Aghaji v. Bank of America, N.A.

The omnibus complaint asserted seven causes of action (for fraud, conspiracy to commit fraud, conversion, conspiracy to convert, violation of the Rosenthal Fair Debt Collection Practices Act (Civ. Code, § 1788 et seq.), unfair business practices (Bus. & Prof. Code, § 17200 et seq.), and unjust enrichment), based almost entirely on allegations that defendants lacked the authority to enforce or service plaintiffs’ loans due to the purported failed negotiation of plaintiffs’ promissory notes. On appeal, plaintiffs challenge only the trial court’s denial of their request for leave to amend their unfair business practices cause of action (the UCF claim) to add factual allegations to support an entirely different theory that was suggested in seven sentences of the 29-page complaint. Plaintiffs fail, however, to show that their proposed additional facts are sufficient to state a UCF claim. Moreover, even if their proposed additional facts were sufficient, they clearly demonstrate that the claim could not be prosecuted as a mass action because the 222 plaintiffs’ claims do not arise out of the same transaction or occurrence, as required by Code of Civil Procedure section 378. Therefore, we conclude the trial court

BACKGROUND

The securitization of home mortgage loans—which helped to fuel the housing bubble in the late 1990s and early 2000s^[2] —was largely ignored by the general public until the housing bubble collapsed in 2008. Since that collapse, which resulted in a massive wave of loan defaults and home foreclosures, courts in California (and nationwide) have been inundated with lawsuits by defaulting homeowners seeking to avoid or challenge foreclosures by challenging the assignments of promissory notes and deeds of trust during the securitization process.^[3] In essence, the defaulting homeowners allege in those lawsuits that the notes and deeds of trust were not validly assigned at some point in the process of securitization, and therefore the foreclosing party did not have the authority to foreclose.

In or around 2013, a law firm (Real Estate Law Center, PC) began filing a series of “mass action” lawsuits (in Los Angeles Superior Court and, apparently, in other superior courts in California) against various financial institutions or loan servicers, with allegations similar to the wrongful foreclosure cases, but with one critical difference: the homeowners in those lawsuits had not defaulted on their loans and were not challenging foreclosures, but instead challenged the defendants’ authority to collect payments on the loans. Initially, the cases filed in the Los Angeles Superior Court were assigned to different judges, until the judge whose ruling is at issue in this appeal ordered all of the then-pending cases in Los Angeles (which had virtually identical allegations) related to the lead case here (Aghaji v. Bank of America, N.A.,

Plaintiffs’ legal theories and alleged injuries had evolved over the many iterations of the complaints in the various actions leading up to the omnibus complaint. At first, the complaints included allegations of loan origination fraud, predatory lending, attempts to disguise defendants’ mortgage securiti-zation scheme, predatory loan modification, and fraudulent misuse of Troubled Asset Relief Program (TARP) funds. After demurrers were sustained to the initial complaints, plaintiffs amended the complaints and limited their scope to allegations related to purported defects in the securitization process that they alleged resulted in defendants’ loss of ownership of and/or entitlement to service plaintiffs’ loans. After demurrers to those first amended complaints were sustained, plaintiffs amended their complaints to add allegations that plaintiffs’ promissory notes were not properly negotiated when they were sold as part of the securitization process, and therefore defendants did not have authority to enforce or service plaintiffs’ loans. Finally, in the third amended complaint (the omnibus complaint at issue in this appeal), plaintiffs stated what they were, and were not, alleging: “11. Here, Plaintiffs do not dispute any entity’s right to securitize the original mortgages at issue herein, nor do Plaintiffs allege that the securitization process itself renders a promissory note null and void or otherwise unenforceable. Further, Plaintiffs are not attempting to ‘challenge’ any act of securitization. [¶] 12. Plaintiffs simply allege that, as a result of the mass chaos resulting from Plaintiffs’ notes and trust deeds having changed hands multiple times since origination, the true owner of each mortgage for each Plaintiff is unclear and very much in dispute due to failed negotiation of the notes involved. As a result, at the very least, Plaintiffs allege, they have been paying to Defendants loan payments for years that Defendants are not legally or contractually entitled to or authorized to be demanding or accepting.”

Like the previous complaints, the omnibus third amended complaint included only generalized and conclusory allegations; there were no allegations that were specific to any particular party (other than the description of the parties),^[4] nor were there any allegations identifying any specific facts that

All of the defendants filed or joined in demurrers to the omnibus complaint and each cause of action. The trial court issued a tentative ruling sustaining the demurrers without leave to amend on the ground that plaintiffs lacked standing to challenge the transactions by which the notes and deeds of trust were transferred. Before the hearing on the demurrers, plaintiffs’ counsel filed a declaration in response to the tentative ruling. In addition to challenging some of the trial court’s factual statements, counsel responded to the court’s finding that the complaint’s allegations that defendants failed to properly credit payments and charged improper fees were vague and conclusory. Counsel submitted examples of how plaintiffs could amend the complaint to support those allegations, providing some specific facts for 20 plaintiffs (out of more than 850 named plaintiffs) from 13 of the 22 cases at issue in the demurrers, and five plaintiffs from other cases that were related to the lead case but were not included in the demurrer.^[5]

At the hearing on the demurrers, the trial court sought to determine which cases would be included in its ruling. The court asked plaintiffs’ counsel if he would object to including all of the cases that had been related up to the time of the hearing. Counsel stated that he did object to including any case for which no demurrer (or joinder in a demurrer) had been filed before he had filed plaintiffs’ opposition. He explained that he had assumed that he would be allowed to file a new omnibus complaint for the remaining cases. Although the court expressed concern about the burden on the court, it agreed to limit its ruling to the cases in which demurrers or joinders in demurrers had been filed before plaintiffs filed their opposition, and to allow plaintiffs leave to amend to file another omnibus complaint for the remaining cases.^[6]

Following the hearing, the trial court issued its written ruling. As in its tentative ruling, the court found that plaintiffs did not have standing to

DISCUSSION

We begin with an observation. At the hearing on the demurrers, when discussing which cases would be included in its order and what would be done with the remaining cases, the trial court noted that a ruling by this court would help to determine how the remaining cases would proceed. It is surprising, then, that plaintiffs have not raised on appeal any challenge to the trial court’s ruling sustaining the demurrers, and limit their challenge to the trial court’s denial of leave to amend their UCL claim to assert a claim that is unrelated to the securitization process upon which all of the previous complaints (and the complaints in the related cases that remained) have focused. Even more surprising is plaintiffs’ failure to seek leave to file additional briefing in this court to address a Supreme Court opinion that was issued the day plaintiffs filed their reply brief, in which the Supreme Court disapproved the cases the trial court relied upon in finding that plaintiffs had no standing to challenge the purportedly defective assignment of their mortgage loans—the sole ground on which the trial court relied in sustaining the demurrers to the failed negotiation claims. (See Yvanova v. New Century Mortgage Corp. (2016) 62 Cal.4th 919 , 939, fn. 13 [ 199 Cal.Rptr.3d 66 , 365 P.3d 845 ] [disapproving Jenkins v. JPMorgan Chase Bank, N.A. (2013) 216 Cal.App.4th 497 [ 156 Cal.Rptr.3d 912 ], Siliga v. Mortgage Electronic Registration Systems, Inc. (2013) 219 Cal.App.4th 75 [ 161 Cal.Rptr.3d 500 ],

A. The Trial Court Did Not Abuse Its Discretion by Denying Leave to Amend

As noted, plaintiffs contend on appeal that the trial court abused its discretion in denying leave to amend their UCL claim. They argue they could cure the defect the trial court identified—the failure to cite to any law, statute, or regulation—by alleging that defendants failed to fully credit payments received from plaintiffs and charged improper fees and costs in violation of regulation X (Regulation X) ( 12 C.F.R. § 1024.35 (b), (e) (2016)) and regulation Z (Regulation Z) ( 12 C.F.R. § 226.36 (c) (2016)). Plaintiffs’ argument falls short, however, in two respects. First, the additional facts that plaintiffs’ counsel provided in his declaration are insufficient to state a cause of action on behalf of the few plaintiffs counsel addressed in the declaration, and there have been no facts proffered at all for the vast majority of plaintiffs who are parties to this appeal. Second, even if plaintiffs could provide sufficient facts for each of the 222 plaintiffs in this appeal, plaintiffs’ claims are misjoined because they do not “arise[] out of the same transaction, occurrence, or series of transactions or occurrences.” (Code Civ. Proc., § 378, subd. (a)(1).)

1. Standard of Review

When a demurrer is sustained, ‘“the plaintiff must be given leave to amend his or her complaint when there is a reasonable possibility that the defect can be cured by amendment. [Citations.] ‘The burden of proving such reasonable possibility is squarely on the plaintiff.’ [Citation.] [¶] ‘To satisfy that burden on appeal, a plaintiff “must show in what manner he can amend his complaint and how that amendment will change the legal effect of his pleading.” [Citation.] The assertion of an abstract right to amend does not satisfy this burden.’ [Citation.] The plaintiff must clearly and specifically state ‘the legal basis for amendment, i.e., the elements of the cause of action,’ as well as the ‘factual allegations that sufficiently state all required elements of

In short, plaintiffs have not shown that they can truthfully allege facts necessary to allege a violation of Regulation X or Regulation Z in California as to any plaintiff, let alone all plaintiffs. In fact, of the 25 plaintiffs for whom plaintiffs’ counsel submitted his declaration of additional facts, only eight are parties to this appeal (two additional plaintiffs from the declaration were listed on the notice of appeal, but are not listed in appellants’ opening briel). There is no reason to believe that each of the remaining 214 plaintiffs has experienced failures to fully credit his or her mortgage payments or purportedly improper fees or charges, especially given that, until the trial court issued its tentative ruling on the demurrers, the focus of all of these mass actions from the beginning has been on asserted defects in the securitization process rather than improper crediting or charges.

3. Plaintiffs’ Claims Are Misjoined

While plaintiffs’ counsel’s declaration failed to show that plaintiffs could allege facts sufficient to state a UCL claim, it provided indisputable proof that plaintiffs’ claims are misjoined, which presents further support for the denial of leave to amend.^[9]