GERMAN IBARRA v. BALBOA, LLC

1 The Fields, along with West Star, were initially named in the Complaint, but appear to have been effectively dismissed by omission from the FAC. (Mac v. Minassian (2022) 76 Cal.App.5th 510, 517 [a previously named defendant, not named in the new complaint, is dismissed].)

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Ibarra contends he then entered into another agreement in order to prevent the foreclosure, this time with Balboa, acting as the agents for the beneficiaries. The agreement, which was also not broker-negotiated, again required interest payments (12% based on the $204,000 balance) until the expiration of the extension on August 3, 2024. The new extension also had a default interest rate of 24.99%. The law firm assisting Balboa further called Ibarra and demanded a $500 broker fee that Ibarra paid.

Ibarra has also allegedly paid and has continued to make the payments, but in April 2024, he received a payoff statement indicating the amount owed was $315,896.57, which included late fees, interest, and notary/attorney’s fees. After the extension expired, a notice of trustee’s sale was recorded on May 1, 2025, listing the debt as $327,178.43. The loan has also been assigned to Balboa. (FAC ¶¶ 21-31.)

Overall, the FAC includes claims for (1) violation of California’s usury law, (2) recovery of usury interest, (3) declaratory relief related to the interest owed, (4) violation of Civil Code section 2924c-d (because Balboa demanded usurious interest), (5) violation of Civil Code section 2924.17 (again based on the interest and the significantly different amounts between the notice of default and notice of election to sell), (6) unfair business practices, and (7) cancellation of instruments related to the recorded notices.

The Demurrer and Motion to Strike Balboa now demurs to the FAC and each cause of action in addition to moving to strike Ibarra’s prayers for relief. In the demurrer, Balboa contends the claims are insufficiently stated and are uncertain. In the motion to strike, Balboa seeks to strike the request for treble damages, attorney’s fees and emotional distress damages. The motion is made on the grounds that although treble damages are available in usury cases, fees are not recoverable based on the allegations asserted (nor recoverable under the UCL) as the usury claim is insufficiently stated.

Balboa also argues emotional distress damages are not recoverable under the theories alleged. Both matters are supported by a request for judicial notice of the recorded deed of trust, the notice of default, and the notice of trustee’s sale.2 Balboa also submits a declaration from attorney Brianna Milligan. Both matters are opposed by Ibarra, though he does not address the emotional distress damages and concedes as to the fee request specifically related to the UCL claim. Balboa has replied.

DISCUSSION – THE DEMURRER An Overview of the Law Related to Demurrers and the Meet and Confer Requirement A demurrer challenges defects that appear on the face of the pleading under attack, or from matters outside the pleading that are judicially noticeable. (Blank v. Kirwan (1985) 39 Cal.3d 311, 318.) The face of the complaint includes matters shown in attached exhibits and incorporated by reference. (Frantz v. Blackwell (1987) 189 Cal.App.3d 91, 94.) No other extrinsic evidence can be considered. (Ion Equipment Corp. v. Nelson (1980) 110 Cal.App.3d 868, 881.)

A demurrer predicated on a complaint’s failure to state facts sufficient to constitute a cause of action (Code of Civ. Proc. §430.10, subd. (e)) should be granted only when the facts alleged on the face of the complaint fail to state any valid claim entitled to the plaintiff or disclose a complete 2 As a general proposition, recorded deeds of trust and other recorded instruments are proper subjects for judicial notice. (McElroy v. Chase Manhattan Mortg. Corp. (2005) 134 Cal.App.4th 388, 394 [the court took judicial notice of the recorded Notice of Default and Election to Sell under Deed of Trust and the recorded Notice of Trustee’s Sale]; Evans v.

California Trailer Court, Inc. (1994) 28 Cal.App.4th 540, 549 [“The court may take judicial notice of recorded deeds”].) However, “the fact a court may take judicial notice of a recorded deed, or similar document, does not mean it may take judicial notice of the factual matters stated therein.” (Poseidon Development, Inc. v. Woodland Lane Estates, LLC (2007) 152 Cal.App.4th 1106, 1117; see Kilroy v. State (2004) 119 Cal.App.4th 140.)

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defense to relief. Even if a plaintiff is mistaken as to the nature of the case or the legal theory on which he/she could prevail, the complaint is good against a general demurrer if the essential facts allege some valid cause of action. (Gruenberg v. Aetna Ins. Co. (1973) 9 Cal.3d 566, 572.)

When evaluating a demurrer, the Court gives the pleading a reasonable interpretation by reading it as a whole and all its parts in their context. (Blank, supra, 39 Cal.3d at 318.) The material facts that are properly pled and judicially noticed are assumed to be true for purposes of a demurrer. (Ibid.) Yet contentions, deductions or conclusion of fact or law are not assumed true. (Ibid.) “[T]he question of plaintiff’s ability to prove these allegations, or the possible difficulty in making such proof does not concern the reviewing court.” (Concerned Citizens of Costa Mesa, Inc. v. 32nd Agricultural Assn. (1986) 42 Cal.3d 929, 936 (citations omitted).) The complaint is also to be liberally construed. (Code of Civ. Proc. §452.)

If the complaint fails to state a cause of action, the court must grant the plaintiff leave to amend if there is a reasonable possibility that the defect can be cured by amendment. (Blank, supra, 39 Cal.3d at p. 318.) On the other hand, “a trial court does not abuse its discretion by sustaining a general demurrer without leave to amend if it appears from the complaint that under applicable substantive law there is no reasonable possibility that an amendment could cure the complaint’s defect.” (Hacienda v. City of San Marino (1986) 42 Cal.3d 481, 486.)

Finally, under Code of Civil Procedure § 430.41, before filing a demurrer, the objecting party shall meet and confer with the opposing party in person, by video conference, or by telephone for the purpose of determining whether an agreement can be reached that would resolve the objections to be raised in the demurrer. A declaration must also be filed in connection with the demurrer that declares the means by which the parties met and conferred and that the parties did not reach an agreement or that the opposing party failed to respond to the meet and confer.

In this case, the declaration from attorney Brianna Milligan indicates that opposing counsel failed to respond to her request to meet and confer or otherwise failed to meet and confer in good faith. However, the efforts that Milligan made are not specified. Thus, the reasonableness of her efforts are not clear. However, the Court will proceed to merits the merits of the motions.

The First Cause of Action for Usury An overview of the applicable law The interest rate for a loan or forbearance of money for the use of personal, family, or household purposes shall not exceed 10% per annum. (Cal. Const., art. XV, §1.) “For any loan or forbearance of any money, goods, or things in action for any use other than specified in paragraph (1)” the maximum interest rate shall not exceed “10 percent per annum or (b) 5 percent per annum plus the rate prevailing [at various times] established by the Federal Reserve Bank of San Francisco....” (Cal.

Const., art. XV, § 1(b).) However, the interest limitations do not apply to loans “made or arranged by any person licensed as a real estate broker by the State of California and secured in whole or in part by liens on real property.” (Cal. Const., art. XV, § 1(2); Civ. Code, §1916.1; see also Jones v. Wells Fargo Bank (2003) 112 Cal.App.4th 1527, 1535 [“usury law ... is riddled with so many exceptions that the law's application itself seems to be the exception rather than the rule”].) However, the broker must do more than act like a scribe and inserts terms within a loan agreement that the parties had agreed upon. (Gibbo v.

Berger (2004) 123) Cal.App.4th 396, 403.) The broker must be involved with introducing the parties in the loan transaction, setting up the terms of the loan, and/or structuring the loan, i.e., the broker must be involved in arranging the loan. (Ibid.)

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“The essential elements of usury are: (1) The transaction must be a loan or forbearance; (2) the interest to be paid must exceed the statutory maximum; (3) the loan and interest must be absolutely repayable by the borrower; and (4) the lender must have a willful intent to enter into a usurious transaction.” (Ghirardo v. Antonioli (1994) 8 Cal.4th 791, 798, as modified on denial of reh'g (Feb. 2, 1995).) “The conscious and voluntary taking of more than the legal rate of interest constitutes usury and the only intent necessary on the part of the lender is to take the amount of interest which he receives; if that amount is more than the law allows, the offense is complete.” (Ibid.)

Any attempt to exact a usurious interest rate renders the interest provision in a note void. (Hardwick v. Wilcox, supra, 11 Cal.App.5th at p. 979; Epstein v. Frank (1981) 125 Cal.App.3d 111, 122.) Nonetheless, the lender can still seek to recover the loan’s principal amount. (Epstein v. Frank, supra, 125 Cal.App.3d at p. 123.)

Balboa’s demurrer In this case, the FAC makes clear none of the agreements were negotiated via a broker even though Ibarra paid a broker fee, but the FAC is silent as to whether the initial loan involved a broker. (FAC at ¶ 19; see also ¶¶ 19, 23, 24, 36-37.) Yet, the subsequent agreements (those after the initial loan) had an annual interest rate of 12% and the default interest rate of 24.99%. (FAC at ¶¶ 18, 22, and 34.) While the parties agree that the 12% rate would be usurious, Balboa essentially contends that since the initial loan was valid (in the absence of allegations indicating it was not brokered) than the subsequent agreements are also valid.

Balboa relies upon DCM Partners v. Smith (1991) 228 Cal.App.3d 729, 736, in which “the plaintiff purchased real property from the defendant in a credit sale, which included a promissory note bearing interest at a legal rate of 10 percent. However, when the plaintiff determined it could not pay the note when due, the defendant agreed to extend the note at an increased rate of 15 percent. The court found the modification agreement to be a forbearance despite the fact the agreement was reached before the due date of the debt.

However, the court went on to find no violation of the usury laws in light of the fact the original transaction was exempt as a purchase and sale agreement.” (Roodenburg v. Pavestone Co., L.P. (2009) 171 Cal.App.4th 185, 193 [summarizing DCM Partners].)

The court in DCM Partners was “cognizant of the general principle that ‘a debtor by voluntary act cannot render an otherwise valid transaction usurious. ‘[A] debtor cannot bring his creditor to the penalties of the Usury Law by his voluntary default in respect to the obligation involved where no violation of law is present at the inception of the contract.’ ” (DCM Partners v. Smith (1991) 228 Cal.App.3d 729, 736.) The court also noted the “cost to the consumer in holding the transaction usurious outweighs any potential benefit” because to “declare a privately negotiated bargain as illegal where the original bargain was not, will only chill the willingness of non-exempt lenders to extend credit in private transactions where there is no apparent unlawfulness in so doing.” (Id. at p. 737.)

The DCM Partners court then noted the hypothetical outlined in Miller & Starr: “Although technically the continuation of a loan past its original due date is in effect a new loan, the lender is actually benefitting the borrower by not demanding payment. The lender who wishes to accommodate the borrower either must force the borrower into a hardship position to pay or lose the security for the loan, or extend the loan and commit usury, or incur the expense of additional broker’s fees by requiring the extension to be negotiated by a broker [thereby making the transaction exempt]. The imposition of the usury limitations in such cases merely harms the impecunious borrower that the law is intended to protect.” (4 Miller & Starr, supra, § 10.12, p.

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704.) Because the law should not be seen as an intrusive arm of government, desirous of remaking privately negotiated bargains, we hold the usury law is inapplicable to the modified secured note.” (DCM Partners v. Smith (1991) 228 Cal.App.3d 729, 737.) Finally, the DCM Partners court emphasized that there was no “additional charges, fees or consideration other than to increase the interest rate to reflect market conditions” and rejected the assertion in Miller & Starr “the transaction should be treated as exempt only if the interest rate on the secured note remains the same or is less than that on the original loan.” (DCM Partners v. Smith (1991) 228 Cal.App.3d 729, 737, fn. 5.)

In this case, similar to the facts in DCM Partners, the initial loan was exempt from the usury law (though in DCM Partners the loan was not covered, as opposed to being exempt). Ibarra has also not alleged that the initial transaction was not brokered, which is significant because “[a] transaction is rebuttably presumed not to be usurious” and the “borrower bears the burden of proving the essential elements of a usurious transaction.” (Ghirardo v. Antonioli (1994) 8 Cal.4th 791, 798–799, as modified on denial of reh’g (Feb. 2, 1995).) Indeed, even the opposition to the demurrer appears to assume the validity of the initial loan. Thus, the forbearance agreements would tend to fall under the policy announcements outlined in DCM Partners, namely, that the imposition of the usury limitations would have actually harmed Ibarra by rendering Balboa less flexible in addressing the default.

On the other hand, there is no indication that the 24.99% interest rate upon default was to reflect market conditions as instead it appears to be a penalty upon default and it more than doubled the underlying interest rate. Also, additional fees were required since Ibarra had to pay a purported $500 broker fee even though no broker was involved (FAC at ¶ 24) and as noted above the DCM Partners court emphasized there were no such additional charges before it. Ibarra cites to In re Moon (Bankr. N.D.

Cal. 2022) 639 B.R. 190, 199, aff'd (B.A.P. 9th Cir. 2023) 648 B.R. 73, aff'd (9th Cir., Apr. 16, 2024, No. 23-60006) 2024 WL 1635549, which noted that both Ghirardo v. Antonioli (1994) 8 Cal.4th 791, 798, as modified on denial of reh'g (Feb. 2, 1995) and DCM Partners involved a type of transaction that “fell outside of usury” in the first instance (credit sales) and therefore no “modification of that agreement could transform the transaction into a loan or forbearance of a loan.” The In re Moon court therefore indicated the correct statement of the law was that “non-usurious loans can be transformed into usurious forbearances under certain circumstances.” (Ibid. [citing In re Arce Riverside, LLC (Bankr.

N.D. Cal. 2015) 538 B.R. 563, 564—an originally non-usurious loan was transformed into a usurious forbearance due to the increased interest rate and the absence of any statutory exemption such as the involvement of a licensed real estate broker].) Based on the above, the Court overrules the demurrer to the first cause of action.

The Second Cause of Action for Usurious Interest As for the second cause of action, Balboa relies upon the same arguments above and the purported insufficiency of the first cause of action, but also argues that the second cause of action is essentially duplicative. There is authority indicating that when a claim is duplicative a demurrer is proper. (See Palm Springs Villas II Homeowners Assn., Inc. v. Parth (2016) 248 Cal.App.4th 268, 290.) However, in Palm Springs Villas II Homeowners Assn., Inc., the plaintiff did not address the redundancy argument or explain how its claims differed, i.e., the argument was unopposed. The court also noted contrary authority, Blickman Turkus, LP v. MF Downtown Sunnyvale, LLC (2008) 162 Cal.App.4th 858, without addressing why it was erroneously decided.

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In Blickman Turkus, LP, the court concluded duplicity is “not a ground on which a demurrer may be sustained.” The court reasoned that redundancy used to be a basis for a motion to strike, meaning it was not also a basis for demurrer, and that basis was otherwise removed upon amendment to the motion to strike statute. (See Code Civ. Proc., § 430.10). The court therefore concluded the elimination of the reference to redundancy “may have” rested on the “irreproachable rationale that it is a waste of time and judicial resources to entertain a motion challenging part of a pleading on the sole ground of repetitiveness ....

This is the sort of defect that, if it justifies any judicial intervention at all, is ordinarily dealt with most economically at trial, or on a dispositive motion such as summary judgment.” (Blickman Turkus, LP, supra, 162 Cal.App.4th at p. 890.) Therefore, the Court overrules the demurrer to the second cause of action.

The Third Cause of Action for Declaratory Relief As for the third cause of action, Balboa again argues the claim is duplicative (an argument addressed above) or that declaratory relief is inappropriate where only past wrongs are involved, but in this case the cause of action is prospective given the ongoing dispute over the legitimacy of the interest and how the payments should be applied. (FAC at ¶¶ 47-48.) Considering the limited arguments advanced, the Court overrules the demurrer.

The Fourth Cause of Action for violation of Civil Code section 2924 and the Sixth Cause of Action for Unfair Business Practices The demurrer to the fourth and sixth causes of action are also premised entirely upon the purported insufficiency of the usury claim. (Opening Brief at 5:14-18 and 7:5-7.) Thus, the Court overrules the demurrer since the usury claim is sufficiently stated.

The Fifth Cause of Action for violation of Civil Code section 2924.17 Civil Code section 2924.17 indicates notices of default and sale “shall be accurate and complete and supported by competent and reliable evidence.” Under the statute, therefore, a mortgage servicer “shall ensure that it has reviewed competent and reliable evidence to substantiate the borrower’s default and the right to foreclose, including the borrower's loan status and loan information.” (Civ. Code, § 2924.17.) In this case, the fifth cause of action is based upon “Defendant West Star[’s]” failure to use reliable and competent evidence to substantiate the default and the amount owed, but West Star is not a party to the action. (FAC at ¶ 61 and 65.)

The claim in substance is directed at a non-party and since Plaintiff has not made a connection to Balboa, the claim is not relevant to this case. Therefore, the Court sustains the demurrer to this cause of action but with leave to amend.

The Seventh Cause of Action for Cancellation of Instruments To state a claim for cancellation of instruments, one must plead: (i) a written instrument, (ii) a reasonable apprehension that it may cause serious injury to someone, and (iii) as to whom it is void or voidable. (Civ. Code §3412; Smith v. Williams (1961) 55 Cal.2d 617, 620.) Finally, the elements of a claim for declaratory relief are “(1) a proper subject of declaratory relief, and (2) an actual controversy involving justiciable questions relating to the rights or obligations of a party.” (Lee v. Silveira (2016) 6 Cal.App.5th 527, 546.) In the demurrer, Balboa argues that Ibarra has not alleged tender. The Court previously addressed this issue in connection with the motion for preliminary injunction. A claim for cancelation of an instrument is founded in equity, and while tender is generally required when in

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connection with an alleged voidable sale, it is not required for canceling a void instrument. (Saterbak v. JPMorgan Chase Bank N.A. (2016) 245 Cal.App.4th 808, 818-19.) As the Court previously concluded, the notices of default and sale would arguably be void because they include the usurious interest. Balboa nevertheless notes “the fact that a promissory note secured by a trust deed is tainted with usury does not prevent foreclosure under the trust deed where there is default in payment of amount that is due on the note despite its usurious character.’” (Szczotka v.

Idelson (1964) 228 Cal.App.2d 399, 407.) However, the claim in this case does not seek to completely prevent any foreclosure sale per se or contest the underlying loan, as it is only directed at the two specified documents. (See FAC at ¶¶ 79-80.) Therefore, to the extent Balboa records a new notice of default and then a notice of sale that correctly excludes the usurious interest, it could potentially pursue the foreclosure. As it currently stands, the Court overrules the demurrer.

DISCUSSION – THE MOTION TO STRIKE The Law Applicable to Motions to Strike and the Meet and Confer Requirements A motion to strike can be used to reach defects or objections to pleadings that are not challengeable by demurrer. A motion to strike can be used to attack the entire pleading, or any part thereof, i.e., even single words or phrases. (Warren v. Atchison, Topeka & Santa Fe Ry. Co. (1971) 19 Cal.App.3d 24, 40.) The motion can be used to strike out any irrelevant, false, or improper matters inserted in any pleading or may strike out all or any part of any pleading not drawn or filed in conformity with the laws of this state, a court rule, or an order of the court. (Code Civ.

Proc., §§ 435-436.) “Irrelevant matter” includes a demand for judgment requesting relief not supported by the allegations or an allegation that is neither pertinent to nor supported by an otherwise sufficient claim. (Code Civ. Proc., § 431.10, subd. (b)(2)-(3).) Similar to a demurrer, the grounds for the motion must appear on the face of the pleading or from any matter of which the court is required to take judicial notice. (Code Civ. Proc., § 437.) Although a motion to strike can reach conclusory allegations, such language cannot be stricken where the complaint contains sufficient facts to support such an allegation. (Perkins v.

Sup. Ct. (General Tel. Directory Co.) (1981) 117 Cal.App.3d 1, 6.) “The distinction between conclusions of law and ultimate facts is not at all clear and involves at most a matter of degree.” (Ibid.) “What is important is that the complaint as a whole contain sufficient facts to apprise the defendant of the basis upon which the plaintiff is seeking relief.” (Ibid.) A motion to strike also has similar meet and confer requirements to a demurrer. (Code Civ. Proc., § 435.5, subd. (a).)

The Request for Treble Damages In this case, Balboa acknowledges that treble damages are recoverable in connection with a usury claim, but contends that since the usury claim is insufficiently stated, as noted in the “arguments made in the demurrer,” there is no right to treble damages. (Opening Brief at 5:6-19.) Since the claim for usury is sufficiently stated, as indicated above, the relief requested is viable and the motion to strike is denied.

The Request for Attorney’s Fees “California follows what is commonly referred to as the American rule, which provides that each party to a lawsuit must ordinarily pay his own attorney fees. [Citation.] The Legislature codified the American rule in 1872 when it enacted Code of Civil Procedure section 1021, which states in pertinent part that ‘Except as attorney's fees are specifically provided for by statute, the

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measure and mode of compensation of attorneys and counselors at law is left to the agreement, express or implied, of the parties... .’” (Trope v. Katz (1995) 11 Cal.4th 274, 278–79.) In this case, the FAC includes a claim for fees, but there is no clear allegation that fees are recoverable under the parties’ agreement or based upon an applicable statute. In the opposition, Ibarra agrees that the fee claim related to the unfair competition cause of action can be stricken and he also appears to suggest that he could amend the allegations to allege the fee provision under the parties’ contract—an apparent concession that contract based fees are not currently alleged. (Opposition at 4:19 to 5:2.)

As for the statutory basis for the fees, in the opposition Ibarra cites to Civil Code sections 2924.12 and 2924.17. The former indicates, at subdivision (h), a “court may award a prevailing borrower reasonable attorney’s fees and costs in an action brought pursuant to this section.” The statute permits a pre-foreclosure action for injunctive relief to enjoin a material violation of, among others, Civil Code section 2924.17. As noted above, however, the claim under section 2924.17 is insufficiently stated as against Balboa but could likely be viable upon amendment.

Furthermore, the FAC does not cite to section 2924.12 for the basis for the fee award. Therefore, the Court grants the motion to strike the fee request, but with leave to amend.

The Request for Emotional Distress Damages Where only economic damages are suffered, emotional distress damages are generally not recoverable. (Lubner v. City of Los Angeles (1996) 45 Cal.App.4th 525, 532 [but recognizing an exception “where there is a preexisting relationship between the parties or an intentional tort”].) In this case, the claims involve economic damage and no physical harm. Nor is fraud alleged beyond a conclusory claim referencing “fraudulent business practices.” (FAC at 68.) The Court also notes that Plaintiff has not advanced any argument in opposition. As a result, the Court grants the motion but with leave to amend.

RULING

The Court rules as follows:

(1) Grants Balboa’s request for judicial notice of the recorded deed of trust, notice of default, and notice of trustee’s sale.

(2) Overrules the demurrer, except sustains as to the fifth cause of action with leave to amend.

(3) Denies the motion to strike as to the request for treble damages but grants as to the fee request and claim for emotional distress damages with leave to amend.

(4) Orders Plaintiff to file the First Amended Complaint within 30 days of the Court’s final ruling.

(5) Orders Defendant, as the prevailing party, to serve formal notice of the Court’s ruling.

Dated: May 29, 2026

____________________________ Judge Nicole Quintana Winter

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