Motion for Summary Judgment (Judge Maureen A. Folan)

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Case Name: ??? Lawrence J. Hoffart, et al. v. U.S. Bank, N.A., et al.

Case No.:??????? 2014-1-CV-264279

Currently before the Court are: (1) defendants U.S. Bank, N.A. (?US Bank?) and JPMorgan Chase Bank, N.A.?s (?Chase?) (collectively, ?Defendants?) motion for summary judgment or, in the alternative, summary adjudication of each cause of action in the first amended complaint (?FAC?) of plaintiffs Lawrence J. Hoffart and Sandra M. Hoffart (collectively, ?Plaintiffs?); and (2) Defendants? motion for terminating, evidentiary, issue, and monetary sanctions.

  1. Factual and Procedural Background

On April 24, 2014, Plaintiffs filed this action, asserting claims against Defendants for: (1) cancellation of instruments pursuant to Civil Code section 3412; (2) violation of Business and Professions Code section 17200, et seq. (the ?UCL?); (3) violation of Civil Code section 2924, subdivisions (a)(6) and (f)(3); (4) declaratory relief; (5) negligence; (6) violation of Civil Code sections 2924.17; and (7) violation of Civil Code sections 2923.5 and 2923.55.

On June 17, 2014, Defendants demurred to each cause of action in the complaint on the ground of failure to state sufficient facts to constitute a cause of action. The demurrer was overruled as to the first through fourth and seventh causes of action and otherwise sustained.

On September 8, 2014, Plaintiffs filed the operative FAC against Defendants, asserting five causes of action for: (1) cancellation of instruments; (2) violation of the UCL; (3) violation of Civil Code sections 2923, subdivisions (a)(6) and (f)(3); (4) declaratory relief; and (5) violation of Civil Code sections 2923.5 and 2923.55.

In the FAC, Plaintiffs allege the following: Plaintiffs are the owners of certain real property located at 15318 Elm Park, Monte Sereno, CA 95030 (the ?Property?). (FAC, ? 2.) In August 2005, Plaintiffs refinanced a residential loan with non-party Washington Mutual (?WaMu?). (FAC, ? 12.) In connection with the refinance, Plaintiffs executed a note and deed of trust (?DOT?), identifying WAMU as the lender and beneficiary of the agreements. (FAC, ?? 15-16.) Sometime thereafter, the note was sold to an investment trust subject to a pooling and servicing agreement. (FAC, ? 17.) As a result, WaMu relinquished its interest in the note. (FAC, ? 17.) Though Chase purchased many of WaMu?s assets after they were seized by the Federal Deposit Insurance Corporation (?FDIC?), the instant loan was not transferred because WaMu no longer had an interest in the note. (FAC, ? 30.)

In May 2012, Chase recorded a corporate assignment of deed of trust executed by its Vice-President, Melissa Riley (?Riley?), which transferred the DOT to US Bank. (FAC, ? 43.) The assignment is invalid because: (1) Chase had no interest in the underlying note; (2) Riley is not an officer of Chase and her signature is forged; and (3) the FDIC did not record an assignment of the note to Chase. (FAC, ? 44.) On June 15, 2012, Chase caused a notice of default (?NOD?) to be recorded. (FAC, ? 20.) The NOD is void because Chase never contacted Plaintiffs to explore options to avoid foreclosure. (FAC, ? 21.)

On February 18, 2016, Defendants filed the instant motion for summary judgment or, in the alternative, summary adjudication of each cause of action in the FAC, but inadvertently failed to file certain exhibits attached thereto. Plaintiffs filed their opposition on April 21, 2016. On April 28, 2016, Defendants filed their reply.

On May 5, 2016, the Court continued the motion to provide Plaintiffs with the opportunity to file supplemental briefing, evidence, and/or objections to address Defendants? evidence. Plaintiffs filed supplemental objections on May 13, 2016.

Meanwhile, on April 25, 2016, Defendants filed a motion for sanctions against Plaintiffs for failure to comply with a prior discovery order. Defendants filed their reply on May 11, 2016. The Court?s records indicate that Plaintiffs did not file an opposition. On May 16, 2016, Defendants filed their response to the supplemental objections.

  1. Motion for Summary Judgment or, in the Alternative, Summary Adjudication

??????????? Defendants move for summary judgment or, in the alternative, summary adjudication of the first through fifth causes of action for cancellation of instruments, violation of the UCL, violation of Civil Code sections 2923, subdivisions (a)(6) and (f)(3), declaratory relief, and violation of Civil Code sections 2923.5 and 2923.55 on the ground that the action has no merit. (Code Civ. Proc., ? 437c, subds. (a)(1), (f)(1).)

  1. Summary of Evidence Presented
  1. Defendants? Evidence

In support of their motion, Defendants principally rely on the declaration of Chase employee, Joseph G. Devine, Jr. (?Devine?) as well as the attachments thereto.

In his declaration, Devine states the following: (1) he is familiar with the manner in which Chase maintains its records in the ordinary course of business; (2) Chase possesses the underlying note memorializing the subject loan as well as the DOT; (3) the note bears a blank endorsement; (4)? WaMu entered into a pooling and servicing agreement (?PSA?) whereby WaMu retained the servicing rights of the subject loan; (4) on September 25, 2008, Chase acquired certain assets and loan servicing rights from WaMu, including the servicing rights of the subject loan, via the FDIC; (5) on April 20, 2012, a corporate assignment of deed of trust was executed, evidencing the assignment of the DOT to US Bank; (6) based on his review of Chase?s records, Riley was a Vice-President with Chase and had the authority to sign the Corporate Assignment of Deed of Trust; (7) U.S. Bank is the current beneficiary of the Deed of Trust and Chase is the loan servicer; (8) the NOD was recorded on June 15, 2012, which included a declaration of compliance with Civil Code section 2923.5; (9) prior to recording the NOD, Chase contacted Plaintiffs regarding the failure to make payments as required by the Note and provided resources and options for Plaintiffs to explore in order to avoid foreclosure; (10) Chase has records indicating that it made numerous telephone calls to Plaintiffs prior to the recordation of the NOD, including an in-person interaction with plaintiff Lawrence Hoffart on January 9, 2012; and (11) Plaintiffs? payment history indicates that Plaintiffs continued making payments until October 2011.

Attached to Devine?s declaration are the following nine exhibits: (A) the adjustable rate note memorializing the loan; (B) the DOT; (C) the PSA; (D) the purchase and assumption agreement between Chase and the FDIC; (E) a default document and exception report for the loan; (F) the corporate assignment of deed of trust; (G) the NOD; (H) correspondence between Chase and Plaintiffs; and (I) Chase?s notes relating to the subject loan.

In connection with their reply, Defendants submit requests for admissions (?RFA?) served on Plaintiffs and an order deeming Plaintiffs? RFA admitted.[1]

  1. Plaintiffs? Evidence

In opposition to the motion, Plaintiffs submit the information provided by non-party Select Portfolio Servicing, Inc. (?SPS?) in response to a qualified written request. In particular, SPS?s response states that it is Plaintiffs? current loan servicer and provides a copy of the promissory note. (Estavillo Decl., ?? 4-5.)

  1. Evidentiary Objections

Plaintiffs filed objections and supplemental objections to the evidence submitted in support of Defendants? motion. These objections do not comply with the California Rules of Court because Plaintiffs did not submit a proposed order. (See Cal. Rules of Court, rule 3.1354 (c).) Accordingly, Plaintiffs are not entitled to a ruling on their objections. (See Hodjat v. State Farm Mut. Auto. Ins. Co. (2012) 211 Cal.App.4th 1, 8 [finding that a court has no obligation to rule on written objections that do not comply with California Rules of Court, rule 3.1354].)

  1. Discussion
  1. First Cause of Action

The first cause of action is for cancellation of instruments. The FAC alleges that the assignment of the DOT, notice of default, substitution of trustee, and notice of trustee?s sale are void because WaMu never sold the underlying note to Chase; (2) there is no recorded assignment of the DOT from WaMu to Chase; and (3) Riley never had the authority to execute the assignment and/or her signature was forged. (FAC, ?? 44, 47.)

Defendants asserts that this cause of action fails on the following bases: (1) the instruments at issue are not void because Chase received the servicing rights to the loan from WaMu, Riley had the authority to execute the assignment of the DOT, and no recorded assignment from WaMu to Chase is necessary; and (2) Chase possesses the blank-endorsed note and original DOT.

  1. Instruments Not Void

Defendants argue that the assignment of the DOT, notice of default, substitution of trustee, and notice of trustee?s sale are not void because Riley had the authority to execute the assignment of the DOT, no recorded assignment of the note from WaMu to Chase is necessary, and Chase received the servicing rights to the note from WaMu. (See Civ. Code, ? 3412 [stating that an element of a cause of action for cancellation of an instrument is that the instruments are void or voidable].)

With respect to Riley?s authority to execute the assignment of the DOT and the validity of her signature, Defendants submit evidence that Riley was a Chase Vice-President and, therefore, was authorized to execute the assignment on Chase?s behalf. (Devine Decl., ? 9.) In addition, Defendant provide Plaintiffs? responses to RFA Nos. 6-7, which asked Plaintiffs to admit that they have no evidence to support their allegation that Melissa Riley did not have the authority to sign the assignment or that her signature was forged. (Jaskowiak Decl. in Reply, Ex. B.) These responses were deemed admitted on March 29, 2016. (Jaskowiak Decl. in Reply, Ex. A; see Barnett v. American-Cal Medical Services (1984) 156 Cal.App.3d 260, 266 [stating that deemed admissions may be considered in granting a motion for summary judgment].) Taken together, this evidence is sufficient for Defendants to meet their initial burden of demonstrating that the assignment was not void on this basis.

With regard to the absence of a recorded assignment of the note from WaMu to Chase, there is no requirement that an assignment of the beneficial interest in a debt secured by real property must be recorded for the assignee to institute a non-judicial foreclosure pursuant to a deed of trust. (Calvo v. HSBC Bank USA, N.A. (2011) 199 Cal.App.4th 118, 122.) Accordingly, Defendants meet their initial burden of demonstrating that the assignment was not void on this basis.

With respect to Defendants? final argument, that Chase received the servicing rights to the loan from WaMu, Defendants submit the PSA and the purchase and assumption agreement between Chase and the FDIC. The PSA provides that WAMU shall act as the servicer and administrator of all of the loans on behalf of the trust and is authorized and empowered by the trust to execute and deliver or cause to be executed and delivered such instruments of assignment or other comparable instruments. (Devine Decl., Ex. C, ? 3.01.) In turn the purchase and assumption agreement between Chase and the FDIC provides that Chase purchased all of WAMU?s assets, ?including all subsidiaries, joint ventures, partnerships, and any and all other business combinations or arrangements, whether active, inactive, dissolved, or terminated? and ?all mortgage servicing rights and obligations of [WAMU].? (Devine Decl., Ex. D, ? 3.1, p. 9.) Therefore, Defendants establish that they received the servicing rights to Plaintiffs? loan, including the right to execute assignments. (See Brown v. Deutsche Bank National Trust Company (May 9, 2016, A144339) _ Cal.4th _ <http://courtinfo.ca.gov/opinions [finding that Chase acquired all WAMU assets, including WAMU?s servicing rights, under the purchase and assumption agreement with the FDIC].) As such, Defendants make a prima facie case that the assignment was not void on this basis. Accordingly, the burden shifts to Plaintiffs to demonstrate a triable issue of material fact.

In opposition, Plaintiffs contend that Defendants violated the Homeowners? Bill of Rights (the ?HBOR?) given the unreliability of the assignment and subsequently recorded instruments. The FAC, however, does not state a cause of action based on the violation of the HBOR. ?The function of the pleadings in a motion for summary judgment is to delimit the scope of the issues ? and to frame the outer measure of materiality in a summary judgment proceeding.?? (Hutton v. Fidelity Nat?l Title Co. (2013) 213 Cal.App.4th 486, 493, internal citations omitted.) Thus, a defendant is not required to address theories of liability that are not pleaded. (Id. at p. 496.) Since Plaintiffs did not allege a cause of action based on the HBOR, they fail to establish a triable issue of material fact based on that statute. Accordingly, the first cause of action is subject to summary adjudication on this basis alone.

  1. Possession of Blank-Endorsed Note

Defendants contend that, even if the assignment of the DOT, notice of default, substitution of trustee, and notice of trustee?s sale are void, they could not cause serious injury to Plaintiffs because Chase has the right to enforce the note based on its possession of the original blank-endorsed note and DOT. (See Civ. Code, ? 3412 [stating that an element of a cause of action for cancellation of an instrument is ?a reasonable apprehension that if left outstanding it may cause serious injury?].)

A promissory note secured by a deed of trust in real property is considered a negotiable instrument enforceable under the California Uniform Commercial Code (?CUCC?). (In re Smith (Bankr. N.D. Cal. 2014) 509 B.R. 260, 265-266; see also Yvanova v. New Century Mortg. Corp. (2016) 62 Cal.4th 919, 927 [stating that a promissory note secured by a deed of trust is a negotiable instrument].) If the holder of a note identifies a person to whom the note is payable by executing a special indorsement, the note may be negotiated only by the endorsement of that person. (CUCC, ? 3205, subd. (a).) On the other hand, if the holder indorses the note in blank, the note becomes payable to the possessor of the note. (CUCC, ? 3205, subd. (b).) Since a deed of trust is inseparable from the note it secures, the holder of a note or the possessor of a note in blank may initiate a nonjudicial foreclosure. (In re Smith, supra, 509 B.R. at p. 269; see also Yvanova, supra, 62 Cal.4th at p. 927 [stating that the deed of trust is inseparable from the note it secures and follows it without a separate assignment].)

Here, the note in question is indorsed in blank and Defendants submit evidence indicating that the original note is currently in Chase?s possession. (See Devine Decl., Ex. A.) Since Defendants are the possessors of the note, they have the right to initiate nonjudicial foreclosure even if the assignment of the DOT was invalid. Accordingly, they meet their initial burden of demonstrating that the assignment of the DOT, notice of default, substitution of trustee, and notice of trustee?s sale could not cause Plaintiffs serious injury on this basis. As such, the burden shifts to Plaintiffs to establish a triable issue of material fact.

In opposition, Plaintiffs claim that Chase no longer has possession of the original note. In this respect, they submit a copy of the promissory note sent to them by their current loan servicer, SPS. (Estavillo Decl., ? A.) This evidence, however, merely establishes that SPS has a copy of the note, and the Court cannot reasonably infer from this evidence that Chase no longer possesses the original note. (See Annod Corp. v. Hamilton & Samuels (2002) 100 Cal.App.4th 1286, 1298-1299 [stating that ?when opposition to a motion for summary judgment is based on inferences, those inferences must be reasonably deducible from the evidence, and not such as are derived from speculation, conjecture, imagination, or guesswork?].) As such, Plaintiffs fail to establish a triable issue of material fact, and the first cause of action is subject to summary adjudication on this basis as well.

  1. Conclusion

In sum, Defendants meet their initial burden of demonstrating that the first cause of action lacks merit and Plaintiffs fail to establish a triable issue of material fact. Accordingly, summary adjudication of the first cause of action is warranted.

  1. Second Cause of Action

??????????? The second cause of action is for violation of the UCL. That statute provides civil remedies to protect both consumers and competitors by promoting fair competition in commercial markets for goods and services. (Jenkins v. JPMorgan Chase Bank, N.A. (2013) 216 Cal.App.4th 497, 520.) Unfair competition includes any unlawful, unfair or fraudulent business act or practice and unfair, deceptive, untrue or misleading advertising. (See Bus. & Prof. Code, ? 17200.) ??Virtually any law or regulation ? federal, state, statutory or common law ? can serve as [a] predicate for a ? [section] 17200 ?unlawful? violation.?? (Klein v. Chevron U.S.A., Inc. (2012) 202 Cal.App.4th 1342, 1383 [quoting Paulus v. Bob Lynch Ford, Inc. (2006) 139 Cal.App.4th 659, 681].)

Here, the FAC alleges that Defendants violated several statutes by filing an invalid assignment in connection with the Property. (FAC, ? 53.) As previously discussed in connection with the first cause of action, Defendants submit evidence indicating that the assignment was valid, and Plaintiffs fail to submit evidence in opposition establishing a triable issue of material fact as to its validity. (See Devine Decl., ? 9, Exs. C-D; Jaskowiak Decl. in Reply, Exs. A-B.) Since the second cause of action is not based on any other alleged unfair, unlawful or fraudulent business act, summary adjudication of the second cause of action is warranted.

  1. Third Cause of Action

The third cause of action is for violation of the Civil Code section 2924, subdivisions (a)(6) and (f)(3).[2] Civil Code section 2924, subdivision (a)(6) provides, in pertinent part, that ?[n]o entity shall record or cause a notice of default to be recorded or otherwise initiate the foreclosure process unless it is the holder of the beneficial interest under the mortgage or deed of trust, the original trustee or the substituted trustee under the deed of trust, or the designated agent of the holder of the beneficial interest. No agent of the holder of the beneficial interest under the mortgage or deed of trust, original trustee or substituted trustee under the deed of trust may record a notice of default or otherwise commence the foreclosure process except when acting within the scope of authority designated by the holder of the beneficial interest.? (Civ. Code, ? 2924, subd. (a)(6).)

As previously discussed in connection with the first cause of action, Defendants submit evidence indicating that they were authorized to record or cause a notice of default to be recorded as the mortgage servicers of the Property and Plaintiffs fail to submit evidence in opposition establishing a triable issue of material fact. (See Devine Decl., ? 9, Exs. C-D; Jaskowiak Decl. in Reply, Exs. A-B.) Accordingly, summary adjudication of the third cause of action is warranted.

  1. Fourth Cause of Action

The fourth cause of action is for declaratory relief. The elements of a cause of action for declaratory relief are: (1) a proper subject of declaratory relief within the scope of Code of Civil Procedure section 1060; and (2) an actual controversy involving justiciable questions relating to the rights or obligations of a party. (See Ludgate Ins. Co. v. Lockheed Martin Corp. (2000) 82 Cal.App.4th 592, 606.) ?The propriety of the application of [summary judgment to] declaratory relief lies in the trial court?s function to render such a judgment when only legal issues are presented for determination.? (Spencer v. Hibernia Bank (1960) 186 Cal.App.2d 702, 712.) To meet its initial burden on summary judgment for a declaratory relief cause of action, a defendant must establish that the declaration is incorrect as a matter of law, the undisputed facts do not support the premise for the sought-after declaration, or the issue is otherwise inappropriate for declaratory relief. (Gafcon, Inc. v. Ponsor & Associates (2002) 98 Cal.App.4th 1388, 1402.)

Here, Plaintiffs? declaratory relief cause of action is premised on the same allegations supporting the first cause of action for cancellation of instruments, namely, that the assignment is invalid. (FAC, ? 74.) As previously discussed in connection with the first cause of action, Defendants submit evidence indicating that the assignment was valid and Plaintiffs fail to submit evidence in opposition establishing a triable issue of material fact. (See Devine Decl., ? 9, Exs. C-D; Jaskowiak Decl. in Reply, Exs. A-B.) Since the undisputed facts do not support the premise of Plaintiffs? declaratory relief cause of action, summary adjudication of the fourth cause of action is warranted.

  1. Fifth Cause of Action

The fifth cause of action is for violation of Civil Code sections 2923.5 and 2923.55, which require a lender to contact, or attempt to contact, a borrower to assess the borrower?s financial situation and explore options for the borrower to avoid foreclosure at least 30 days before the filing of a notice of default.

Defendants contend that they complied with Civil Code sections 2923.5 and 2923.55 by contacting Plaintiffs in person to discuss their financial situation and explore options to avoid foreclosure within 30 days of the filing of the NOD on June 15, 2012. In this respect, Defendants submit their notes which indicate that their representative spoke with Plaintiffs at their home concerning their financial situation on January 9, 2012. (Devine Decl., Ex. I.) In addition, the notes indicate that they made several additional attempts to discuss the matter over the telephone. (Devine Decl., Ex. I.) Accordingly, Defendants meet their initial burden of demonstrating compliance with Civil Code sections 2923.5 and 2923.55.

In opposition, Plaintiffs do not contest that Defendants contacted them or produce any other evidence suggesting a lack of compliance with these statutes. Accordingly, Plaintiffs fail to establish a triable issue of material fact and, therefore, summary adjudication of the fifth causes of action is warranted.

  1. Conclusion

Based on the foregoing, Defendants? motion for summary judgment is GRANTED.

III. Motion for Sanctions

In light of the fact that Defendants? motion for summary judgment is granted, the motion for terminating, evidentiary, and issue sanctions is DENIED as moot. (See McColm v. San Francisco Housing Authority (N.D. Cal., Sept. 4, 2009, No. C 06-07378 CW) 2009 WL 2901596, at *6, fn. 2 [finding a motion for non-monetary sanctions moot based on the grant of a motion for summary judgment].) Defendants? request for monetary sanctions is DENIED as it is unaccompanied by a declaration setting forth the facts supporting the request as required by Code of Civil Procedure section 2023.040.

Footnotes:

[1] A trial court has the discretion to accept new evidence with the reply papers as long as the opposing party has an opportunity to respond. (Alliant Ins. Services, Inc. v. Gaddy (2008) 159 Cal.App.4th 1292, 1308.) Here, Plaintiffs expressly agreed to the admission of this evidence (Jaskowiak Decl. in Reply, ? 5), and the Court continued the matter to provide Plaintiffs with the opportunity to respond to Defendants? evidence. Accordingly, the Court will consider this evidence.

[2] The Court notes that ?Civil Code section 2924, subdivision (f)(3)? does not exist.