Filed 10/15/13 Nehme v. BAC Home Loans Servicing 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NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS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 This opinion has not been certified for publication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
WILLIAM NEHME, B241966
Plaintiff and Appellant, (Los Angeles County
Super. Ct. No. BC460102)
v.
BAC HOME LOANS SERVICING, LP
et al.,
Defendants and Respondents.
APPEAL from a judgment of the Superior Court of Los Angeles County, Maureen
Duffy-Lewis, Judge. Affirmed.
Law Office of Edward S. Orchon and Edward S. Orchon for Plaintiff and
Appellant.
Bryan Cave, Robert E. Boone III, Brian J. Recor and David Harford for
Defendants and Respondents.
________________________
INTRODUCTION
Plaintiff William Nehme brought this action for fraud, rescission, and other claims
after he lost his home through foreclosure. He appeals a judgment entered in favor of
defendants Bank of America, N.A. as successor by merger to BAC Home Loans
Servicing, LP; Recon Trust Company, N.A.; Landsafe Title of California, Inc.
erroneously named as Landsafe Title Corporation; Mortgage Electronic Registration
Systems, Inc.; and MERSCORP, Inc., after the trial court sustained defendants’ demurrer
without leave to amend. We affirm.
FACTUAL AND PROCEDURAL BACKGROUND1
Nehme purchased a home in Valencia (the Property) on May 29, 2007.
Countrywide Home Loan, Inc. informed Nehme that he “required a loan and a Mortgage”
in order to purchase the Property. Nehme applied for the loan with Countrywide.
According to Nehme, Countrywide represented to him that Countrywide would “provide
[Nehme] with a loan and Mortgage,” and “[w]hen [Nehme] completed purchasing the
P[roperty,] his N[ote] would be secured by a Mortgage.”
At the closing, Countrywide required Nehme to sign several documents, including
a promissory note for $2,100,000 and a deed of trust with the property as security. Based
on Countrywide’s representations, Nehme “unknowingly” executed the deed of trust
instead of a mortgage, and Countrywide “never explained to [Nehme] before, during or
after the closing the difference between a Mortgage and a Deed of Trust.” The deed of
1 We recite the facts alleged in Nehme’s verified second amended complaint, which
we accept as true for purposes of determining whether the trial court properly sustained
defendants’ demurrer. (See Zelig v. County of Los Angeles (2002) 27 Cal.4th 1112, 1126;
Cantu v. Resolution Trust Corp. (1992) 4 Cal.App.4th 857, 877.)
2
trust designated Countrywide as the lender, Mortgage Electronic Registration Systems,
Inc. (MERS) as the nominal beneficiary, and CTC Real Estate Services (CTC) as trustee.
By signing the deed of trust, Nehme “unknowingly” granted to “CTC the ‘power
of sale’ . . . upon the occurrence of a future event, i.e. a default.” Nehme also
“unknowingly” granted Countrywide the exclusive and sole right to determine when and
if such a default occurred and, if so, to instruct CTC to file a notice of default and
election to sell the property. Nehme “had no say” regarding which form “was used in his
purchase” or what terms and conditions the preprinted form contained. The only portions
of the form not preprinted were those portions that Countrywide “ultimately filled in
before the [deed of trust] was signed by [Nehme] at the closing.” The “terms of the
N[ote] permitted Countrywide to sell the N[ote] to third parties, without having to
disclose the fact of the sale to” Nehme, and, “unbeknown to him, Countrywide at all
times intended to and did in fact sell the N[ote] and did not disclose the fact of this sale
to” Nehme.
Nehme defaulted on the loan. On September 21, 2009 defendant Recon Trust
Company, N.A. (Recon) commenced a non-judicial foreclosure proceeding against the
Property by recording a notice of default. Defendant Landsafe Title of California, Inc.
executed the notice for Recon as “agent for beneficiary.” (Bold and italics omitted.)
On October 26, 2009 MERS executed and recorded a substitution of trustee,
appointing Recon to replace CTC as trustee. MERS assigned the deed of trust to BAC
Home Loans Servicing, LP (BAC).
On March 26, 2010 Recon recorded the notice of trustee’s sale. The sale occurred
at public auction on June 18, 2010. According to the trustee’s deed upon sale, BAC, the
beneficiary, purchased the Property from Recon for $2,002,500. The trustee’s deed was
recorded on June 25, 2010.
Nehme filed this action on April 22, 2011. Defendants demurred. On
September 9, 2011, a few days before the hearing on defendants’ demurrer, Nehme filed
a verified first amended complaint. Defendants demurred again. The trial court
sustained defendants’ demurrer to Nehme’s first amended complaint with leave to amend.
3
Nehme then filed a verified second amended complaint alleging causes of action
for fraud by “bait & switch,” rescission, declaratory relief, fraud, quiet title, violation of
Business and Professions Code section 17200 (unfair competition law, UCL) for unfair
business practices, and punitive damages. The crux of Nehme’s claim was his allegation
that Countrywide intentionally misrepresented to him that Countrywide would provide
him with a loan secured by a mortgage, but instead provided him with a loan secured by a
deed of trust, which he unknowingly signed at the closing of his purchase of the Property.
Nehme claimed that there was no meeting of the minds for a valid contract and that
defendants had no authority to conduct the nonjudicial foreclosure sale.
Defendants demurred to all seven causes of action in the second amended
complaint. Defendants filed a request for judicial notice of the deed of trust, a
substitution of trustee, notice of default, notice of trustee’s sale, and trustee’s deed upon
sale of the Property, which Nehme did not oppose. The trial court sustained the demurrer
to all causes of action without leave to amend. As to the first cause of action for “fraud
[by] bait and switch,” the court found there were “[i]nsufficient allegations to sufficiently
allege bait and switch. Allegations of knowingly false statements made with the intent to
have plaintiff change his position, how plaintiff changed his position to his detriment
insufficiently pled.” The court sustained the demurrer to the second cause of action for
rescission, stating “This is not a cause of action, it is a remedy based upon fraud.” The
court sustained the demurrer to the sixth cause of action for unfair business practices on
the ground there were “insufficient underlying causes of action upon which to predicate a
[UCL] claim.”
On June 5, 2012 the trial court dismissed the second amended complaint with
prejudice and entered judgment in favor of defendants on all claims asserted in the
second amended complaint. Nehme filed a timely appeal on June 11, 2012.
4
DISCUSSION
On appeal Nehme challenges only the trial court’s rulings on the first cause of
action for fraud by bait and switch, second cause of action for rescission, and sixth cause
of action for unfair business practices. Nehme argues that Countrywide committed fraud
by substituting a deed of trust with a power of sale for the mortgage Nehme had
requested, and that he signed the deed of trust by mistake.2 We conclude that, even after
three attempts, Nehme failed to allege facts sufficient to state claims for fraud, rescission,
and unfair competition, and we therefore affirm the judgment.
A. Standard of Review
When reviewing a judgment dismissing an action after sustaining a demurrer
without leave to amend, we review the complaint de novo to determine whether, as a
matter of law, the complaint alleges facts sufficient to state a cause of action under any
legal theory. (Zelig v. County of Los Angeles, supra, 27 Cal.4th at p. 1126.) “In order to
prevail on appeal from an order sustaining a demurrer, the appellant must affirmatively
demonstrate error. Specifically, the appellant must show that the facts pleaded are
sufficient to establish every element of a cause of action and overcome all legal grounds
on which the trial court sustained the demurrer. [Citation.] We will affirm the ruling if
there is any ground on which the demurrer could have been properly sustained.
[Citation.]” (Intengan v. BAC Home Loans Servicing LP (2013) 214 Cal.App.4th 1047,
2 Our resolution of this appeal does not turn on the distinction between a mortgage
and a deed of trust. (See Dimock v. Emerald Properties (2000) 81 Cal.App.4th 868, 877
[comparing mortgage to deed of trust].) We note, however, that “‘[i]n California, over
the course of the past century, deeds of trust have largely replaced mortgages as the
primary real property security device.’” (Herrera v. Federal National Mortgage Assn.
(2012) 205 Cal.App.4th 1495, 1510.) Deeds of trust and mortgages “perform the same
basic function, and . . . a deed of trust is ‘practically and substantially only a mortgage
with power of sale.’” (Domarad v. Fisher & Burke, Inc. (1969) 270 Cal.App.2d 543,
553.)
5
1052; see Ortega v. Topa Ins. Co. (2012) 206 Cal.App.4th 463, 472; Fox v. JAMDAT
Mobile, Inc. (2010) 185 Cal.App.4th 1068, 1079.)
“‘“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. [Citation.]’
[Citation.] ‘“[A] complaint otherwise good on its face is subject to demurrer when facts
judicially noticed render it defective.” [Citation.]’ [Citations.]” (Evans v. City of
Berkeley (2006) 38 Cal.4th 1, 6.) When a 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.]’” (Zelig v. County of
Los Angeles, supra, 27 Cal.4th at p. 1126.) “[T]he burden of proving a reasonable
possibility exists that a complaint’s defects can be cured by amendment rests ‘squarely on
the plaintiff.’ [Citation.]” (Reynolds v. Bement (2005) 36 Cal.4th 1075, 1091.)
B. The First Cause of Action for Fraud
The first cause of action alleged fraud based on a “bait and switch”3 by
substituting the deed of trust with a power of sale for a mortgage and sought rescission of
the note and the deed of trust on the basis of fraud. (See Civ. Code, § 1689, subd. (b)(1).)
To state a cause of action for fraud, a plaintiff must allege “(1) a misrepresentation, (2)
with knowledge of its falsity, (3) with the intent to induce another’s reliance on the
misrepresentation, (4) justifiable reliance, and (5) resulting damage.” (Conroy v. Regents
of University of California (2009) 45 Cal.4th 1244, 1255.) A cause of action for fraud
3 As definitions for “bait and switch,” plaintiff cites Business and Professions Code
section 17500, the prohibition against false or misleading statements in advertising, and
Financial Code section 22755, subdivisions (a), (b), (g), (i), and (k), regarding violations
of the California Finance Lenders Law by mortgage loan originators.
6
“must be pled specifically; general and conclusory allegations do not suffice.” (Lazar v.
Superior Court (1996) 12 Cal.4th 631, 645; Hamilton v. Greenwich Investors XXVI, LLC
(2011) 195 Cal.App.4th 1602, 1614.) To satisfy “‘[t]his particularity requirement,’” a
plaintiff must plead “‘facts which “show how, when, where, to whom, and by what
means the representations were tendered.”’” (Lazar, supra, at p. 645; Hamilton, supra, at
p. 1614.)
The trial court ruled that Nehme had failed to allege the “bait and switch” fraud
with sufficient particularity. On appeal, Nehme argues that his allegations were
sufficiently specific and that, because it was a general demurrer rather than a specific
demurrer, the trial court erred in applying the specificity standard. Nehme is incorrect.
Where, as here, a plaintiff asserts a fraud claim against a corporation, “‘the
plaintiff must “allege the names of the persons who made the allegedly fraudulent
representations, their authority to speak, to whom they spoke, what they said or wrote,
and when it was said or written.”’” (Hamilton v. Greenwich Investors XXVI, LLC, supra,
195 Cal.App.4th at p. 1614; see Aspiras v. Wells Fargo Bank, N.A. (Aug. 21, 2013,
D061449) ___ Cal.App.4th ___, ___ [2013 WL 5229769 at p. 5].) Nehme did not allege
the name, position, or authority of any particular person to speak on behalf of
Countrywide, or when any such person made the representations.4
4 Nehme alleged: “In early 2007 Defendants Does 1 through 20, as mortgage loan
originators, registered mortgage loan originators, mortgage brokers, agents, employees,
advertisers and/or representatives, but on behalf of Countrywide and with Countrywide’s
full knowledge and authorization made the following representations to Plaintiff: [¶]
a. Countrywide provides loans and Mortgages; [¶] b. Countrywide will provide Plaintiff
with a loan and Mortgage; and [¶] c. When Plaintiff completed purchasing the P[roperty]
his N[ote] would be secured by a Mortgage. [¶] . . . [¶] That when the defendants and
each of them made their representations about the loan and a Mortgage, they knew them
to be false; made them with the intention to deceive and defraud Plaintiff; and induce
Plaintiff to act in reliance on them . . . . [¶] Plaintiff . . . was ignorant of the falsity of
these defendants’ representations and believed them to be true. In reliance on these
representations, Plaintiff was induced to, and did, unknowingly execute a Deed of Trust,
instead of a Mortgage.”
7
Nehme argues that his allegations were sufficient because he alleged that the false
representations were made by “DOES 1 through 20” and, through discovery, he would be
able to identify the specific persons who made the false representations to him. Such an
allegation is insufficient. “The requirement of specificity in a fraud action against a
corporation requires the plaintiff to allege the names of the persons who made the
allegedly fraudulent representations, their authority to speak, to whom they spoke, what
they said or wrote, and when it was said or written.” (Tarmann v. State Farm Mut. Auto.
Ins. Co. (1991) 2 Cal.App.4th 153, 157.) This rule applies where, as here, the plaintiff
claims representatives from a lender made misrepresentations about the plaintiff’s loan.
(See Aspiras v. Wells Fargo Bank, N.A., supra, ___ Cal.App.4th at p. ___ [2013 WL
52299769 at p. 6] [fraud claim lacked “the required specifics as to the name of the person
at Wells Fargo who spoke and his or her authority to speak”]; Scott v. JPMorgan Chase
Bank, N.A. (2013) 214 Cal.App.4th 743, 763-764 [allegations that plaintiff had
discussions with “‘employees of JPMorgan Chase’” about his loan “are not sufficiently
specific to support a claim for fraud: they do not allege with particularity who made the
statements, when they were made, what was actually said, or why they were false”].)
Particularity is required where, as here, defendants have “no more reason to know who
made the allegedly false representations” than Nehme. (Tarmann, supra, at p. 158.)
Nehme also argues that defendants can only challenge the specificity of his fraud
allegations by special demurrer and not by general demurrer. The requirement for
specificity applies to all fraud claims, however, regardless of the whether the defendant
files a general demurrer or a special demurrer. (See Tarmann v. State Farm Mut. Auto.
Ins. Co., supra, 2 Cal.App.4th at p. 158 [affirming trial court’s order sustaining general
demurrer to fraud cause of action without leave to amend for lack of specificity]; Wilhelm
v. Pray, Price, Williams & Russell (1986) 186 Cal.App.3d 1324, 1330-1332 [complaint
that fails to plead fraud with sufficiently particularity is subject to general demurrer for
failure to state a claim, not just a special demurrer for uncertainty]; Hills Trans. Co. v.
Southwest (1968) 266 Cal.App.2d 702, 707 [special demurrers to fraud cause of action
were properly sustained for lack of particularity].)
8
The cases cited by Nehme do not support his contention. For example, in Delta
Imports, Inc. v. Municipal Court (1983) 146 Cal.App.3d 1033 the issue was not whether
the defendant filed a general demurrer or a special demurrer, but whether, to challenge
personal jurisdiction in an unlawful detainer action, the defendant should file a demurrer
or a motion to quash. (Id. at p. 1035.) The court held that the proper procedure was a
motion to quash, because a defendant cannot file a demurrer in an unlawful detainer
action. (Id. at p. 1036; see Greener v. Workers’ Comp. Appeals Bd. (1993) 6 Cal.4th
1028, 1036.) In Johnson v. Mead (1987) 191 Cal.App.3d 156, the court did state that
“objections that a complaint is ambiguous or uncertain, or that essential facts appear only
inferentially, or as conclusions of law, or by way of recitals, must be raised by special
demurrer, and cannot be reached on general demurrer.” (Id. at p. 160, italics omitted.)
Johnson, however, did not involve a fraud claim.
C. The Second Cause of Action for Rescission
In his second cause of action, Nehme sought rescission of the deed of trust based
on mistake pursuant to Civil Code section 1689, subdivision (b)(1), not fraud, although it
is unclear whether he was claiming mutual mistake or unilateral mistake. Nehme alleged
that he “unknowingly and apparently the result of Countrywide’s mistake, was provided
and executed . . . a Deed of Trust instead of a mortgage . . . . [¶] [A]s a result of this
mistake there was no meeting of the minds between [Nehme] and Countrywide and
therefore no contract was entered into[] because . . . Countrywide never intended to
obtain the right [to] enforce a default via a ‘power of sale’ or non-judicial foreclosure.
[Nehme] . . . never intended to convey a power of sale . . . . [¶] . . . [¶] Civil Code
section 1689(b)(1) provides that a party may rescind a contract, ‘If the consent of the
party rescinding . . . was given by mistake . . . exercised by or with the connivance of the
party as to whom he rescinds, or of any other party to the contract jointly interested with
such party.’ ([E]mphasis added[.]) [¶] Therefore based upon the . . . mistake [Nehme]
9
hereby rescinds the [deed of trust and note] and demands restitution of all funds paid to
defendants . . . .”5
On appeal, Nehme does not specifically address the second cause of action. The
only reference in Nehme’s opening brief to rescission based on mistake is the statement
that “[a]s a result of Countrywide’s bait and switch or mistake, there could not be and
was no meeting of the minds.”6 (Fns. omitted.) Thus, Nehme’s argument appears to be
that because Countrywide intentionally or mistakenly gave Nehme a deed of trust instead
of a mortgage, and Nehme mistakenly signed it, there was no contract.
The trial court properly sustained defendants’ demurrer to the rescission cause of
action without leave to amend. First, Nehme cannot rescind the deed of trust because the
foreclosure sale has occurred, and the sale of the property extinguished the deed of trust.
(See Civ. Code, § 2910 [“sale of any property on which there is a lien, in satisfaction of
the claim secured thereby . . . extinguishes the lien thereon”]; Alliance Mortgage Co. v.
Rothwell (1995) 10 Cal.4th 1226, 1235 [“a mortgage or deed of trust is generally
extinguished by either payment or sale of the property in an amount which satisfies the
lien”]; Nguyen v. Calhoun (2003) 105 Cal.App.4th 428, 439.) Nehme does not argue
otherwise.
Second, according to Nehme’s allegations and the exhibits subject to judicial
notice, Countrywide gave Nehme a deed of trust and Nehme signed a deed of trust. The
document states in capital letters that it is a “DEED OF TRUST” and states in several
places that it includes the power of sale. Nehme also signed a separate document entitled
“Deed of Trust, Mortgage Rider for Construction Loan.” The only possible mistake
Nehme made was failing to read the deed of trust and other documents before he signed
5 Nehme also states, however, that both “[t]he First and Second Causes of Action
are based upon the tort of fraud in inducing [him] to enter into residential loan contracts
that were ultimately bundled and sold to securitized trusts.”
6 Nehme did not file a reply brief.
10
them.7 Such a mistake, however, will not support a claim for rescission. (See, e.g.,
Mercury Ins. Co. v. Pearson (2008) 169 Cal.App.4th 1064, 1074 [plaintiff not entitled to
reformation for mistake where plaintiff “violated a legal duty by ignoring a prominently
displayed [title] and signing the agreement when he had not in fact read or understood
it”]; Stewart v. Preston Pipeline Inc. (2005) 134 Cal.App.4th 1565, 1588 [“‘[i]t is well
established, in the absence of fraud, overreaching or excusable neglect, that one who
signs an instrument may not avoid the impact of its terms on the ground that he failed to
read the instrument before signing it’”]; Roller v. California Pacific Title Ins. Co. (1949)
92 Cal.App.2d 149, 153 [mistake “‘must not have arisen from negligence, where the
means of knowledge were easily accessible,’” and the “‘party complaining must have
exercised at least the degree of diligence “which may be fairly expected from a
reasonable person”’”]; see also Civ. Code, § 1577 [“[m]istake of fact is a mistake, not
caused by the neglect of a legal duty on the part of the person making the mistake”];
Rosencrans v. Dover Images, Ltd. (2011) 192 Cal.App.4th 1072, 1080 [“‘[g]enerally, it is
not reasonable to fail to read a contract . . . even if the plaintiff relied on the defendant’s
assertion that it was not necessary to read the contract’”].) Nehme does not argue that his
failure to notice that what he was signing was a deed of trust rather than a mortgage was
excusable. He only argues it was a mistake, which is not enough to state a cause of
action for rescission.
D. The Sixth Cause of Action for Unfair Business Practices
Nehme concedes that his “Sixth Cause of Action alleges a violation of Business
and Professions Code [section] 17200 based upon the underlying claims asserted in the
7 Although Nehme did not expressly allege that he did not read the deed of trust, he
alleged that “at the closing these defendants . . . provided Plaintiff with a series of
documents that had been prepared for the closing. [¶] The documents had tags affixed to
the side . . . on each individual documents signature page, which stated ‘sign here’.
. . . [A]t the closing Plaintiff was instructed by these defendants to . . . affix his signature
on each specific signature page.”
11
First and Second Causes of action.”8 “Because the underlying causes of action fail, the
derivative UCL . . . claim[] also fail[s].” (Price v. Starbucks Corp. (2011) 192
Cal.App.4th 1136, 1147.) Because Nehme failed to state causes of action for fraud and
rescission, we conclude that the trial court properly sustained the demurrer to the sixth
cause of action for unfair business practices without leave to amend.
DISPOSITION
The judgment is affirmed. Defendants are to recover their costs on appeal.
SEGAL, J.*
We concur:
WOODS, Acting P. J.
ZELON, J.
8 “In order to state a claim for a violation of the UCL, plaintiffs must allege that [the
defendant] committed a business act or practice that is fraudulent, unlawful, or unfair.”
(Aspiras v. Wells Fargo Bank, N.A., supra, ___ Cal.App.4th at p. ___ [2013 WL
52299769 at p. 7]; Levine v. Blue Shield of California (2010) 189 Cal.App.4th 1117,
1136.)
* Judge of the Los Angeles Superior Court, assigned by the Chief Justice pursuant to
article VI, section 6 of the California Constitution.
12