Graham v. Bank of America, N.A.
226 Cal. App. 4th 594
| Cal. Ct. App. | 2014Background
- In 2004 Graham obtained a first deed-of-trust loan ($391,200) and a second loan to buy a Vista, CA home; an appraiser (via broker) valued the property at $525,000.
- Graham defaulted in 2011; ReconTrust (Bank of America subsidiary) substituted as trustee and recorded a notice of default and later a trustee’s sale notice.
- Graham sued defendants (Bank of America, ReconTrust, Deutsche Bank, First Franklin, American National) alleging the lender/appraisal and other mortgage-industry practices fraudulently inflated value, inducing him to take an ARM that later left him underwater.
- He pleaded causes of action for fraud/negative fraud/deceit, violations of Bus. & Prof. Code § 17200 (UCL), rescission/equitable relief, and declaratory relief (including alleged rights under the National Mortgage Settlement).
- The trial court sustained a demurrer to the second amended complaint without leave to amend; the Court of Appeal affirmed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Fraud / deceit based on appraisal and statements about future value | Graham: Appraisal and lender statements that value was "increasing" and loan was "good for him" were false, made knowingly or recklessly, and induced the loan | Defendants: Appraisal and statements are opinions/predictions for lender benefit; no actionable factual misrepresentation, no duty to disclose, and no reasonable reliance or causation | Held: Dismissed — appraisal and future-value statements are nonactionable opinions/predictions; plaintiff failed to plead reasonable reliance or causal link to his economic injury |
| UCL (unlawful, unfair, fraudulent) based on appraisal and industry practices | Graham: Appraisal/regulatory violations and industry conduct made practices unlawful/unfair/fraudulent under § 17200 | Defendants: No underlying statutory/regulatory violation pleaded; no duty to disclose; no actual reliance or loss causation shown | Held: Dismissed — no predicate unlawful act proven; unfairness not tethered to statute/regulation; fraud prong fails for lack of reliance and causation |
| Declaratory relief (including enforcement of National Mortgage Settlement; unconscionability) | Graham: Requests declarations that defendants must refinance per the National Mortgage Settlement and that notes/deeds are unenforceable as unconscionable | Defendants: Plaintiff lacks standing to enforce Settlement; no justiciable controversy; complaint fails to plead procedural or substantive unconscionability | Held: Dismissed — individual borrowers are not third-party enforcers of the Settlement; unconscionability not adequately pleaded; no actual controversy warranting relief |
| Denial of leave to amend | Graham: Should be allowed to amend to cure defects | Defendants: Pleading defects are substantive and cannot be cured given the nature of allegations | Held: Affirmed — plaintiff failed to show a reasonable possibility amendment would cure deficiencies; three chances already given |
Key Cases Cited
- Perlas v. GMAC Mortgage, LLC, 187 Cal.App.4th 429 (describing elements of fraudulent misrepresentation in lending context)
- Bank of America Corp. v. Superior Court, 198 Cal.App.4th 862 (discussing duty to disclose and causation for appraisal-based fraud claims)
- Neu-Visions Sports Inc. v. Soren/McAdam/Bartells, 86 Cal.App.4th 303 (opinion of value is generally nonactionable)
- Nymark v. Heart Fed. Savings & Loan Assn., 231 Cal.App.3d 1089 (appraisal prepared for lender is for lender’s benefit; borrower cannot reasonably rely as a fact representation)
- Cel-Tech Communications, Inc. v. Los Angeles Cellular Telephone Co., 20 Cal.4th 163 (defining limits of the UCL and need for tethering unfairness in competitor cases)
- Kwikset Corp. v. Superior Court, 51 Cal.4th 310 (UCL fraud prong requires actual reliance for private plaintiffs)
- In re Tobacco II Cases, 46 Cal.4th 298 (actual reliance requirement under UCL fraud prong)
- Jones v. Wells Fargo Bank, 112 Cal.App.4th 1527 (unconscionability is question of law; interest/loan terms alone not necessarily unconscionable)
- Armendariz v. Foundation Health Psychcare Services, Inc., 24 Cal.4th 83 (procedural and substantive unconscionability sliding scale)
- Maguire v. Hibernia Savings & Loan Society, 23 Cal.2d 719 (standards for declaratory relief and justiciable controversy)