Padilla v. Wells Fargo CA4/1 (2016) · DecisionDepot
Padilla v. Wells Fargo CA4/1
California Court of Appeal Jan 5, 2016 No. D067521Unpublished
Filed 1/5/16 Padilla v. Wells Fargo CA4/1 NOT TO BE PUBLISHED IN OFFICIAL REPORTS California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.
COURT OF APPEAL, FOURTH APPELLATE DISTRICT
DIVISION ONE
STATE OF CALIFORNIA
CARLOS E. PADILLA, D067521
Plaintiff and Appellant,
v. (Super. Ct. No. 37-2014-00016399- CU-OR-CTL) WELLS FARGO, N.A. et al.,
Defendants and Respondents.
APPEAL from a judgment of the Superior Court of San Diego County, John S.
Meyer, Judge. Affirmed in part and reversed in part; remanded with directions.
Law Office of Ronald H. Freshman and Ronald H. Freshman for Plaintiff and
Appellant.
Severson & Werson, Kerry W. Franich, Andrew L. Minegar and Jan T. Chilton,
for Defendants and Respondents.
Carlos Padilla brought an action against several financial institutions after his
home was sold in a nonjudicial foreclosure sale. The court sustained defendants'
demurrer without leave to amend, finding Padilla had no standing to bring the claims
because the claims were assets of his bankruptcy estate. The court dismissed the matter
without prejudice because Padilla could potentially obtain relief from the bankruptcy
court. On appeal, Padilla challenges the court's dismissal ruling. We determine this
1 The causes of action were: cancellation of instruments; negligence; slander of title; violation of Business and Professions Code section 17200; accounting; violation of the California Homeowners Bill of Rights; fraud; wrongful foreclosure; and violation of Civil Code section 51. 5
interests in the Property and none of the defendants had valid rights in the note, deed of
trust, or the Property; and (4) defendants misrepresented and/or omitted material facts in
the various statutory notices and other documents. Padilla alleged he had filed his
Chapter 7 bankruptcy petition "in an attempt to find resolution for the loan." Padilla
attached to the complaint the various recorded title documents, including the grant deed,
promissory note, deed of trust, notice of default, substitution of trustee, notice of trustee's
sale, and trustee's deed upon sale.
Defendants demurred to the complaint on various grounds including: (1) Padilla's
claims were barred by his bankruptcy petition; (2) Padilla's causes of action claiming
defendants lacked authority to issue the statutory notices and/or conduct the foreclosure
sale are unsupported by California law; and (3) Padilla failed to allege he is willing and
able to tender the amount owed on the loan. Defendants requested the court take judicial
notice of various recorded title and loan documents (most of which were attached to
Padilla's complaint), and of the bankruptcy filing and orders.
In opposition, Padilla argued his causes of action were valid under California law
and his bankruptcy filing did not bar the current action. Padilla also objected to the court
taking judicial notice of the recorded documents, but did not object to the court
considering the bankruptcy documents.
In its tentative ruling, the court found Padilla's claims were barred because the
claims "appear to be assets of the bankruptcy estate" and Padilla "does not deny this."
The court stated: "[t]he appropriate action would be for plaintiff to re-open his
bankruptcy case and get a determination from the bankruptcy court [that the claims have
6
been abandoned]." The court also found that "based on a review of the confusing,
convoluted and overly-pled First Amended Complaint, it is not clear that" Padilla's
allegations support a valid claim under California law. The court concluded: "[P]laintiff
is directed to seek leave of the Bankruptcy Court before proceeding further with the
claims asserted in the First Amended Complaint. This matter is stayed until leave is
granted by the Bankruptcy Court and/or until further order of this Court." The court
The court then held a hearing. A transcript of this hearing was not included in the
appellate record. After the hearing, the court issued a signed minute order stating it was
"vacat[ing]" its tentative ruling and dismissing the case without prejudice. The order
stated the court grants defendants' "request to dismiss the civil matter" and "orders the
civil case dismissed without prejudice." The court also ordered "the Unlawful Detainer
case [to] be deconsolidated."
Defendants later voluntarily dismissed the unlawful detainer action for reasons
that are not apparent on the record.
DISCUSSION
I. Appealability
Defendants contend the court's minute order is not appealable because the court
never entered a "final judgment" and because the court dismissed the action "without
prejudice." The argument is without merit. Because the minute order was signed by the
court, it constitutes a final appealable judgment. (Code Civ. Proc., § 581d; Cano v.
Glover (2006) 143 Cal.App.4th 326, 328, fn. 1.) Additionally, although the dismissal
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was without prejudice, this judgment is appealable because the dismissal was
involuntary; it disposed of all claims; and it was entered by the court without any
agreement by the parties as to future litigation or a waiver of the limitations period. (See
Davis v. Southern California Edison Co. (2015) 236 Cal.App.4th 619, 622, fn. 3; Topa
Ins. Co. v. Fireman's Fund Ins. Companies (1995) 39 Cal.App.4th 1331, 1336.)
II. Demurrer Review Standards
In reviewing a judgment after a demurrer is sustained without leave to amend, we
examine whether the complaint alleged facts sufficient to state a cause of action under
any legal theory. (Koszdin v. State Comp. Ins. Fund (2010) 186 Cal.App.4th 480, 487.)
We assume the truth of the alleged facts and all facts that may be reasonably inferred
from the allegations, but do not assume the truth of contentions, deductions, or legal and
factual conclusions. (Evans v. City of Berkeley (2006) 38 Cal.4th 1, 6.) We also consider
documents properly subject to judicial notice. (See Schifando v. City of Los Angeles
(2003) 31 Cal.4th 1074, 1081.) We apply a de novo review standard, and are not bound
by the court's stated reasons. (Walgreen Co. v. City and County of San Francisco (2010)
185 Cal.App.4th 424, 433.)
III. Padilla Lacks Standing to Assert Claims Owned by the Bankruptcy Estate
The court dismissed the action without prejudice based on its finding that Padilla
had no standing to assert the claims unless and until he reopened the bankruptcy
proceeding and obtained an abandonment of the claims from the bankruptcy trustee.
Padilla challenges this ruling. The challenge is without merit.
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A. Generally Applicable Law
Upon filing a bankruptcy petition, the debtor's legal and equitable interests in his
or her property become the property of the bankruptcy estate. (M & M Foods, Inc. v.
Pacific American Fish Co., Inc. (2011) 196 Cal.App.4th 554, 562 (M & M Foods); see
State Farm Life Ins. Co. v. Swift (In re Swift) (5th Cir. 1997) 129 F.3d 792, 795 (Swift).)
This property includes accrued causes of action. (M & M Foods, at p. 562.) A Chapter 7
bankruptcy transfers a debtor's legal rights and interests in any accrued cause of action to
the bankruptcy trustee, and the debtor's rights in these claims are extinguished. (Ibid.)
The Bankruptcy Code places an affirmative duty on debtors to accurately schedule
their assets and liabilities. (Cusano v. Klein (9th Cir. 2001) 264 F.3d 936, 945-946
(Cusano); M & M Foods, supra, 196 Cal.App.4th at p. 563.) If a debtor fails to identify
an asset, including a cause of action, that asset remains with the bankruptcy estate and
does not revert to the debtor upon the bankruptcy discharge or closing. (M & M Foods,
supra, 196 Cal.App.4th at pp. 563-564; see Cusano, at pp. 945-946; Dunmore v. United
States (9th Cir. 2004) 358 F.3d 1107, 1112; Calabrese v. McHugh (D.Conn. 2001) 170
F.Supp.2d 243, 256.) The debtor may regain ownership of a prepetition legal claim if the
bankruptcy trustee abandons the claim. (M & M Foods, at p. 563.) But
" ' "[a]bandonment requires affirmative action or some other evidence of intent by the
trustee.". . . [T]he notice and hearing requirements of [the federal bankruptcy statute]
must be observed for an "abandonment" to occur. . . .' " (Bostanian v. Liberty Savings
Bank (1997) 52 Cal.App.4th 1075, 1086-1087 (Bostanian).)
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Accordingly, a prepetition cause of action is the property of the bankruptcy estate,
and, absent abandonment or other similar disposition, only the trustee in bankruptcy has
standing to pursue it. (M & M Foods, supra, 196 Cal.App.4th at pp. 562-564; Bostanian,
supra, 52 Cal.App.4th at p. 1087.) If the causes of action alleged in a civil complaint
arose prepetition but were not included in the plaintiff's bankruptcy schedules, they
belong to the bankruptcy estate, not to the party. (Ibid.) A plaintiff who asserts a claim
that remains with the bankruptcy estate lacks standing to bring the claim, and thus the
plaintiff's complaint " 'is vulnerable to a general demurrer on the ground that it fails to
state a cause of action.' " (Schauer v. Mandarin Gems of Cal., Inc. (2005) 125
Cal.App.4th 949, 955.)
B. Analysis
Padilla acknowledges he did not identify his claims against defendants in his
bankruptcy petition and that the bankruptcy trustee did not abandon any of the claims.
He argues he nonetheless has standing to bring the claims because they accrued after the
bankruptcy estate closed. The argument is without merit.
A cause of action belongs to the debtor at the time of the bankruptcy filing (and
thus is transferred into the bankruptcy estate) if the cause of action had "accrued" at the
time. (Swift, supra, 129 F.3d at p. 795; see Cusano, supra, 264 F.3d at p. 947.) To
determine accrual for this purpose, the courts look to the applicable state law. (Cusano,
at p. 947.) Under California law, "[a] cause of action accrues 'when [it] is complete with
all of its elements'—those elements being wrongdoing, harm, and causation." (Pooshs v.
Philip Morris USA, Inc. (2011) 51 Cal.4th 788, 797.) Under this rule, a cause of action
10
can accrue even if a party is ignorant of the fact that he has a cause of action or if a
statute of limitations tolling rule applies. (See Rose v. Dunk-Harbison Co. (1935) 7
Cal.App.2d 502, 505-506; Cusano, at p. 947; Swift, at pp. 795-796; In re Pacific Cargo
Services, LLC (B.A.P. 9th Cir., Feb. 19, 2015) 2015 WL 728048, at [5]-[6].) The fact a
statute of limitations has not yet commenced does not necessarily bear on whether the
cause of action accrued for purposes of determining the scope of the bankruptcy estate.
(See Cusano, at pp. 947-948.)
On our detailed review of Padilla's amended complaint, we conclude that each of
his nine causes of action accrued before he filed his April 2013 bankruptcy petition and
thus became part of his bankruptcy estate.
The first cause of action sought to cancel loan and foreclosure documents based, in
part, on defendants' alleged violation of statutory duties regarding the 2005 promissory
note. Each of those instruments was recorded before Padilla filed his April 2013
bankruptcy petition, and Padilla's cancellation claim was based on alleged wrongful
conduct and injury occurring long before the bankruptcy filing. The second and third
causes of action for negligence and slander of title were based NDEx's various notices
and on the transfer and/or recording of the assignment from Wells Fargo to U.S. Bank.
These transfers and filings occurred before Padilla's bankruptcy filing; thus at least a
portion of the alleged injury occurred at that time. The fourth and ninth causes of action
asserting consumer statutory causes of action were predicated on misconduct that
allegedly occurred when Padilla obtained the loan in 2005, such as collecting improper
broker fees, inflating Padilla's income, and failing to provide a Spanish translation of the
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loan documents. The fifth and sixth causes of action for an accounting and violation of
the Homeowners Bill of Rights were also based on prepetition misconduct and injury.
Wells Fargo allegedly improperly held itself out to be the loan originator, servicer and
beneficiary; and defendants allegedly included improper or inaccurate information in the
notice of default, including an improper unpaid balance due on the note. The seventh and
eighth causes of action for fraud and wrongful foreclosure were based on alleged
misrepresentations in the December 2012 notice of default and January 2013 assignment
of the deed of trust.
In arguing his claims accrued post-bankruptcy, Padilla focuses on the fact the
foreclosure sale took place after his bankruptcy case closed. But the allegations in
Padilla's amended complaint and the documents attached to his complaint reflect that he
incurred the other claimed losses before this date. For example, Padilla allegedly
suffered damages from defendants' origination and servicing of the loan (occurring long
before the bankruptcy petition was filed) and in initiating and pursuing the foreclosure
proceedings (occurring several months before the bankruptcy petition was filed). For
purposes of the bankruptcy estate issue, each of Padilla's causes of action accrued before
he filed the bankruptcy petition.
Padilla contends he had standing to assert the claims alleged in his amended
complaint because he was unaware of the claims until after the bankruptcy estate closed.
However, an accrued cause of action becomes property of the bankruptcy estate even if
the debtor was unaware of the claim when it filed for bankruptcy protection. (See Miller
v. Pac Shore Funding (Bankr. N.D.Md. 2002) 287 B.R. 47, 50 ["Property of the debtor
12
does not escape the bankruptcy estate merely because the debtor is unaware of its
existence."].)
We also reject Padilla's argument that the bankruptcy petition did not preclude his
claims because all defendants "were not creditors in the Chapter 7 bankruptcy" and/or
were not listed as creditors in the petition. In determining Padilla's standing, the question
is whether Padilla or the bankruptcy trustee owns the claims he is now attempting to
assert. Whether each defendant was a named creditor in the bankruptcy proceeding is not
material to this issue.
Under Code of Civil Procedure section 367, every action must be prosecuted in the
name of the real party in interest. Padilla was not the real party in interest in this case and
thus was not the proper party to pursue the claim. Accordingly, the court properly
sustained defendants' demurrer.2
C. Dismissal Without Prejudice
Padilla does not contend the court should have given him an opportunity to amend
the complaint to overcome the standing defect. But he argues the court abused its
discretion in refusing to adhere to its tentative decision to stay the matter. The argument
is unavailing.
A court must liberally permit amendment to allow a plaintiff to correct any defects
in a pleading. (Chapman v. Skype (2013) 220 Cal.App.4th 217, 226.) Under this rule, a
2 Based on our determination, we do not reach defendants' alternate argument that Padilla was estopped from asserting the claims based on his representation in his bankruptcy petition that the secured debt to Wells Fargo was undisputed. 13
trial court has the discretion to stay a matter for the plaintiff to seek to perfect his
standing and to amend the complaint after doing so. (Cloud v. Northrop Grumman Corp.
(1998) 67 Cal.App.4th 995, 1005.) But the court is not required to do so. When a
plaintiff lacks standing to bring the action, the complaint is subject to a demurrer and the
court may enter a judgment of dismissal with prejudice. (See Reynolds v. City of
Calistoga (2014) 223 Cal.App.4th 865, 876; The H.N. and Frances C. Berger Foundation
v. Perez (2013) 218 Cal.App.4th 37, 42-43; see also Hudis v. Crawford (2005) 125
Cal.App.4th 1586, 1592 [" 'lack of standing' is a jurisdictional defect"].) If the plaintiff
comes forward with facts showing he or she can cure the standing problem in a timely
manner, the court should generally allow the plaintiff to amend the complaint and/or
provide a brief stay to allow the plaintiff to address the deficiencies. (See Cloud, supra,
67 Cal.App.4th at pp. 1004-1011.) But in this case there is no evidence in the record that
Padilla communicated to the court that he intended to timely reopen the bankruptcy case
to request that the trustee abandon the claim and that he was likely to obtain an
abandonment of his claims against defendants.
Further, Padilla did not designate the reporter's transcript of the demurrer hearing,
and therefore the record does not contain the facts and arguments motivating the court to
modify its tentative decision. On this silent record, we are required to presume that the
trial court had a reasonable basis to change its earlier tentative ruling and order a
dismissal without prejudice rather than a stay. (See Gonzalez v. Rebollo (2014) 226
Cal.App.4th 969, 977; Wagner v. Wagner (2008) 162 Cal.App.4th 249, 259; Stevens v.
Stevens (1954) 129 Cal.App.2d 19, 20.)
14
On our review of the appellate record, we have found no indication that Padilla
represented to the court that he was intending to seek to reopen the bankruptcy case to
obtain an abandonment of the claim or that he intended to take any other action during
the stay. On this record and given the undisputed facts that Padilla was living in a home
that he no longer owned and had stopped making the court-ordered monthly rental
payments, and his admissions that he was a debtor who had owed outstanding amounts
on the promissory note, the court did not abuse its discretion in concluding the better
approach was to dismiss the action without prejudice.
Padilla contends he suffered undue prejudice from the court's decision to dismiss
the case, rather than to stay the matter. In support, he identifies only two items of
prejudice: (1) he would "incur his filing costs again"; and (2) he "lost $5,800" in rental
payments made to Wells Fargo. These factors do not show the court abused its
discretion. First, Padilla (and/or his attorney) were responsible for ensuring he had
proper legal standing to bring the claims. To the extent he did not perfect this standing,
the minimal cost of another filing is fair and does not constitute an undue burden. If
Padilla later prevails on his claims, these filing fees may be recoverable. Moreover,
Padilla's superior court filing fees are de minimis when compared with the cost of
bringing an appeal to challenge the court's order dismissing the matter without prejudice.
Instead of appealing the court's decision, Padilla could have immediately sought relief
from the bankruptcy court. Only he (or his attorney) is to blame for this waste of
resources. Additionally, with respect to the rental payments, we are reversing that order
and therefore the claimed prejudice has been eliminated.
15
We also reject Padilla's argument the court erred in refusing to grant him leave to
amend to add facts to clarify his claims challenging defendants' right to enforce the
secured promissory note and deed of trust. Because Padilla lacked standing, the court
properly dismissed the action regardless of the substantive merits of the claims.
D. Judicial Notice
Padilla contends the court erred in dismissing the action because the court
improperly took judicial notice of the recorded title and loan/deed of trust documents.
A court may take judicial notice of the dates, parties, and legally operative
language of recorded documents. (See Fontenot v. Wells Fargo Bank, N.A. (2011) 198
Cal.App.4th 256, 265.) Padilla recognizes this rule, but argues a court has no authority to
"take judicial notice of disputed facts stated in public records." We agree with this
general proposition, but it has no applicability here. There is no showing the court
improperly took judicial notice of any disputed facts, or assumed the truth of any
challenged fact. Padilla attached the title/loan documents to his complaint, and cites to
the documents in the factual section of his opening appellate brief to establish the basic
chronology of the relevant events. We consider them for the same limited purposes.
There was no error.
Further, to the extent Padilla argues the court erred in judicially noticing the
bankruptcy petition, the argument is without merit. In the proceedings below, Padilla did
not oppose the court taking judicial notice of the bankruptcy documents. Thus, Padilla
forfeited the argument. (Shuster v. BAC Home Loans Servicing, LP (2012) 211
Cal.App.4th 505, 512, fn. 4.) In any event, the court did not abuse its discretion in
16
considering the petition. The court could properly take judicial notice of the fact the
bankruptcy petition was filed and the related orders; and there is no indication the court
assumed the truth of a disputed fact within these bankruptcy documents.
IV. Court's Monthly Payments Order
Padilla contends the court erred in conditioning the consolidation order on his
paying Wells Fargo (as attorney in fact for U.S. Bank) a monthly rental payment of
$2,900.
A trial court has broad discretion to consolidate actions involving common legal or
Claimants Trust (1996) 48 Cal.App.4th 976, 978-979.) A consolidation may be
particularly appropriate when an unlawful detainer proceeding and an unlimited action
are simultaneously pending and both raise the same complex title issues. (Martin-Bragg
v. Moore (2013) 219 Cal.App.4th 367, 385 (Martin-Bragg).) The court may stay the
unlawful detainer action until the title issues are resolved in the unlimited action, or it
may consolidate the actions. (Ibid.)
But because a stay and/or a consolidation has the potential to interfere with
legislative intent and strong public policy that an unlawful detainer action be heard in a
expeditious and summary manner, the Legislature has provided unlawful detainer
plaintiffs with a protective remedy if a case is continued or stayed beyond the strict
statutory deadlines. (§ 1170.5, subd. (c); see Martin-Bragg, supra, 219 Cal.App.4th at p.
3 All further statutory references are to the Code of Civil Procedure. 17
393.) Under section 1170.5, a court has discretion to order the unlawful detainer
defendant to pay monthly rent to the court or into an escrow account during the delay of
the unlawful detainer trial. This code section states: "If [the unlawful detainer] trial is
not held within the time specified in this section, the court, upon finding that there is a
reasonable probability that the plaintiff will prevail in the action, shall determine the
amount of damages, if any, to be suffered by the defendant by reason of the extension,
and shall issue an order requiring the defendant to pay that amount into court as the rent
would have otherwise become due and payable or into an escrow designated by the court
for so long as the defendant remains in possession pending the termination of the action."
(§ 1170.5, subd. (c), italics added.)
Under this code section, the court must determine the payment amount based on
the unlawful detainer plaintiff's "verified statement of the contract rent" and the unlawful
detainer defendant's opposing evidence. (§ 1170.5, subd. (c).) If the party fails to make
the ordered payments, the sole statutory remedy is that the court shall terminate the
continuance or stay, and conduct the trial "within 15 days of the date payment was due."
(§ 1170.5, subd. (d); see Garcia v. Cruz (2013) 221 Cal.App.4th Supp. 1, 7.) "After trial
of the action, the court shall determine the distribution of the payment made into court or
the escrow designated by the court." (§ 1170.5, subd. (f), italics added.)
Although neither the parties nor the court specifically identified this statute when
the court considered the monthly payment issue, the court complied with many of the
statutory requirements. The court held a hearing before imposing the monthly rental
payment requirement, and gave both parties an opportunity to brief the issues and submit
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relevant evidence as to the appropriate rental amount. Further, the court's written
findings reflect that it considered whether there was a reasonable probability the Wells
Fargo defendants would prevail at trial, and found in the affirmative on this issue.
But the court violated one important provision in the statute—the payment is to be
made into a court account or an escrow account. (§ 1170.5, subds. (c), (e).) The court
instead ordered the payments to be made directly to the unlawful detainer plaintiff (Wells
Fargo acting as attorney in fact for U.S. Bank). This was unauthorized by the statutory
language and was beyond the court's authority. The sole purpose of the statutory
prejudgment payment procedure is to protect a property owner who is denied its
legislative right to a summary remedy. If the property owner prevails, it may be entitled
to the monthly rent collected during the delay period. But under the statutory scheme,
this compensation cannot be released to the property owner until and unless it prevails in
the unlawful detainer action.
Although a court may, in the interests of justice, impose conditions on granting a
consolidation or a continuance motion (§ 1048, subd. (a)); Cal. Rules of Court, rule
3.1332(d)(10)), defendants cite no authority allowing a court to order payments to be
made directly to one party before liability has been determined, and the applicable
unlawful detainer statutes limit the court's discretion in this regard. (§ 1170.5, subd. (c).)
Accordingly, the court's payment order must be reversed. This conclusion does not
preclude Wells Fargo (or any other proper entity) from later recovering outstanding rent
owed by Padilla under proper procedures. Based on our conclusion, we do not reach
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Padilla's additional argument challenging the evidence supporting the court's fair market
rent determination.
DISPOSITION
Judgment is reversed solely for the limited purpose of the court issuing an order
requiring defendant Wells Fargo to repay Padilla the amount he paid as fair market rent
pursuant to the prior court order. Padilla is not entitled to any related claimed costs or
fees on remand. In all other respects, we affirm the judgment. The parties to bear their
own costs on appeal.
HALLER, J.
WE CONCUR:
BENKE, Acting P. J.
IRION, J.
20
AI Brief
AI-generated · verify before citing
Holding. The court held that the plaintiff lacked standing to pursue his claims because they were assets of his bankruptcy estate, but it also held that the trial court lacked authority to order the plaintiff to make monthly payments directly to a defendant before liability was determined.
Issues
Whether the plaintiff had standing to bring claims that were assets of his bankruptcy estate.
Whether the trial court abused its discretion in dismissing the action without prejudice rather than staying it.
Whether the trial court had authority to condition a consolidation order on the plaintiff making monthly payments to a defendant.
Disposition. Affirmed in part and reversed in part; remanded with directions.
Quotations verified verbatim against the opinion
“We conclude the court had no authority to order the payments to be made directly to a party before liability was determined.”