Sedewick v. Bank of
Filed 8/6/13 Sedewick v. Bank of America CA4/3
California
Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or
relying on opinions not certified for publication or ordered published, except
as specified by rule 8.1115(b). This
opinion has not been certified for publication or ordered published for
purposes of rule 8.1115.
IN
THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
FOURTH
APPELLATE DISTRICT
DIVISION
THREE
STEPHEN SEDGWICK et al.,
Plaintiffs and Appellants,
v.
BANK OF AMERICA CORPORATION et
al.,
Defendants and Respondents.
G047001
(Super. Ct. No. 30-2011-00503519)
O P I N I O N
Appeal from a judgment
of the Superior Court
of
County, William M. Monroe, Judge. Affirmed.
Gordon
C. Strange for Plaintiffs and Appellants.
McGuire
Woods and Leslie M. Werlin for Defendants and Respondents.
* * *
Plaintiffs Stephen and Robin Sedgwick appeal
from a judgment in favor of defendants Bank of America Corporation, Bank of
America, N.A., Countrywide Financial Corporation, Countrywide Home Loans, Inc.,
Mortgage Electronic Registration Systems, Inc., and MERSCORP Holdings, Inc.
(collectively defendants). Judgment was
entered after the court sustained defendants’ demurrer to the
in the second amended complaint (SAC) without leave to amend. In sustaining defendants’ demurrer to the
causes of action in the first amended complaint for which it allowed leave to
amend, the court limited the length of the SAC to 15 pages.
Plaintiffs
argue the court abused its discretion in sustaining the demurrer to the SAC and
in imposing the page limitation. They
also maintain the court erred in ruling the fraudulent concealment cause of
action was barred by the statute of limitations because defendants’ conduct
tolled its accrual. They further assert
Stephen’s failure to disclose potential claims against defendants on his
Chapter 7 bankruptcy petition does not estop him from proceeding on the
complaint. Finally, they contend they
should have been given leave to amend.
We
conclude there is no basis to reverse based on the page limitation, nor did the
court err in sustaining the demurrer to the fraudulent concealment cause of
action without leave to amend. Because
we decide the case on these grounds we have no need to and do not address any
of the other issues raised.
RULES OF COURT
VIOLATIONS
As
a preliminary matter we must note plaintiffs’ numerous violations of the
California Rules of Court. First, rule
8.204(a)(1)(A) requires a brief to include a table of authorities listing
cases, statutes, and other authorities.
Although plaintiffs provide a list, they fail to include page numbers
where the authorities are discussed, making the list essentially worthless.
Likewise,
in setting out their 30-page statement of facts, with a few exceptions
plaintiffs failed to provide record references, in violation of California
Rules of Court, rule 8.204(a)(1)(C) that requires a brief to “[s]upport any
reference to a matter in the record by a citation to the volume and page number
of the record where the matter appears.â€
We will generally disregard facts and arguments not supported by
adequate citations to the record. (
1289, 1294.) Moreover, we do not
consider any claims not included under a separate heading or subheading
summarizing the argument. (Cal. Rules of
Court, rule 8.204(a)(1)(B); Evans v.
CenterStone (2005) 134 Cal.App.4th 151, 160.)
FACTS AND PROCEDURAL
HISTORY
According
to the respondents’ brief, in a 93-page complaint plaintiffs sued defendants,
among others, for fraudulent concealment, intentional and negligent
misrepresentation, invasion of privacy, violation of the California Financial
Information Privacy Act (Fin. Code, § 4050 et seq.) and Civil Code
section 1798.82, unfair competition, rescission based on fraud, and
“conspiracy,†seeking damages, restitution, and injunctive relief. Subsequently plaintiffs filed a 110-page
first amended complaint (FAC), adding other parties as defendants and
eliminating the causes of action for statutory violations and unfair
competition.
Defendants’
demurrer to the FAC was sustained with leave to amend as to the
negligent misrepresentation, and rescission causes of action and without
leave to amend as to the invasion of privacy, conspiracy, and injunctive relief
claims. In the tentative ruling the
court put a limit on the second amended complaint of 12 pages, noting the FAC
contained “rhetoric†and “hyperbole[]†and pointing out “[h]yperbole is never
important. It’s superfluous.†Plaintiffs’ counsel asked for “at least . . . 30
pages,†noting he could not replead in 12. He also stated he would not
eliminate all the rhetoric and hyperbole, although he would “try to truncate
it,†claiming it was important as part of the fraud claim. He explained he needed additional pages to
allege three causes of action, fraudulent concealment and intentional and
negligent misrepresentation, in the SAC.
The court allowed him 15 pages.
The SAC ultimately
contained two causes of action, one for fraudulent concealment against
defendants. The second cause of action,
for breach of fiduciary duty, was against Bayside First Mortgage, Inc., a
brokerage company on which plaintiffs allegedly have relied for 10 years to
recommend real estate purchases and loan refinances.
In
the fraudulent concealment count, plaintiffs plead that despite Stephen’s
purchase of four pieces of real estate and multiple refinances, and his 25
successful years in business, he “is not a sophisticated real estate investor
or business person†(boldface, capitalization, and underscoring omitted)
because his education stopped after high school. He claims he has always relied on lenders and
brokers, in this case Bayside, who “matched†him with Countrywide for the past
10 years. He alleges his limited
education and reliance on this “matching†created a “‘special relationship’â€
that required Countrywide to disclose everything about its underwriting and
business practices that plaintiffs might think material.
Plaintiffs
allege that in 2004 they purchased their residence in Coto de Caza for $3.2
million with a $2 million loan from Washington Mutual. In 2005 Bayside “steer[ed]†them into a
refinance of this loan with Countrywide and urged plaintiffs to agree to a
jumbo loan despite the fact it was “clear[]†plaintiffs did not qualify based
on their $170,000 annual income.
In
2006, in spite of plaintiffs’ limited income, Bayside encouraged plaintiffs to
enter into three additional jumbo, negative adjustable rate mortgage loans with
Countrywide, refinancing two investment properties in Hawaii and the Coto de
Caza residence, for which plaintiffs were not qualified. Plaintiffs are in default on one of the
Hawaii properties and the Coto de Caza residence for the loans “they never
wanted, nor qualified for, [having] concerns from the very beginning of the loan
process that they did NOT have the financial resources sufficient to qualify
and successfully maintain payments†on those notes. Allegedly defendants also refused to modify
the two loans. Plaintiffs plead they were
damaged by the loss of down payments and equity in those two properties plus a
decline in their credit rating.
The court sustained
defendants’ demurrer without leave to amend and entered judgment against
plaintiffs.
DISCUSSION
1. Standard of Review
An order sustaining a
demurrer without leave to amend is reviewed de novo. (Del
Cerro Mobile Estates v. City of Placentia (2011) 197 Cal.App.4th 173,
178.) “‘[W]e treat the demurrer as
admitting all material facts properly pleaded, but do not assume the truth of
contentions, deductions or conclusions of law [citations]’†(National
Union Fire Ins. Co. of Pittsburgh, PA v. Cambridge Integrated Services Group,
Inc. (2009) 171 Cal.App.4th 35, 43) or speculative allegations (
Entertainment, LLC (2007) 151 Cal.App.4th 307, 318).
2. Demurrer to First Amended Complaint
In
one of their main headings plaintiffs state the court abused its discretion in
sustaining the demurrer to the FAC. In
the discussion they fail to specify whether they are referring to the causes of
action where the demurrer was sustained without leave to amend or with leave to
amend or both. In fact, they do not
challenge the ruling as to the substance of any of the causes of action. The only claim made as to the first amended
complaint concerns the page limit for the second amended complaint. As such, any contention plaintiffs may have
as to the sustaining of the demurrer to any cause of action in the first
amended complaint is forfeited for failure to make reasoned legal argument. (Benach
v. County of Los Angeles (2007) 149 Cal.App.4th 836, 852.)
3. Page Limit
Plaintiffs assert the
court abused its discretion in fixing a 15-page limit for the SAC. They requested 30 pages at the hearing on the
demurrer but in their brief they asked that there be no limit, or what they deem
“reasonable,†60 pages.
Even
assuming the page limit was an abuse of discretion, plaintiffs were not
prejudiced. The effect of the limitation
was to sustain the demurrer without leave to amend as to the
and rescission causes of action. To
challenge a demurrer sustained without leave to amend, a plaintiff has the
burden to show how the complaint could have been amended to state a legitimate
cause of action. (Campbell v. Regents of University of California (2005) 35 Cal.4th
311, 320.)
In
plaintiffs’ discussion of why the court abused its discretion by limiting the
brief to 15 pages, they focus solely on their inability to include the
“detailed discussions, examination and analysis of the historical framework and
the genesis and evolution of the financial collapse of 2007†as a basis for
pleading why defendants’ “actions [were] illegal and fraudulent.†(Boldface omitted.) Plaintiffs say nothing about what additional
facts they would have alleged in the fraudulent concealment or omitted causes
of action. These omissions forfeit any
claim of error as to the page limit.
4. Fraudulent Concealment Cause
of Action
Plaintiffs
contend the fraudulent concealment claim was well pleaded based on defendants’
alleged duty to disclose the following facts:
1) the appraisals of the properties were inflated; 2) defendants
violated their own underwriting guidelines; 3) defendants intended to sell
plaintiffs’ mortgages in excess of their actual value, thereby defrauding
investors; 4) defendants knew that as a result of the first three acts, the
housing market would be “destroy[ed],†eliminating plaintiffs’ ability to sell
or refinance two of their properties and “destroying [p]laintiffs’ equityâ€; and
5) defendants “bet[]†on plaintiffs’ defaults by entering into credit-default
swaps that would garner defendants hundreds of millions of dollars. In addition, plaintiffs allege defendants
concealed general lending information, including use of mortgage pools as
collateral, their high percentage of sub-prime loans, their definition of
“‘prime’ loans’†was below industry standards, and their practice of
“‘steering’ borrowers into [their] loans when other less expensive alternatives
were available.â€
An
essential element of a fraudulent concealment cause of action is the
defendant’s duty to disclose a material fact.
(Boschma v. Home Loan Center, Inc.
(2011) 198 Cal.App.4th 230, 248.) In
Cal.App.4th 429 the plaintiff borrowers sued a mortgage lender after a
foreclosure sale, alleging, among other things, fraudulent
misrepresentation. The plaintiffs had
refinanced their home loan with the defendant, receiving a line of credit as
part of the refinance. But their income
was insufficient for them to make the payments.
The complaint alleged that when the defendant approved the loan, it knew
or should have known of the plaintiffs’ inability to service the loan and
fraudulently concealed that fact from them.
After the defendant demurred to the complaint, the plaintiffs maintained
they could amend to allege, among other things, that the defendant’s approval
of the loan was a misrepresentation the defendant believed the plaintiffs could
afford the payments.
On
appeal, the court disagreed and further confirmed that “‘[a]bsent special
circumstances . . . a loan transaction is at arm’s length
and there is no fiduciary relationship between the borrower and the lender.’ [Citations.]
[Citation.] A commercial lender
pursues its own economic interest in lending money. [Citation.]â€
(Perlas v. GMAC Mortgage, LLC,
In
Bank of America v. Superior Court
(2010) 198 Cal.App.4th 862, the plaintiffs sued for fraudulent concealment,
alleging the lender failed to disclose the loan it was making to the borrowers
was part of a huge scheme to defraud its investors because it was offering to
them pooled mortgages at inflated amounts, knowing this would cause the
borrowers to lose their equity and substantially harm their credit
ratings. The lender’s actions destroyed
home values. The court ruled that,
although the lender “had a duty to refrain from committing fraud, it had no
independent duty to disclose to its borrowers its alleged intent to defraud its
investors.†(Id. at pp. 872-873.)
Plaintiffs
argue these cases do not apply because of the allegations of the credit default
swaps and “steering†of loans. But they
have not shown why defendants had a duty to reveal this information.
Plaintiffs
also argue there is a fiduciary duty here, giving the parties more than a
normal borrower-lender relationship.
They allege Stephen is not a sophisticated businessman and has always
relied on brokers and lenders, here, Bayside and its alleged business partner
Countrywide. Plaintiffs point to three
letters they received from Countrywide after they submitted an application to
refinance, where Countrywide referred to Bayside as its business partner. As a result, they allege, Countrywide had a
duty to disclose everything about its underwriting and business practices that
plaintiffs might think material. But an
allegation of “special relationship†with defendants does not make it so. This is not a fact but a contention or a
conclusion that we are not bound to accept as true.
We
likewise reject plaintiffs’ argument defendants owe a fiduciary duty because a
“borrower almost totally relies on what the [l]ender is offering as a fair and
reasonable offer†and “[m]any borrowers have very little or even NO knowledge
of loan terms and conditions and blindly sign whatever documents are placed in
front of them . . . .â€
This is not alleged in the SAC and even if it were, again, it is merely
a contention and speculative at that.
Further,
plaintiffs cite no cases imposing a duty on lenders to disclose “any and all
facts about [a lender’s] loan underwriting and business practices†that a
borrower “might†believe are material.
This suggested duty is exceptionally broad and ill-defined, which likely
would lead to lenders’ inability to discern its duties and cause additional
turmoil in the financial sector. This
does not serve any public policy. In
sum, plaintiffs have not alleged and cannot allege a duty to disclose.
Another
element of a fraudulent concealment cause of action is damage due to the
concealment. (Boschma v. Home Loan Center,
Inc., supra, 198 Cal.App.4th at
p. 248.) Plaintiffs plead they only had
an income of $170,000 per year and no other assets but they took on debt of over
$1.5 million. If they were damaged it
was not due to concealment of any facts.
It was because they entered into the loans without the income to pay for
them. Plaintiffs plead they had “obvious
financial limitations†at the time the three loans were made. They knew their own income and defendants did
not conceal it from them. So whatever
other information defendants may have concealed, the concealment did not cause
plaintiffs’ damages as a matter of law.
If the court sustains a
demurrer without leave to amend, on appeal plaintiff has the burden to
demonstrate “there is a reasonable possibility the defect in the pleading can
be cured by amendment. [Citation.] ‘“. . . Plaintiff must show in what manner he
can amend his complaint and how that amendment will change the legal effect of
his pleading. . . .†[Citation.]’ [Citation.]â€
(Palm Springs Tennis Club v.
Rangel (1999) 73 Cal.App.4th 1, 7-8.)
Although plaintiffs make a general reference to amendment, the vast
majority of their argument concerns why the allegations in the SAC were
sufficient. The only additional facts
they suggest they could plead are the specifics of who allegedly concealed
facts. But these are not sufficient to
cure the cause of action because the defects are not factual. Thus, plaintiffs have not met their burden to
show they can amend.
DISPOSITION
The judgment is
affirmed. Defendants are entitled to
costs on appeal.
THOMPSON,
J.
WE CONCUR:
MOORE, ACTING P. J.
FYBEL, J.
