Filed 10/30/14 Peralta v. Bank of America CA4/2

                     NOT TO BE PUBLISHED IN OFFICIAL REPORTS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
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          IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

                                   FOURTH APPELLATE DISTRICT

                                                 DIVISION TWO



FREDERICO P. PERALTA, JR., et al.,

         Plaintiffs and Appellants,                                       E058190

v.                                                                        (Super.Ct.No. RIC1111918)

BANK OF AMERICA CORP. et al.,                                             OPINION

         Defendants and Respondents.



         APPEAL from the Superior Court of Riverside County. Craig Riemer, Judge.

Affirmed.

         Law Offices of Thomas Gillen and Thomas W. Gillen for Plaintiffs and

Appellants.

         Bryan Cave, Sean D. Muntz, Aileen M. Hunter, Katherine M. Harrison and Jigar

Vakil for Defendants and Respondents.

         Federico P. Peralta, Jr., and Teresita S. Peralta (collectively “the Peraltas”), in

connection with a notice of default being recorded against their home, sued U.S. Bank,

N.A.; Bank of America Corp. (Bank); Recontrust Co. (Recontrust); Mortgage Electronic

                                                              1
Registration Systems, Inc. (MERS); and Does one through 10. In a second amended

complaint, the Peraltas brought four causes of action: (1) fraud, including negative

fraud and affirmative fraud; (2) unfair competition or unlawful business practices (Bus.

& Prof. Code, § 17200); (3) a request for legal and equitable relief due to fraud; and

(4) a request for declaratory relief due to unconscionability in the refinancing

transaction.

       Bank, Recontrust, and MERS (collectively “defendants”), demurred to the

Peraltas’ second amended complaint (SAC). The trial court sustained the demurrer

without leave to amend and dismissed the SAC as to defendants. The Peraltas contend

the trial court erred because the SAC set forth sufficient allegations for (1) an

affirmative fraud cause of action; (2) a negative fraud, i.e., concealment, cause of

action; (3) an unfair competition cause of action (Bus. & Prof. Code, § 17200); and

(4) an unconscionability cause of action. The Peraltas also assert that, at the hearing on

the demurrer, the trial court improperly placed the burden on the Peraltas. We affirm

the judgment.

                    FACTUAL AND PROCEDURAL HISTORY

       The Peraltas filed their original complaint on July 15, 2011. The Peraltas filed

their first amended complaint (FAC) on August 23, 2011. Defendants demurred to the

FAC. The Honorable Judge Webster presided over the hearing on the demurrer to the

FAC. The trial court indicated its tentative ruling was to sustain the demurrer with 45

days leave to amend “since this is the first demurrer.” The court added, “I will be




                                             2
surprised, [plaintiff’s counsel], if you’re going to be able to allege specific acts for

fraud.” The court sustained the demurrer with 45 days leave to amend.

       The SAC was filed on October 29, 2012. In the “Preliminary Facts” section of

the SAC the Peraltas set forth the theory that, at the height of the real estate bubble,

American banks were no longer in the mortgage business, but had transitioned to

collecting payments for securities. Specifically, banks used to be in the business of

offering mortgages and personally handling those mortgages. However, in recent years,

American banks “destroyed” that method of handling mortgages by securitizing the

loans. After banks began securitizing mortgages, the banks became “‘servicers’” of the

securities by collecting payments but having no control over the mortgages. The

Peraltas assert the banks stopped appraising real property based upon conventional

criteria and began basing appraisal values “upon what the financial institutions could

market these securities (GSEs) [for].”

       As to the Peraltas, they owned a home in Temecula (the property), which they

purchased with a mortgage. In July 2006, “a loan broker working for [Bank]” appraised

the property and concluded it had a fair market value of $841,000.1 Based upon the

appraised value, in 2007, the Peraltas refinanced their mortgage. After refinancing, the

Peraltas had a $650,000 adjustable rate mortgage, and a $106,900 second priority

“equity line of credit type loan.” On April 14, 2011, defendants issued, and on April 15,


       1 In the SAC, the Peraltas also assert the appraised value of the property was
$525,000. We infer $841,000 is the correct value that was given by the appraiser, since
that value appears more often in the SAC.


                                              3
defendants recorded, “a ‘notice of default and election to sell under [the] deed of trust’”

in relation to the property. Defendants alleged the Peraltas defaulted on a debt of

$144,449.31. In October 2012, the balance on the adjustable rate mortgage was

$688,970, and the property’s fair market value was $350,000.

       The Peraltas’ first cause of action was for fraud, both affirmative and negative

fraud within the same cause of action. The Peraltas explained that the representations

alleged in the fraud cause of action were primarily “made by persons associated with the

Countrywide various entities [sic] and its employed appraisers modestly reviewed in

paragraph 20.” In paragraph 20, the Peraltas alleged Countrywide had a unit known as

“Full Spectrum Lending” that operated a program known as “‘Hustle.’” The Hustle

program was operated by “unqualified and inexperienced clerks called loan processors.”

Bank purchased Countrywide in 2008.

       The Peraltas also assert it was “defendants’ Lending Personnel” who made the

false representations. The Peraltas define “lending personnel” as defendants’ “lending

team comprised of people identified as vice-president, or manager, or as an appraiser or

as a broker, or a loan officer, or a loan processor, or employee of some type author[iz]ed

to create and process loan documents.”

       The Peraltas alleged several false representations were made to them: (1) the

property had increased in value to $841,000; (2) the property had a fair market value of

$841,000; (3) the rapid rise in the property’s value reflected the “purchase” was secure

(we note this was a refinance, not a purchase); (4) the fair market value of the property

“was ever-increasing,” so the property “could be ‘turned for a profit’ in the near future,


                                             4
or refinanced to obtain better terms”; and (5) the mortgage was “‘good for [the

Peraltas].’”

       The Peraltas alleged the “Lending Personnel” knew the $841,000 appraisal was

“unsustainable and artificially inflated.” The “Lending Personnel” also knew the

appraisal and the other representations “were highly and outrageously speculative” and

“served only to profit defendants and their collaborators, agents, and associates.” The

Peraltas further alleged the “Lending Personnel” knew the Peraltas were

“unsophisticated” borrowers and “ill-versed in real estate matters.” The Peraltas

asserted the “Lending Personnel took advantage” of the Peraltas.

       The Peraltas faulted defendants’ “Lending Personnel” for failing to disclose the

loan would be securitized, thereby rendering it “non-modifiable.” The Peraltas alleged

investors in the securitized mortgages were “warned of their risks,” but no risk

information was disclosed to the Peraltas. For example, Countrywide, in its 2007

annual report, wrote, “‘Recently, we have seen broad-based declines in housing values.

We expect housing values to continue to decrease during the near term which will affect

our credit loss experience . . . .’” The Peraltas asserted, “The failure to disclose like risk

factors between the borrowers vis a vis the disclosures made to the investors, is and was

a negative fraud.”

       Defendants demurred to the SAC. Defendants asserted the fraud cause of action

was time-barred because fraud claims are subject to a three-year statute of limitations.

Defendants argued the Peraltas alleged the fraud occurred in 2006, so their claim

expired in 2009. Defendants further argued the Peraltas failed to plead the fraud claim


                                              5
with specificity. Defendants asserted the Peraltas failed to allege (1) why the alleged

statements were false; (2) when the statements were made; (3) in what manner the

statements were made; (4) the name of the person or people who made the statements;

and (5) the person’s or people’s authority to speak on defendants’ behalf.

       Defendants also asserted the Peraltas failed to allege they justifiably relied on the

appraisal, since appraisals are conducted for the lender’s benefit. Defendants also

asserted they have no duty to disclose to the recipient of a loan that the recipient is using

the loan for “‘an unsafe investment.’”

       The Peraltas opposed the demurrer. In regard to the statute of limitations, the

Peraltas argued the “critical knowledge date” was July 15, 2008. The Peraltas reasoned

that Bank purchased Countrywide in 2009, and Bank would not have purchased

Countrywide “if it had known of the real estate collapse,” so it is “incongruous” to hold

the Peraltas to “a higher standard of learning of the collapse than the biggest bank in the

country!” As to the specificity of the pleadings, the Peraltas asserted defendants failed

to attack the negative fraud claim, so that claim “is presumed to be properly pled.” The

Peraltas did not explain if the affirmative fraud claim was sufficiently pled.

       The Honorable Judge Riemer presided over the hearing on the demurrer to the

SAC. The court said its tentative decision was to sustain the demurrer without leave to

amend. The court asked the Peraltas’ attorney, Mr. Gillen, how he would amend the

complaint if granted leave to amend. Mr. Gillen responded, “Well, I don’t—at this

moment, I don’t know. I would do more research and—I couldn’t answer the question

how I would do it right now, but I would like to have the opportunity to do it.” The trial


                                             6
court noted the Peraltas had three opportunities to state a sufficient cause of action. The

court sustained the demurrer without leave to amend.

                                      DISCUSSION

       A.     FRAUD

              1.     CONTENTIONS

       The Peraltas contend the trial court erred by sustaining the demurrer as to the

fraud cause of action because (1) fraud does not need to be pled with specificity; (2)

under the liberal construction rule, the affirmative fraud claim is sufficiently pled; and

(3) the negative fraud claim is sufficiently pled.

              2.     PLEADING STANDARD

       We apply the de novo standard of review. (Betancourt v. Storke Housing

Investors (2003) 31 Cal.4th 1157, 1162-1163.) We address the Peraltas’ contention that

fraud need not be specifically pled. The Peraltas assert fraud does not need to be pled

with specificity because this higher pleading standard was created by the courts rather

than the Legislature. The Peraltas argue the Code of Civil Procedure does not impose a

higher pleading standard for fraud, and courts are “sworn to uphold” the laws set forth

by the Legislature. Therefore, this court can choose to follow the Legislature’s liberal

construction rule, rather than the court created rule regarding specificity.

       While there are a number of problems in the Peraltas’ theory, the most glaring

issue is that they have ignored the law that requires this court to follow the precedent set

forth by our Supreme Court. (Auto Equity Sales, Inc. v. Superior Court of Santa Clara

County (1962) 57 Cal.2d 450, 455-456.) Our Supreme Court requires fraud claims to be


                                             7
“pled specifically; general and conclusory allegations do not suffice.” (Lazar v.

Superior Court (1996) 12 Cal.4th 631, 645.) The Supreme Court explained, “‘This

particularity requirement necessitates pleading facts which “show how, when, where, to

whom, and by what means the representations were tendered.”’ [Citation.] A plaintiff’s

burden in asserting a fraud claim against a corporate employer is even greater. In such a

case, the plaintiff must ‘allege the names of the persons who made the allegedly

fraudulent representations, their authority to speak, to whom they spoke, what they said

or wrote, and when it was said or written.’ [Citation.]” (Ibid.)

       We, as an intermediate appellate court, cannot contradict the Supreme Court by

concluding fraud need not be pled with specificity. We are bound to follow the

precedent set by our Supreme Court, i.e., fraud must be pled with specificity.

       In the alternative, the Peraltas assert an exception applies in this case. Our

Supreme Court has created an exception to the higher pleading standard in fraud cases.

In particular, “[l]ess specificity is required when ‘it appears from the nature of the

allegations that the defendant must necessarily possess full information concerning the

facts of the controversy.’ [Citation.]” (Committee on Children’s Television, Inc. v.

General Foods Corp. (1983) 35 Cal.3d 197, 217, superseded by statute on other

grounds.)

       For example, a plaintiff could not be expected to know the precise identity of the

person making an alleged misrepresentation if it were made over the phone by an

anonymous employee or in an unsigned document. In that situation, the plaintiffs must

allege as much information as they can, such as the date of the conversation in which


                                             8
the representation was made, the title of the person making the representation, and the

name of the department in which the person worked. (See e.g. West v. JPMorgan

Chase Bank, N.A. (2013) 214 Cal.App.4th 780, 793-794 [complaint sufficiently

identified persons making representations on defendant’s behalf where plaintiff alleged

that on one date, she spoke with “a supervisor” in defendant’s “loan modification

department” and on another date, with another employee in that department; fraud claim

also supported by letter from defendant, attached to the complaint, bearing no

signature].)

       The Peraltas alleged that “lending personnel” of U.S. Bank, Bank of America,

Recontrust, MERS, and/or Does one through 10, made false representations regarding

the fair market value of the property, the availability of future refinancing, and the

appreciation that could be expected. The Peraltas alleged the false representations were

primarily made by Countrywide, but failed to specify which statements were

attributable to Countrywide. They specified neither dates nor approximate dates on

which the representations were allegedly made. Nor did they specify the circumstances

surrounding the conversations that led to the representations, such as whether they were

made in person or telephonically. They also failed to provide any information that

would assist in identifying the speakers, such as the location of the departments or

branches in which the speakers worked or the positions they held. As a result, it is

unclear what information defendants may or may not have about the case. Accordingly,

the exception does not apply in this case because it does not appear from the nature of




                                             9
the allegations that the defendants must necessarily possess full information concerning

the facts of the controversy.

       The Peraltas assert it can be inferred that defendants would be in possession of

the information relevant to the Peraltas’ fraud cause of action. The Peraltas do not

identify from what document or information this inference can be made, but we will

assume it is the SAC. Contrary to the Peraltas’ position, they allege, in the SAC, that

Countrywide and Bank “relied almost exclusively on unqualified and inexperienced

clerks called loan processors. These persons were rewarded on [the] volume of loans

pushed through, not quality.”

       The Peraltas do not allege they interacted with any particular group of loan

processors. However, they allege Countrywide and Bank were essentially incompetent

when it came to loan processing. Therefore, it cannot be inferred that defendants would

necessarily have the information related to the fraud cause of action because the people

potentially handling the loan paperwork were allegedly “unqualified and

inexperienced.” One could speculate that the paperwork was poorly handled, not

properly stored, etc., assuming this is the group with which the Peraltas interacted. In

sum, we are not persuaded the exception applies in this case.

       Since (1) we are bound by our Supreme Court’s precedent regarding fraud being

specifically pled, and (2) the exception to the pleading rule does not apply in this case,

we conclude the Peraltas were required to specifically plead their fraud cause of action.




                                            10
              3.     AFFIRMATIVE FRAUD

       The Peraltas’ next assertion is that, under the liberal construction standard, they

sufficiently pled the affirmative fraud cause of action. Since we have concluded the

higher pleading standard applies, we reject the Peraltas’ argument that their pleading is

sufficient in regard to affirmative fraud, because the argument is dependent on applying

the liberal construction rule, which is inapplicable in this case.

              4.     NEGATIVE FRAUD

       The Peraltas assert they provided sufficient allegations to support a cause of

action for negative fraud, i.e., fraudulent concealment.2 Defendants contend the fraud

cause of action is time-barred and insufficiently pled.

       We will assume, for the sake of addressing the merits of the Peraltas’ cause of

action, that the statute of limitations was not exceeded. We apply the de novo standard

of review. (Balikov v. Southern California Gas Co. (2001) 94 Cal.App.4th 816, 819.)

As explained ante, when bringing a fraud cause of action against a corporate defendant,

“the plaintiff must ‘allege the names of the persons who made the allegedly fraudulent

representations, their authority to speak, to whom they spoke, what they said or wrote,



       2   “‘“[T]he elements of an action for fraud and deceit based on concealment are:
(1) the defendant must have concealed or suppressed a material fact, (2) the defendant
must have been under a duty to disclose the fact to the plaintiff, (3) the defendant must
have intentionally concealed or suppressed the fact with the intent to defraud the
plaintiff, (4) the plaintiff must have been unaware of the fact and would not have acted
as he did if he had known of the concealed or suppressed fact, and (5) as a result of the
concealment or suppression of the fact, the plaintiff must have sustained damage.”’
[Citation.]” (Boschma v. Home Loan Center, Inc. (2011) 198 Cal.App.4th 230, 248.)


                                             11
and when it was said or written.’ [Citation.]” (Lazar v. Superior Court, supra, 12

Cal.4th at p. 645.)

       The Peraltas fail to allege with whom they spoke, the person’s or people’s

authority to speak, and when the statements were made. The Peraltas, instead, give a

laundry list of possible speakers. The Peraltas assert the person or people who made the

false representations were part of defendants’ “lending team comprised of people

identified as vice-president, or manager, or as an appraiser or as a broker, or a loan

officer, or a loan processor, or employee of some type author[iz]ed to create and process

loan documents.” The Peraltas also describe a unit, known as “Full Spectrum Lending,”

within Countrywide, but do not assert that they interacted with that specific unit.

       The Peraltas allege the fraudulent appraisal was conducted in July 2006, and they

obtained their refinanced mortgage in 2007. However, they do not assert when the duty

to disclose information arose, or when the information should have been conveyed.

Due to the lack of information in the pleading regarding (1) who was responsible to

disclose information to the Peraltas; (2) names of the person or people to whom the

Peraltas spoke; (3) other possible identifying information, such as a physical address,

telephone number, fax number, e-mail address, which would allow one to possibly

identify the person or people involved in the alleged concealment; and (4) a timeline

related to the fraud, we conclude the trial court properly sustained the demurrer without

leave to amend.




                                            12
       B.      UNFAIR COMPETITION

       The Peraltas contend the trial court erred by sustaining the demurrer on the unfair

competition cause of action. (Bus. & Prof. Code, § 17200.) Defendants contend the

Peraltas lack standing for this claim, the cause of action is time-barred, and it is

insufficiently pled.

       In regard to private individuals, Business and Professions Code section 17204

restricts standing to bring an unfair competition action to “a person who has suffered

injury in fact and has lost money or property as a result of the unfair competition.”

(Bus. & Prof. Code, § 17204; see also Jenkins v. JP Morgan Chase Bank, N.A. (2013)

216 Cal.App.4th 497, 521.) Our Supreme Court has explained that there are

“innumerable ways in which economic injury from unfair competition may be shown.

A plaintiff may (1) surrender in a transaction more, or acquire in a transaction less, than

he or she otherwise would have; (2) have a present or future property interest

diminished; (3) be deprived of money or property to which he or she has a cognizable

claim; or (4) be required to enter into a transaction, costing money or property, that

would otherwise have been unnecessary. [Citation.]” (Kwikset Corp. v. Superior Court

(2011) 51 Cal.4th 310, 323.) “It suffices to say that . . . a private plaintiff filing suit . . .

must establish that he or she has personally suffered [economic] harm.” (Ibid.)

       In the SAC, the Peraltas allege that, in April 2011, “defendants recorded a ‘notice

of default and election to sell under deed of trust’ alleging a default of $144,449.31.’”

The property has not been foreclosed. In the SAC, the Peraltas assert they suffered

economic damages due to (1) the property losing value; (2) having paid money, such as


                                               13
fees, “to consummate the fraudulent loan”; and (3) the “prospect of losing the [property]

to foreclosure.”

       In regard to the property losing value and the prospect of foreclosure, the Peraltas

have failed to allege that any money has been lost. They only assert money may be lost

in the future, due to foreclosure or selling the property for less than they owe on their

mortgages. At this time, the Peraltas still own the property, and could potentially sell it

for more than they owe. There is no way to know at this time (1) if the Peraltas will

suffer a loss if they sell the property, and (2) if the Peraltas will suffer a foreclosure.

Any discussion of loss in this regard would be speculation.

       Next, we address the loan fees the Peraltas allegedly paid, which the Peraltas

estimate amounted to $50,000. As set forth ante, the alleged economic losses must have

been incurred as “a result of the unfair competition.” (Bus. & Prof. Code, § 17204.)

The Peraltas fail to allege that they would not have incurred the loan fees but for the

alleged artificially inflated appraisal value. For example, it is unclear if the fees would

have been the same and the Peraltas still would have refinanced the property if the

property were appraised at $350,000—the alleged current market value. Since the

Peraltas allege only that fees were incurred, but do not allege that the fees were incurred

as a result of an unlawful business practice, we conclude they lack standing. As a

result, we conclude the trial court properly sustained the demurrer on the unfair

competition cause of action.




                                              14
          C.     UNCONSCIONABILITY

          The Peraltas assert the trial court erred by sustaining the demurrer on their cause

of action for unconscionability (Civ. Code, § 1670.5).

          In the SAC, the Peraltas cite Civil Code section 1670.5 as the legal basis for their

unconscionability cause of action. “Unconscionability operates as a defense to

enforcement of a contract of adhesion.” (California Grocers Assn. v. Bank of America

(1994) 22 Cal.App.4th 205, 213.) Civil Code section 1670.5 “does not in itself create

an affirmative cause of action but merely codifies the defense of unconscionability.

[Citation.]” (California Grocers, at p. 217.) Accordingly, unconscionability does not

exist as an affirmative cause of action—it is only a defense. As a result, we conclude

the trial court properly sustained the demurrer as to the unconscionability cause of

action.

          D.     BURDEN

          The Peraltas contend that, at the hearing on the demurrer to the SAC, the trial

court improperly placed the burden on the Peraltas. The Peraltas provide no record

citations to support their contention. (See Cal. Rules of Court, rule 8.204(a)(1)(C)

[record citations in appellate briefs].) However, since the demurrer hearing was brief,

we will speculate that the Peraltas are taking issue with the trial court asking the

Peraltas’ attorney, “[H]ow would you propose to cure [the defects in the SAC]?”

          The trial court was correct in placing the burden on the Peraltas regarding the

amendment issue. It was the Peraltas burden to (1) explain how they would amend the

SAC, and (2) how that amendment would change the legal effect of the pleading.


                                               15
(Holcomb v. Wells Fargo Bank, N.A. (2007) 155 Cal.App.4th 490, 495.) Since the

burden was appropriately placed on the Peraltas, we conclude the trial court did not err.

       E.     REQUEST FOR JUDICIAL NOTICE

       Defendants request this court take judicial notice of (1) a 2005 grant deed for the

property, (2) a 2005 deed of trust encumbering the property, and (3) a 2005

reconveyance of the property. Defendants assert judicial notice should be taken because

the documents reflect the Peraltas purchased the property in 2005 for an amount

exceeding $750,000, which helps to refute the Peraltas’ assertion that the property was

only ever worth $350,000. While we can take judicial notice of recorded documents

related to a real estate transaction (Jenkins v. JP Morgan Chase Bank, N.A., supra, 216

Cal.App.4th at p. 537), we deny the request in this case because the documents are not

necessary to resolving the matter (See Aquila, Inc. v. Superior Court (2007) 148

Cal.App.4th 556, 569).

                                      DISPOSITION

       The judgment is affirmed. Respondents are awarded their costs on appeal.

       NOT TO BE PUBLISHED IN OFFICIAL REPORTS

                                                       MILLER
                                                                                          J.

We concur:

RICHLI
                       Acting P. J.

KING
                                 J.



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