KEVIN DUPREE v. MERRILL LYNCH MORTGAGE LENDING INC

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Court of Appeal, Second District, California.

KEVIN DUPREE, Plaintiff and Appellant, v. MERRILL LYNCH MORTGAGE LENDING, INC., Defendant and Respondent.

B225150

Decided: October 24, 2011

Kevin Dupree, in pro. per., for Plaintiff and Appellant. The Ryan Firm, Timothy M. Ryan and Barry G. Coleman, for Defendant and Respondent.

NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS

Kevin Dupree, a self-represented litigant, appeals from the judgment entered dismissing his lawsuit for unlawful foreclosure and to quiet title after the court sustained without leave to amend the demurrer of Merrill Lynch Mortgage Lending, Inc. (Merrill Lynch) and from the court's denial of his ex parte application to vacate the order sustaining the demurrer.   Dupree principally contends he was improperly denied an opportunity to amend his complaint to state additional causes of action.   We affirm.

FACTUAL AND PROCEDURAL BACKGROUND

In a verified complaint for unlawful foreclosure, to quiet title and for injunctive relief filed September 9, 2009, Dupree alleged he was the owner of real property located at 1110 South Aprilia Avenue in Compton, which was his primary residence.   Dupree further alleged T.D. Service Company had conducted an unlawful foreclosure sale of the property on September 2, 2008 because the substitution of trustee recorded on May 8, 2008 had failed to satisfy a separate document requirement imposed by the Civil Code. Based on that unlawful conduct, Dupree sought an order to set aside the final trustee's sale of the Aprilia Avenue property and to quiet title to the property, as well as issuance of a temporary and permanent injunction prohibiting Merrill Lynch or its agents from interfering with his rights in the property.   The complaint attached a legal description of the property and a copy of the recorded document substituting T.D. Service Company for Fremont General Credit Corporation, the original trustee in the deed of trust.   That document had been signed by a representative of Wilshire Credit Corporation as attorney-in-fact for Merrill Lynch.1  Merrill Lynch Mortgage Lending, Inc. by Wilshire Credit Corporation was the only nonfictitious party identified as a defendant.

In its case management statement filed February 3, 2010, Merrill Lynch reported its willingness to participate in mediation to attempt to resolve the dispute and also advised the court it intended to demur to the complaint.   At the case management conference on February 11, 2010 the court referred Dupree and Merrill Lynch to mediation to be completed on or before May 12, 2010.   The court continued the case to May 17, 2010 for a post-mediation status conference.

At the conclusion of the case management conference Dupree indicated he had an ex parte application for leave to amend his complaint.   Counsel for Merrill Lynch advised the court he would speak to Dupree “outside in the hallway about his ability to do that without ․” the court's permission.   In a declaration filed later in the proceedings, Dupree stated Merrill Lynch's counsel “represented to me that he would stipulate to me amending my complaint.”   A non-attorney individual assisting Dupree (apparently a paralegal) also declared Merrill Lynch's counsel told Dupree he “would agree and stipulate that he (Kevin Dupree) could amend his complaint.”

On February 22, 2010 Merrill Lynch demurred to the complaint and to each of the three causes of action for failure to state facts sufficient to constitute a cause of action.   The demurrer asserted Dupree's failure to allege a tender of his indebtedness under the promissory note and deed of trust precluded his claims for wrongful foreclosure and to quiet title.   Merrill Lynch also argued injunctive relief is a remedy, not an independent cause of action.   Hearing on the demurrer was set for May 13, 2010.   On May 4, 2010 Merrill Lynch filed a notice of non-receipt of opposition to its demurrer.

A mediation session was held on May 11, 2010 at the offices of Merrill Lynch's counsel.   No settlement was reached.  (According to Dupree, Merrill Lynch refused to participate in the mediation in any meaningful way.)

Dupree did not attend the hearing on the demurrer on May 13, 2010.   The court sustained the unopposed demurrer without leave to amend.   Although acknowledging the “preference in the law to allow people to amend if they can,” the court expressed doubt Dupree would be able to allege a tender of the amount owed on the promissory note if given the opportunity to do so.

On May 25, 2010 Dupree filed an ex parte application and motion to vacate the order sustaining the demurrer.   In his supporting papers Dupree explained he had sought to amend his complaint in February but was told at that time he should wait to do so until the parties had attempted to resolve their dispute through mediation.   Dupree insisted he was entitled under Code of Civil Procedure section 472 to amend his complaint as a matter of right and argued, in effect, he had been fraudulently deprived of that right.   Dupree also contended Merrill Lynch had misled the court by proceeding with the hearing on its demurrer without advising the court of its agreement to allow an amendment to the complaint if the mediation was unsuccessful;  he asserted the order sustaining the demurrer had been entered to his “surprise, mistake, inadvertence.”

Dupree did not submit a proposed amended complaint or describe with any specificity the nature of the amendments or additional causes of action he wished to plead although he did assert they were consistent with the wrongful foreclose and quiet title claims in his original complaint.   However, in an attachment to his moving papers, which appears to be from a portion of his mediation brief, Dupree suggested that he had intended to amend his complaint to assert claims based on the role played by Merrill Lynch Global Marketing and Investment Banking Group in the sale of mortgage-backed securities and collateralized debt obligations or derivatives linked to them and its consequent responsibility for the subprime mortgage crisis and the country's severe economic difficulties.

Dupree and counsel for Merrill Lynch were both present at the hearing on the ex parte application.   Counsel for Merrill Lynch explained that, following the case management conference, he had informed Dupree and his paralegal that Dupree could amend his complaint without leave of court.   Merrill Lynch waited for approximately two weeks and, when no amended complaint was filed, proceeded with its demurrer.   Counsel denied agreeing that the amended complaint should only be filed after completion of mediation.

The court then stated it had looked at the complaint and the demurrer on the merits when it originally ruled.   It observed that Dupree had received proper notice of the hearing on the demurrer, but did not file any opposition.   Independent of his failure to oppose the demurrer, however, the court stated it continued to believe its decision was correct, that is, the failure to tender the amount owed precluded the claims.   The application/motion to vacate the earlier order was denied.

A written order sustaining the demurrer without leave to amend was signed by the court and filed on June 8, 2010.   A judgment of dismissal was filed on June 14, 2010.   Dupree filed his notice of appeal the same day.

DISCUSSION

1. Standard of Review

On appeal from an order dismissing an action after the sustaining of a demurrer, we independently review the pleading to determine whether the facts alleged state a cause of action under any possible legal theory.  (McCall v. PacifiCare of Cal., Inc. (2001) 25 Cal.4th 412, 415;  Aubry v. Tri–City Hospital Dist. (1992) 2 Cal.4th 962, 967.)   We give the complaint a reasonable interpretation, “treat[ing] the demurrer as admitting all material facts properly pleaded,” but do not “assume the truth of contentions, deductions or conclusions of law.”  (Aubry, at p. 967;  accord, Zelig v. County of Los Angeles (2002) 27 Cal.4th 1112, 1126.)   We liberally construe the pleading with a view to substantial justice between the parties.  (Code Civ. Proc., § 452;  Schifando v. City of Los Angeles (2003) 31 Cal.4th 1074, 1081.)

“ ‘Where the complaint is defective, “[i]n the furtherance of justice great liberality should be exercised in permitting a plaintiff to amend his [or her] complaint.” ’ ”  (Aubry v. Tri–City Hospital Dist., supra, 2 Cal.4th at p. 970.)   Leave to amend may be granted on appeal even in the absence of a request by the plaintiff to amend the complaint.  (Id. at p. 971;  see Code Civ. Proc., § 472c, subd. (a).)  We determine whether the plaintiff has shown “in what manner he [or she] can amend [the] complaint and how that amendment will change the legal effect of [the] pleading.”  (Goodman v. Kennedy (1976) 18 Cal.3d 335, 349.)  “[L]eave to amend should not be granted where ․ amendment would be futile.”  (Vaillette v. Fireman's Fund Ins. Co. (1993) 18 Cal.App.4th 680, 685;  see generally Caliber Bodyworks, Inc. v. Superior Court (2005) 134 Cal.App.4th 365, 373–374.)

We review the trial court's additional order denying Dupree's motion to vacate the order sustaining Merrill Lynch's demurrer without leave to amend for an abuse of discretion.  (See Rappleyea v. Campbell (1994) 8 Cal.4th 975, 986–987;  Estate of Carter (2003) 111 Cal.App.4th 1139, 1154.)   Under this standard, “we indulge all legitimate and reasonable inferences to uphold the judgment and reverse only upon a showing that the trial court exceeded the bounds of reason in light of all the circumstances.”  (Ayala v. Southwest Leasing & Rental, Inc. (1992) 7 Cal.App.4th 40, 44.)

2. The Trial Court Properly Sustained Merrill Lynch's Demurrer Without Leave To Amend

As the trial court ruled, to bring an action for wrongful foreclosure or to quiet title, the plaintiff must allege he or she has either paid or at least tendered any debt owed on the property.  (Karlsen v. American Savings & Loan Assn. (1971) 15 Cal.App.3d 112, 117[“[a] valid and viable tender of payment of the indebtedness owing is essential to an action to cancel a voidable sale under a deed of trust”];  Shimpones v. Stickney (1934) 219 Cal. 637 [“mortgagor cannot quiet his title against the mortgagee without paying the debt secured”];  Arnolds Management Corp. v. Eischen (1984) 158 Cal.App.3d 575, 578[“[i]t is settled that an action to set aside a trustee's sale for irregularities in sale notice or procedure should be accompanied by an offer to pay the full amount of the debt for which the property was security”].)   This rule is applicable to any cause of action that is based on allegations of wrongful foreclosure or seeks redress from an allegedly invalid trustee's sale.  (Abdallah v. United Savings Bank (1996) 43 Cal.App.4th 1101, 1109;  Arnolds Management Corp., at p. 580.)

Dupree, whose complaint fails to allege payment of the secured indebtedness or a tender of the amount owed, has never disputed the applicability of the tender rule to the three causes of action he attempted to plead.   As the trial court recognized, generally a plaintiff would be given an opportunity to cure a pleading defect of this sort through an amendment.   It was improper for the trial court to deprive Dupree of that chance by speculating, apparently based solely on Dupree's successful application for a waiver of fees, that no such amendment was possible.   For example, although Dupree has limited personal resources, he may have been able to borrow funds from family or friends to make the required tender.   However, Dupree does not suggest in this court 2 —and never indicated in the trial court—he could allege tender or had the ability to pay the outstanding secured obligation that led to the trustee's sale of his home.   Accordingly, the demurrer was properly sustained, and denial of leave to amend was not an abuse of discretion.3

In addition, the sole challenge in Dupree's complaint to the validity of the acts leading up to the trustee's sale is based on a misreading of Civil Code section 2394a, which governs substitution of a trustee under a deed of trust upon real property.   Subdivision (a)(1)(A) of that provision, applicable here, provides a substitution must be executed and acknowledged by “all of the beneficiaries under the trust deed, or their successors in interest.”   The recorded substitution of trustee attached to Dupree's complaint, replacing Fremont General Credit Corporation, the original trustee, with T.D. Service Company, is properly executed and acknowledged by Merrill Lynch, the beneficiary, through Wilshire Credit Corp., as its attorney in fact.   However, when a series of notes is secured by a deed of trust on the same real property, Civil Code section 2394a, subdivision (a)(1)(B) and (2), requires that the substitution be executed and acknowledged by the holders of more than 50 percent of the record beneficial interest of the notes, who must also sign a separate document making certain representations under penalty of perjury—for example, that none of the parties signing the substitution is a licensed real estate broker that is the issuer or servicer of the obligation secured by the deed of trust (Civ.Code, § 2394a, subd. (a)(2)(B)).  That provision's separate document requirement has no bearing on the validity of the substitution of trustees in this case;  and any attempt to amend this particular theory would be futile.

Indeed, Dupree's only effort to show how he could amend his complaint with respect to the alleged irregularities in the foreclosure process is to assert in his appellate brief that he could challenge the legitimacy of the assignment of the underlying promissory note and deed of trust from Fremont Investment & Loan, the original lender, to Merrill Lynch through the use of the Mortgage Electronic Registration Systems, Inc. (MERS) as a nominee beneficiary under the deed of trust.   Other than making this conclusory assertion, however, Dupree does not describe what he would allege or explain how the use of the MERS system purportedly invalidated the assignment in this case.4  Those additional allegations are essential before we could conclude it was an abuse of discretion to deny Dupree leave to amend since the mortgage banking industry's use of MERS, standing alone, is not sufficient to set aside a completed trustee's sale.  (See Fontenot v. Wells Fargo Bank, N.A. (2011) 198 Cal.App.4th 256, 267, 271 & fn.   9 [MERS's lack of a possessory interest in the promissory note did not prevent MERS from having the authority to assign the note;  no legal authority supports the assertion the lender was precluded from granting MERS the authority, acting as its agent, to assign the lender's interest in the note];  Gomes v. Countrywide Home Loans, Inc. (2011) 192 Cal.App.4th 1149, 1154–1156 [MERS as noteholder's nominee was not required to demonstrate authorization to proceed with foreclosure, at least in the absence of a factual allegation suggesting it lacked authority].)

3. The Trial Court Did Not Abuse Its Discretion in Denying Dupree's Motion To Vacate

Code of Civil Procedure section 472 permits the plaintiff to amend a complaint once, without leave of court, “at any time before the answer or demurrer is filed, or after demurrer and before the trial of the issue of law thereon․”  As discussed, arguing he had been misled into deferring the filing of an amended complaint as a matter of right and contending he had failed to oppose Merrill Lynch's demurrer or appear at the hearing on the demurrer through surprise, mistake and inadvertence, Dupree moved to vacate the May 13, 2010 order sustaining the demurrer without leave to amend and to allow him to file an amended complaint adding new parties and new causes of action.   Although Dupree's motion attached a copy of what he described as his unfiled February 11, 2010 ex parte application for leave to amend, contrary to the express requirement of Code of Civil Procedure section 473, subdivision (b) (section 473, subdivision (b)), which Dupree cited as the basis for his request, no copy of an opposition to Merrill Lynch's demurrer or a proposed amended complaint was included with the motion,5 nor did Dupree attempt to remedy this defect by submitting any proposed pleadings at the May 25, 2010 hearing.  (See County of Stanislaus v. Johnson (1996) 43 Cal.App.4th 832, 838 [substantial compliance with requirement that proposed pleading accompany the motion is sufficient, provided the “objectives of the ‘accompanied by’ requirement, i.e., a screening determination that the relief is not sought simply to delay the proceedings” has been satisfied];  Job v. Farrington (1989) 209 Cal.App.3d 338, 341 [same].)

With respect to the May 13, 2010 order sustaining the demurrer without leave to amend, it was not an abuse of discretion to deny the motion to vacate.   As we hold (and as found by the trial court), Dupree's claims for unlawful foreclosure and to quiet title were fatally defective;  and he at no time has suggested how any amendment could change the legal effect of the pleading.   In light of the finding that Dupree had received proper notice of the hearing, which Dupree concedes in his appellate brief, any mistake or inadvertence in failing to properly calendar the hearing date is not an adequate basis for relief.

With respect to Dupree's right to file an amended complaint under Code of Civil Procedure section 472, the trial court impliedly rejected Dupree's contention that counsel for Merrill Lynch deliberately misled him into delaying the filing of his amended complaint until the court had ruled on the demurrer, and Dupree offers no basis to disturb that finding.  (See Gately v. Cloverdale Unified School Dist. (2007) 156 Cal.App.4th 487, 496 [appellate court presumes on appeal all factual findings necessary to support the judgment and defers to these implied factual determinations if supported by substantial evidence];  Fladeboe v. American Isuzu Motors, Inc. (2007) 150 Cal.App.4th 42, 58 [same].)   Accordingly, it was not an abuse of discretion to deny the section 473, subdivision (b) motion on that ground either.

To the extent Dupree's motion is more properly treated as an application to reconsider and modify the May 13, 2010 order and request for leave to file an amended complaint pursuant to Code of Civil Procedure sections 1008 and 473, subdivision (a), rather than a section 473, subdivision (b) motion to vacate,6 we acknowledge the court's discretion should usually be exercised liberally to permit amendment of the pleadings.  (See Nestle v. Santa Monica (1972) 6 Cal.3d 920, 939.)  “Indeed, ‘it is a rare case in which “a court will be justified in refusing a party leave to amend his pleading so that he may properly present his case.” ’ ”  (Douglas v. Superior Court (1989) 215 Cal.App.3d 155, 158.)   However, after a demurrer has been sustained, the court is not obligated to allow a party to amend a defective pleading based on a vague and conclusory assertion the party could state an entirely new cause of action if he or she were permitted to amend.  (Cooper v. Equity Gen. Ins. Co. (1990) 219 Cal.App.3d 1252, 1264[“[t]o allow a party to amend a defective pleading, merely because the party makes a vague and conclusory assertion that it could state an entirely new cause of action for fraud if it were permitted to amend, would make the demurrer meaningless”].)

That is precisely the situation presented here.   Citing to reports of government investigations of the role of Merrill Lynch Mortgage Lending's corporate parents in the subprime mortgage crisis and the collapse of the housing market, Dupree vaguely contends he could amend his complaint to allege causes of action for fraud, breach of contract, intentional infliction of emotional distress, product liability and “other related actions.”   Given the absence of any specific factual allegations that come close to stating a viable cause of action, it was not an abuse of discretion to deny the motion and enter judgment in favor of Merrill Lynch.

DISPOSITION

The judgment is affirmed.   Merrill Lynch Mortgage Lending is to recover its costs on appeal.

We concur:

FOOTNOTES

FN1. According to background information provided to the trial court by Merrill Lynch (not considered in connection with Merrill Lynch's demurrer but not disputed by Dupree), Dupree refinanced his existing loan on the Aprilia Avenue property on October 26, 2006 with a new loan from Fremont Investment & Loan and signed a promissory note and deed of trust securing the loan.   Mortgage Electronic Registration Systems, Inc. (MERS) was named as the beneficiary under the deed of trust as the nominee for the lender.   The loan was then assigned to Merrill Lynch, which substituted T.D. Service Company as the new trustee under the deed of trust.   After Dupree purportedly defaulted on the loan, foreclosure proceedings were initiated.   Merrill Lynch purchased the property at the trustee's sale..  FN1. According to background information provided to the trial court by Merrill Lynch (not considered in connection with Merrill Lynch's demurrer but not disputed by Dupree), Dupree refinanced his existing loan on the Aprilia Avenue property on October 26, 2006 with a new loan from Fremont Investment & Loan and signed a promissory note and deed of trust securing the loan.   Mortgage Electronic Registration Systems, Inc. (MERS) was named as the beneficiary under the deed of trust as the nominee for the lender.   The loan was then assigned to Merrill Lynch, which substituted T.D. Service Company as the new trustee under the deed of trust.   After Dupree purportedly defaulted on the loan, foreclosure proceedings were initiated.   Merrill Lynch purchased the property at the trustee's sale.

FN2. Dupree filed an opening brief, but no reply brief on appeal.   He appeared, once again representing himself, and presented oral argument in this court.   When questioned on the issue of tender, Dupree did not represent that he could allege tender or the ability to pay the outstanding debt if now given an opportunity to amend his complaint..  FN2. Dupree filed an opening brief, but no reply brief on appeal.   He appeared, once again representing himself, and presented oral argument in this court.   When questioned on the issue of tender, Dupree did not represent that he could allege tender or the ability to pay the outstanding debt if now given an opportunity to amend his complaint.

FN3. Dupree's third cause of action for injunctive relief, which like the first two causes of action is predicated on the purported invalidity of the trustee's sale, also fails to plead tender.   In any event, as Merrill Lynch argued in the trial court, an injunction is a remedy, not an independent cause of action.  (See, e.g., Marlin v. Aimco Venezia, LLC (2007) 154 Cal.App.4th 154, 162;  Guessous v. Chrome Hearts, LLC (2009) 179 Cal.App.4th 1177, 1187.).  FN3. Dupree's third cause of action for injunctive relief, which like the first two causes of action is predicated on the purported invalidity of the trustee's sale, also fails to plead tender.   In any event, as Merrill Lynch argued in the trial court, an injunction is a remedy, not an independent cause of action.  (See, e.g., Marlin v. Aimco Venezia, LLC (2007) 154 Cal.App.4th 154, 162;  Guessous v. Chrome Hearts, LLC (2009) 179 Cal.App.4th 1177, 1187.)

FN4. The MERS system was devised by the mortgage banking industry to facilitate the securitization of real property debt instruments.  (See Fontenot v. Wells Fargo Bank, N.A. (2011) 198 Cal.App.4th 256, 267.)   “MERS is a private corporation that administers a national registry of real estate debt interest transactions.   Members of the MERS System assign limited interests in the real property to MERS, which is listed as a grantee in the official records of local governments, but the members retain the promissory notes and mortgage servicing rights.   The notes may thereafter be transferred among members without requiring recordation in the public records.”  (Ibid.;  see generally Gomes v. Countrywide Home Loans, Inc. (2011) 192 Cal.App.4th 1149, 1151 [describing MERS].).  FN4. The MERS system was devised by the mortgage banking industry to facilitate the securitization of real property debt instruments.  (See Fontenot v. Wells Fargo Bank, N.A. (2011) 198 Cal.App.4th 256, 267.)   “MERS is a private corporation that administers a national registry of real estate debt interest transactions.   Members of the MERS System assign limited interests in the real property to MERS, which is listed as a grantee in the official records of local governments, but the members retain the promissory notes and mortgage servicing rights.   The notes may thereafter be transferred among members without requiring recordation in the public records.”  (Ibid.;  see generally Gomes v. Countrywide Home Loans, Inc. (2011) 192 Cal.App.4th 1149, 1151 [describing MERS].)

FN5. Code of Civil Procedure section 473, subdivision (b), provides, in part, “[a]pplication for this relief shall be accompanied by a copy of the answer or other pleading proposed to be filed therein, otherwise the application shall not be granted․”.  FN5. Code of Civil Procedure section 473, subdivision (b), provides, in part, “[a]pplication for this relief shall be accompanied by a copy of the answer or other pleading proposed to be filed therein, otherwise the application shall not be granted․”

FN6. Notwithstanding the general principle that the rules of civil procedure apply equally to a represented and a self-represented litigant (Rappleyea v. Campbell, supra, 8 Cal.4th at pp. 984–985), as a practical matter a self-represented litigant's understanding of procedural rules is more limited than an experienced attorney's.   Whenever possible, we do not strictly apply technical rules of procedure in a manner that deprives litigants of a hearing..  FN6. Notwithstanding the general principle that the rules of civil procedure apply equally to a represented and a self-represented litigant (Rappleyea v. Campbell, supra, 8 Cal.4th at pp. 984–985), as a practical matter a self-represented litigant's understanding of procedural rules is more limited than an experienced attorney's.   Whenever possible, we do not strictly apply technical rules of procedure in a manner that deprives litigants of a hearing.

ZELON, J. JACKSON, J.