Source: http://thecomplexlitigator.com/post-data/tag/Demurrer
Timestamp: 2019-04-22 04:35:29+00:00

Document:
The declarations page, when read together with the rest of the policy, unambiguously provides that in the event of a total loss, the policy will pay the actual cash value of the car up to $25,000, less the deductible. The ordinary meaning of these words is that if the car is stolen and forever lost, the policy will pay the fair market value, or actual cash value, of the car on the date of the claim, less the deductible, but in any event, not more than $25,000.
Slip op., at 16. This isn't really a class action case in that the issue was solely one of contractual interpretation, but I include it as a cautionary note for anyone else looking into bringing such a claim.
Strong-ARM tactics dealt a stunning setback in Boschma v. Home Loan Center, Inc.
After the great real estate implosion, lenders have been very busy, attempting to justify a number of questionable practices and products. One such loan product, the Option ARM, has been challenged in state and federal courts. Option ARM loans are complex forms of adjustable rate loans that generally include several payments options during the early years of the loan. One payment option includes the ability to make a "minimum" payment for several years. However, many Option ARM loan minimum payments are insufficient to pay accruing interest after an initial "teaser" interest rate that is very low. Once the "teaser" rate period expires, the unpaid interest is added onto the loan, increasing the principal balance owed on the loan (negative amortization). Because of their complexity, clear disclosures to borrowers are essential. In Boschma v. Home Loan Center, Inc. (August 10, 2011), the Court of Appeal (Fourth Appellate District, Division Three) held that a complaint alleging a lender's failure to disclose that negative amortization would definitely occur (instead describing that scenario as merely possible), was sufficient to state violations of the UCL and common law fraud.
The gravamen of plaintiffs' operative complaint is that defendant failed to disclose prior to plaintiffs entering into their Option ARMs: (1) "the loans were designed to cause negative amortization to occur"; (2) "the monthly payment amounts listed in the loan documents for the first two to five years of the loans were based entirely upon a low 'teaser' interest rate (though not disclosed as such by Defendants) which existed for only a single month and which was substantially lower than the actual interest rate that would be charged, such that these payment amounts would never be sufficient to pay the interest due each month"; and (3) "when [plaintiffs] followed the contractual payment schedule in the loan documents, negative amortization was certain to occur, resulting in a significant loss of equity in borrowers' homes, and making it much more difficult for borrowers to refinance the loans [because of the prepayment penalty included in the loan for paying off the loan within the first three years of the loan]; thus, as each month passed, the homeowners would actually owe more money than they did at the outset of the loan, with less time to repay it."
It is important to demarcate the boundaries of this dispute. The following is not at issue in this case: (1) should it be legal to offer Option ARMs to typical mortgage borrowers; and (2) should it be legal to utilize "teaser" ("discounted") interest rates (here 1.25 percent for the first month of a 30 year loan), which bear no relation to the actual cost of credit? Our only concern in this case is whether plaintiffs stated a cause of action under state law based on defendant‘s allegedly misleading, incomplete, and/or inaccurate disclosures in the Option ARM documents provided to plaintiffs.
Slip op., at 15. The Court then observed that no California state court had addressed the exact issues presented in the case. However, the Court noted that a number of federal courts had examined similar issues.
A string of cases (involving strikingly similar Option ARM forms/disclosures to those used in the instant case) have held that a borrower states a claim for a violation of TILA based on, among other disclosure deficiencies, the failure of the lender to clearly state that making payments pursuant to the TILDS payment schedule will result in negative amortization during the initial years of the loan.
Slip op., at 18. The Court concluded that, since the allegations could support a cause of action for TILA violations, it would be nonsensical to dismiss the claims at this stage, based on a claim of compliance with TILA disclosure obligations. Note: There was no TILA claim asserted in this action, only UCL and fraudulent concealment claims.
Next, the Court considered the state law fradulent concealment claims. The Court began its discussion by citing a number of federal cases that allowed state law claims to proceed along with TILA claims. The Court then turned to the sufficiency of the fraud pleading. The Court found that the failure to disclose the exceedingly low teaser rate adequately was a sufficient omission to suppor the fraudulent concealment claim: "The teaser rate creates an artificially low (compared to the actual cost of credit) initial payment schedule and guarantees that the actual applicable interest rate (after the first month of the loan) will exceed the interest rate used to calculate the payment schedule for the initial years of the loan." Slip op., at 24.
As noted above in our discussion of damages, it may be difficult for plaintiffs to prove they could not have avoided any of the harm of negative amortization — they could have simply paid more each month once they discovered their required payment was not sufficient to pay off the interest accruing on the loan. But plaintiffs may show they were unable to avoid some substantial negative amortization. And we see no countervailing value in defendant's practice of providing general, byzantine descriptions of Option ARMs, with no clear disclosures explaining that, with regard to plaintiffs' particular loans, negative amortization would certainly occur if payments were made according to the payment schedule. To the contrary, a compelling argument can be made that lenders should be discouraged from competing by offering misleading teaser rates and low scheduled initial payments (rather than competing with regard to low effective interest rates, low fees, and economically sustainable payment schedules). Finally, to the extent an "unfair" claim must be "tethered" to specific statutory or regulatory provisions, TILA and Regulation Z provide an adequate tether even though plaintiffs are not directly relying on federal law to make their claims.
Fun fact: the Court cited Kwikset when rejecting the Defendant's contention that the Plaintiffs did not adequately allege standing under the UCL.
Disclosure: J. Mark Moore of Spiro Moss argued this matter before the Court of Appeal and contributed significantly to the briefing on appeal.
Those corporate employers are nothing if not a tenacious lot. They keep challenging class action allegations at the pleading stage despite a substantial weight of authority finding that approach to be improper in most class actions. In Gutierrez v. Commerce Club, Inc. (August 23, 2010), the Court of Appeal (Second Appellate District, Division One) reviewed a trial court order sustaining a demurrer to class allegations without leave to amend in a suit alleging, among other things, that the plaintiffs and other similarly situated members of the putative class were injured by the Club's unlawful policy and practice of denying meal and rest breaks to certain hourly, non-union employees.
The Club is correct that there are circumstances in which granting a motion to strike or sustaining a demurrer without leave to amend a class action complaint will be appropriate. A review of the cases in which courts have approved the use of demurrers to determine the propriety of class actions, however, reveals that the majority of those actions involved mass torts or other actions in which individual issues predominate.
While their message should be clear, somehow I doubt that it will appreciably reduce that massive waste of resources devoted to pleadings challenges.
The Seventh Division of the Second Appellate District has been lucky (or unlucky - I don't know what they think about it) to draw a number of major class-related appeals in the past several year. Today, they add another to their growing list. In Arce v. Kaiser Foundation Health Plan, Inc. (January 27, 2010) the Court of Appeal (Second Appellate District, Division Seven) reviewed a trial court order sustaining a demurrer without leave to amend to a claim arising under the UCL. The plaintiff alleged that Kaiser breached its health plan contract and violated the Mental Health Parity Act (Health & Saf. Code,1 § 1374.72) by categorically denying coverage for behavioral therapy and speech therapy to plan members with autism spectrum disorders. The trial court's ruling sustaining the demurrer was based on the doctrine of judicial abstention and the lack of commonality among class members.
In sustaining Kaiser's demurrer to the UCL claim, the trial court concluded that Arce could not establish a predominance of common issues because resolution of the claim would require the court to make individualized determinations as to whether the therapies at issue were “medically necessary” for each member of the putative class. However, based on the allegations in the second amended complaint, the UCL claim presents two central legal issues that are common to all putative class members. First, does Kaiser's health plan contract exclude from coverage Applied Behavior Analysis therapy or speech therapy for autism spectrum disorders on the grounds that such therapies are “non-health care services,” “academic or educational interventions,” or “custodial care”? Second, assuming that the therapies are excluded from coverage by the health plan contract, does the Mental Health Parity Act allow Kaiser to categorically apply such exclusions on the basis that the therapies are not health care services, or are provided by persons not licensed or certified by the state? While these issues clearly raise questions of contractual and statutory interpretation, neither would require the court to make individualized determinations of medical necessity for class members.
Slip op., at 13-15. The Court's discussion of the Doctrine of Judicial Abstention is even more detailed, but I confess that my Diet Coke supply is insufficient to keep me conscious through that discussion.
Impressive work by Scott C. Glovsky.
This case presents the question of whether fraudulent conduct by an insurer, which is connected with conduct that would violate Insurance Code section 790.03 et seq.—sometimes referred to as the “Unfair Insurance Practices Act”—can also give rise to a private civil cause of action under the Unfair Competition Law (UCL), Business and Professions Code section 17200 et seq. The trial court ruled that it does not and, therefore, sustained defendant and real party in interest California Capital Insurance Company's demurrer to a cause of action under the UCL. We disagree and will direct the trial court to reinstate the cause of action.
We take from Manufacturers Life that there is no reason to treat insurers differently from other businesses when it comes to actions under the UCL except as required by Moradi-Shalal. We understand that if a plaintiff relies on conduct that violates the Unfair Insurance Practices Act but is not otherwise prohibited, Moradi-Shalal requires that a civil action under the UCL be considered barred. Thus, if the plaintiff in this case had attempted to sue California Casualty under the UCL because the latter had “[n]ot attempt[ed] in good faith to effectuate prompt, fair, and equitable settlements of claims in which liability has become reasonably clear” (Ins. Code, § 790.03, subd. (h)(5)) or “failing, after payment of a claim, to inform insureds or beneficiaries, upon request by them, of the coverage under which payment [was] made” (Ins. Code, § 790.03, subd. (h)(9)), a somewhat closer question would be presented. (But see fn. 1, ante.) But that is not this case.
The UCL Practitioner, with the focus on all things UCL, has much more on this decision and cross-referenced material about Textron. By the way, I asked The UCL Practitioner if her blog was the UCL Practitioner or The UCL Practitioner (the URL giving me pause as to which was right), and the definitive blog name is The UCL Practitioner. I obviously burn a lot of calories wondering about fringe issues.

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