Filed 12/18/13 Adams v. JP Morgan Chase Bank CA2/8
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IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND APPELLATE DISTRICT
DIVISION EIGHT
CHARLES ADAMS III, B245892
Plaintiff and Appellant, (Los Angeles County
Super. Ct. No. SC114600)
v.
JP MORGAN CHASE BANK, N.A. et al.,
Defendants and Respondents.
APPEAL from a judgment of the Superior Court of Los Angeles County.
H. Chester Horn, Jr., Judge. Affirmed.
Sidley Law Group and Michael I. Sidley for Plaintiff and Appellant.
Wargo & French, Mark Block, Shanon J. McGinnis and Jeffrey N. Williams for
Defendants and Respondents, JP Morgan Chase Bank, N.A., California Reconveyance
Company and Bank of America, N.A.
_________________________________
Charles Adams III sued JP Morgan Chase Bank, N.A. (Chase), Bank of America,
N.A. (BAC), and California Reconveyance Company (CRC) on claims arising from his
failed attempts to negotiate a loan modification. The defendants filed a joint demurrer to
Adams’s operative third amended complaint (TAC). The trial court sustained the
defendants’ demurrer and entered a judgment of dismissal. Adams appeals and we
affirm.
FACTS
As always in the context of reviewing a demurrer, we consider the facts alleged in
the operative complaint to be true. (Moore v. Regents of University of California (1990)
51 Cal.3d 120, 125.) We may also consider matters that are judicially noticed. (Serrano
v. Priest (1971) 5 Cal.3d 584, 591.) Examined in light of these rules, the following are
the facts in this case.
In December 2006, Adams financed the purchase of real property on Pacific Coast
Highway in Malibu with a loan from Washington Mutual Bank (WaMu).1 As part of the
loan agreement Adams signed a note stating he owed $1.14 million to WaMu; payment
of the note was secured by a deed of trust. The deed of trust identified WaMu as both the
lender and beneficiary, and CRC as the trustee. For a period of time, WaMu serviced the
loan by collecting payments on Adams’s note.
Subsequent to making the Adams loan, WaMu became insolvent, and the FDIC
was appointed as receiver for WaMu. In 2008, the FDIC, as WaMu’s receiver, entered
into a Purchase and Assumption Agreement transferring all interest in WaMu’s assets to
Chase. In summary, by 2008 Chase had succeeded to WaMu’s interests in the Adams
1
In his original complaint, Adams alleged he purchased the Malibu property in
December 2006. We use this date. In subsequent pleadings, including his operative
TAC, and in his opening brief on appeal, the loan date is stated as December 2008, but
this cannot be correct. The record contains materials showing that WaMu had become
insolvent and had been taken over by the Federal Deposit Insurance Corporation (FDIC)
before December 2008. WaMu could not have made a loan to Adams in December 2008.
Also, copies of loan documents that Adams attached as exhibits to his original complaint
show that he obtained his loan in December 2006, as he alleged in his original complaint.
2
loan, as beneficiary under the deed of trust securing payment of the loan, and as the
servicer of Adams’s loan.
“Prior to, but within the past two years [before] July 6, 2011, [Adams] entered into
an oral contract with . . . Chase for the purpose of obtaining a loan modification with . . .
Chase and/or . . . BAC.”2 (Italics added.) The oral contract entered into between Adams
and Chase provided that Chase and BAC “would work with [Adams] in good faith to
reach a loan modification, but [Adams] first had to permit his loan to fall into default.”3
(Italics added.) In papers he later filed in the trial court, Adams expressly acknowledged
that he was not alleging “a contract ‘obligating [Chase and or BAC] to modify [his
Chase] loan.’” As such, we understand Adams to have attempted to allege an oral
“contract to negotiate” for a loan modification. In summary, Adams alleged a breach of
an oral contract to engage in a process –– i.e., “to negotiate in good faith.”
Chase and BAC breached the oral contract entered into between Chase and Adams
“by . . . failing to negotiate a loan modification in good faith, in that they frustrated [his]
attempts at every step . . . so that no loan modification was ever entered into between the
parties.”4 Adams performed all obligations and satisfied all conditions for which he was
responsible under the oral contract to negotiate. We understand this allegation to mean
that Adams permitted his original Chase (nee WaMu) loan to go into default. Chase and
2
Adams’s pleadings do not identify who at Chase entered into the alleged oral
contract with him and do not allege facts showing the person’s authority to enter into
such a contract. No specific dates are alleged as to when the oral contract was made.
3
Adams’s pleadings do not allege facts explaining how any one at Chase could bind
any one at BAC to negotiate with him for a modification of his Chase (nee WaMu) loan.
4
No specific “frustrating act” is alleged in the body of Adams’s TAC. He attached
a dozen or so pages of documents (from an unidentified source) memorializing a series of
communications with Chase-related personnel between June 2010 and September 2011.
The communications include statements to the following effects: need updated financial
information; need new application to be filed; person working on loan is not available;
file is under review by underwriter; file being reviewed by management. Adams’s
pleading does not allege facts showing any act or statement by any person from BAC
constituting a breach of the oral contract he alleged in his TAC.
3
BAC’s breach of the oral contract to negotiate “caused [Adams] to incur additional and
substantial expenses because the entry . . . of the notice of default caused [his] credit and
borrowing expenses to increase substantially, and in some instances prevented him from
securing credit.” No specific instance of increased borrowing expenses is alleged.5
In July 2011, Chase assigned the beneficial interest under the deed of trust to
BAC, but Chase continued servicing the Adams loan. At about the same time, CRC (the
trustee under the deed of trust) recorded a notice of default against the Malibu property
stating that Adams had fallen behind on his loan payments by more than $60,000. On
October 11, 2011, CRC recorded a notice against the Malibu property that the trustee’s
sale was set for November 3, 2011.
On October 24, 2011, Adams commenced his current action by filing a complaint
to halt the pending foreclosure sale. In August 2012, Adams filed his operative TAC.
The TAC alleged the following causes of action, listed respectively: breach of oral
contract; breach of the implied covenant of good faith and fair dealing, apparently as a
contract based claim; negligent interference with prospective economic relations; and
violation of the Unfair Competition Law or UCL (see Bus. & Prof. Code, § 17200).
Adams prayed for compensatory damages, attorney fees under the UCL, injunctive relief
“prohibiting any further action by the defendants under the notice of default [and notice
of sale recorded] and [Adams]’s property,” and injunctive relief respecting the “rights of
the general public.” The named defendants were Chase, BAC, and CRC.6
All of the causes of action in Adams’s operative TAC are based on the allegations
noted above that at some unidentified point in time within the past two years prior to July
2011 (the date the notice of default was recorded), Adams entered an oral contract with
Chase for purposes of obtaining a loan modification with Chase and/or BAC, and that the
5
As alleged in his TAC, it was Adams’s decision to allow his loan to go into default
that caused the credit problems.
6
It appears that CRC was named as a defendant solely because it would conduct the
foreclosure sale. No contractual promise or breach or any wrongful act (or any act at all)
is alleged as to CRC.
4
contract provided Chase and BAC “would work with [Adams] in good faith, to reach a
loan modification, but [Adams] first had to permit his loan to fall into default.” Adams
alleged a breach in that Chase and BAC had “failed to negotiate with him in good faith
toward a loan modification.”
Chase, BAC and CRC filed a joint demurrer to Adams’s TAC. On October 17,
2012, the parties argued the matter to the trial court, and the court took the matter under
submission. Later that same day, the court issued an order sustaining the demurrer
without leave to amend. On November 1, 2012, the court signed and entered judgment of
dismissal in favor of Chase, BAC and CRC.
Adams filed a timely notice of appeal.
DISCUSSION
I. Standard of Review
A demurrer tests whether a pleading is legally sufficient to state a cause of action.
(Hernandez v. City of Pomona (1996) 49 Cal.App.4th 1492, 1497.) Our task on appeal is
to determine whether the alleged facts are sufficient to state a cause of action. (McCall v.
PacifiCare of Cal., Inc. (2001) 25 Cal.4th 412, 415.) Our review is de novo, meaning we
independently decide whether the complaint is legally sufficient to state a cause of action.
(Wilner v. Sunset Life Ins. Co. (2000) 78 Cal.App.4th 952, 958.)
An appellate court reviews a trial court’s ruling, not its stated reasons for its
ruling. Thus, a trial court’s ruling that is correct under any legal principle raised in the
trial court will not be disturbed on appeal on the ground the ruling was rendered for a
“wrong” reason. When the trial court issues a ruling that is correct on any theory of law
applicable to the case and raised in the trial court, its ruling will be affirmed on appeal
regardless of the considerations that moved the trial court to its conclusion. (Schabarum
v. California Legislature (1998) 60 Cal.App.4th 1205, 1217.)
5
II. The Contract-Related Causes of Action
The joint demurrer filed by Chase, BAC and CRC (hereafter collectively Chase)
argued that Adams’s alleged contract-related causes of action were barred by the statute
of frauds. The trial court agreed, as do we.7
Adams’s TAC expressly alleged that the oral contract he entered into with Chase
was entered into “for the purpose of obtaining a loan modification.” This necessarily
means a modification of the original loan agreement, including the note secured by the
deed of trust, through which Adams financed the purchase of the Pacific Coast Highway
property. We read nothing in Adams’s briefs on appeal or in his submissions in the trial
court to raise a dispute that long term loan agreements which include an interest in real
property (e.g., a deed of trust) are invalid unless memorialized in writing under the statute
of frauds. (See Civ. Code, § 1624.) And, an agreement to modify an agreement that is
subject to the statute of frauds is also subject to the statute of frauds. (Secrest v. Security
National Mortgage Loan Trust 2002-2 (2008) 167 Cal.App.4th 544, 553 [an agreement
by a lender to forbear from exercising a right of foreclosure under a deed of trust was an
attempted modification of a contract subject to statute of frauds, and, therefore, was also
subject to statute of frauds].) “Here, the alleged promise for a loan modification is
subject to the statute of frauds. Absent a written agreement to modify the loan, any claim
based upon an oral contract to modify the loan is barred by the statute of frauds.”
(Clark v. Countrywide Home Loans, Inc. (E.D. Cal. 2010) 732 F.Supp.2d 1038, 1043-
1044.)
7
The trial court’s minute order on Chase’s demurrer refers to the “statute of
limitations argument” presented in the demurrer. The court plainly mistyped “statute of
limitations” when it intended to type “statute of frauds.” Chase did not make a statute of
limitations argument in its demurrer. Also, the minute order’s language immediately
following the statute of “limitations” reference discusses how Adams did not respond to
Chase’s statute of “frauds” argument. To the extent Adams’s opening brief on appeal
questions the trial court’s ruling on the “statute of limitations,” we see no need to address
the argument; the statute of limitations is not a legal issue we need to review.
6
To avoid this result, Adams presents a two-part argument. First, he argues he is
not alleging an oral agreement with his lender for a loan modification, but rather, an oral
agreement with his lender to engage in a process, i.e., to negotiate in good faith for a loan
agreement. He argues such a “contract to negotiate” is a recognized, enforceable contract
under California law, and that a “contract to negotiate” is breached by a party’s failure to
perform the contractual obligation to negotiate in good faith. Adams’s argument is based
on Copeland v. Baskin Robbins U.S.A. (2002) 96 Cal.App.4th 1251 (Copeland), decided
in the context of a motion for summary judgment. Building upon this foundation, Adams
next argues that a “contract to negotiate” such as he alleges is not subject to the statute of
frauds. He relies on Shell v. Darneille (1984) 162 Cal.App.3d 957 (Shell) for this second
part of his argument. We address both parts of Adams’s argument in order.
1. Enforceable “Contracts to Negotiate”
Copeland involved a prospective sale of an ice cream manufacturing plant.
(Copeland, supra, 96 Cal.App.4th at pp. 1253-1254.) During negotiations, prospective
buyer Copeland, “made clear” to prospective seller Baskin Robbins, that he would not
close the purchase of the plant unless Baskin Robbins agreed to buy ice cream produced
by Copeland at the plant for a period of three years after the sale (in the parties’ verbiage,
a “co-packing” agreement). (Ibid.) The parties signed a letter agreement which stated
that Baskin Robbins would sell its ice cream plant to Copeland for $1.3 million, and
Baskin Robbins “would agree, subject to a separate co-packing agreement and
negotiated pricing,” to provide Copeland a three year co-packing agreement for 3 million
gallons in year one, then 2 million gallons in years two and three. (Id. at p. 1254.) After
several months of negotiation over the terms of the contemplated co-packing agreement,
Baskin Robbins pulled out of negotiations for the co-packing agreement, and indicated
that it would or would not go forward with the sale of the plant, at Copeland’s choosing,
apparently accepting Copeland’s view that the lack of a further co-packing agreement
was a “‘deal-breaker.’” (Ibid.)
7
Copeland sued Baskin Robbins for breach of the letter agreement that the parties
had signed, alleging that Baskin Robbins had wrongly refused to negotiate the further co-
packing agreement that the parties had contemplated under the letter agreement.
(Copeland, supra, 96 Cal.App.4th at pp. 1254-1255.) The trial court granted Baskin
Robbins’s motion for summary judgment, finding that the parties’ letter agreement
“failed as a contract” because the parties never agreed on the essential terms of the
further, contemplated co-packing agreement. (Id. at p. 1255.)
The Court of Appeal affirmed summary judgment on other grounds. In so doing,
it ruled that a provision in a contract calling upon the parties to negotiate a further
agreement is distinguishable from an unenforceable “‘agreement to agree.’” It
determined that a contract with a provision to negotiate further “can be formed and
breached just like any other contract.” (Copeland, supra, 96 Cal.App.4th at pp. 1253,
1257-1263.) The Court of Appeal likened Copeland’s claims to those in Channel Home
Centers, Grace Retail v. Grossman (3d Cir. 1986) 795 F.2d 291 (Channel Home) where
two parties entered into a preliminary written agreement for a lease of a store in a
shopping center, with a term providing that they would negotiate further terms before
finalization of all of the lease terms, and the lessor thereafter withdrew from the
preliminary agreement and leased the store to a third party. In Channel Home, the Third
Circuit Court of Appeals ruled that, by unilaterally terminating negotiations, the lesser
had breached the “we agree to negotiate” term in the parties’ preliminary written
agreement. (Copeland, supra, at p. 1259.)
Adams’ current case is different, as he has not alleged an underlying, concrete
preliminary agreement with Chase with a term providing that the parties would negotiate
further to finalize all terms of a contemplated final agreement. He has essentially tried to
skip a step. In so doing, Adams has alleged a more direct and unenforceable “agreement
to agree.” (See, e.g., Roberts v. Adams (1958) 164 Cal.App.2d 312, 316; Coleman
Engineering Co. v. North American Aviation, Inc. (1966) 65 Cal.2d 396 [an “agreement
to agree” is not enforceable unless the terms left to future negotiation are of a minor
nature compared to an underlying agreement].) Adams has cited us no case in which a
8
court found an enforceable promise to negotiate in the absence of some well-defined
underlying agreement. Adams’s arguments do not persuade us that he has sufficiently
alleged a type of agreement that would qualify as an enforceable “contract to negotiate”
under Copeland.
2. The Statute of Frauds
Even if Adams has alleged a recognized, enforceable style of a “contract to
negotiate,” the statute of frauds still would be applicable in the factual context of his case.
Adams’s reliance on Shell, supra, 162 Cal.App.3d 957 for a different result is not
persuasive. In Shell, the plaintiff worked as an oil industry lobbyist. He alleged and
proved at trial that the defendant owed him compensation under a contract that could be
called an employment or agency agreement. The defendant hired the plaintiff to
negotiate a lease modification with a third party on the defendant’s behalf after the
business relationship between the defendant and the third party deteriorated. In other
words, there was a lease agreement between the defendant and a third party, and the
defendant hired the plaintiff to assist the defendant get a lease modification, but the
plaintiff did not enter any agreement directly linked to the lease. (Id. at p. 961.) In this
context, the Court of Appeal ruled that the agreement between the plaintiff and
defendant, was basically an agreement to hire an agent to lead negotiations, and that such
an agreement was not subject to the statute of frauds even though a lease modification
was the contemplated end result of their relationship. This was so because the agreement
involved in the case was not to modify a property-related agreement; the lease holder was
not a party to the “I will help you get a modification” agreement. The case was based on
the plaintiff’s agency contract with the defendant; the lease was a side matter.
Adams’s current case is different because he alleged a direct oral agreement with
his lender, Chase. The original loan agreement entered into between Chase and Adams
had to be in writing and, thus, so too did the alleged oral agreement concerning
modification. This is so whether we view the alleged agreement as an alleged direct
agreement for a loan modification or an alleged agreement to negotiate a modification.
In either event, the intended end result between the original contracting parties was a
9
modification or attempted modification of an agreement that had to be in writing.
Adams did not hire someone to assist him in obtaining a loan modification, and is not
suing that agent for failure to do his or her job, nor is the agent suing to be paid for work
performed. (See Shell, supra, 162 Cal.App.3d 957.) To allow a claim for breach of an
oral “contract to negotiate” such as that which is alleged in Adams’s current case, free
from the statute of frauds, would allow a breach of contract action to arise, free from the
statute of frauds, in every instance in which a borrower could not obtain a loan
modification. We disagree that such a result should come to pass from Copeland, supra,
96 Cal.App.4th 1251 and Shell, supra, 162 Cal.App.3d 957.
III. Prospective Economic Relations
Adams contends he alleged sufficient facts to state a cause of action for negligent
interference with prospective economic relations. We disagree.
To state a cause of action for the tort of negligent interference with prospective
economic relations, a plaintiff must allege (1) an economic relationship existed between
the plaintiff and a third party with a reasonably probable future economic benefit for the
plaintiff; (2) the defendant knew of the existence of the relationship and knew or should
have known that if the defendant did not act with due care its actions would interfere with
the relationship and cause plaintiff to lose in whole or in part the reasonably probable
future economic benefit of the relationship; (3) the defendant was negligently interfered
with the relationship; and (4) the defendant’s negligence caused damage to plaintiff in
that the relationship was actually interfered with or disrupted and plaintiff lost in whole
or in part the economic benefits reasonably expected from the relationship. (See North
American Chemical Co. v. Superior Court (1997) 59 Cal.App.4th 764, 786.) Of course,
the tort arises in the context of negligence, meaning it arises only when the plaintiff
pleads the defendant owed the plaintiff a duty of care. (LiMandri v. Judkins (1997) 52
Cal.App.4th 326, 348.) The plaintiff also has the burden of pleading the defendant’s
interference was wrongful beyond the fact of the interference itself. (See Della Penna v.
Toyota Motor Sales, U.S.A., Inc. (1995) 11 Cal.4th 376, 393.) It is not enough merely to
10
allege an act that causes interference; plaintiff must allege the act was wrongful, which,
in Adams’s current case, means a negligent act.
The trial court correctly sustained the defendants’ demurrer for several reasons.
First, Adams’s TAC did not allege that an identifiable economic relationship existed
between him and a third party with a reasonably probable future economic benefit for
Adams. His TAC merely alleges in the baldest of conclusory language that he “enjoyed
an economic, and profitable, relationship with others that probably would have resulted in
a future economic benefit to him.” Basically, he alleges his credit-worthiness was
diminished. But he does not allege facts showing that any actual credit relationship was
adversely affected. In the absence of alleged facts as to a relationship that suffered from
some manner of interference, we affirm the trial court’s ruling.
Second, as the trial court correctly noted, Adams’ cause of action for negligent
interference with prospective economic relations also fails because it is based upon his
allegation that defendants engaged in negligent conduct by failing and refusing to
negotiate for a loan modification. That is, a reiteration of his alleged breach of oral
contract claim. Adams did not allege wrongful conduct “beyond the fact of the
interference itself” in that the alleged interference was the failure to make a loan, which
was the alleged wrongful conduct causing the interference. Adams’s TAC is as circular
as it is conclusory. He does not allege facts showing a duty of care was owed underlying
the failure to negotiate.
Adams reliance on Wallis v. Superior Court (1984) 160 Cal.App.3d 1109 (Wallis)
for a different conclusion is not persuasive. Adams tells us in his opening brief on appeal
that Wallis supports the principle that “where contract damages alone do not remedy the
harm suffered, California law will recognize a tort claim based upon a breach of
contract.” We find Wallis is completely out of place to the issue of pleading a cause of
action for negligent interference with prospective economic relations. Wallis involved a
non-competition agreement between employee and employer, and retirement benefits.
Even assuming Wallis is still good law (but see Foley v. Interactive Data Corp. (1988)
47 Cal.3d 654 [employee-employer relationships are not like insurer-insured
11
relationships]), the case supports the proposition that parties in certain special contractual
circumstances may allege a breach of the covenant of good faith and fair dealing as a tort.
Even if Wallis said what Adams says it says –– that California law recognizes tort claims
based on a breach of contract –– a plaintiff does not allege a cause of action sounding in
tort merely by the alternative labeling of a breach of contract cause of action as a tort
cause of action. A plaintiff must still allege a special relationship in order to be sufficient
to state a tort cause of action. Here, Adams has not done so; he merely re-pled his breach
of contract with a the new tort label of negligent interference with prospective economic
relations.
IV. The UCL
Adams contends he alleged sufficient facts to state a cause of action for violation
of the UCL. We disagree.
The UCL defines “unfair competition” as “any unlawful, unfair or fraudulent
business act or practice and unfair, deceptive, untrue or misleading advertising.” (Bus. &
Prof. Code, § 17200.) In proscribing “unlawful” business acts or practices, the UCL
“borrows” from other statutory laws and makes violations of such laws independently
actionable. (Cel-Tech Communications, Inc. v. Los Angeles Cellular Telephone Co.
(1999) 20 Cal.4th 163, 180.)
Adams does not allege any violation of any statutory law. We acknowledge that a
business act or practice may be independently actionable under the UCL apart from a
statutory violation in that “any . . . unfair or fraudulent business act or practice” may
alternatively support relief under the UCL. Here, Adams’s TAC alleges a breach of an
oral contract. Although a breach of contract claim may form the predicate for a UCL
claim, the breach must also constitute an unfair or fraudulent practice. (Arce v. Kaiser
Foundation Health Plan, Inc. (2010) 181 Cal.App.4th 471, 489-490.) Thus, our state’s
courts have recognized that the “‘systematic breach of certain types of contracts,’” for
example, a company’s breaches of standard consumer contracts, “‘can constitute an
unfair business practice under the UCL. [Citations.]’” (Ibid.) However, Adams’s TAC
does not allege facts showing acts or practices of such a nature. He has incorporated his
12
alleged breach of oral contract claim, and added a conclusory allegation, based on
information and belief, that “defendants engage in the same, or similar, unfair actions and
inactions, against members of the public similarly situated as plaintiff.” We find this
insufficient.
V. Leave to Amend
Adams contends the trial court abused its discretion in declining to grant him leave
to file a fourth amended complaint. We disagree.
The trial court’s decision denying leave to amend upon sustaining a demurrer is
reviewed for abuse of discretion. (Blank v. Kirwan (1985) 39 Cal.3d 311, 318.) When a
plaintiff and appellant shows that he or she can cure defects in a pleading by an
amendment, the trial court has abused its discretion, and an appellate court will reverse;
if not, there has been no abuse of discretion and the appellate court will affirm. (Ibid.)
The burden of showing such reasonable probability is squarely on the plaintiff and
appellant. (Ibid.)
In the trial court, Adams did not proffer any proposed amended pleading in his
opposition to the demurrer to his TAC. Instead, he stood pat on his arguments that he
had sufficiently pleaded all of his causes of action in his TAC. On appeal, Adams argues
“it would be reasonable to allow amendments” to cure any defects in his TAC given that
he had retained new counsel shortly before he filed his opposition to the demurrer to his
TAC, and his new counsel “was not involved with any of the prior amendments.”
Adams has not, however, proffered on appeal any proposed amending language or an
amended pleading.
Because Adams did not show in the trial court, and has not shown on appeal, how
he can cure his pleading by amendment, he has not demonstrated an abuse of discretion.
His assertion in his opening brief on appeal that he “can amend his complaint to plead
exceptions to the statute of frauds, to more specifically identify the economic relations
Defendants interfered with, or to provide more detail concerning Defendants’ unfair
business practices” is not a sufficient substitute for showing –– by actually proffering
amended allegations –– how the defects in his operative complaint can be cured.
13
DISPOSITION
The judgment is affirmed. Each party to bear its own costs on appeal.
BIGELOW, P. J.
We concur:
FLIER, J.
GRIMES, J.
14