Filed 11/26/18 Hinojos v. Newport Beach Holdings CA6

NOT TO BE PUBLISHED IN OFFICIAL REPORTS

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

SIXTH APPELLATE DISTRICT

EZEQUIEL HINOJOS, Plaintiff and Appellant, v. NEWPORT BEACH HOLDINGS, LLC, Defendant and Respondent.

H042405 (Santa Clara County Super. Ct. No. 1-13-CV-256853)

In this appeal, plaintiff Ezequiel Hinojos seeks review of a judgment of dismissal entered after the superior court sustained the demurrer of respondent Newport Beach Holdings, LLC (NBH). He also challenges a default judgment entered in his favor against another defendant in the same action, Eagle Crest, LLC (Eagle Crest), on the ground that the relief granted was insufficient. We find no basis for reversal as to either defendant and therefore must affirm the judgments.

Background

On May 10, 2006, plaintiff and his wife obtained a home equity line of credit from Wells Fargo Bank (Wells Fargo) with a credit line limit of $134,600, secured by a deed of trust on plaintiff’s home. The trustee was American Securities Company.

According to NBH, plaintiff defaulted on the loan on December 30, 2009. On March 14, 2012, Wells Fargo assigned its interest in the deed of trust to Eagle Crest. On April 9, 2012, Eagle Crest assigned its interest in the deed of trust to respondent NBH. The assignments to Eagle Crest and NBH were both recorded on April 18, 2012. Four months later, NBH assigned its interest to Asset Ventures, LLC (Asset Ventures). Both the assignment from Eagle Crest to NBH and the assignment from NBH to Asset Ventures were signed by Michaela Brychcova as “Assistant Vice President” of the assignor entity.

On April 19, 2013, Asset Ventures recorded a Substitution of Trustee, substituting MTC Financial, Inc. doing business as Trustee Corps (Trustee Corps) in place of American Securities Company. The substitution was signed by Anthony Martinez, president of Asset Ventures. On the same day, Trustee Corps recorded a “Notice of Default and Election to Sell under Deed of Trust (Notice of Default).” According to the Notice of Default, the amount due on the loan as of April 17, 2013—not including foreclosure fees and costs—was $17,167.60. Attached to the Notice of Default was a declaration of compliance with Civil Code section 2923.55, signed by Martinez, which stated that Asset Ventures had exercised due diligence to contact plaintiff to assess his financial situation and explore options to avoid foreclosure.

On November 8, 2013, Trustee Corps recorded a notice of trustee’s sale stating that the property would be sold on December 3, 2013. The unpaid balance plus reasonable costs was “estimated” to be $105,001.38.

On November 27, 2013, six days before the date set for the nonjudicial foreclosure sale, plaintiff filed his original complaint, naming Asset Ventures, Trustee Corps, NBH, Martinez, and Brychcova. (Eagle Crest was not named in the pleading.) The complaint contained eight causes of action, including “unlawful and attempted foreclosure,” unfair business practices, cancellation of recorded instruments, fraud, and violations of the California Homeowner Bill of Rights. Plaintiff sought injunctive relief, punitive damages, and attorney fees.

The court issued a temporary restraining order, but it subsequently denied a preliminary injunction as to all defendants. Plaintiff sought review of that order in his first appeal, Hinojos v. Asset Ventures, LLC et al. (Apr. 21, 2016, H040853) [nonpub. opn.], of which we have taken judicial notice. This court dismissed H040853 as moot on April 21, 2016.

Plaintiff amended his complaint three times thereafter. Only the third of these efforts, the third amended complaint, is in the appellate record and is the subject of the present appeal. Filed on November 3, 2014, this pleading named as defendants Asset Ventures, Martinez, NBH, and Eagle Crest. It asserted seven causes of action: violation of Civil Code section 2924c, subdivision (b)(1); unlawful and attempted foreclosure; cancellation of recorded instruments; unfair business practices; fraud; abuse of process by Eagle Crest; and slander of title by Asset Ventures and Martinez. As in the original complaint, plaintiff sought a judgment cancelling the assignments of the deed of trust, the substitution of trustee, the notice of default, and the notice of trustee’s sale. He also requested damages, injunctive relief, attorney fees, and punitive damages.

NBH responded with a demurrer and a motion to strike the third amended complaint. On February 17, 2015, the court sustained NBH’s demurrer without leave to amend and concluded that the motion to strike was moot. On March 30, 2015, the court entered an amended judgment dismissing the action with prejudice in favor of NBH. Plaintiff filed his notice of appeal on April 17, 2015.

Eagle Crest never appeared in the action. On February 17, 2015, after a prove-up hearing, the court entered a default judgment against Eagle Crest and awarded plaintiff $105,001.38 in damages. In his appeal plaintiff seeks review of that judgment as well.

Asset Ventures and Martinez did not respond to the third amended complaint. On February 3, 2016, after a prove-up hearing, the court entered a $105,001.38 default judgment for plaintiff against Asset Ventures, Martinez, and Trustee Corps. The court canceled the substitution of Trustee Corps as trustee, the notice of default, and the notice of trustee’s sale. It further found the actions of Martinez and its alter ego, Asset Ventures, to be “willful, malicious, and fraudulent.”

Discussion

1. NBH’s Demurrer: Standard and Scope of Review

As to NBH, this appeal arises from a dismissal following the sustaining of a demurrer without leave to amend. Accordingly, settled rules apply to this court’s review of that judgment. A demurrer is properly sustained when the complaint “does not state facts sufficient to constitute a cause of action.” (Code Civ. Proc., § 430.10, subd. (e).) On appeal from the judgment of dismissal, this court examines the complaint de novo to determine whether it alleges facts sufficient to constitute a cause of action. Like the trial court, we assume the truth of all properly pleaded factual allegations, “ ‘but not contentions, deductions or conclusions of fact or law. [Citation.] . . .’ Further, we give the complaint a reasonable interpretation, reading it as a whole and its parts in their context.” (Blank v. Kirwan (1985) 39 Cal.3d 311, 318 (Blank).) “We also consider matters [that] may be judicially noticed.” (Serrano v. Priest (1971) 5 Cal.3d 584, 591.) After reviewing the allegations of the petition, the accompanying exhibits, and the matters properly subject to judicial notice, we determine whether the petition states a cause of action as a matter of law. (Cf. Moore v. Regents of University of California (1990) 51 Cal.3d 120, 125.)

With these principles in mind, we examine the factual allegations of the operative pleading, the third amended complaint.

2. Allegations Against NBH and Eagle Crest

Although, as noted, the third amended complaint contained seven causes of action, only those pertaining to NBH and Eagle Crest are relevant to this appeal. As in his original complaint, plaintiff essentially alleged that NBH did not “legally exist” in California, was not authorized to do business in the state, and indeed was “not a valid business entity, anywhere. It is an entity which has copied the name of another possible entity.” Consequently, any assignment by NBH to Asset Ventures was void, thereby breaking the chain of title. As for Eagle Crest, because it, too, was unauthorized to transact business in California, its assignment of the deed of trust to NBH was also void, resulting in “a breach in the chain of title, and the power of sale.”[1] And since the assignment from NBH to Asset Ventures was void, Asset Ventures did not have the authority to substitute the trustee or to foreclose. Plaintiff further alleged that the estimated amount due in the notice of trustee’s sale was “inflated, excessive, fraudulent, and not in compliance with California Civil Code §2924f(b)(7).”

In his fourth cause of action plaintiff alleged that all the defendants had violated section 17200 et seq. and section 17500 et seq. of the Business and Professions Code through their fraudulent assignments, each of which caused a “fatal breach in the chain of title, and the power of sale.” Plaintiff further alleged that defendants’ acts of executing and recording the “false and inaccurate documents” violated not only specific Civil Code provisions governing foreclosure but also Penal Code sections 115 and 115.5.[2]

3. NBH’s Demurrer

In its demurrer NBH asserted that all of plaintiff’s causes of action rested “entirely on conclusory and/or provably false allegations” and constituted a “stalling action” consistently disapproved by the courts. More to the point, NBH noted that it had itself taken no action to foreclose; it had already assigned all of its beneficial interest in the note and deed of trust to Asset Ventures in August of 2012, several months before the notice of default was recorded. As for plaintiff’s contention that it was not authorized to transact business in California, NBH emphasized that its failure to register did not invalidate its assignment; NBH was “in good standing” in Nevada as a limited liability company (LLC), a fact of which the court had already taken judicial notice. Citing Perlas v. Mortgage Elec. Registration Systems, Inc., (N.D. Cal. Aug. 6, 2010 No. C 09‑4500-CRB), U.S. Dist. LEXIS 79705, an unpublished federal district court case, NBH maintained that its failure to register had not caused plaintiff’s alleged injury. Thus, the first three causes of action were “completely frivolous.” The fourth cause of action also failed, NBH added, because a claim of unfair business practices under the Unfair Competition Law required a violation of an independent statute, which had not occurred; moreover, both that claim and the claim of fraud required the facts to be alleged with particularity. NBH renewed its previous successful request for judicial notice of NBH’s status in Nevada.

In his opposition, plaintiff explained the gravamen of his claims against NBH: The company was “not a valid business entity, anywhere. It is an entity [that] has copied the name of another possible entity.” The court was not permitted to make a factual determination that it was the same entity that was properly registered in Nevada; and because its existence and status were disputed, judicial notice was improper as to that fact.

In its previous order sustaining the demurrer to the second amended complaint, the superior court had granted NBH’s request for judicial notice of the Nevada “Certificate of Existence with Status in Good Standing,” dated September 3, 2014. It did so again in its order sustaining the demurrer to the third amended complaint. The court ruled that the first two causes of action were subject to demurrer because NBH had assigned any interest it had before the notice of default was recorded against plaintiff, and plaintiff had not stated any basis for inferring aiding and abetting by NBH. conspiracy, or joint venture. As for the third cause of action for cancellation of recorded instruments, the court invoked the judicially noticed certificate of good standing in Nevada to dispose of plaintiff’s argument that NBH was not a valid business entity in any state. It further rejected plaintiff’s theory that because NBH did not register in California, it had no right to transact business. On the contrary, the court stated, “a foreign LLC may acquire deeds of trust without registering.” The fifth cause of action could not survive, the court added, because (1) plaintiff had failed to allege any fraud attributable to NBH, (2) the claim was premised on the same theory that NBH was not a valid business entity or was not authorized to transact business in California, and (3) plaintiff had not alleged damages resulting from fraud by NBH. Finally, the court found, the fourth cause of action for unfair competition failed because it depended on the viability of the other causes of action.

Plaintiff contends that the certificate should not have been judicially noticed because it was hearsay, and contrary “allegations and evidence established that the NBHs are two different entities with the fake one (the defendant) using the identity as a cover for crimes without the potential real one knowing.” Because the matter was before the court on demurrer, plaintiff argues that the superior court improperly treated the Nevada certificate as establishing this defendant’s legitimate existence. NBH was, however, only a “copy-cat entity engaging in corporate identity theft.”

Because this appeal arose from an order sustaining a demurrer, we cannot presume that the Nevada certificate of which the superior court took judicial notice establishes NBH’s identity as the same entity that was certified as a Nevada company in good standing.[3] As it does not identify this defendant as the same entity as the “Newport Beach Holdings, LLC” certified in Nevada, judicial notice of this document is not dispositive of the demurrer.

Plaintiff propounded a discovery request for production of documents “pertaining to any and all transactions in California in which Newport Beach Holdings, LLC is exempt from Registering with the California Secretary of State pursuant to California Corporations Code § 191 (c)(7).” NBH responded with this answer: “Responding party has no documents responsive to this request.”[4] It thus remains a question of fact whether NBH was a registered LLC in Nevada, California, or any other state.

Plaintiff disputes the court’s rejection of his theory that NBH had no right to transact business in California because it had not registered here. He specifically disputes the lower court’s interpretation of “transact intrastate business” in former Corporations Code section 17001, subdivision (ap).[5] However, whether a foreign entity must register with the California Secretary of State is not an issue we need resolve in this case, because we have declined to indulge in the factual assumption that NBH was a foreign entity. Thus, our rejection of the factual premise that NBH was a Nevada company in good standing renders moot the question of whether the court correctly determined that NBH was not required to register as a foreign entity in California in order to transact business here.

NBH further argues that its status is immaterial to the first five causes of action because it was only an intermediate assignor of the deed of trust, and plaintiff had not alleged any facts supporting a theory of aiding and abetting, conspiracy, or joint venture with the other defendants. On this point, NBH’s position has merit. NBH did not initiate or participate in the foreclosure process; the notice of default was issued by Trustee Corps as the trustee in April 2013, eight months after NBH had assigned its beneficial interest to Asset Ventures. Plaintiff was awarded damages by default judgment from the parties responsible—Martinez and his alter ego, Asset Ventures—as well as from Eagle Crest. Consequently, even if NBH was not an authorized assignee or assignor of the interest, its conduct cannot be said to have proximately caused the harm allegedly suffered by plaintiff.

That causation cannot be presumed from the complaint does not amount to an endorsement of NBH’s argument that plaintiff could not have been prejudiced by the alleged scheme to deprive him of his property interest because he was in default on his loan. In Sciarratta v. U.S. Bank National Assn. (2016) 247 Cal.App.4th 552 (Sciarratta) the Fourth District Court of Appeal, Division One, addressed the element of prejudice in a borrower's wrongful foreclosure suit that was based upon an allegedly void assignment of her note and deed of trust. (Id. at p. 555.) The court concluded that the borrower need not allege prejudice or harm other than the wrongful foreclosure itself. (Id. at p. 565.)[6]

Nevertheless, Sciarratta is not helpful to plaintiff, as the circumstances underlying that decision are distinguishable in a significant respect from those presented here. In that case the loan was in the hands of Deutsche Bank, which received the deed of trust and promissory notes by assignment from JPMorgan Chase Bank (Chase). Chase also substituted California Reconveyance Company (CRC) as trustee. After recording a notice of default and notice of trustee’s sale, Chase purported to assign the Sciarratta deed of trust and promissory notes to Bank of America, which Sciarratta claimed was a void assignment because the proper beneficiary was Deutsche Bank. Because “ ‘[o]nly the entity currently entitled to enforce a debt may foreclose on the mortgage or deed of trust securing that debt’ ” (Sciarratta, supra, 247 Cal.App.4th at p. 562), the wrong party allegedly had foreclosed on Sciarratta’s debt. Consequently, Sciarratta properly claimed wrongful foreclosure, and no additional allegation of prejudice was required in her pleading.

In the case before us, the gravamen of the first three causes of action was the pursuit of foreclosure by Asset Ventures, not NBH. The court thus did not err in sustaining NBH’s demurrer to the causes of action related to the foreclosure efforts of Asset Ventures.[7] Sciarratta is inapposite.

NBH dismisses plaintiff’s fourth cause of action for unfair competition as meritless based simply on the failure of his other claims. It also renews its untenable argument that there can be no harm where the homeowner has not made “a single payment” during the period at issue. Nevertheless, the reasoning expressed above applies here as well. The allegation of unfair competition against NBH was based on conduct that did not cause the harm suffered by plaintiff; those were the acts of Asset Ventures. Likewise, the fraud claimed in the pleading did not describe conduct that resulted in plaintiff’s damages. The complaint described a letter from NBH to plaintiff on April 8, 2012, containing a “false threat” to foreclose on the debt, with no legal right to do so. Again, NBH was not the foreclosing entity; indeed, it did not have an interest in the property on that date. Demurrer was appropriate as to this cause of action as well.

4. Leave to Amend

Generally, “it is an abuse of discretion to sustain a demurrer without leave to amend if the plaintiff shows there is a reasonable possibility [that] any defect identified by the defendant can be cured by amendment.” (Aubry v. Tri-City Hospital Dist. (1992) 2 Cal.4th 962, 967.) Thus, if the lower court has sustained the demurrer without leave to amend, the reviewing court will normally decide “whether there is a reasonable possibility that the defect can be cured by amendment: if it can be, the trial court has abused its discretion and we reverse.” (City of Dinuba v. County of Tulare (2007) 41 Cal.4th 859, 865.) The burden is on the plaintiff to show that an amendment would cure the defect. (Schifando v. City of Los Angeles (2003) 31 Cal.4th 1074, 1081.) In this case, however, plaintiff stated that he is not contesting the lower court’s denial of further leave to amend. He has thus expressly waived that issue.

5. Judgment Against Eagle Crest

The second issue raised on appeal pertains to the February 17, 2015 default judgment against Eagle Crest. At the February 9 prove-up hearing on the matter, plaintiff’s counsel confirmed the amount plaintiff sought ($105,001.38) and requested $60,000 in attorney fees under Civil Code section 1717, based on a “reciprocal provision” in the “fictitious deed of trust.” The court awarded plaintiff damages of $105,001.38 and declared plaintiff the prevailing party.

Our review of this ruling is limited. Generally, a plaintiff who is dissatisfied with a default judgment must show that the judgment is without evidentiary support, by demonstrating that substantial evidence does not support the amount of damages awarded. (Johnson v. Stanhiser (1999) 72 Cal.App.4th 357, 361 (Johnson).) Here, of course, plaintiff does not contest the monetary award; he complains, however, that the judgment did not go far enough.

Plaintiff contends that the court should have added the following to its judgment: “1. For a judgment declaring that Defendant Eagle Crest, LLC was not a legitimate business entity and did not have a right to transact business in the State of California or anywhere, and specifically during the year of 2012. [¶] 2. For a judgment declaring that the Assignment of the Deed of Trust from Wells Fargo Bank to Eagle Crest, LLC, . . . recorded on April 18, 2012 is invalid, void, and without legal effect. [¶] 3. For a judgment declaring that the Assignment of the Deed of Trust from Eagle Crest, LLC to Newport Beach Holdings, LLC . . . recorded on April 18, 2012 is invalid, void, and without legal effect.” These findings were also requested in plaintiff’s trial brief, based on facts deemed admitted by the superior court after Eagle Crest failed to comply with discovery requests.

In a prove-up proceeding the plaintiff must establish a prima facie case to support his or her claim. (Johnson, supra, 72 Cal.App.4th at p. 361.) “It is also true that where a cause of action is stated in the complaint and evidence is introduced to establish a prima facie case the trial court may not disregard the same, but must hear the evidence offered by the plaintiff and must render judgment in his favor for such sum, not exceeding the amount stated in the complaint, or for such relief, not exceeding that demanded in the complaint, as appears from the evidence to be just.” (Taliaferro v. Davis (1963) 216 Cal.App.2d 398, 408-409 [italics omitted]; accord, Johnson, supra, at pp. 361-362.) Accordingly, in granting a default judgment the court must confine its award to the relief demanded in the complaint. (Code of Civ. Proc. §§ 580, subd. (a), 585.)

The prayer for relief in the third amended complaint, as it pertained to Eagle Crest, included a request for cancellation of each of the three assignments, cancellation of the substitution of trustee, and cancellation of the notice of default and notice of trustee’s sale. Plaintiff further sought “damages to Plaintiff in the amount of the amounts the defendants, each of them and jointly and severally, are themselves demanding in the notice of trustee sale, that amount being $105,001.38.” He asked that he be declared the prevailing party and be awarded attorney fees under Civil Code section 1717 and Code of Civil Procedure section 1021.5, “and as permitted in the Deed of Trust.”

The relief granted by the court was consistent with what was requested in the pleading. That the court did not go further by making additional findings concerning Eagle Crest’s legal status did not contravene the validity of the judgment, nor did it alter the judgments as to NBH and Asset Ventures. The evidence adduced at the prove-up hearing consisted of plaintiff’s declaration and testimony describing the financial and emotional hardship he had suffered from the foreclosure efforts of Asset Ventures, the “fictitious” deed of trust that allegedly served as the basis for attorney fees, and counsel’s account of the identity and status of individuals associated with Eagle Crest, particularly those who were also involved in NBH. Plaintiff did not present direct evidence supporting his assertion that Eagle Crest was not a “legitimate business entity” which had no right to transact business in this state. Instead, in his trial brief he relied on Eagle Crest’s failure to respond to his requests for admissions and the resulting order deeming admitted the assertions made in those requests. Plaintiff did not ask the court to amend the default judgment to add the findings it now believes were unreasonably omitted. We therefore infer that the court’s ruling was not only correct but sufficient in light of the evidence the court found had been established.

Disposition

The judgments are affirmed.