MARK J. DEMUCHA AND CHERYL M. DEMUCHA, a brief that worked

14 Dec

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

FIFTH APPELLATE DISTRICT

MARK J. DEMUCHA AND CHERYL M. DEMUCHA,

Plaintiffs,

vs.

WELLS FARGO HOME MORTGAGE, INC.; WELLS FARGO BANK, NATIONAL ASSOCIATION a.k.a. WELLS FARGO BANK, N.A.; FIRST AMERICAN LOANSTAR TRUSTEE SERVICES; FIRST AMERICAN CORPORATION; AND DOES 1 TO 45,

                                                              Defendants

Court of Appeal

No. F059476

(Superior Court No.: S-1500-CV-267074)

 

 

 

Appeal From a Judgment of Dismissal following the Sustaining of Demurrer Without Leave to Amend

The Superior Court of California, County of Kern

The Honorable SIDNEY P. CHAPIN, Judge

APPELLANTS’ OPENING BRIEF

 

 

Mark J. DeMucha & Cheryl M. DeMucha

Represented by Michael D. Finley, Esq.

25375 Orchard Village Road, Suite 106

Valencia, CA 91355-3000

661.964.0444

 

TABLE OF CONTENTS

TABLE OF AUTHORITIES                                                                                                        ii

STATEMENT OF THE CASE                                                                                                     1

STATEMENT OF APPEALABILITY                                                                                        1

STATEMENT OF THE FACTS                                                                                                  1

ARGUMENT                                                                                                                                5

I.     THE COURT ABUSED ITS DISCRETION
IN DISMISSING THE VERIFIED FIRST AMENDED
COMPLAINT WITHOUT LEAVE TO AMEND                                                    5

A.   The Standard of Review                                                                                   5

B.   Causes of Action to Be Discussed Independently                                       5

II.    A PARTY SEEKING TO ENFORCE A NOTE SECURED
BY DEED OF TRUST IN CALIFORNIA MUST POSSESS
THE ORIGINAL NOTE OR OTHERWISE COMPLY WITH
THE CALIFORNIA COMMERCIAL CODE                                                          6

A.   Commercial Code § 3301, et seq., applies to Notes
Secured by Deed of Trust                                                                                6

B.   California Law requires security interests in real property
to be perfected by obtaining possession of the original note                    7

C.   The foreclosure statute cannot be read in a vacuum and must
be read in a manner that complies with other applicable statutes             7

III.  THE ELEMENTS OF A QUIET TITLE ACTION HAVE BEEN
PROPERLY PLEAD                                                                                                  8

A.   Elements of the Action                                                                                     8

B.   The elements of quiet title were fully plead                                                 9

IV.  TENDER IS NOT AN ELEMENT OF QUIET TITLE,
BUT WAS PLEAD ANYWAY                                                                                9

A.   Defendant’s arguments that tender must be alleged are false                    9

B.   Tender was properly alleged                                                                          10

C.   The court erred by considering extrinsic evidence regarding tender      10

V.   THE ELEMENTS OF AN ACTION TO REMOVE CLOUD
WERE PROPERLY PLEAD                                                                                    11

A.   Elements of the Action                                                                                   11

B.   The elements of an Action to Remove Cloud were properly plead         11

VI.  THE ELEMENTS OF FRAUD WERE PROPERLY PLEAD                               11

A.   Elements of the Action                                                                                   11

B.   The elements of Fraud were fully plead                                                       12

C.   The defendant again improperly offered irrelevant extrinsic
evidence to support its arguments on this issue                                         12

VII. THE ELEMENTS OF INTENTIONAL INFLICTION OF
EMOTIONAL DISTRESS WERE PROPERLY PLEAD                                       12

A.   Elements of the Action                                                                                   12

B.   The elements of intentional infliction of emotional distress
were properly plead                                                                                        13

C.   Defendant’s assertion of a privilege constitutes a defense, not
an element, and does not overcome the allegation of intentionally fraudulent statements and conduct based thereon                                                                            13

D.   The defendant again asserted and the trial court may have
considered improper and irrelevant extrinsic evidence                            13

VIII.  THE ELEMENTS OF SLANDER OF CREDIT WERE
PROPERLY PLEAD                                                                                                 14

A.   Elements of the Action                                                                                   14

B.   The elements of slander of credit were properly plead                             14

C.   The defendant again asserted and the trial court may have
considered improper and irrelevant extrinsic evidence                            14

IX.  THE PARAGRAPHS REGARDING PUNITIVE
DAMAGES, THOUGH MISLABLED AS A “CAUSE
OF ACTION,” WERE PROPERLY PLEAD                                                          15

A.   Elements of Punitive Damages                                                                      15

B.   The elements of punitive damages, though properly plead,
were mislabeled as a “cause of action,” which should be
disregarded as a trifle, with substance being honored over form            15

X.   IF THE DEMURRER IS OVERTURNED, THE MOTION
TO STRIKE WILL NO LONGER BE MOOT, SO THAT
THE TRIAL COURT SHOULD RECEIVE INSTRUCTIONS
REGARDING THE LAW ON THOSE ISSUES                                                    15

A.   The Trial Court ruled that the Motion to Strike was Moot
due to the sustaining of the Demurrer                                                          16

B.   If the sustaining of the Demurrer and the order of dismissal
are overturned, the Motion to Strike will no longer be moot
and the court may need to instruct the trial court:                                     16

CONCLUSION                                                                                                                            16

TABLE OF AUTHORITIES

CASES

                                                                                                                                                     Page

Abdallah v. United Sav. Bank (1995) 43 Cal.App.4th 1001.                                                9

Blank v. Kirwan (1985) 39 Cal.3d 311, 318.                                                                           5

Cervantez v. J. C. Penney Co. (1979) 24 Cal. 3d 579, 593).                                             12, 13

Ephraim v. Metropolitan Trust Co. of Ca. (1946) 28 Cal.2nd 824, 835.                            11

Gonsalves v. Hodgson (1951) 38 Cal.2d 91, 100-101.                                                         11

I.E. Assocs. v. Safeco Title Ins. Co. (1985) 39 Cal.3d 281                                                    7

Knickerbocker v. City of Stockton (1988) 199 Cal.App.3d 235, 239, fn. 2.                   5, 10

Nguyen v. Calhoun (2003) 105 Cal.App.4th 428                                                                   9

Quelimane Co. v. Stewart Title Guaranty Co. (1998) 19 Cal.4th 26, 38, 39.                      5

Roberts v. Ball, Hunt, Hart, Brown & Baerwitz (1976) 57 Cal.App.3d 104, 109.            11

Santa Teresa Citizen Action Group v. State Energy Resources
Conservation & Development Com. (2003) 105 Cal.App.4th 1441, 1445.                        5

Staff Mortgage v. Wilke (1980) 625 F.2d 281                                                                               7

Wilner v. Sunset Life Ins. Co. (2000) 78 Cal.App.4th 952, 958.                                          5

Zelig v. County of Los Angeles (2002) 27 Cal.4th 1112, 1126.                                           5

STATUTES

Business & Professions Code § 10233.2                                                                                        7

Civil Code § 2923.5                                                                                                                    2

Civil Code § 2924(a)                                                                                                                   8

Civil Code § 3294                                                                                                                      15

Civil Code § 3528                                                                                                                      15

Civil Code § 3535                                                                                                                      15

Code of Civil Procedure § 425.12                                                                                           15

Code of Civil Procedure § 761.020                                                                                          8

Code of Civil Procedure § 2015.5                                                                                             2

Commercial Code § 3301, et seq.                                                                                      2, 6, 8, 10

Commercial Code § 3309                                                                                                           6

Commercial Code § 3418(d)                                                                                                      6

Commercial Code § 9304(l)                                                                                                           7

 

 

STATEMENT OF THE CASE

            Plaintiffs and appellants MARK J. DEMUCHA and CHERYL M. DEMUCHA filed a Verified First Amended Complaint on 15 June 2009 seeking Quiet Title, Removal of Cloud on Title, Damages for Fraud and Misrepresentation, Damages for Intentional Infliction of Emotional Distress, Damages for Slander of Credit, and Punitive Damages (Verified First Amended Complaint in Augmented Record, hereafter “VFAC”). Plaintiffs obtained a preliminary injunction against foreclosure on 7/7/2009 (Court Register of Actions or Docket in Augmented Record, hereafter “CRAD”). However, plaintiffs did not post the required bond of $10,807.40, so the order was dissolved on 7/29/2009 (CRAD). On 15 July 2009, Defendants filed a Demurrer (CT 1) and Motion to Strike Portions of the First Amended Complaint (CT 17). Plaintiff filed his oppositions to the Demurrer and Motion to Strike on 28 August 2009 (CT 26 & Plaintiff’s Brief in Opposition to Defendant’s Motion to Strike Portions of First Amended Complaint; Memorandum of Points of Authorities in Support Thereof in Augmented Record- hereafter “OMS”). Defendants filed their reply briefs on the Demurrer and Motion to Strike on 17 September 2009 (CT 35 and 41). Hearings were held on the Demurrer and Motion to Strike on 14 and 28 September 2009 (RT 2-5). The Court sustained the Demurrer without leave to amend and ruled the Motion to Strike as moot on 28 September 2009 (RT 4, line 22 through 5, line 19). The Court’s Judgment and Order of Dismissal was entered on 7 October 2009 (CT 57).

STATEMENT OF APPEALABILITY

            This appeal is from the judgment of the Kern County Superior Court and is authorized by the Code of Civil Procedure, section 904.1, subsection (a)(1).

STATEMENT OF THE FACTS

            Plaintiffs and appellants MARK J. DEMUCHA and CHERYL M. DEMUCHA filed a Verified First Amended Complaint on 15 June 2009 seeking Quiet Title, Removal of Cloud on Title, Damages for Fraud and Misrepresentation, Damages for Intentional Infliction of Emotional Distress, Damages for Slander of Credit, and Punitive Damages (Verified First Amended Complaint in Augmented Record, hereafter “VFAC”). A key allegation throughout the VFAC was that the defendants “have all failed and refused to produce the original note or otherwise provide proof that any of the defendants is or at any time was the holder of the original note that the defendants, and each of them, are trying to enforce, as required by California Commercial Code § 3301, et seq.” (VFAC 2, line 26 through 3, line 4). It is important to note that this was not an action to stop a foreclosure, but primarily a quiet title action. Plaintiffs did seek a preliminary injunction against foreclosure and obtained the injunction on 7/7/2009 (the court ruled that the defendants failed to comply with Civil Code § 2923.5 and Code of Civil Procedure § 2015.5, requiring that the Notice of Default Declaration be a declaration signed under penalty of perjury, so that the defendants’ entire foreclosure proceedings were invalid) (Court Register of Actions or Docket in Augmented Record, hereafter “CRAD”). However, plaintiffs did not post the required bond of $10,807.40, so the order was dissolved on 7/29/2009. On 15 July 2009, Defendants filed a Demurrer (CT 1) and Motion to Strike Portions of the First Amended Complaint (CT 17). Plaintiff filed his oppositions to the Demurrer and Motion to Strike on 28 August 2009 (CT 26 & Plaintiff’s Brief in Opposition to Defendant’s Motion to Strike Portions of First Amended Complaint; Memorandum of Points of Authorities in Support Thereof hereafter “OMS”). Defendants filed their reply briefs on the Demurrer and Motion to Strike on 17 September 2009 (CT 35 and 41). Throughout their pleadings, the defendants repeatedly mischaracterized the proceedings as being anti-foreclosure proceedings and argued that a lender need not “possess the note” prior to conducting a non-judicial foreclosure (CT 2, lines 9-12), and claimed falsely that there was no allegation of tender in the First Amended Complaint (CT 2, lines 4-8) over the plaintiffs’ objections (CT 26, line 25 through 27, line 4). The defendants further falsely claimed that the first cause of action for quiet title must fail because “plaintiffs cannot state a basis for superior title,” failed to allege all adverse claims, and failed to allege a legal description (CT 2, lines 13-17). In fact, all of the allegedly non-existent allegations are found in paragraphs 9 through 14 of the VFAC (CT 27, lines 5 through 8; VFAC 2, line 17 through 4, line 3). With respect to the second cause of action for “Action to Remove Cloud,” the defendants falsely claimed that it should fail because plaintiffs failed to state a cause of action, failed to plead facts indicating that an instrument was invalid, failed to satisfy the legal requirements for a quiet title action, and cannot demonstrate equity (CT 2, lines 18-22). Again, all of the allegedly missing allegations are contained in paragraphs 9 through 13 of the VFAC (CT 27, lines 9-15; VFAC 2, line 17 through 3, line 24). Regarding the third cause of action for fraud and misrepresentation, defendants falsely claimed that plaintiffs failed to state a cause of action because plaintiffs failed to allege specific facts indicating that any representation was false, cannot allege specific facts indicating that any representation was made with knowledge of its falsity, and plaintiffs could not have actually relied on any alleged representation (CT 2, lines 23-28). In fact, all of the allegedly missing allegations are found in paragraphs 10, 13, 16, and 18 of the VFAC (CT 27, lines 16-25; VFAC page 2 line 26 though page 3 line 10, page 3 lines 20 through 26, page 4 lines 12 through 16, and page 4 line 23 through page 6 line 6). With respect to the fourth cause of action for intentional infliction of emotional distress, defendants falsely claimed that the cause of action must fail because plaintiffs do not contend that they tendered all of their payments under the loan, alleged no facts indicating outrageous conduct, and alleged no facts indicating that defendant intentionally caused any plaintiff emotional distress (CRT 11, line 8 through 12, line 26). In fact, all of the supposedly missing allegations were contained in paragraph 21 (and through incorporation by reference, paragraphs 10, 12, 13, 14, 16, and 18) of the Verified First Amended Complaint (CT 27, line 26 through 28, line 3; VFAC 6 lines 19 through 23; VFAC 2, line 26 through 3, line 10; VFAC 3, line 15 through 4, line 3; VFAC 4, lines 8-14 and 19-24). The demurrer falsely asserted that the fifth cause of action for Slander of Credit must fail because plaintiffs failed to identify the allegedly defamatory statement, cannot allege that any statement about plaintiffs’ credit was false, and cannot allege actual malice (CT 13, line 1 through 14, line 22). In fact, all of the purportedly missing allegations were contained in paragraph 23 (and through incorporation by reference, paragraphs 10, 12, 13, 14, 16, and 18) of the Verified First Amended Complaint (CT 28, lines 4-15; VFAC 7 lines 1 through 3; VFAC 2, line 26 through 3, line 10; VFAC 3, line 15 through 4, line 3; VFAC 4, lines 8-14 and 19-24). The demurrer asserted that the sixth cause of action for Punitive Damages must fail because punitive damages are not a cause of action and a false assertion that plaintiffs failed to plead facts supporting any entitlement to punitive damages (CT 14, line 23 through 15, line 12). Plaintiffs argued that the use of the label “cause of action” did not remove the requirement that the punitive damages allegations be plead, that if it were labeled differently the defendants would have no argument, that the court is to honor substance over form and trifles are to be disregarded, that all of the necessary elements for punitive damages are contained in the sixth cause of action of the Verified First Amended Complaint, and that plaintiff should be given leave to amend (CT 28, line 16 through 29, line 2; VFAC 5, line 19 through 6, line 5). The defendants’ Motion to Strike sought to eliminate the allegations regarding attorney’s fees without any authorities based upon a false claim that the plaintiffs failed to allege a contractual or statutory provision entitling them to such recovery, and the allegations regarding punitive damages based on essentially the same reasoning stated in the Demurrer to the sixth cause of action. CT 18, line 5 through 19, line 4). The plaintiffs fully opposed the Motion to Strike in their “Plaintiff’s Brief in Opposition to Defendant’s Motion to Strike Portions of First Amended Complaint; Memorandum of Points of Authorities in Support Thereof.” Hearings were held on the Demurrer and Motion to Strike on 14 and 28 September 2009 (RT 2-5). The Court sustained the Demurrer without leave to amend and ruled the Motion to Strike as moot, specifically finding that “there’s no tender on the amounts of the loan, and failure to produce the note is not in the foreclosure proceeding as to the deed of trust, a basis upon which to attack the foreclosure” (RT 4, line 22 through 5, line 19). There were numerous other arguments made about the other allegations of the complaint, including a ridiculous assertion by the defendants that the Commercial Code applies only to consumer goods and not to mortgages of real property (CT 6, lines 22-23), but the court apparently hung its hat on these findings alone: the blatantly false claim that no tender was alleged and that failure to produce the note is (according to the defendant and the honorable superior court) not a basis on which to attack a foreclosure (RT 4, line 22 through 5, line 19). The Court’s Judgment and Order of Dismissal was entered on 7 October 2009 (CT 57).

ARGUMENT

Issue 1

THE COURT ABUSED ITS DISCRETION IN DISMISSING THE VERIFIED FIRST AMENDED COMPLAINT WITHOUT LEAVE TO AMEND

            A.        The Standard of Review: “On review of an order sustaining a demurrer without leave to amend, our standard of review is de novo, ‘i.e., we exercise our independent judgment about whether the complaint states a cause of action as a matter of law.’ [Citation.]” (Santa Teresa Citizen Action Group v. State Energy Resources Conservation & Development Com. (2003) 105 Cal.App.4th 1441, 1445.) “We treat the demurrer as admitting all material facts properly pleaded, but not contentions, deductions or conclusions of fact or law. [Citation.] We also consider matters which may be judicially noticed.” [Citation.] Further, we give the complaint a reasonable interpretation, reading it as a whole and its parts in their context.’” (Zelig v. County of Los Angeles (2002) 27 Cal.4th 1112, 1126). When analyzing a demurrer, the court is to look “only to the face of the pleadings and to matters judicially noticeable and not to the evidence or other extrinsic matter.” (Knickerbocker v. City of Stockton (1988) 199 Cal.App.3d 235, 239, fn. 2.). The appellate court is “not bound by the trial court’s construction of the complaint . . . .” (Wilner v. Sunset Life Ins. Co. (2000) 78 Cal.App.4th 952, 958.) Rather, the appellate court is to independently evaluate the complaint, construing it liberally, giving it a reasonable interpretation, reading it as a whole, and viewing its parts in context. (Blank v. Kirwan (1985) 39 Cal.3d 311, 318.) The appellate court must determine de novo whether the factual allegations of the complaint are adequate to state a cause of action under any legal theory. (Quelimane Co. v. Stewart Title Guaranty Co. (1998) 19 Cal.4th 26, 38.) In the event that the complaint is found to not state a cause of action, but there is a reasonable possibility that amendment can cure the defect, leave to amend must be granted. (Id. at p. 39.)

B.        Causes of action to be discussed independently: Plaintiffs/appellants will discuss each cause of action independently below, demonstrating that each element of each cause of action has been fully plead. Further, plaintiffs/appellants contend that if the court determines that any element was lacking, an amendment could provide the necessary allegation(s), so that leave to amend should be granted.

Issue 2

A PARTY SEEKING TO ENFORCE A NOTE SECURED BY DEED OF TRUST IN CALIFORNIA MUST POSSESS THE ORIGINAL NOTE OR OTHERWISE COMPLY WITH THE CALIFORNIA COMMERCIAL CODE

            A.        Commercial Code § 3301, et seq., applies to Notes Secured by Deed of Trust: With respect to “negotiable instruments,” California’s Commercial Code § 3301 specifies as follows:

“Person entitled to enforce” an instrument means (a) the holder of the instrument, (b) a nonholder in possession of the instrument who has the rights of a holder, or (c) a person not in possession of the instrument who is entitled to enforce the instrument pursuant to Section 3309 or subdivision (d) of Section 3418. A person may be a person entitled to enforce the instrument even though the person is not the owner of the instrument or is in wrongful possession of the instrument.

According to this code section, which applies to “negotiable instruments,” the instrument may only be enforced by someone who possesses the original instrument, unless they meet the exceptions that are set forth in Commercial Code § 3309 or 3418(d). In the case before this court, the defendants do not possess the original Note Secured by Deed of Trust, although they claim to “own” the note, which they allegedly purchased from the original lender. The fact that they claim to have purchased the “Note Secured by Deed of Trust” demonstrates that it was a “negotiable instrument. However, the defendants falsely argued to the trial court that “the Uniform Commercial Code applies to the sale of goods and not transactions involving real property” (CT 6, lines 22-23).

B.        California Law requires security interests in real property to be perfected by obtaining possession of the original note: The United States Court of Appeals for the 9th Circuit, specifically ruling on a California federal case, in Staff Mortgage v. Wilke (1980) 625 F.2d 281, 6 Bankr.Ct.Dec. 1385, 29 UCC Rep.Serv. 639, citing an earlier case, specifically held that “notes secured by deeds of trust…were ‘instruments’ under the California Commercial Code,” that recording was not adequate to perfect the security interest under the Commercial Code because “such notice was not the type of notice intended or provided by the California Commercial Code,” and that “Perfection of a security interest in an instrument can only occur with the actual possession of the instrument by the secured party.” This case specifically cited Commercial Code § 9304(l). In defendant’s reply brief, they falsely claimed that this case “is no longer good authority because it was superseded by statute” (CT 43, line 28 to CT 44, line 6). However, the defendant blatantly misrepresented the law, because the statute that supposedly superseded this case, California Business & Professions Code § 10233.2, merely created an exception to this rule that permits perfection without possession of the security instrument only in the case of real estate brokers who sell a note and then service the note, in which case the security interest has been perfected even if the broker continues to possess the note. This is not the situation in the case before this court. Here, defendant Wells Fargo, a bank, not a real estate broker, purchased the Note Secured by Deed of Trust from a different lender. The exception that they falsely claim has “superseded” Staff Mortgage does not apply by any stretch of the imagination.

C.        The foreclosure statutes cannot be read in a vacuum and must be read in a manner that complies with other applicable statutes: The defendants cited I.E. Assocs. v. Safeco Title Ins. Co. (1985) 39 Cal.3d 281 in their demurrer (CT 6, line 28 through CT 7 line 4) for the proposition that the non-judicial foreclosure statutes are intended to be exhaustive, so no other laws apply. However, this is a complete misstatement of that case. The actual ruling in I.E. Assocs. was that the principles of common law do not apply because the non-judicial foreclosure statutes are intended to be exhaustive. There is no ruling in I.E. Assocs., nor any other binding authority, that would cause the non-judicial foreclosure statutes to supersede other applicable statutes. There is further nothing in the non-judicial foreclosure statutes that negates the requirements of the Commercial Code that a negotiable instrument must be possessed by the person or entity that seeks to enforce it. The non-judicial foreclosure statutes do require that there must be a “breach” prior to the commencement of foreclosure proceedings (Civil Code § 2924(a)). When read together, Commercial Code § 3301 helps to determine whether or not there has been a “breach” of the Note Secured by Deed of Trust that would trigger the lender’s right to pursue a non-judicial foreclosure. If the lender has perfected its security interest by possessing the original Note or falling within one of the two statutory exceptions, then they have the right to receive the mortgage payments, and if the borrower then fails to make the payments to the entity that has the right to enforce the note, there has been a “breach.” On the other hand, if the entity seeking to enforce the note is not authorized to enforce the note due to lack of compliance with Commercial Code § 3301, that entity cannot properly claim that there has been a “breach” that triggers the right to engage in the non-judicial foreclosure process. If the court were to reach any other result, it would create a conflict of laws and would put borrowers in danger of foreclosure by fraudulent entities who claim to have the right to engage in non-judicial foreclosure proceedings even though they do not have the right to enforce the note, and who subsequently hide behind technical compliance with the non-judicial foreclosure procedures. The borrower could be making or tendering the payment to the entity who holds the statutory right to enforce the note and still be subjected to a non-judicial foreclosure proceeding by a fraudulent “lender” who falsely claims to have the right to enforce the note while not complying with Commercial Code § 3301.

Issue 3

THE ELEMENTS OF A QUIET TITLE ACTION HAVE BEEN PROPERLY PLEAD

            A.        Elements of the Action: Pursuant to Code of Civil Procedure § 761.020, the elements of a Quiet Title Action are as follows:

   (a) A description of the property that is the subject of the action. In the case of tangible personal property, the description shall include its usual location. In the case of real property, the description shall include both its legal description and its street address or common designation, if any.
   (b) The title of the plaintiff as to which a determination under this chapter is sought and the basis of the title. If the title is based upon adverse possession, the complaint shall allege the specific facts constituting the adverse possession.
   (c) The adverse claims to the title of the plaintiff against which a determination is sought.
   (d) The date as of which the determination is sought. If the determination is sought as of a date other than the date the complaint is filed, the complaint shall include a statement of the reasons why a determination as of that date is sought.
   (e) A prayer for the determination of the title of the plaintiff against the adverse claims.

B.        The Elements of Quiet Title were fully plead: Plaintiff’s superior title is alleged in Paragraph 9 (page 2 lines 17 through 25) and 14 (page 3 line 27 through page 4 line 1), all adverse claims against the property are specified in Paragraphs 9 through 14 (page 2 line 17 through page 3 line 28), the legal description and property address are specified in Paragraph 9 (page 2 lines 18 through 23), the date as of which the determination is sought is specified in Paragraph 14 (page 3 lines 27-28), and the prayer for title in plaintiff’s favor is found on page 6 line 8 of the VFAC.

Issue 4

TENDER IS NOT AN ELEMENT OF QUIET TITLE, BUT WAS PLEAD ANYWAY

            A.        Defendant’s arguments that tender must be alleged are false: In the defendant’s Demurrer, it was argued that actions attacking trustee sales by foreclosure require tender of the amount due for a secured debt. Defendants cited several cases, including, but not limited to, Nguyen v. Calhoun (2003) 105 Cal.App.4th 428 and Abdallah v. United Sav. Bank (1995) 43 Cal.App.4th 1001. However, all of those cases were attacks on a trustee sale after the sale was completed. In the case before this court, no foreclosure has been completed and no trustee sale has been held. Therefore, no allegation of tender is necessary.

B.        Tender was properly alleged: Even though plaintiffs/appellants contend that tender was not required to be alleged, the VFAC contains the allegations of tender in Paragraph 14 (page 4 lines 2 through 7- VFAC). Because plaintiffs/appellants further contend that the defendants do not possess the original note and are therefore not entitled to enforce the note secured by deed of trust pursuant to Commercial Code § 3301, et seq. (discussed more fully below), the plaintiffs/appellants made their tender “to the individual or entity that is the valid holder of the original note,” as well as to pay all taxes to the appropriate government agency.” (VFAC page 4, lines 2 through 7). Plaintiffs/appellants contend that this allegation of tender is appropriate where it is unclear as to who has proper authority under the law to receive the mortgage payments.

C.        The Court erred by considering extrinsic evidence regarding tender: The defendant argued that statements in a separate ex parte application for preliminary injunction indicated that the plaintiffs/appellants could not tender the amounts due for the mortgage because they were “experiencing ‘difficult financial times’ and do not earn enough to ‘make ends meet” (CT 5, lines 10-14). The trial court was apparently heavily influenced by this argument, because it decided that there was no tender (RT 4, line 22 through 5, line 19) despite the obvious allegations of tender contained in the complaint (VFAC page 4, lines 2 through 7). Pursuant to Knickerbocker v. City of Stockton (1988) 199 Cal.App.3d 235, 239, fn. 2, cited above under Issue I, the court should not have considered any extrinsic evidence, but should have only looked at the four corners of the pleadings, plus matters that are properly judicially noticed. Here, the argument is further very weak because there are no details about the exact nature of the plaintiffs/appellants’ financial predicament. The CRAD (in the augmented record) shows that plaintiffs/appellants had an attorney appear for them at one hearing, which is the same attorney acting for the plaintiffs/appellants on this appeal. Further, that same attorney prepared other documents for the defendants that were filed in propria persona, so that they had additional expenses besides just living expenses due to the defendants’ actionable conduct. The point is that it is not safe to assume that the plaintiffs/appellants could not have afforded to tender the amounts due on the mortgage to the proper possessor of the Note just because they were having financial difficulties during the litigation.

Issue 5

THE ELEMENTS OF AN ACTION TO REMOVE CLOUD WERE PROPERLY PLED

            A.        Elements of the Action: The elements of an Action to Remove Cloud are the same as those for an action to Quiet Title, with the distinction that the cloud on title is allegedly “created by a designated instrument. In a suit to remove a cloud the complaint must state facts, not mere conclusions, showing the apparent validity of the instrument designated, and point out the reason for asserting that it is actually invalid.” (Ephraim v. Metropolitan Trust Co. of Ca. (1946) 28 Cal.2nd 824, 835.)

B.        The elements of an Action to Remove Cloud were properly plead: The elements of a quiet title action were fully plead, as shown under Issue 3 above. The defendant further argued that there was no pleading of a specific invalid instrument. However, The allegations that the defendants’ claims through the mortgage (specific instrument) that was granted to CTX MORTGAGE COMPANY, LLC, are invalid may be found in Paragraphs 9 through 13 (page 2 line 17 through page 3 line 26) of the VFAC.

Issue 6

THE ELEMENTS OF FRAUD WERE PROPERLY PLEAD

            A.        Elements of the Action: The elements of an action for fraud are (1) a false representation about a material fact, (2) knowledge of the falsity, (3) intent to defraud, (4) justifiable reliance, and (4) damages. (Roberts v. Ball, Hunt, Hart, Brown & Baerwitz (1976) 57 Cal.App.3d 104, 109; Gonsalves v. Hodgson (1951) 38 Cal.2d 91, 100-101.)

B.        The Elements of Fraud were fully plead: The allegations of specific facts that representations were false are found in Paragraph 18 (page 4 line 23 through page 6 line 6), as well as in Paragraph 10 (page 2 line 26 though page 3 line 10), Paragraph 13 (page 3 lines 20 through 26), and Paragraph 16 (page 4 lines 12 through 16), of the VFAC. The allegations that the defendants knew of the falsity of the representations are found in Paragraph 18 (page 5 lines 1 through 3, page 5 lines 13 through 16, page 6 lines 2 through 6), as well as portions of Paragraphs 10, 13, and 16, of the VFAC. The allegations of ratification are found in Paragraph 18 (page 5 lines 12 through 13, and page 6 lines 1 and 2) of the VFAC. The allegations of reliance on the misrepresentations/ fraud and damages are contained in Paragraph 18 (page 5 lines 3 and 4, page 6 lines 6 through 9) of the VFAC.

C.        The defendant again improperly offered irrelevant extrinsic evidence to support its arguments on this issue: Defendant again argued in its Demurrer that the court should consider plaintiffs/appellants’ statement in their Ex Parte Application for a Preliminary Injunction that they are having “difficult financial times” to be proof that they were in default on their mortgage (CT 10, lines 10-12). This should not have been argued by the defendant nor considered by the court.

Issue 7

THE ELEMENTS OF INTENTIONAL INFLICTION OF EMOTIONAL DISTRESS WERE PROPERLY PLEAD

            A.        Elements of the action: The elements of a cause of action for intentional infliction of emotional distress are: (1) the defendant engaged in extreme and outrageous conduct with the intention of causing, or reckless disregard of the probability of causing, severe emotional distress to the plaintiff; (2) the plaintiff actually suffered severe or extreme emotional distress; and (3) the outrageous conduct was the actual and proximate cause of the emotional distress. (Cervantez v. J. C. Penney Co. (1979) 24 Cal. 3d 579, 593).

B.        The elements of intentional infliction of emotional distress were properly plead: All of the necessary elements are plead in paragraphs 19 through 21 (pages 4 line 27 through 5 line 8) of the VFAC, with incorporation by reference of paragraphs 1 through 18. The defendant specifically argued that there was no pleading of outrageous conduct, but the outrageous conduct was plead using the phrase “intentional, unreasonable, and so outrageous that they exceed all bounds usually tolerated by a decent society” in Paragraph 21 (page 6 lines 19 through 23) and more fully described in the numerous prior paragraphs that are “incorporated by reference” into the Intentional Infliction of Emotional Distress cause of action (including, but not limited to, paragraphs 10, 12, 13, 14, 16, and 18) of the First Amended Complaint.

C.        Defendant’s assertion of a privilege constitutes a defense, not an element, and does not overcome the allegation of intentionally fraudulent statements and conduct based thereon: The defendant argued that it had a “qualified privilege” as a creditor (CT 11, line 19 through CT 12, line 9). However, this is merely a defense to the cause of action and therefore should not affect the complaint on demurrer (Cervantez v. J. C. Penney Co. (1979) 24 Cal. 3d 579, 593). Further, none of the authorities cited by the defendant allowed fraudulent statements and other misconduct based thereon to fall within the qualified privilege.

D.        The defendant again asserted and the trial court may have considered improper and irrelevant extrinsic evidence: Defendant yet again argued in its Demurrer that the court should consider plaintiffs/appellants’ statement in their Ex Parte Application for a Preliminary Injunction that they are having “difficult financial times” and were having trouble making ends meet to be proof that they were in default on their mortgage (CT 12, lines 12-15). Again, this should not have been argued by the defendant nor considered by the court.

//

//

Issue 8

THE ELEMENTS OF SLANDER OF CREDIT WERE PROPERLY PLEAD

            A.        Elements of the Action: The elements that were contested by the defendant include purported failure to identify the allegedly defamatory statement, a claim that plaintiff cannot (not that they did not) allege that any statement about plaintiff’s credit was false, and that plaintiffs cannot (again, not that they did not) allege actual malice (CT 13, line 1 through CT 14, line 22).

B.        The elements of slander of credit were properly plead: The alleged defamatory statements are referenced in Paragraph 23 (page 7 lines 1 through 3), and more fully described in the paragraphs that are “incorporated by reference” into the Slander of Credit Cause of Action (including, but not limited to, paragraphs 10, 12, 13, 14, 16, and 18-including thorough verbatim quotes in paragraph 18) of the VFAC. The allegation that the statements about plaintiffs’ credit were false is found in Paragraph 23 (page 7 lines 2 and 3), and more fully demonstrated in the paragraphs that are “incorporated by reference” into the Slander of Credit Cause of Action (including, but not limited to, paragraphs 10, 12, 13, 14, 16, and 18) of the VFAC. The allegation of malice is contained in Paragraph 23 (page 6 line 28 through page 7 line 3), and more fully described in the paragraphs that are “incorporated by reference” into the Slander of Credit Cause of Action (including, but not limited to, paragraphs 10, 12, 13, 14, 16, and 18) of the VFAC.

C.        The defendant again asserted and the trial court may have considered improper and irrelevant extrinsic evidence: Defendant once again argued in its Demurrer that the court should consider plaintiffs/appellants’ statement in their Ex Parte Application for a Preliminary Injunction that they are having “difficult financial times” and were having trouble making ends meet to be proof that they failed to remain current on their mortgage (CT 13, lines 22-25). Again, this should not have been argued by the defendant nor considered by the court.

Issue 9

THE PARAGRAPHS REGARDING PUNITIVE DAMAGES, THOUGH MISLABLED AS A “CAUSE OF ACTION,” WERE PROPERLY PLEAD

            A.        Elements of Punitive Damages: Punitive damages require a pleading that the defendant has been guilty of oppression, fraud, or malice with respect to an obligation that did not arise from contract (Civil Code § 3294).

B.        The elements of punitive damages, though properly plead, were mislabeled as a “cause of action,” which should be disregarded as a trifle, with substance being honored over form: The defendant properly argued that punitive damages are not a separate cause of action. However, they still must be plead. Whether it is labeled as a “cause of action” or just a paragraph pleading exemplary damages, the so-called Sixth Cause of Action contains necessary elements to request punitive or exemplary damages as required by Code of Civil Procedure § 425.12 and Civil Code § 3294, and is very similar to Judicial Council Form PLD-PI-001(6). Therefore, if paragraphs 24 and 25 of the VFAC were merely labeled differently, defendant would have no argument whatsoever. Further, pursuant to Civil Code § 3528, the court is to honor substance over form, so defendants’ argument that form should be given a higher priority than substance is contrary to California law. Also, Civil Code § 3535 provides that the Law disregards trifles, so the most that should have happened is that the label “Sixth Cause of Action” should have been stricken and the remaining label and paragraphs should have remained intact.

Issue 10

IF THE DEMURRER IS OVERTURNED, THE MOTION TO STRIKE WILL NO LONGER BE MOOT, SO THAT THE TRIAL COURT SHOULD RECEIVE INSTRUCTIONS REGARDING THE LAW ON THOSE ISSUES

            A.        The Trial Court ruled that the Motion to Strike was Moot due to the sustaining of the Demurrer: The trial court first sustained the demurrer (RT 4, line 22 through 5, line 4). Then the court ruled that the Motion to Strike was moot (RT 5, lines 9 through 11).

B.        If the sustaining of the Demurrer and the order of dismissal are overturned, the Motion to Strike will no longer be moot and the court may need to instruct the trial court: Plaintiffs/appellants are seeking the overturning of the sustaining of the Demurrer and the resulting order of dismissal. If that happens, the Motion to Strike will no longer be moot. Since the Motion to Strike was not granted, plaintiffs/appellants are not briefing those issues. However, plaintiffs/appellants request that this court consider reviewing the portions of the record and augmented record that include the Motion to Strike and the plaintiffs’/appellants’ opposition thereto and further consider making appropriate instructions to the trial court on those issues.

CONCLUSION

            The trial court erred in sustaining the demurrer without leave to amend and entering a judgment of dismissal. The rules of a non-judicial foreclosure proceeding and litigation to set aside a non-judicial foreclosure do not apply to a quiet title action that is filed prior to a foreclosure sale. The Commercial Code’s requirements that the entity enforcing a note must possess the original note (with limited exceptions) applies to a Note Secured by Deed of Trust. The Commercial Code’s requirements that the perfection of a security interest in real property requires possession of the original note applies to a Note Secured by Deed of Trust. Even in the context of a non-judicial foreclosure, there is no “breach” unless the entity that did not receive the mortgage payments had a right to receive the mortgage payments through possession of the original note or compliance with another recognized exception under the Commercial Code. Any other result would cause an unnecessary conflict of laws and allow fraudulent “lenders” to engage in non-judicial foreclosures and sales of property so long as they complied with the technical requirements of a non-judicial foreclosure. All of the causes of action of the Verified First Amended Complaint are properly plead, with the exception that “punitive damages” is not technically a cause of action, but that can be resolved by striking the label “Sixth Cause of Action” and just allowing the heading “Punitive Damages” to stand.

 

RESPECTFULLY SUBMITTED,

            Dated: 10 June 2010                                                                                                                            

Michael D. Finley, Esq.

Counsel for Plaintiffs/Appellants

Mark J. DeMucha & Cheryl M. DeMucha

 

 

CERTIFICATE OF COMPLIANCE

Pursuant to rule 8.204(c) of the California Rules of Court, I hereby certify that this brief contains 5,800 words, including footnotes. In making this certification, I have relied on the word count of the computer program used to prepare the brief.

 

Dated: 10 June 2010                                                                                                                            

Michael D. Finley, Esq.

Counsel for Plaintiffs/Appellants

Mark J. DeMucha & Cheryl M. DeMucha

 

AMENDED PROOF OF SERVICE

STATE OF CALIFORNIA, COUNTY OF LOS ANGELES

I am employed in the County of Los Angeles, State of California. I am over the age of 18 and not a party to the within action; my business address is: 25375 Orchard Village Road, Suite 106, Valencia, CA 91355-3000.

On 10 June 2010 (and on 14 June 2010 as indicated below) I served the foregoing document described as: Appellant’s Opening Brief on the interested parties in this action by placing a true copy thereof in sealed envelopes addressed as follows:

(Attorneys for Wells Fargo Home Mortgage, Inc. & Wells Fargo Bank, N.A.): Kutak Rock LLP, 18201 Von Karman, Suite 1100, Irvine, CA 92612

(Attorneys for First American Loanstar Trustee Services & First American Corporation): Wright, Finlay & Zak, LLP, 4665 MacArthur Court, Suite 280, Newport Beach, CA 92660

(6/14/2010): Judge Sidney P. Chapin, Kern County Superior Court, Metropolitan Division, 1415 Truxtun Ave., Bakersfield, CA 93301

BY MAIL: I deposited such envelopes in the mail at Valencia, California. The envelopes were mailed with first class postage thereon fully prepaid.

ALSO, BY ELECTRONIC FILING WITH THE SUPREME COURT: In addition, I filed an electronic copy of the Appellant’s Opening Brief with the Supreme Court of California on 14 June 2010, through the Supreme Court’s website.

Dated: 14 June 2010                                                                                                                            

Michael D. Finley, Esq.

Counsel for Plaintiffs/Appellants

Mark J. DeMucha & Cheryl M. DeMucha

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