CHAMPION MORTGAGE vs. FREDERICK COOLEY; ET AL.

CASCADE FUNDING MORTGAGE TRUST HB15 (“CASCADE”) as Plaintiff in its place in this foreclosure action against FREDERICK MARC COOLEY, individually and as Administrator of THE ESTATE OF FREDERICK GRANT COOLEY (“COOLEY”). CHAMPION makes a separate motion to substitute in CASCADE that has the same legal effect.

The basis for the motions is that CHAMPION assigned its rights in the relevant deed of trust to a separate entity before filing suit and thus lacked standing to sue at the time the original complaint in this action was filed. CASCADE is the present owner of the interest in the relevant deed of trust. COOLEY contends that this is not permissible amendment due to the fact that CHAMPION lacked standing to bring the original complaint and the statute of limitations has since expired without any actual interest holder asserting an action prior.

The trial court may, in its discretion, allow amendments to pleadings “in furtherance of justice.” (Code Civ. Proc., § 473, subd. (a)(1).) The court has wide discretion here but repeatedly stated policy encourages liberality in allowing amendment. (See Frost v. Witter (1901) 132 Cal. 421, 424; Cardenas v. Ellston (1968) 259 Cal.App.2d 232; Kolani v. Gluska (1998) 64 Cal.App.4th 402, 412.) Indeed, if the motion to amend is timely made and granting the motion will not prejudice the opposing party, it is error to refuse permission to amend where the refusal also results in a party being denied the right to assert a meritorious action or defense. (Morgan v. Superior Court (1959) 172 Cal.App.2d 527, 530.)

Code of Civil Procedure section 368.5 provides that an action does not abate due to transfer of an interest in the action; the action may continue either in the name of the original party or the court may allow the person to whom transfer was made to be substituted in.

Klopstock v. Superior Court of San Francisco (1941) 17 Cal.2d 13 (Klopstock) offers California Supreme Court guidance on the question of whether CHAMPION may substitute in to this action CASCADE, a present holder of an interest in this action, despite the fact that CHAMPION lacked standing to bring this action at the time it was filed. In Klopstock three brothers – Isaac, Frederick, and Samuel – owned a corporation. (Id. at p. 15.) After Isaac died his wife Grace and Frederick became coexecutors of his estate. (Ibid.)

When Grace died while the estate was in probate, Mr. Samter became executor of her will and asserted an action on behalf of the corporation against Frederick and Samuel for alleged misuse of corporate funds, operating on the theory that Grace had stock in the corporation because Isaac had left it to her. (Ibid.) Lower courts determined that Samter was not in fact the proper party to bring the derivative action; after Frederick was removed as executor of Isaac’s estate, Samter moved to substitute in new administrator Flora Short. (Id. at pp. 15-16.)

The defendants objected that the original action had been filed by a party without standing and asserted that amendment could not be allowed to cure such a foundational defect, and moved to dismiss. (Id. at p. 16.) The California Supreme Court affirmed that Samter had not been the right person to file a derivative action because he was the

administrator of Grace’s estate, not Isaac’s, and Grace’s estate did not have corporation stock at the time of filing. (Id. at p. 17.) The high court then approved the lower court’s permission of amendment, stating that amendment is acceptable so long as it does not operate to state a wholly different cause of action, meaning that the defendant is not required after amendment to answer a wholly different legal liability or obligation than that originally stated. (Id. at pp. 19-20.) Substituting in Short did nothing to change the allegations Samter had stated, so amendment was permissible under modern liberal standards. (Id. at p. 21.)

COOLEY contends Klopstock is inapplicable because there was no mention there of the substituted plaintiff coming in after expiration of the statute of limitations. Though the point is not part of Klopstock’s holding, the thrust of Klopstock is that amendment to substitute in a plaintiff with standing over one without is permissible so long as the underlying action does not wholly change. In the present case, COOLEY has been litigating a certain set of facts asserted by CHAMPION, and that CASCADE will assert those same facts after the time for CASCADE to bring an independent action is up does not change that it is still the same set of facts with which COOLEY is familiar.

Klopstock does not directly hold that the statute of limitations is not a factor but it supports its holding by approving reference to cases that disregarded the statute of limitations in the context of permitting amendment to replace a plaintiff lacking standing with one possessing standing. Klopstock stated that its decision was “supported by the reasoning of decisions both in California and elsewhere” such as Cox v. San Joaquin Light & Power Corp. (1917) 33 Cal.App. 522 and Reardon v. Balaklala Consol.

Copper Co. (N.D. Cal. 1912) 193 Fed. 189, both of which permitted amendment to substitute in a proper plaintiff even though the statute of limitations had run. (Klopstock at pp. 21- 22.)

More recent precedent following Klopstock confirms this as well. Cloud v. Northrop Grumman Co. (1998) 67 Cal.App.4th 995, 1006-1007 interprets Klopstock to state that the statute of limitations is not a factor and even states that the policy liberally favoring amendment has only gotten broader since Klopstock.

COOLEY’s appellate district precedent Diliberti v. Stage Call Corp. (1992) 4 Cal.App.4th 1468 (Diliberti) does not cite Klopstock, which is California Supreme Court authority. There is also a ready distinction between Diliberti and Klopstock: the former is a personal injury case where the change in plaintiff makes a material change in the case the defendant is to answer because who was injured, how, and by whom is central to a personal injury case. Diliberti featured an automobile collision case in which an uninjured driver was initially named as the plaintiff instead of an injured passenger in the driver’s car; in such a case the appellate court held that substitution of the plaintiff after the statute of limitations had expired was unacceptable. (Diliberti at p. 1469.)

The initial complaint did not even mention the actually injured person. (Id. at p. 1470.) The appellate court found this important. It stated that it “would have no trouble permitting the substitution of [injured passenger] for [uninjured driver] if the body of the complaint sounded as a claim for a passenger.” (Ibid.) In other words, had the proposed Diliberti substitution done nothing more than change a name in the caption while presenting the

same facts for the defendant to answer (like CHAMPION’s proposed substitution here) the expiration of the statute of limitations would have been of no moment.

CHAMPION’s motions are granted.

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