Lagrisola v. N. Am. Fin. Corp.
| Docket Number | D080758 |
| Decision Date | 03 November 2023 |
| Parties | LORETO A. LAGRISOLA et al., Plaintiffs and Appellants, v. NORTH AMERICAN FINANCIAL CORPORATION, Defendant and Respondent. |
| Court | California Court of Appeals Court of Appeals |
APPEAL from a judgment of the Superior Court of San Diego County No. 37-2021-00020798-CU-CO-CTL Joel R. Wohlfeil, Judge. Affirmed.
James Swiderski for Plaintiffs and Appellants.
Greeley Thompson, David M. Greeley; Mitchell Sandler and Arielle Stephenson for Defendant and Respondent.
In 2017, Loreto and Mercedes Lagrisola (the Lagrisolas) applied for and obtained a loan from North American Financial Corporation (NAFC), secured by a mortgage on their residence. In 2021, the Lagrisolas sued NAFC, individually and on behalf of a class of similarly situated persons. In the operative First Amended Complaint (FAC), the Lagrisolas alleged that NAFC was not licensed to engage in lending in the state of California between 2014 and 2018 and asserted violations of Business and Professions Code section 17200 and Financial Code sections 22100 and 22751.
The trial court sustained NAFC's demurrer to the FAC without leave to amend, concluding that the allegations in the FAC were insufficient to establish an actual economic injury necessary for standing under Business and Professions Code section 17200, and that there was no private right of action under Financial Code sections 22100 and 22751. The Lagrisolas assert the trial court erred in reaching each of the foregoing conclusions. On our own de novo review, we reach the same conclusions as the trial court, and accordingly, we affirm.
Because this case arises from a demurrer sustained without leave to amend, we set forth the relevant, well-pleaded factual allegations from the FAC. (See Masters v. San Bernardino County Employees Retirement Assn. (1995) 32 Cal.App.4th 30, 35 [].)
NAFC is a Nevada based business entity with offices in California. In 2017, the Lagrisolas borrowed $550,000 from NAFC, secured by real property in San Diego. This was one of 319 loans NAFC originated to California consumers between July 1, 2014 and August 27, 2018. NAFC acted as both the loan broker and the lender on the loans, but was licensed in California only as a broker. NAFC was not licensed to lend money to consumers in California, as required by Financial Code section 22100, during the relevant time period.
NAFC did not inform any of its prospective borrowers that it was not licensed as a lender in California. And, according to the FAC, The Deed of Trust securing the loan for the Lagrisolas identified NAFC as the "Loan originator" and included a Nationwide Multistate Licensing System and Registry (NMLS) number for NAFC but did not specify whether NAFC was licensed as a finance lender.[1]
The Lagrisolas were unaware that NAFC was not licensed as a finance lender and would "never have signed up to a loan with NAFC had they been informed that the company was not legally permitted to make loans to them or to any other California borrower." They "would have gone elsewhere to obtain their loans had they been informed that NAFC" did not hold a lending license. NAFC resold the loans it issued, including the Lagrisolas', into a secondary marketplace and received compensation from the resale of each loan.
In December 2020, California regulators entered into a settlement agreement with NAFC to address its unlicensed lending activity. Pursuant to the settlement agreement, included as exhibit B to the original complaint, NAFC was ordered to "refrain from violating Financial Code section 22100, subdivision (a), by engaging in the business of a finance lender without obtaining a license" and to pay an administrative penalty of $75,000. The parties acknowledged the settlement agreement was "intended to constitute a full, final, and complete resolution of the violations." The settlement was the "first public revelation of NAFC's unlicensed lending activity," and the impetus for the current litigation.
The Lagrisolas assert three causes of action in the FAC.[2] In the first cause of action, they allege that NAFC violated Business and Professions Code section 17200 by engaging in unlicensed lending in violation of Financial Code sections 22100 and 22751. They contend that NAFC earned "illegal interest" by engaging in this unlawful lending, and that the retention of such profits "constitutes a loss of money or property" to them, and other similarly situated plaintiffs.
In the second cause of action, the Lagrisolas assert violations of Business and Professions Code section 17200 based on the alleged deceptive act of failing to disclose that NAFC was not licensed to make loans in California. They allege that NAFC's unlicensed status was a material fact that borrowers would want to be informed of prior to making a decision to enter into a loan transaction and, if they had known, they "never would have agreed to participate in NAFC's violation of the law by paying illegal interest and finance charges to NAFC, rewarding them for non-compliance with the licensing requirements of California law." And, as in the first cause of action, they allege that NAFC earned "illegal interest which it is required to forfeit to the borrowers."
In the third cause of action, the Lagrisolas allege direct violations of Financial Code sections 22100 and 22751. As in the first and second causes of action, they assert that the "law specifically commands that an unlicensed lender is to forfeit all interest and finance charges made on any unlicensed loan." They acknowledge that NAFC has since sold the loans, and therefore is no longer collecting interest, but contend that NAFC must forfeit any profit it made through the sale of the unlicensed loans to the secondary market.
NAFC filed a demurrer to the FAC. After briefing and argument, the trial court concluded that the allegations in the FAC did not adequately allege an injury in fact and therefore failed to establish standing to bring a claim under Business and Professions Code section 17200, and that there is no private right of action under Financial Code sections 22100 and 22751. Accordingly, the trial court sustained the demurrer without leave to amend.
The Lagrisolas timely appealed from the resulting judgment.
The Lagrisolas challenge each of the trial court's determinations on appeal and contend that the court erred in sustaining the demurrer to the FAC.
On appeal from a judgment of dismissal after a demurrer is sustained without leave to amend, "we review the operative complaint 'de novo to determine whether the complaint alleges facts sufficient to state a cause of action under any legal theory or to determine whether the trial court erroneously sustained the demurrer as a matter of law.'" (Morris v. JPMorgan Chase Bank, N.A. (2022) 78 Cal.App.5th 279, 292 (Morris).) "If the demurrer was sustained, as it was in this case, our function is to determine whether the complaint states sufficient facts to state a cause of action." (Careau &Co. v. Security Pacific Business Credit, Inc. (1990) 222 Cal.App.3d 1371, 1381, quoting Blank v. Kirwan (1985) 39 Cal.3d 311, 318 (Blank).)[3]
(Blank, supra, 39 Cal.3d at p. 318.) "Further, we give the complaint a reasonable interpretation, reading it as a whole and its parts in their context." (Ibid.) We may "take notice of exhibits attached to the complaints," and "[i]f facts appearing in the exhibits contradict those alleged, the facts in the exhibits take precedence." (Holland v. Morse Diesel Internat., Inc. (2001) 86 Cal.App.4th 1443, 1447.) We may also consider prior versions of the pleadings, particularly where previous allegations are altered or omitted without adequate explanation. (See Shoemaker v. Myers (1990) 52 Cal.3d 1, 12; Pierce v. Lyman (1991) 1 Cal.App.4th 1093, 1109.)
As discussed above, the FAC alleges that NAFC was unlicensed to make loans, and that the "making of the loan by NAFC without the proper license to do so is an unlawful business practice actionable by way of a suit under Business &Professions Code section 17200." It then asserts two separate causes of action under Business and Professions Code section 17200; one based on violations of Financial Code sections 22100 and 22751, and one based on NAFC's allegedly deceptive act of failing to disclose that it was not licensed as a lender.
Business and Professions Code section 17200 () defines unfair competition as "any unlawful, unfair or fraudulent business act or practice and unfair, deceptive untrue or misleading advertising and any act prohibited by Chapter 1 (commencing with Section 17500)." Section 17204 further provides, in relevant part, that "[a]ctions for relief pursuant to this chapter shall be prosecuted exclusively in a court of competent jurisdiction by . . . a person who has suffered injury in fact and has lost money or property as a result of the unfair competition." (Bus. &Prof. Code §...
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