Shay v. Berger

Filed 7/24/07 Shay v. Berger CA2/7

NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS

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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.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

SECOND APPELLATE DISTRICT

DIVISION SEVEN

APPEAL from an order of the Superior Court of Los Angeles County, Joseph F. DeVanon Jr., Judge. Reversed and remanded with directions.

Law Offices of Nate G. Kraut and Nate G. Kraut for Plaintiffs and Appellants.

Law Offices of David M. Berger and David M. Berger for Defendants and Respondents David M. Berger, Seth Caplan and Suncoast Home Loans.

Office of the General Counsel, Amy L. Morse, Barbara A. Potashnick and Michael B. Tannatt for Defendant and Respondent Washington Mutual Bank.

Michael J. Fox for Defendants and Respondents Chicago Title Co. and Diana Duval.

__________________________

SUMMARY

Plaintiffs filed a complaint alleging multiple defendants had engaged in a conspiracy to defraud them of the equity in their property. The trial court sustained the defendants demurrer without leave to amend on statute of limitations and other grounds. Plaintiffs appeal. We reverse.

FACTUAL AND PROCEDURAL SYNOPSIS

According to the allegations of the fourth amended verified complaint, Melonee Williams owned real property located at 242 to 248 Wapello in Altadena. She was disabled and her income from the Los Angeles Unified School District was decreasing. During the late 1990s, Williams had filed for bankruptcy protection, and her attorney referred her to SunCoast Home Loans. A short time later, Williams met with Seth Caplan and Brian Dozier of SunCoast to refinance her existing home loan with a first mortgage. On Doziers and Caplans recommendation, escrow was opened with Chicago Title by escrow officer Diana Duval in January 2000.

The purpose of the escrow was for Melonee Williams to sell the property to Jamie Williams; Duval and Chicago Title were to pay off Melonee Williamss first mortgage (in the sum of $122,000 reduced by the mortgagee to $87,302 due to a fire at the property), a second mortgage with the Small Business Administration in the amount of $19,310, a third mortgage with Aames Home Loans in the sum of $37,000, an $11,000 judgment, foreclosure fees of $12,000, tax liens totaling $2,000, and respective loan and escrow fees to complete the transaction. The remaining balance was to be paid to Melonee Williams. SunCoast, Caplan and Dozier, as loan brokers, were to obtain financing for Jamie Williams to purchase the property.

On January 7, Duval issued instructions for Jamie Williamss purchase of the property from Melonee Williams in the amount of $275,000, with a first mortgage in the amount of $192,500 and cash through escrow in the amount of $82,500. The instructions further stated that title would be vested in Jamie Williams, subject to taxes from fiscal year 2000-2001 forward; the lien of supplemental taxes, if any; covenants, conditions, restrictions, rights of way, easements and reservations of record; and a deed of trust in Jamie Williamss name to secure a New 1st encumbrance loan in the amount of $192,500.00 in favor of a lender of buyer[]s choice.

Even though an escrow was opened with Jamie Williams as the buyer, Duval and Chicago Title requested the recording of an $82,000 note (payable to SunCoast) against the property. Melonee Williams relied on the defendants representations that all encumbrances and liens other than the first mortgage would be paid off with this bridge loan, but none of these creditors were paid, Melonee Williams did not receive these proceeds, and Duval, Chicago Title, SunCoast, Caplan and Dozier have not and cannot produce a copy of a cancelled check made payable to Melonee Williams.

On June 28, Duval amended the original escrow instructions pertaining to how the total consideration shall be paid to specify that the sale to Jamie Williams would consist of a $192,500 first mortgage (in favor of Long Beach Mortgage Company at an initial fixed/adjustable rate of 11.25% for a period of thirty years). (Italics added.) There was never any mention or any authorization by either the buyer or the seller of a second deed of trust.

On July 26, Long Beach Mortgage representative Robert Silverman met with Jamie Williams.[1] He assured her that she qualified for the $192,500 first mortgage and, despite knowledge that a notary was required to personally witness her signature, induced Jamie Williams to sign Long Beach Mortgage loan disclosure documents and first deed of trust outside the presence of a notary public or Michael Feingersh. He then had exclusive control of these documents. With the authority of Long Beach Mortgage, Feingersh then notarized both the Long Beach mortgage documents as well as the alleged signature of Jamie Williams on a $40,000 second deed of trust in favor of SunCoast without her knowledge and contrary to the escrow instructions, attesting he had witnessed Jamie Williams signature on both documents on the same day.

On August 2, without obtaining Jamie Williamss signature or permission, without ever transferring any money to her escrow and without ever giving her a $40,000 loan, SunCoast (through Chicago Title) recorded the fraudulent $40,000 second trust deed. Jamie Williams did not execute this document. That same day, SunCoast recorded an assignment of the fraudulent trust deed to David BergerSunCoasts agent for service of process since 1998.

The Buyers/Borrowers Settlement Statement (Closing Date: 08/02/00) reflects payment of the $275,000 purchase price through the proceeds of a new loan from Long Beach Mortgage Company in the amount of $192,500 plus a gift grant from seller in the amount of $82,500. The statement further reflects a credit to buyer for certain nonrecurring costs in the amount of $13,465.25offsetting various loan fees and other closing costs. There was also a notation indicating a deposit of funds to close escrow in the amount of $2,929.76 ([r]eceived 08/03/00) offset by a notation for funds due to buyer at closing in the same amount. There was no mention of a second loan.

The Sellers Settlement Statement (Closing Date: 08/02/00) reflects a payoff of Melonee Williamss first mortgage plus fees; payoff of an $82,000 loan plus fees with SunCoast offset by a $25,369.17 credit to seller; payoff of the Small Business Administration loan; prorations and adjustments including the credit to buyer in the amount of $13,465.25; payment of the $11,000 judgment as well as Franchise Tax Board and ICR payments; plus the $82,500 gift grant from seller.

These settlement statements were false because, on or about July 28, an alleged second trust deed was produced and recorded on August 2.

In March 2002, at a creditors meeting in the midst of her bankruptcy proceeding, Jamie Williams discovered that a $40,000 trust deed was recorded against the property because Berger appeared there to object to the bankruptcy proceeding, claiming he was the assignee of this alleged trust deed and had not received notice of the proceeding. Pursuant to a scheme to defraud, Berger contacted Duval and Chicago Title the month before to issue a closing statement with adjusted figures to show a shortfall.

In July, Jamie Williams sold the property to Allen Shay subject to all liens, claims and defenses.

On or about September 10, at Bergers request, although Jamie Williams did not appear before her, Duval falsely attested that Jamie Williams had appeared before Duval and verified the existence of the $40,000 trust deed (at an interest rate of 16%), and this fraudulently notarized document was re-recorded on September 11.

Duval, Chicago Title, Caplan, Berger, SunCoast, and Long Beach had agreed among themselves to conduct a fraudulent scheme to extract the equity from the property. Jamie Williams justifiably relied on SunCoast, Caplan and Dozier as her loan brokers and agents. Duval of Chicago Title was the fiduciary and escrow officer for both Melonee and Jamie Williams. Duval knew the alleged second trust deed was a misrepresentation as it was inconsistent with the escrow instructions.

Chicago Title, Duval, Caplan, SunCoast and Long Beach conspired to obtain $82,000 from Melonee Williams by fraud. These same defendants plus Berger conspired to obtain $40,000 from Jamie Williams by fraud and further deprived her of the equity she had in the property when she purchased it.

On or about July 28, 2004, Berger foreclosed on the property and served a demand on Fidelity Title Company which was holding $80,000 from Shay. As a result, Fidelity paid Berger $79,000 of this amount. Shay was deprived of the opportunity to rehabilitate the property, sell it and share the proceeds with Jamie Williams.

In the fourth amended verified complaint, Melonee Williams, Jamie Williams and Shay asserted causes of action for fraud and conspiracy to defraud (against all defendants); false certification of acknowledgement of the execution of a trust deed pursuant to a scheme to defraud (against Chicago Title, Duval, Feingersh, Caplan, SunCoast, Long Beach and Silverman); constructive fraud (against Chicago Title, Duval, Long Beach Mortgage, Silverman, Dozier, Caplan, SunCoast and Berger); breach of the implied covenant of good faith and fair dealing (against Chicago Title and Duval); negligent training or supervision (against Chicago Title); and breach of fiduciary duty (against Chicago Title, Duval, SunCoast, Caplan and Dozier).

Chicago Title and Duval; SunCoast, Caplan and Berger; and Washington Mutual filed three separate demurrers, and Melonee Williams, Jamie Williams and Shay filed opposition. After taking the matter under submission, the trial court sustained the demurrers without leave to amend. The court ruled that Shay lacked standing, that the statute of limitations barred both Melonee Williamss and Jamie Williamss claims and that Jamie Williams had failed to state a cause of action because the $40,000 trust deed appeared to have been signed by Jamie Williams and, throughout the various rounds of pleadings, she failed to allege that the document was forged.[2]

The trial court entered an order of dismissal, and Melonee Williams, Jamie Williams and Shay appeal.

DISCUSSION

I. Because Plaintiffs Have Alleged Facts Supporting their Claim of Delayed

Discovery, the Demurrers Were Not Properly Sustained on the Basis of the

Three-Year Statute of Limitations for Fraud.

Citing Wyatt v. Union Mortgage Co. (1979) 24 Cal.3d 773, Duval and Chicago Title joined by Berger, Caplan and SunCoast (collectively, Chicago Title) assert that the statute of limitations was not tolled in this case because Melonee Williams, Jamie Williams and Shay did not allege that the last overt act was Bergers attempted foreclosure in July 2004. (Id. at p. 786 [when a civil conspiracy is properly alleged (and proved), the statute of limitations does not begin to run until the last overt act pursuant to the conspiracy has been completed].) Such an allegation was not required. According to the allegations in the complaint, Jamie Williams did not execute or authorize the $40,000 trust deed and did not discover it until Berger appeared at a creditors meeting in her bankruptcy proceeding in 2002. On the basis of these allegations, the original complaint filed in October 2003 was timely. (Code Civ. Proc., 338, subd. (d).)

According to the respondents, the trial court obviously did not buy any of the Plaintiffs nebulous conspiracy theories and did not abuse its discretion when it disregarded the superficially plausible but meritless conspiracy allegations. (Italics added.) The trial court simply did not believe there was any conspiracy where the Plaintiffs alternately plead that there [were] fraudulent misrepresentations and a concealment which are factually and legally distinct. (Italics added.) Further, Plaintiffs do not explain how Berger acquired notice of the bankruptcy if he was not listed as a creditor. Citing Kidron v. Movie Acquisition Corp. (1995) 40 Cal.App.4th 1571, 1582, (a case involving a motion for nonsuit after the presentation of evidence), they argue: Just because Plaintiffs say its so does not make it so. Conspiracies cannot be established by suspicions. There must be some evidence. None of these arguments is proper on demurrer; instead, the arguments essentially concede that the defendants must go beyond the pleadings if they are to defeat these claims.

The allegations of the complaint must be accepted as true for purposes of ruling on a demurrer. Read in the context of the entire complaint, the allegations that Jamie Williams did not sign or authorize the $40,000 trust deed, the defendants concealed it from her and she did not discover it until Bergers appearance in 2002 are not necessarily inconsistent with the allegation that defendants represented this trust deed was required to cover a shortfall as supposedly evidenced by the closing statement Berger directed Duval and Chicago Title to produce just prior to his 2002 appearance. Inasmuch as the defendants actually conceded that the allegations were plausible yet argued they were meritless, the trial court did not properly sustain the demurrer on this ground.

Washington Mutual ignores the conspiracy allegations involving Long Beach Mortgage and its employees.

II. Shay Has Alleged Facts Sufficient to Establish His Standing.

According to Chicago Title, if Shay is subrogated by payment of Jamie Williamss obligation, he should be suing Jamie Williams; he could have determined in July 2002 whether the $40,000 trust deed was fraudulent. Washington Mutual says Shay lacks standing as he acquired his interest in 2002, after escrow closed in August 2000. The complaint alleges the demurring defendants conspiracy to extract the equity from the property and alleges Shays injury as a result in having to pay $79,000the accumulated debt on the allegedly fraudulent $40,000 trust deed. They fail to explain how these allegations are inadequate to establish that Shay is a real party in interest.

III. The Complaint Contains Sufficient Allegations of Fraud and Conspiracy to

Defraud.

In this case, the complaint alleges that the demurring defendants engaged in a conspiracy to extract the equity from the property. Chicago Titles and Washington Mutuals arguments ignore this fact. Moreover, pleading requirements are relaxed where a defendant has knowledge superior to the plaintiffs regarding the representations. (Committee on Childrens Television, Inc. v. General Foods Corp. (1983) 35 Cal.3d 197, 217.) As addressed in section I, ante, the demurring defendants challenges to the causes of action asserted in the complaint fail for the same reason their statute of limitations argument must failthese arguments are improper and therefore unavailing on demurrer.

DISPOSITION

The order of dismissal is reversed and this matter is remanded to the trial court with instructions to enter a new and different order overruling the demurrers and ordering the defendants to answer the fourth amended complaint. Appellants are entitled to their costs of appeal.

NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS

WOODS, J.

We concur:

PERLUSS, P.J.

ZELON, J.

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[1] According to the complaint, Washington Mutual Bank purchased the assets and assumed the liabilities of Long Beach Mortgage.

[2] The record does not contain the original or prior amended complaints, prior demurrers, answers or summary judgment motions reflected in the Los Angeles Superior Court Civil Case Summary.