Opinion
E069887
06-08-2020
CAMERON DE SMIDT, Plaintiff and Appellant, v. NATIONSTAR MORTGAGE LLC et al., Defendants and Respondents.
Law Offices of Ronald H. Freshman and Ronald H. Freshman for Plaintiff and Appellant. Severson & Werson, Jan T. Chilton, Elizabeth C. Farrell, and Kerry Franich for Defendant and Respondent, Bank of America, N.A. Hall Griffin, Howard D. Hall, Taylor R. Dalton, and Katalina Baumann for Defendants and Respondents Nationstar Mortgage LLC, Federal National Mortgage Association, and Mortgage Electronic Registration Systems, Inc.
NOT TO BE PUBLISHED IN OFFICIAL REPORTS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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115. (Super.Ct.No. MCC1700730) OPINION APPEAL from the Superior Court of Riverside County. Raquel A. Marquez, Judge. Affirmed. Law Offices of Ronald H. Freshman and Ronald H. Freshman for Plaintiff and Appellant. Severson & Werson, Jan T. Chilton, Elizabeth C. Farrell, and Kerry Franich for Defendant and Respondent, Bank of America, N.A. Hall Griffin, Howard D. Hall, Taylor R. Dalton, and Katalina Baumann for Defendants and Respondents Nationstar Mortgage LLC, Federal National Mortgage Association, and Mortgage Electronic Registration Systems, Inc.
After defaulting on his loan in 2008, filing for chapter 7 bankruptcy in 2015, and losing his home in a nonjudicial foreclosure sale in 2017, Cameron De Smidt sued Bank of America, N.A. (BANA), Nationstar Mortgage LLC (Nationstar), Federal National Mortgage Association (Fannie Mae), and Mortgage Electronic Registration Systems, Inc. (MERS) (collectively, respondents), seeking to rescind the sale under multiple theories, including invalid debt assignment. The trial court sustained respondents' demurrers without leave to amend and entered judgments of dismissal in their favor.
De Smidt appeals those judgments, arguing he alleged facts sufficient to constitute claims for wrongful foreclosure, cancellation of instruments, slander of title, unfair business practices (Bus. & Prof. Code, § 17200 et seq.), violation of the California Homeowner Bill of Rights (HBOR) (Civ. Code, § 2923.4 et seq.), and breach of contract. Respondents argue De Smidt lacks standing to assert these claims because, under federal bankruptcy law, they belong to the bankruptcy estate and the trustee of the estate is the only real party in interest with standing to assert them. As we explain below, we agree with respondents that De Smidt lacks standing and has not demonstrated he can amend his complaint to cure the defect. We therefore affirm.
De Smidt asserted additional claims against respondents but does not challenge the dismissal of those claims on appeal.
I
FACTS
We base our summary of the facts on the allegations in De Smidt's complaints, as well as the real property and bankruptcy court records attached to the complaints and respondents' requests for judicial notice. (Yvanova v. New Century Mortgage Corp. (2016) 62 Cal.4th 919, 924 (Yvanova) ["For purposes of reviewing a demurrer, we accept the truth of material facts properly pleaded in the operative complaint, but not contentions, deductions, or conclusions of fact or law. We may also consider matters subject to judicial notice"].)
De Smidt attached to his complaints the deed of trust, assignments of the deed of trust, substitutions of trustee, notices of default and trustee's sale, and trustee's deed upon sale. On appeal, he argues the trial court abused its discretion by taking judicial notice "of disputed facts within" these documents. While there is no indication the court did so, we reject De Smidt's argument in any event because the contents of those documents are irrelevant to our disposition of this appeal.
In 2007, De Smidt obtained a refinance loan of $367,000 from GreenPoint Mortgage Funding, Inc. (GreenPoint), which was secured by a deed of trust recorded against his residence in Murrieta. He defaulted on the loan in 2008.
De Smidt sued GreenPoint along with respondents and appealed the trial court's judgment of dismissal in GreenPoint's favor. However, after filing his opening brief, he requested that we dismiss his appeal as to that judgment. We issued an order dismissing De Smidt's appeal of the judgment in GreenPoint's favor on January 29, 2019.
On February 26, 2015, the trustee on the deed of trust, the law firm of Barrett Daffin Frappier Treder & Weiss, LLP (Barrett), recorded a notice of default against De Smidt's Murrieta property, indicating he had been in default since December 1, 2008 and was in arrears of $205,572.57. In October 2015, Barrett recorded a notice of trustee's sale reflecting a sale date of November 17, 2015.
Four days before the scheduled sale, on November 13, 2015, De Smidt filed for chapter 7 (liquidation) bankruptcy protection. (11 U.S.C. § 301 et seq.) In the schedule of assets he filed with the bankruptcy court, he listed the Murrieta property as an asset valued at $450,000. He acknowledged the deed of trust was a secured lien on the property and listed Nationstar as a creditor of his mortgage. In February 2016, the bankruptcy court granted De Smidt a discharge. (11 U.S.C. § 727.)
The trial court granted respondents' request for judicial notice of the petition, schedules, and discharge order in De Smidt's bankruptcy case (United States Bankruptcy Court for the Central District of California, case No. 6:15-bk-21082-MJ). The trial court properly noticed the existence and facial contents of these documents under Evidence Code sections 452, subdivision (d) and 453. (See Yvanova, supra, 62 Cal.4th at p. 924, fn. 1.) "Under Evidence Code section 459, subdivision (a), notice by this court is therefore mandatory." (Ibid.) We therefore take notice of the documents' existence and contents, though not of any disputed or disputable facts contained within them. (Ibid.)
A year later, Fannie Mae purchased the property at a nonjudicial foreclosure sale. A few months after that, De Smidt filed this lawsuit against respondents (each of whom, through various assignments, stood as either a trustee or a beneficiary of the deed of trust), seeking to invalidate the sale and the loan. Among other claims not at issue here, De Smidt's first amended complaint (FAC) alleged claims for cancellation of instruments, slander of title, and unfair business practices against all respondents, a claim for wrongful foreclosure against Fannie Mae, a claim for violation of the HBOR against Nationstar, and a claim for breach of contract against Fannie Mae and Nationstar. These claims were based on two theories—(1) that the loan and deed of trust were void because the loan was table funded and (2) that the deed of trust and its assignments were void because MERS lacked authority to act as the trust deed beneficiary, and as such, Fannie Mae did not hold the required beneficial interest in the loan or deed of trust to foreclose on the property.
De Smidt has explicitly waived his table funding argument on appeal.
In their demurrers to the FAC, respondents argued De Smidt lacked standing to assert his claims because they belonged to the bankruptcy estate. They also asserted various arguments as to why the claims failed on their merits, including that De Smidt had not alleged he had tendered payment of his debt and that the cancellation of instruments, slander of title, and unfair business practices claims were time barred. The trial court concluded De Smidt's claims failed on their merits and sustained respondents' demurrers as to all of the claims without leave to amend, except for the wrongful foreclosure claim against Fannie Mae, the HBOR claim against Nationstar, and the breach of contract claims against Fannie Mae and Nationstar, for which the court granted De Smidt 20 days to amend.
De Smidt then filed a second amended complaint (SAC), realleging those three claims—wrongful foreclosure against Fannie Mae, violation of the HBOR against Nationstar, and breach of contract against Fannie Mae and Nationstar. Nationstar and Fannie Mae filed demurrers, again arguing De Smidt lacked standing and also arguing the claims failed on their merits. The court agreed the claims failed on their merits and sustained the demurrers without leave to amend. De Smidt filed a timely appeal.
II
DISCUSSION
A. Standard of Review
A demurrer should be sustained when "[t]he pleading does not state facts sufficient to constitute a cause of action." (Code Civ. Proc., § 430.10, subd. (e).) "We independently review the superior court's ruling on a demurrer and determine de novo whether the complaint alleges facts sufficient to state a cause of action or discloses a complete defense. [Citations.] We assume the truth of the properly pleaded factual allegations, facts that reasonably can be inferred from those expressly pleaded and matters of which judicial notice has been taken." (Regents of University of California v. Superior Court (2013) 220 Cal.App.4th 549, 558.) "'We are not bound by the trial court's stated reasons, if any, supporting its ruling; we review the ruling, not its rationale.'" (Walgreen Co. v. City and County of San Francisco (2010) 185 Cal.App.4th 424, 433.)
Where, as here, the demurrer is sustained without leave to amend, "'we 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; if not, there has been no abuse of discretion and we affirm. [Citations.] The burden of proving such reasonable possibility is squarely on the plaintiff.'" (Zelig v. County of Los Angeles (2002) 27 Cal.4th 1112, 1126.)
B. De Smidt Lacks Standing and Has Not Demonstrated a Reasonable Probability the Defect Can Be Cured
Respondents renew their arguments that De Smidt lacks standing to assert the claims at issue here. They contend the trustee of the estate is the only real party in interest with standing to assert the claims, unless the trustee abandons or is ordered to abandon them by the bankruptcy court. We agree.
"A litigant's standing to sue is a threshold issue to be resolved before the matter can be reached on its merits." (Apartment Assn. of Los Angeles County, Inc. v. City of Los Angeles (2006) 136 Cal.App.4th 119, 128.) "Standing goes to the existence of a cause of action (5 Witkin, Cal. Procedure (4th ed. 1997) Pleading, § 862, p. 320), and the lack of standing may be raised at any time in the proceedings." (Ibid.)
California Code of Civil Procedure section 367 requires, subject to exceptions not applicable here, that every action be "prosecuted in the name of the real party in interest." "[A] complaint filed by a party who lacks standing is subject to demurrer. [Citation.] The rationale for such a demurrer is generally stated to be that a complaint by a party lacking standing fails to state a cause of action by the particular named plaintiff, inasmuch as the claim belongs to somebody else. [Citation.] A more accurately stated rationale would be that there is a defect in the parties, since the party named as plaintiff is not the real party in interest." (Cloud v. Northrop Grumman Corp. (1998) 67 Cal.App.4th 995, 1004 (Cloud).)
Under the federal bankruptcy statutes, the filing of a petition in bankruptcy commences the case and "creates an estate," which consists of "all legal or equitable interests of the debtor in property as of the commencement of the case," "[a]ny interest in property that the estate acquires after the commencement of the case," and any "[p]roceeds, product, offspring, rents, or profits of or from property of the estate." (11 U.S.C. § 541(a), (1), (6) & (7).) "The widely accepted rule is that after a person files for bankruptcy protection, any causes of action previously possessed by that person become the property of the bankrupt estate." (Cloud, supra, 67 Cal.App.4th at p. 1001, citing 11 U.S.C. §§ 541(a)(1) & 323; see also United States v. Whiting Pools, Inc. (1983) 462 U.S. 198, 203-205, fn. 9 [causes of action are part of the "broad range of property" included in the bankruptcy estate].) As a result of this transfer, the chapter 7 trustee, "'as the representative of the bankruptcy estate, is the real party in interest, and is the only party with standing to prosecute causes of action belonging to the estate once the bankruptcy petition has been filed.'" (M & M Foods, Inc. v. Pacific American Fish Co., Inc. (2011) 196 Cal.App.4th 554, 562.)
Once a cause of action becomes part of a bankruptcy estate, the "chapter 7 debtor may not prosecute [the claim] on his or her own . . . unless the claim has been abandoned by the trustee." (Bostanian v. Liberty Savings Bank (1997) 52 Cal.App.4th 1075, 1081 (Bostanian).) "[T]he debtor must take affirmative steps to comply with [11 U.S.C.] section 554 concerning abandonment. Until the debtor secures an abandonment of the claim, the debtor lacks standing to pursue it." (Id. at p. 1083.) "Property of a bankruptcy estate can be abandoned by three methods: (1) after notice and hearing, the trustee may unilaterally abandon property that is "burdensome . . . or . . . of inconsequential value" (11 U.S.C. § 554(a)); (2) after notice and hearing, the court may order the trustee to abandon such property (11 U.S.C. § 554(b)); (3) any property which has been scheduled, but which has not been administered by the trustee at the time of closing of a case, is abandoned by operation of law. (11 U.S.C. § 554(c).)" (Cloud, supra, 67 Cal.App.4th at p. 1003.)
In Reichert v. General Ins. Co. (1968) 68 Cal.2d 822, the California Supreme Court held that the trial court properly sustained demurrers to plaintiff's second amended complaint without leave to amend because the claims he was attempting to assert had "passed to the trustee upon [his] adjudication in bankruptcy" and, as a result, he was no longer the real party in interest with standing to assert them. (Id. at p. 830.) In Bostanian, the plaintiffs appealed the dismissal of their wrongful foreclosure suit, and the appellate court concluded they lacked standing to appeal because their former residence had become part of their bankruptcy estate before the foreclosure sale and there was "no evidence the chapter 7 trustee ha[d] abandoned . . . th[e] claim." (Bostanian, supra, 52 Cal.App.4th at p. 1087.)
Applying these principles here, we conclude the real party in interest with standing to assert the claims at issue is the chapter 7 trustee, not De Smidt. This is because the claims relate to the rightful ownership of and ability to foreclose on the Murrieta property, and when De Smidt filed the bankruptcy petition, the Murrieta property—and any causes of action related to the property—became part of the bankruptcy estate. (11 U.S.C. § 541(a)(1), (6) & (7).)
De Smidt argues that at least one of his claims, his cause of action for wrongful foreclosure, falls outside of the bankruptcy estate because it accrued after he was granted a discharge and therefore constitutes a "new harm." This same argument was rejected in Bostanian, where the court explained that even when the allegedly improper foreclosure sale occurs after the filing of a bankruptcy petition and creation of the bankruptcy estate, the attendant wrongful foreclosure claim remains part of the estate because it constitutes an "interest in property that the estate acquires after the commencement of the case," as well as a "product [or] offspring . . . of . . . property of the estate." (Bostanian, supra, 52 Cal.App.4th at pp. 1083-1084, citing 11 U.S.C. § 541(a)(6) & (7).) We agree with this reasoning and conclude the wrongful foreclosure claim belongs to the bankruptcy estate.
De Smidt contends that if we determine he lacks standing, he can cure the defect by amending his complaint. De Smidt bears the burden of "'demonstrat[ing] a reasonable possibility that the defect can be cured by amendment.'" (Bank of America, N.A. v. Mitchell (2012) 204 Cal.App.4th 1199, 1204.) "To satisfy that burden on appeal, [he] 'must show in what manner he can amend his complaint and how that amendment will change the legal effect of his pleading.'" (Rakestraw v. California Physicians' Service (2000) 81 Cal.App.4th 39, 43.) "The assertion of an abstract right to amend does not satisfy this burden. . . . Allegations must be factual and specific, not vague or conclusionary." (Id. at pp. 43-44.)
In this case, the issue of standing arose at the earliest opportunity. De Smidt filed his original complaint in June 2017. About a month later, BANA demurred to that complaint and argued all of his claims belonged to the chapter 7 bankruptcy estate, and as a result, De Smidt was not the real party in interest. In response, De Smidt filed the FAC, which contained no allegations as to whether he had standing or how he could cure his lack of standing. In their demurrers to the FAC, respondents argued De Smidt lacked standing because of the bankruptcy. While De Smidt opposed the demurrers, he did not respond to the standing argument. After the trial court sustained the demurrers to the FAC, De Smidt filed the SAC against Nationstar and Fannie Mae. The SAC, too, contained no allegations regarding standing. When Nationstar and Fannie Mae demurred to the SAC and argued once again that De Smidt was not the real party in interest, he finally acknowledged the issue in his opposition. He argued the court should issue a stay if it concluded any of the claims belonged to the bankruptcy estate, so he could "join the Estate Trustee or secure the trustee's abandonment of the claims." Now on appeal, De Smidt asserts the standing defect is "easily resolved," either by "join[ing] the Trustee or secur[ing] an abandonment," and therefore he should be allowed to amend his complaint.
We conclude De Smidt has failed to carry his burden of demonstrating a reasonable probability that he could amend his complaint to cure the standing defect. Despite having known of the standing issue for almost a year and a half and having multiple opportunities to amend his complaint, De Smidt has provided no indication of what, if any, affirmative steps he has taken to cure the defect. In other words, we have no basis for concluding it is reasonably probable that De Smidt would, if given another opportunity to amend, be able to allege he has obtained an abandonment in the bankruptcy court or secured the trustee's participation in prosecuting the claims.
We recognize that the Bostanian and Cloud courts gave the plaintiffs an opportunity to try to secure the bankruptcy trustee's participation in, or abandonment of, the claims at issue, but we find those cases distinguishable on a crucial point. Unlike the plaintiffs in Bostanian and Cloud, De Smidt has had ample opportunity to amend his complaint to cure the standing issue. In Bostanian, the defendants raised the lack of standing in the appellate court as reason to dismiss the appeal. Because the plaintiffs had not yet had an opportunity to seek abandonment from the chapter 7 trustee, the appellate court gave them 30 days to try to do so. (Bostanian, supra, 52 Cal.App.4th at pp. 1079, 1087.) In Cloud, a wrongful termination and sexual harassment case, the trial court granted the first motion for judgment on the pleadings that the defendants filed—and denied leave to amend. (Cloud, supra, 67 Cal.App.4th at p. 1000.) In concluding the plaintiff should be given an opportunity to amend, the appellate court found it significant that she had submitted a declaration to the trial court detailing the separate discussions she had with her bankruptcy and employment attorneys and explaining that, until the defendants had argued her claims were part of her bankruptcy estate, she "did not know that the bankruptcy and her wrongful termination, sexual harassment, etc., claims were legally related." (Id. at pp. 999-1000.) She also stated in her declaration that "although she testified truthfully to detailed and specific questions from the bankruptcy trustee, he did not ask any questions about such . . . claim[s]." (Id. at p. 1000.)
Here, in contrast, De Smidt had at least two opportunities to amend his complaint to cure the standing defect, as well as several months in which he could have explained to the trial court the circumstances of his bankruptcy and any discussions he may have had with the trustee. In Cloud, the plaintiff's declaration describing her discussion with her bankruptcy trustee provided a basis on which the court could conclude there was a reasonable probability the trustee would participate in prosecuting her wrongful termination and sexual harassment claims. Here, in contrast, De Smidt has offered no explanation of why he failed to disclose his bankruptcy and has provided no indication of the trustee's position regarding the claims at issue here. (See Heritage Pacific Financial, LLC v. Monroy (2013) 215 Cal.App.4th 972, 994 [refusing to allow the plaintiff to amend its pleading "a third time" because the plaintiff already had "ample opportunity to cure the defect in its pleading" and had "failed to demonstrate it could cure the defect"].)
III
DISPOSITION
We affirm the appealed judgments. The parties shall bear their own costs on appeal. (Cal. Rules of Court, rule 8.278(a)(5).)
NOT TO BE PUBLISHED IN OFFICIAL REPORTS
SLOUGH
Acting P.J. We concur: FIELDS
J. MENETREZ
J.