Jpmorgan Chase Bank, N.A. v. Ward

• Decision Date: 28 March 2019
• Docket Number: D073378
• Citation: 33 Cal.App.5th 678,245 Cal.Rptr.3d 303
• Court: California Court of Appeals Court of Appeals
• Parties: JPMORGAN CHASE BANK, N.A., Plaintiff and Appellant, v. David WARD, as Successor Trustee, etc., Defendant and Respondent.

33 Cal.App.5th 678
245 Cal.Rptr.3d 303

JPMORGAN CHASE BANK, N.A., Plaintiff and Appellant,
v.
David WARD, as Successor Trustee, etc., Defendant and Respondent.

D073378

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

Filed March 28, 2019

Dillon Miller & Ahuja, Scott Alan Miller and Jessica Rasmussen, Carlsbad, for Plaintiff and Appellant.

Procopio, Cory, Hargreaves & Savitch, Kendra J. Hall and William A. Smelko, San Diego, for Defendant and Respondent.

DATO, J.

33 Cal.App.5th 680

Walter Dean Ward took out a secured loan in 2007.¹ He did not indicate whether he signed the deed of trust conveying his property to the lender in his individual capacity or in his capacity as sole trustee of the trust in which his property was held. That deed of trust (DOT) was never recorded. Years later, the lender's successor (JPMorgan Chase Bank, N.A. (Chase)) asked for a replacement to foreclose. Walter refused, prompting Chase to sue. The trial court sustained two general demurrers to Chase's complaint, entered a judgment of dismissal, and awarded contractual attorney fees and costs to Walter's son, David Ward, the successor trustee of the trust that held the property.

We believe the central issue on appeal is whether Chase may reframe its action by amendment to omit a fatal allegation in its original complaint.

33 Cal.App.5th 681

Because we conclude it can, notwithstanding the sham pleading doctrine, the court should have granted leave to amend. Accordingly, we reverse the judgment and the postjudgment order and direct the court to enter a new order sustaining the general demurrers with leave to amend.

FACTUAL AND PROCEDURAL BACKGROUND

In 1999 Walter and Marijane Ward acquired real property in Valley Center (the property). They created the Walter Dean Ward and Marijane Frances Ward Trust Dated January 5, 1996 (the Trust) in 2002 and conveyed the property to it by grant deed. When Marijane passed away in December 2002, Walter became the sole successor trustee and lifetime beneficiary of the Trust.

In December 2007 Walter took out a loan for $402,876. As security he pledged the property to lender Washington Mutual Bank. The notary public certified that Walter executed the security instrument in his "authorized capacity." Walter signed the DOT in his name and represented in the note that he "ha[d] the right to grant and convey the Property."

The original DOT was never recorded and was later lost, damaged, or destroyed. The copy sent to Washington Mutual could not be recorded because it lacked Walter's original signature. Chase ultimately acquired the promissory note and DOT as Washington Mutual's successor-in-interest.

As a precursor to foreclosure, Chase asked Walter to re-execute and notarize a replacement deed of trust for purposes of recordation. Walter refused. On April 18,

245 Cal.Rptr.3d 307

2013, Chase sued Walter in both his individual capacity and his capacity as trustee of the Trust. Central to this appeal is the allegation at paragraph 18 of the verified complaint:

"By an inadvertent error and misinformation, despite title being vested in Borrower in his capacity as the trustee of Borrower's Trust, Borrower executed Plaintiff's Deed of Trust in his individual capacity, and the true intent of the parties failed, in that, at the time of executing Plaintiff's Deed of Trust, Borrower did not hold title to the Property in his individual capacity." (Hereafter paragraph 18.)

The complaint asserted three causes of action. First, Chase sought an order quieting title to the property to ensure that it had the senior lien. It next sought reformation of the DOT in two respects. Believing Walter would challenge the level of detail in the DOT's property description, Chase sought to correct it to include "certain metes and bounds information" to match the full legal description of the property in the 1999 grant deed. Chase also sought to correct the DOT to reflect the "true intent of the parties" that the property would secure the loan. Finally, Chase sought declaratory relief as to the enforceability of the DOT, including a declaration that:

33 Cal.App.5th 682

• As a revocable inter vivos trust, the Trust was merely a probate-avoiding device. Walter did not dispose of the property when he conveyed it to the Trust in the 2002 grant deed.

• Because Walter was the settlor and lifetime beneficiary of the Trust with power to direct Trust conveyances, he had the equivalent of full ownership.

• When he executed the DOT, Walter had full power to convey the property as security for the note, and the fact that it was held in the Trust did not prevent enforceability of the DOT to reach Trust property as security for the 2007 note.

• The DOT is valid and enforceable against any successor trustee of Walter's.

• The DOT was intended to secure the loan as a first lien against the property.

• The DOT in fact secures the loan as a first lien against the property.

In connection with these three causes of action, Chase sought contractual attorney fees and costs.

Walter passed away in September 2016, and his son David became successor trustee of the Trust. David filed two general demurrers to Chase's complaint, arguing all causes of action were barred by the statute of frauds and the applicable statute of limitations.² He claimed Chase's allegations confirmed that the Trust never executed any written instrument conveying the property. He also asserted any action for relief from fraud or mistake would be time-barred. Because these allegations were fatal to Chase's action, David argued that leave to amend should be denied.

Represented by new counsel, Chase opposed the demurrers. It claimed the gravamen of its action was to enforce the DOT as written , not to correct a mistake in its execution. Relying on the same cases it cites on appeal, Chase explained that it was "of no legal consequence" that Walter did not expressly sign the DOT in his capacity as trustee of the Trust. If paragraph 18 suggested he did so in his "individual capacity," the DOT did not support that allegation.

245 Cal.Rptr.3d 308

The trial court sustained both general demurrers. It observed that the parties had "vastly different positions" as to the gravamen of Chase's action.

33 Cal.App.5th 683

But as the court read the complaint, Chase contended the DOT did not reflect the parties' true intent because it did not indicate that Walter was executing it in his capacity as trustee of the Trust. The court believed Chase was seeking to reform the DOT to reflect the parties' true intent as a precursor to foreclosure. Read in this manner, the lack of a writing was conceded, and an unrecorded and incorrect DOT could not satisfy the statute of frauds ( Civ. Code, § 1624, subd. (a) ). Further, the court concluded the action was barred under the three-year limitations period for relief from mistake ( Code Civ. Proc., § 338, subd. (d) )³ or the catch-all four-year limitations period for other actions (§ 343), implicitly determining that the action accrued when the DOT was signed in December 2007. It denied leave to amend.

After a judgment of dismissal was entered in his favor, David requested contractual attorney fees and costs. The court granted his motion, awarding $82,325 in fees and $3,967 in costs.

DISCUSSION

Chase appeals the judgment, arguing the demurrers were erroneously sustained without leave to amend. To the extent we accept this position, it challenges the postjudgment award of fees and costs.

The issues on appeal mirror those raised below. The parties diverge as to the gravamen of Chase's action, offering competing interpretations of paragraph 18 of the verified complaint. Chase minimizes the paragraph, claiming it seeks to enforce the DOT as written despite "inartfully" pleading mistake in its execution. Framed in this manner, Chase maintains the statute of frauds and statute of limitations present no bar. To the extent the complaint was confusing or unclear, it argues that leave to amend was improperly denied. In response, David emphasizes paragraph 18 to claim that the heart of Chase's action is to correct a mistake in the execution of the DOT. Invoking the sham pleading doctrine, David argues that Chase cannot simply omit that allegation in an amended pleading.

As we explain, reframed in the manner urged on appeal, Chase could assert a viable cause of action. Because a party may show that amendment is possible for the first time on appeal, we conclude the denial of leave to amend was an abuse of discretion. In doing so, we reject the contention that the proposed amendment would violate the sham pleading doctrine. Our result further compels reversal of the postjudgment award of attorney fees and costs.

33 Cal.App.5th 684

1. Standard of Review

A general demurrer tests the legal sufficiency of a complaint. On de novo review of an order sustaining of a demurrer, "we are guided by long-settled rules. ‘We treat the demurrer as admitting all material facts...