Court Opinion

ID: 4702939
Source: CourtListenerOpinion
Date Created: 2021-07-12 20:05:24.325174+00
Date Added: 2024-06-11T08:06:27.756446
License: Public Domain

Filed 7/12/21 Vasquez v. National Default Servicing CA1/3
                  NOT TO BE PUBLISHED IN OFFICIAL REPORTS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 This opinion has not been certified for publication or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.

          IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

                                      FIRST APPELLATE DISTRICT

                                                DIVISION THREE

 RAUL VASQUEZ,
             Plaintiff and Appellant,
                                                                        A157284
 v.
 NATIONAL DEFAULT SERVICING                                             (City & County of San Francisco
 CORPORATION, et al.                                                    Super. Ct. No. CGC-17-559683)
             Defendants and Respondents.

         Plaintiff Raul Vasquez sued National Default Servicing Corporation
(NDSC), Select Portfolio Servicing, Inc. (SPS), and U.S. Bank, N.A.1
(collectively defendants) under the Homeowner Bill of Rights (HBOR) (Civ.
Code,2 § 2923.4 et seq.) and the Unfair Competition Law (Bus. & Prof. Code,
§ 17200 et seq.) (UCL). Plaintiff appeals after the trial court sustained
defendants’ demurrer to his supplemental complaint without leave to amend
and entered judgment in their favor. We conclude the demurrer ruling
should not have resulted in judgment against plaintiff because the defective

       U.S. Bank, N.A. is more fully identified in the papers and the record
         1

as U.S. Bank, N.A., as trustee for the registered holders of Citigroup
Mortgage Loan Trust, Asset-Backed Pass-Through Certificates Series 2005-
HE1.
         2   Undesignated statutory references are to the Civil Code.

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supplemental complaint did not supersede the original complaint, which had
previously been found to contain legally sufficient and triable causes of
action. Accordingly, we reverse.
                 FACTUAL AND PROCEDURAL BACKGROUND
      In June 2017, plaintiff filed a complaint asserting several causes of
action against defendants related to an attempted loan modification (the
2017 complaint). Plaintiff alleged that in 2000, he obtained a loan secured by
a deed of trust on real property located at 1278 Thomas Avenue, San
Francisco. Plaintiff refinanced the loan several times and in 2014 defaulted
on the loan and filed for bankruptcy. Plaintiff allegedly applied twice for a
loan modification, but his applications were denied.
      The first three causes of action alleged violations of statutory duties
imposed under the HBOR.3 In the first cause of action, plaintiff alleged that
defendants violated section 2923.55 by recording a notice of default without
first contacting him by telephone or in person to assess his financial situation
and explore options for avoiding foreclosure. The second cause of action
alleged that defendants violated section 2923.6 by recording a notice of
trustee’s sale without having first made a written determination that
plaintiff was not eligible for a first lien loan modification. The third cause of
action alleged defendants’ violation of section 2923.7 by failing to provide

      3 The HBOR imposes “specific limitations regarding the nonjudicial
foreclosure of owner-occupied residential real property” including a
prohibition on “ ‘dual track’ foreclosures, which occur when a mortgage
servicer continues foreclosure proceedings while reviewing a homeowner’s
application for a loan modification.” (Bustos v. Wells Fargo Bank, N.A. (2019)
39 Cal.App.5th 369, 373–374.) Available remedies for “material” violations of
the HBOR include injunctive relief for violations that occur prior to
foreclosure (§ 2924.12, subd. (a)), and monetary damages for those occurring
after foreclosure (§ 2924.12, subd. (b)).

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plaintiff with a single point of contact to discuss foreclosure alternatives. The
fourth cause of action for “declaratory relief pursuant to” section 2924.12
sought to enjoin defendants’ violations of sections 2923.55, 2923.6, and
2923.7. The fifth cause of action under the UCL sought injunctive relief and
restitution based on defendants’ HBOR violations.
      NDSC and SPS demurred to the 2017 complaint, arguing primarily
that plaintiff’s claims were barred by the res judicata effect of a prior federal
court judgment.4 The trial court sustained the demurrer to the first cause of
action without leave to amend on res judicata grounds. As to the fourth
cause of action, the court sustained the demurrer “with leave to amend for
Plaintiff to seek damages under [section] 2924.12(b), not injunction under
[section] 2924.12(a) as trustee’s deed upon sale has been recorded.”5 The
court overruled the demurrer to the remaining claims (second, third, and fifth
causes of action), finding they were “sufficiently alleged and not barred by res
judicata.”
      Defendants thereafter moved for summary judgment,6 but the motion
was denied.
      An initial trial date was set for October 2018. Just before trial, plaintiff
applied ex parte for leave to file a “supplemental complaint,” seeking “to add

      4 NDSC and SPS further argued that plaintiff failed to allege material
violations of sections 2923.55, 2923.6, and 2923.7.
      5   Plaintiff elected not to amend the fourth cause of action.
      6 In their motion for summary judgment, defendants argued that the
repeal of the HBOR’s prohibition on dual tracking without a savings clause
eliminated plaintiff’s claim under section 2923.6. As to plaintiff’s claim under
section 2923.7, defendants argued there was no triable issue that SPS
provided plaintiff with a single point of contact to discuss foreclosure
alternatives. Finally, defendants argued that plaintiff lacked UCL standing
because he did not lose any money or property as a result of the alleged
HBOR violations.

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additional facts to be adjudicated and increase his damage claim based on
Defendants[’] recent assertion of title over lots erroneously included in the
Trustee’s Deed Upon Sale, after previously stating an intent to correct the
deed.” The trial court granted the application and continued the trial date.
      The introductory paragraph to the supplemental complaint states, “The
operative complaint is the complaint filed on June 21, 2017. The gravamen of
the complaint is that the defendants wrongfully foreclosed on plaintiff. . . .
The plaintiff has recently learned there were unintended consequences of the
foreclosure sale as set forth below.” The section on general allegations begins
with a statement that “Plaintiff adopts and incorporated paragraphs 1-3, 6-
34, 46-57 and 62-67 from the complaint filed on June 21, 2017.” Plaintiff
later alleges that “[o]n June 12, 2018, [he] learned for the first time that
defendants had taken title to not only 1278 Thomas Avenue, but also 1266
Thomas Avenue and 1270 Thomas Avenue.” The pleading then asserts one
cause of action for declaratory relief based on plaintiff’s contentions that the
only collateral for the deed of trust is the property located at 1278 Thomas
Avenue, and that the notice of trustee sale is “defective” because defendants
lacked the power of sale for 1266 Thomas Avenue and 1270 Thomas Avenue.
      Defendants demurred to the supplemental complaint on the grounds it
was barred by res judicata and the statute of limitations. Specifically, they
argued that the supplemental complaint attempted to belatedly relitigate
plaintiff’s already-rejected claim that the deed of trust unintentionally
incorporated three lots as opposed to one. In support of their res judicata
argument, defendants sought and obtained judicial notice of various records,
which we summarize below.
      The foreclosure proceedings in question were based on a September
2004 deed of trust (2004 DOT) identifying the property as involving three

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parcels on a single block, including the parcel commonly known as 1278
Thomas Avenue. In 2015, plaintiff filed a state court action against
defendants alleging claims for wrongful foreclosure, slander of title, quiet
title, unfair business practices and declaratory relief.7 The case was removed
to federal court and dismissed with prejudice in September 2015 on the
grounds that plaintiff did not advance a viable legal theory to invalidate the
2004 DOT. Meanwhile, in 2016, the bankruptcy court issued an order
confirming that the subject property included not only the lot commonly
known as 1278 Thomas Avenue, but the two other lots. The bankruptcy court
also admonished plaintiff for belatedly advancing his new legal theory that
the 2004 DOT’s incorporation of all three lots was unintentional.
      In addition to their res judicata and statute of limitations arguments,
defendants urged the trial court to dismiss the entire action on the grounds
that the supplemental complaint was “in fact an amended pleading” because
it alleged matters that took place before the filing of the 2017 complaint (e.g.,
the origination of the loan in 2004, the recording of the notice of default, the
sale of the property). Thus, defendants argued, plaintiff’s second complaint
superseded the 2017 complaint, resulting in the forfeiture of plaintiff’s HBOR
and UCL claims.
      The trial court sustained the demurrer without leave to amend. In its
order, the court deemed the supplemental complaint “an Amended
Complaint, not a supplemental complaint[,]” because “[a]ll material facts
giving rise to [plaintiff’s] claims occurred prior to June 21, 2017. The date
when Plaintiff learned of those events is irrelevant for the analysis under

      7 Plaintiff had filed an earlier state court complaint in 2011 against
different defendants seeking to void the 2004 DOT. The record does not
disclose the disposition of that action, but defendants contend it was
dismissed by plaintiff.

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C.C.P. 464. In fact, Plaintiff’s discovery [of] pre-existing facts during the
pendency of the complaint is exactly the type of event that triggers and
provides basis for filing an amended complaint.”
      The trial court entered judgment in favor of defendants, and plaintiff
timely appealed.
                                  DISCUSSION
      Plaintiff does not challenge the trial court’s ruling that the
supplemental complaint’s declaratory relief claim was barred by the statute
of limitations and res judicata. Hence, that ruling stands. Instead, plaintiff
challenges the resulting dismissal of the entire action, arguing that the trial
court failed to acknowledge the supplemental complaint’s statement that it
did not supersede the “operative” 2017 complaint, as well as its incorporation
by reference of portions of the 2017 complaint, i.e., the second, third, and fifth
causes of action.
      A “supplemental” complaint alleges “facts material to the case
occurring after the former complaint or answer.” (Code Civ. Proc., § 464,
subd. (a).) The purpose of a supplemental complaint is to bring to the court’s
and opposing party’s attention such after-occurring facts which may affect
the rights asserted and the relief requested in the action. (MacMorris Sales
Corp. v. Kozak (1968) 263 Cal.App.2d 430, 439.) As such, a supplemental
complaint does not supersede the original complaint and leaves it intact.
(Dolley v. Ragon (1924) 66 Cal.App. 707, 711.) By contrast, an “ ‘amended’ ”
complaint rests on the same general set of facts as the original complaint
(Honig v. Financial Corp. of America (1992) 6 Cal.App.4th 960, 966) and
“ ‘supersedes the original one, which ceases to perform any function as a
pleading[.]’ ” (Foreman & Clark Corp. v. Fallon (1971) 3 Cal.3d 875, 884.)

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      Defendants insist the trial court properly deemed the second complaint
as an amended (and therefore superseding) complaint. Even indulging this
argument, we conclude the second complaint did not result in the
abandonment of plaintiff’s existing claims. The second complaint expressly
incorporated by reference the paragraphs of the 2017 complaint
corresponding to the second, third, and fifth causes of action, all of which had
previously withstood challenges by demurrer and motion for summary
judgment. Defendants concede that an original complaint may be
incorporated by reference in an amended pleading. (Cohen v. Superior Court
(1966) 244 Cal.App.2d 650, 657.) Thus, even if the supplemental complaint
were properly viewed as an amended and superseding complaint, its
incorporation by reference of the second, third, and fifth causes of action of
the 2017 complaint was sufficient to preserve these claims in the new
pleading.
      The second, third, and fifth causes of action incorporated into the
supplemental complaint were not otherwise shown to be defectively pled;
indeed, they had previously withstood defendants’ demurrer to the 2017
complaint. Moreover, defendants’ demurrer to the supplemental complaint
did not argue that res judicata or the statute of limitations barred the second,
third and fifth causes of action incorporated into the supplemental complaint.
Instead, defendants challenged the second, third, and fifth causes of action as
effectively abandoned by plaintiff on the grounds that “the Supplemental
Complaint supersedes the original Complaint’s allegation that Defendants
materially violated” the HBOR and UCL. Because we reject defendants’
abandonment theory, the demurrer to the second, third, and fifth causes of
action was not properly sustained on this ground.

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      Defendants’ reliance on Jarchow v. Transamerica Title Ins. Co. (1975)
48 Cal.App.3d 917, overruled on other grounds by Soto v. Royal Globe Ins. Co.
(1986) 184 Cal.App.3d 420, 434, is unavailing. In Jarchow, the appellate
court mused in a footnote that the plaintiffs’ supplemental complaint, which
had alleged additional claims and damages based on evidence of facts
existing at the time of the original complaint, “might best have been
designated an amended complaint (or an amendment to the complaint).”
(Jarchow, at p. 948, fn. 19.) But the court did not hold or otherwise suggest
that the defectively pled supplemental complaint resulted in the
abandonment of any existing issues or claims. To the contrary, the court
concluded the jury was properly permitted to hear evidence of events that
occurred before the filing date of the original complaint to prove the damages
set forth in the supplemental complaint. (Id. at pp. 948–949.) Jarchow in no
way supports defendants’ theory of forfeiture or abandonment in this case.
      Two cases support our conclusion that plaintiff’s defectively pled
supplemental complaint did not result in the abandonment of his existing
claims. In Stack v. Welder (1935) 3 Cal.2d 71, the court held that where
judgment had been entered on both an original and a supplemental
complaint, but the supplemental complaint stated entirely new matters from
the original complaint and thereby “open[ed] the default” of the defaulting
defendants, only the portion of the judgment affording relief under the
supplemental complaint was void as to the defaulting defendants. (Id. at
pp. 75–76.) As Stack observed, “[a] complaint and a supplemental complaint
are considered as separate pleadings [citations] and may give rise to a
severable judgment.” (Id. at p. 76.) Likewise, plaintiff’s original and
supplemental complaints are separate pleadings, and the surviving claims of

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the original complaint were unaffected by the demurrer ruling on the
supplemental complaint.
      Nels E. Nelson, Inc. v. Tarman (1958) 163 Cal.App.2d 714 (Nels) is even
more to the point. There, the plaintiffs alleged in their original complaint
that the defendants were engaged in a joint venture. After the action was
tried and submitted for decision, the plaintiffs filed an “amended and
supplemental complaint” alleging additional theories of a contractual and/or
agency relationship between the defendants. “The second complaint
incorporated by reference certain allegations of the first complaint but did not
incorporate any of the joint venture allegations.” (Id. at p. 720.)
Furthermore, the second complaint “allege[d] no facts occurring subsequent
to the filing of the original complaint.” (Id. at p. 721.) The trial court found
that the defendants were in a joint venture and entered judgment in favor of
the plaintiffs but found against the plaintiffs on the new theories alleged in
the second complaint. (Id. at p. 720.) On appeal, the defendants argued that
the second complaint superseded the first, and thus, there was no pleading of
a joint venture to support a finding and judgment on that ground. (Ibid.)
The appellate court disagreed, concluding that “regardless of its title, the
second complaint was intended to be additional to the original complaint and
not in substitution of it.” (Ibid.) In so concluding, Nels noted that the second
complaint expressly indicated in its introductory paragraphs that it was
“ ‘supplemental’ ” and that it prayed for judgment “ ‘as is set out in the
respective complaints of each of the plaintiffs on file herein.’ ” (Id. at
pp. 720–721.)
      The instant matter presents an even clearer case of intended
supplementation. While the second complaint in Nels did not incorporate the
joint venture allegations, the supplemental complaint here expressly

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incorporated the paragraphs of the original complaint corresponding to the
second, third, and fifth causes of action. Furthermore, as in Nels, supra, 163
Cal.App.2d at pages 720–721, the introductory language of the supplemental
complaint indicated plaintiff’s intent that the 2017 complaint remain the
“operative” pleading in the case.
        Defendants contend that even if the trial court erred in deeming the
second, third, and fifth causes of action abandoned, plaintiff was not
prejudiced because he otherwise failed to allege material violations of the
HBOR. But here the trial court already found the HBOR and UCL claims to
be legally sufficient when it partially overruled the demurrer to the 2017
complaint, and defendants did not seek review of that ruling. Thus,
defendants’ prejudice argument appears premised on the trial court’s prior
ruling being incorrect. Generally, a respondent who has not appealed from a
judgment may not urge error on appeal, but we have discretion to entertain
defendants’ prejudice contention pursuant to Code of Civil Procedure section
906.8
        “No judgment shall be set aside . . . for any error as to any matter of
procedure, unless, after an examination of the entire cause . . . , the court
shall be of the opinion that the error complained of has resulted in a
miscarriage of justice.” (Cal. Const., art. VI, § 13.) A miscarriage of justice
occurs when it appears reasonably probable that a more favorable result to
the appellant could have been obtained in the absence of the error. (McIntyre
v. The Colonies-Pacific, LLC (2014) 228 Cal.App.4th 664, 674–675.)

        Code of Civil Procedure section 906 provides an exception to the rule
        8

that a respondent may not urge error by allowing the reviewing court to
review the judgment “for the purpose of determining whether or not the
appellant was prejudiced by the error or errors[.]”

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      Examining the entire cause, we observe the trial court previously
rejected defendants’ efforts via demurrer and motion for summary judgment
to defeat the challenged causes of action, including the argument that
plaintiff failed to allege material HBOR violations in his second and third
causes of action (see ante, fn. 4). Indeed, the matter was poised to begin trial
before the court dismissed the HBOR and UCL claims based solely on
defendants’ erroneous abandonment theory. Because it is reasonably
probable the matter would have proceeded to trial absent the erroneous
ruling, ignoring the error and affirming the judgment would result in a
miscarriage of justice.
      While it is true that an appellate court will affirm a judgment of
dismissal if it is correct on any ground stated in the demurrer, independent of
the trial court’s stated reasons (Aubry v. Tri-City Hospital Dist. (1992) 2
Cal.4th 962, 967), we conclude defendants have not established they are
entitled to judgment as a matter of law. Although the HBOR does not
expressly define what constitutes a “material violation” for purposes of
section 2924.12, federal district courts applying California law have held that
a violation is material if it affected the borrower’s loan obligations, disrupted
the loan modification process, or otherwise harmed the borrower in
connection with the borrower’s efforts to avoid foreclosure. (Billesbach v.
Specialized Loan Servicing LLC (2021) 63 Cal.App.5th 830, 845 [collecting
cases].) Defendants provide no meaningful analysis of the materiality
requirement; their arguments consist simply of conclusory statements that
plaintiff failed to incorporate or plead any materiality allegations needed to
state an HBOR claim. Notably, several federal courts have held the
materiality of an HBOR violation is a question of fact that is not
appropriately resolved at the pleadings stage. (Haynish v. Bank of America,

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N.A. (N.D. Cal. 2018) 284 F.Supp.3d 1037, 1047; Penermon v. Wells Fargo
Bank, N.A. (N.D. Cal. 2014) 47 F.Supp.3d 982, 996, fn. 7.) While we are not
bound by these federal authorities, they counsel in favor of factual
development of the materiality question, particularly where, as here, the trial
court has already rejected a pleading challenge on materiality grounds.
                                 DISPOSITION
      The judgment is reversed and vacated, and the case is remanded for
further proceedings consistent with this opinion. Plaintiff is entitled to his
costs on appeal.

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                                            _________________________
                                            Fujisaki, Acting P.J.

WE CONCUR:

_________________________
Petrou, J.

_________________________
Wiseman, J.*

A157284, Vasquez v. National Default Servicing Corporation, et al.

      * Retired Associate Justice of the Court of Appeal, Fifth Appellate
District, assigned by the Chief Justice pursuant to article VI, section 6 of the
California Constitution.

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