64 Cal.App.5th 568
Cal. Ct. App.2021Background
- 2005: Bests obtained a $555,000 mortgage secured by a deed of trust on their Lake Elsinore home; a series of assignments and a substitution of trustee were recorded (2009, 2013, 2014). Default, notice of default in 2015, notice of trustee’s sale in 2018, trustee’s sale and deed upon sale recorded in Dec. 2018.
- Bests sued in federal court (filed 2016) alleging securitization/assignment defects and other claims; district court dismissed for lack of standing; Ninth Circuit affirmed.
- Bests filed a state action (Dec. 2018, first amended complaint) asserting six causes of action including: Rosenthal Fair Debt Collection Practices Act (Rosenthal Act), improper substitution of trustee, UCL, negligent misrepresentation, cancellation of instruments, IIED.
- Trial court sustained the Bank’s demurrer in full on res judicata (claim preclusion) and entered dismissal judgment; court took judicial notice of recorded documents and federal-court filings.
- Court of Appeal: affirmed dismissal as to three causes (substitution of trustee, negligent misrepresentation, IIED), reversed as to three causes (Rosenthal Act, UCL, cancellation of instruments) and held (published) that the Rosenthal Act can apply to nonjudicial foreclosure; also addressed judicial-notice and statute-of-limitations issues.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Res judicata / claim preclusion | Bests: federal action did not bar new state claims because some violations (e.g., Rosenthal Act) occurred after the federal suit or were different legal theories | Bank: same nucleus of operative facts; federal final judgment precludes relitigation | Federal law transactional test controls; claims based on conduct occurring after the federal suit (and some newly alleged instruments) are not barred; some claims arising before prior suit are barred. |
| Applicability of Rosenthal Act to nonjudicial foreclosure | Bests: foreclosure and related servicing/collection acts are "debt collection" and actionable under Rosenthal Act | Bank: foreclosure proceedings are not "debt collection" under Rosenthal Act/FDCPA (citing earlier district court decisions) | Rosenthal Act can apply to nonjudicial foreclosure; Obduskey and later California authority (and a statutory amendment) support treating mortgage debt as consumer debt and foreclosure-related acts as collectible conduct when wrongful. |
| Statute of limitations for Rosenthal Act claim | Bests: alleged continuing violations and recent acts within one year; discovery/continuing-violation tolling applies | Bank: Bests knew of wrongful conduct earlier (pre-2017), so claims are time-barred | At least some alleged violations occurred within one year of filing; continuing-violation doctrine may toll limitations for a course of conduct, so the Rosenthal Act claim survives demurrer on timeliness. |
| UCL and cancellation of instruments (pleading sufficiency & preclusion) | Bests: UCL incorporates Rosenthal Act violations; cancellation properly pleaded as to some instruments including post-2016 instruments | Bank: claims are conclusory, untimely, and/or precluded by federal judgment | UCL claim survives (predicated on surviving Rosenthal Act allegations). Cancellation claim survives in part (instruments not in existence when federal suit filed, e.g., Nov. 2018 notice); cancellation of instruments that existed pre-suit or were litigated is precluded. Trial-court dismissal of other causes (substitution, negligent misrep, IIED) is affirmed. |
Key Cases Cited
- Obduskey v. McCarthy & Holthus LLP, 139 S. Ct. 1029 (2019) (U.S. Supreme Court ruling that nonjudicial foreclosure businesses are not FDCPA "debt collectors" for certain FDCPA provisions but recognizing foreclosure as a means to collect debt)
- Davidson v. Seterus, Inc., 21 Cal. App. 5th 283 (2018) (California court holding a loan secured by a trust deed can be a "consumer debt" under the Rosenthal Act)
- Yvanova v. New Century Mortgage Corp., 62 Cal. 4th 919 (2016) (California Supreme Court on judicial notice and recorded documents in mortgage litigation)
- DKN Holdings LLC v. Faerber, 61 Cal. 4th 813 (2015) (California Supreme Court on claim preclusion standards)
- Lucky Brand Dungarees, Inc. v. Marcel Fashions Group, Inc., 140 S. Ct. 1589 (2020) (Supreme Court transactional-test language regarding same-transaction inquiry)
- Semtek Int'l Inc. v. Lockheed Martin Corp., 531 U.S. 497 (2001) (federal law governs preclusive effect of federal judgments in state courts)
- Taylor v. Sturgell, 553 U.S. 880 (2008) (distinguishing preclusion rules for federal-question and diversity cases)
- Lawlor v. National Screen Service Corp., 349 U.S. 322 (1955) (continuing course-of-conduct principle: later claims arising after prior judgment are not barred)
- Aryeh v. Canon Business Solutions, Inc., 55 Cal. 4th 1185 (2013) (California discovery rule and continuing-violation discussion on accrual and limitations)
- Gilliam v. Levine, 955 F.3d 1117 (9th Cir. 2020) (Ninth Circuit recognizing mortgage debt as consumer debt under California law)