankruptcy court the prepetition claim(s) he possesses, the bankruptcy court's discharge order does not constitute an abandonment of those claims by the trustee; instead, those claims remain in the closed bankruptcy estate in a sort of jurisprudential purgatory and do not revert back to the debtor. (In re JZ L.L.C. (Bankr. 9th Cir. 2007) 371 B.R. 412, 418 [“property of the estate that is not scheduled and not otherwise administered before a case is closed is not abandoned to the debtor at the time of closing, but rather remains property of the estate-forever”]; 11 U.S.C. § 554(d); Voss v. Knotts (9th Cir. 2014) 570 Fed.Appx. 720, 721 [so holding]; Cusano v. Klein (9th Cir. 2001) 264 F.3d 936, 945-946; Cloud, at p. 1003.) “Until the debtor [returns...

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