Farthi v. JPMorgan Chase Bank CA4/1 ( 2016 )

Filed 6/17/16 Farthi v. JPMorgan Chase Bank CA4/1
NOT TO BE PUBLISHED IN OFFICIAL REPORTS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 This opinion has not been certified for publication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.
COURT OF APPEAL, FOURTH APPELLATE DISTRICT
DIVISION ONE
STATE OF CALIFORNIA
HAMED FATHI, D069268
Plaintiff and Appellant,
v. (Super. Ct. No. 37-2014-00029190-
CU-OR-NC)
JPMORGAN CHASE BANK, N.A.,
Defendant and Respondent.
APPEAL from a judgment of the Superior Court of San Diego County, Jacqueline
M. Stern, Judge. Affirmed.
Hamed Fathi, in pro. per., for Plaintiff and Appellant.
Bryan Cave, Aileen M. Hunter and Thomas Nanney, for Defendant and
Respondent.
Plaintiff Hamed Fathi filed a preforeclosure lawsuit in federal court asserting
under federal civil rights law (42 U.S.C. § 1983) that JPMorgan Chase Bank, N.A.
(Chase) lacked standing to foreclose. The federal court dismissed the lawsuit without
leave to amend. Fathi then filed this action, asserting under state law that Chase lacked
standing to foreclose and violated the Unfair Competition Law (UCL) (Bus. & Prof.
Code, § 17200) by inducing him to default on the loan. Chase demurred on the basis that
res judicata barred Fathi from relitigating his claims because they had already been
finally adjudicated against him in the federal lawsuit. The trial court sustained the
demurrer without leave to amend and entered a judgment of dismissal. Fathi contends
the trial court erroneously applied the res judicata doctrine. We affirm.
FACTUAL AND PROCEDURAL BACKGROUND
The Loan
On October 17, 2005, Fathi obtained a $606,000 residential loan from Washington
Mutual Bank, FA (Washington Mutual). The loan was secured by a deed of trust that
identifies California Reconveyance Company as the trustee.
In September 2008, the Federal Deposit Insurance Corporation (FDIC) closed
Washington Mutual and appointed a receiver. Chase later purchased certain of
Washington Mutual's assets from the FDIC.
In March 2009, Quality Loan Service Corporation (Quality Loan) was substituted
as the trustee under the deed of trust. A few days later, Quality Loan recorded a notice of
default indicating Fathi was over $17,000 behind on his loan. Quality Loan recorded
notices of trustee's sales in 2009, 2010, 2011, and 2012.
The Federal Lawsuit
In November 2013, Fathi (acting pro se) filed a complaint against Chase in federal
court preemptively challenging the impending foreclosure proceedings against his home.
He alleged that a variety of "shenanigans" surrounding the origin, acquisition, and
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securitization of his loan violated his civil rights and constituted fraud, misrepresentation
and negligence.
The federal court granted Chase's motion to dismiss on the basis there could be no
civil rights violation without state action, and that the state law claims failed to specify
the requisite " 'who, what, when, where, and how of the misconduct charged.' " The court
granted Fathi leave to amend.
In March 2014, Fathi filed an amended complaint in the federal lawsuit again
preemptively challenging the impending foreclosure proceedings. He asserted one claim
for "wrongful foreclosure" under the federal civil rights statute (42 U.S.C. § 1983),
alleging (1) Washington Mutual was not properly licensed when it issued the loan to
Fathi; and (2) Washington Mutual assigned the loan to a securitizing trust before the
FDIC takeover such that Washington Mutual no longer owned the loan when Chase
acquired certain of Washington Mutual's assets and, thus, Chase "did not acquire the right
to foreclose on the [loan]."
The federal court again granted Chase's motion to dismiss, this time without leave
to amend. The court explained Fathi still had not alleged the state action required to give
rise to a civil rights violation. Alternatively, even "assum[ing] for the sake of th[e]
motion that Mr. Fathi intended to assert a wrongful-foreclosure claim and not a civil-
rights claim," the court explained the claim fails for three additional reasons. First, citing
Gomes v. Countrywide Home Loans, Inc. (1985) 192 Cal.App.4th 1149, 1154 (Gomes),
the court found Fathi's preforeclosure lawsuit was precluded by California's
" 'exhaustive . . . non-judicial foreclosure statute.' " Second, noting the then-split of
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California authority, the court concluded Fathi, as a nonparty to the securitization
agreement, lacked standing to challenge deficiencies in the securitization process. (See
Jenkins v. JPMorgan Chase Bank, N.A. (2013) 216 Cal.App.4th 497, 515 (Jenkins) ["As
an unrelated third party to the alleged securitization . . . , [the plaintiff] lacks standing to
enforce any agreements, including the investment trust's pooling and service agreement,
relating to such transactions."]; but see Glaski v. Bank of America (2013) 218
Cal.App.4th 1079, 1083 [borrower "may challenge the securitized trust's chain of
ownership by alleging the attempts to transfer the deed of trust to the securitized trust . . .
occurred after the trust's closing date" and was, thus, "void"].) Finally, the court found
Fathi had not tendered payment of the outstanding debt, which is generally a prerequisite
to challenging a foreclosure proceeding. (See Intengan v. BAC Home Loans Servicing
LP (2013) 214 Cal.App.4th 1047, 1053.)
The federal court entered a judgment of dismissal, which Fathi appealed. His
appeal is still pending.
This Lawsuit
About one month after Fathi appealed the federal judgment, he filed his original
complaint in this action. Chase demurred. The trial court ruled on Chase's demurrer, and
Fathi filed an amended complaint two weeks later.1
Fathi's amended complaint asserts causes of action for quiet title, slander of title,
cancellation of instruments, violation of the UCL, and declaratory relief. As Fathi puts it,
1 The appellate record does not include Fathi's original complaint, any of the
briefing relating to the initial demurrer, or the trial court's ruling.
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"The gravamen of the complaint challenged the foreclosure on several theories, mainly
that Chase lacked standing to foreclose."
The amended complaint also alleges that Fathi inquired about a loan modification
in 2009 when he was current on his loan; a Chase representative informed Fathi "that in
order to qualify for a modification he must miss his payments and be at least three
month[s] behind"; when Fathi relied on Chase's representation, Chase "falsely declared
he had defaulted on the [loan]"; and Chase never had any intention of modifying Fathi's
loan, but rather, falsely induced him into defaulting because Chase "would benefit by
being paid on a Credit Default Swap (a type of insurance paid in cases of default)."
Chase demurred to Fathi's amended complaint on the basis it was barred by res
judicata because the federal court had already rendered a final judgment on the same
claims. In his opposition, Fathi argued res judicata did not apply because the federal
judgment was still on appeal, and, in any event, his operative state court complaint
"alleges new and different facts and causes of action not known to [him] when the
[f]ederal [c]omplaint was filed."
On August 21, 2015, the trial court sustained Chase's demurrer on the basis of res
judicata, and denied Fathi leave to amend. In response to Fathi's arguments that the state
court complaint asserted new, previously unknown causes of action, the court explained:
"To determine whether two causes of action involve the same 'cause
of action' courts apply the primary rights theory. [Citation.] 'The
primary right is determined by the harm suffered, regardless of the
number of legal theories asserted.' [Citation.]
"After comparing the allegations in Plaintiff's first amended
complaint filed in the federal action with the allegations made in the
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first amended complaint filed in the instant action, the Court
concludes the two actions allege the invasion of the same primary
right, i.e., the right to be free from alleged wrongful foreclosure.
Thus, the instant complaint is barred by the doctrine of res judicata."
The court entered a judgment of dismissal.
DISCUSSION
In his opening brief on appeal, Fathi "concedes that the [state court amended
complaint]'s duplicative foreclosure challenges against failed securitization are barred by
res judicata since they were similar to the allegations in the [federal] action." He focuses
on salvaging his UCL claim by arguing it "was not sought in the [federal] action, and
because it was not actually litigated and determined therein, it is not barred." As we will
explain, res judicata nonetheless bars Fathi's UCL claim.
In his reply brief, Fathi backtracks on his concession regarding the non-UCL
claims, arguing the California Supreme Court's "quite significant" intervening decision in
Yvanova v. New Century Mortgage Corp. (2016) 62 Cal.4th 919 (Yvanova) undermines
the federal court's rationale for dismissing his original action, which, in turn, undermines
the trial court's res judicata ruling. For reasons we will explain, Yvanova does not help
Fathi.
I. Relevant Legal Principles
A. Standard of Review
" 'On appeal from a judgment of dismissal entered after a demurrer has been
sustained, this court reviews the complaint de novo to determine whether it states a cause
of action. [Citation.] We assume the truth of all material facts properly pleaded, but not
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contentions, deductions or conclusions of fact or law.' " (Saterbak v. JPMorgan Chase
Bank, N.A. (2016) 245 Cal.App.4th 808, 813 (Saterbak).) "We may consider matters that
are properly judicially noticed." (Ibid.) We review for an abuse of discretion the trial
court's denial of leave to amend. (Ibid.)
"Whether the doctrine of res judicata applies in a particular case is a question of
law which we review de novo." (City of Oakland v. Oakland Police & Fire Retirement
System (2014) 224 Cal.App.4th 210, 228.)
B. The Res Judicata Doctrine
" 'Res judicata' describes the preclusive effect of a final judgment on the merits.
Res judicata, or claim preclusion, prevents relitigation of the same cause of action in a
second suit between the same parties or parties in privity with them." (Mycogen Corp. v.
Monsanto Co. (2002) 28 Cal.4th 888, 896 (Mycogen).) "Claim preclusion arises if a
second suit involves (1) the same cause of action (2) between the same parties (3) after a
final judgment on the merits in the first suit." (DKN Holdings LLC v. Faerber (2015) 61
Cal.4th 813, 824.) "If claim preclusion is established, it operates to bar relitigation of the
claim altogether." (Ibid.)
"To determine whether two proceedings involve identical causes of action for
purposes of claim preclusion, California courts have 'consistently applied the "primary
rights" theory.' " (Boeken v. Philip Morris USA, Inc. (2010) 48 Cal.4th 788, 797
(Boeken); see Mycogen, supra, 28 Cal.4th at p. 904.) This theory " 'provides that a
"cause of action" is comprised of a "primary right" of the plaintiff, a corresponding
"primary duty" of the defendant, and a wrongful act by the defendant constituting a
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breach of that duty.' " (Mycogen, at p. 904.) " 'The most salient characteristic of a
primary right is that it is indivisible: the violation of a single primary right gives rise to
but a single cause of action.' " (Ibid.)
" 'In California the phrase "cause of action" is often used indiscriminately . . . to
mean counts which state [according to different legal theories] the same cause of
action . . . .' [Citation.] But for purposes of applying the doctrine of res judicata, the
phrase 'cause of action' has a more precise meaning: The cause of action is the right to
obtain redress for a harm suffered, regardless of the specific remedy sought or the legal
theory (common law or statutory) advanced." (Boeken, supra, 48 Cal.4th at p. 798,
brackets and ellipses in original.)
"A clear and predictable res judicata doctrine promotes judicial economy. Under
this doctrine, all claims based on the same cause of action must be decided in a single
suit; if not brought initially, they may not be raised at a later date." (Mycogen, supra, 28
Cal.4th at p. 897; Federal Home Loan Bank of San Francisco v. Countrywide Financial
Corp. (2013) 214 Cal.App.4th 1520, 1527 ["Res judicata bars a cause of action that was
or could have been litigated in a prior proceeding"], italics added; Mycogen, at p. 897
[" ' "Res judicata precludes piecemeal litigation by splitting a single cause of action or
relitigation of the same cause of action on a different legal theory or for different
relief." ' "].) " '. . . If the matter was within the scope of the action, related to the subject
matter and relevant to the issues, so that it could have been raised, the judgment is
conclusive on it despite the fact that it was not in fact expressly pleaded or otherwise
urged . . . . The reason for this is manifest. A party cannot by negligence or design
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withhold issues and litigate them in consecutive actions.' " (Tensor Group v. City of
Glendale (1993) 14 Cal.App.4th 154, 160 (Tensor Group).)
C. Fathi's Claims Regarding Chase's Standing to Foreclose
Although Fathi initially conceded res judicata bars his non-UCL claims, he now
contends the doctrine does not apply in light of the intervening decision in Yvanova,
supra, 62 Cal.4th 919. This contention fails.
First, res judicata applies even when there has been an intervening change in law.
(Macy v. City of Fontana (2016) 244 Cal.App.4th 1421, 1435; Slater v. Blackwood
(1975) 15 Cal.3d 791, 796-797.) As the California Supreme Court has explained, "The
consistent application of the traditional principle that final judgments, even erroneous
ones [citation], are a bar to further proceedings based on the same cause of action is
necessary to the well-ordered functioning of the judicial process. It should not be
impaired for the benefit of particular plaintiffs, regardless of the sympathy their plight
might arouse in an individual case." (Slater, at p. 797.) Thus, there is no legal basis for
us to consider Yvanova's potential impact.
Second, even if there were, Yvanova does not help Fathi. As the federal court
explained in dismissing Fathi's lawsuit, under California's exhaustive nonjudicial
foreclosure statute, a borrower may not bring a preemptive—that is, preforeclosure—
challenge to a lender's power to foreclose. (See Gomes, supra, 192 Cal.App.4th at p.
1154; Kan v. Guild Mortgage Co. (2014) 230 Cal.App.4th 736, 743-744; Jenkins, supra,
216 Cal.App.4th at pp. 511-513, disapproved on another ground in Yvanova, supra, 62
Cal.4th at p. 939, fn. 13; Saterbak, supra, 245 Cal.App.4th at p. 815, fn. 3.) Yvanova
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addressed only a borrower's postforeclosure ability to challenge as void (as opposed to
voidable) documents in the foreclosing entity's chain of ownership. (Yvanova, at pp. 942-
943; see Saterbak, at p. 815.) We recently observed that Yvanova "is expressly limited to
the post-foreclosure context." (Saterbak, at p. 815; see Yvanova, at p. 934 ["This aspect
of Jenkins, [supra, 216 Cal.App.4th 497] disallowing the use of a lawsuit to preempt a
nonjudicial foreclosure, is not within the scope of our review, which is limited to a
borrower's standing to challenge an assignment in an action seeking remedies for
wrongful foreclosure."].) Because Fathi brings a preforeclosure challenge to Chase's
standing to foreclose, Yvanova is of no assistance to him. (See Saterbak, at p. 815.)
D. Fathi's UCL Claim
Fathi argues res judicata does not apply to his UCL claim because he did not assert
such a claim in the federal case; he asserted only a civil rights claim under 42 United
States Code section 1983. He also argues he "was within his rights to not bring the UCL
claim into federal court" because of the different standing requirements in state and
federal courts. Neither argument has merit.
First, as noted, it is irrelevant to a res judicata analysis whether Fathi labeled his
claims identically; the relevant analysis is whether his claims seek redress for an invasion
of the same primary right. (Boeken, supra, 48 Cal.4th at pp. 798 ["The cause of action is
the right to obtain redress for a harm suffered, regardless of the specific remedy sought or
the legal theory (common law or statutory) advanced."].) This standard is met here. The
federal lawsuit challenged Chase's standing to foreclose on Fathi's loan in light of
Washington Mutual's allegedly defective licensure and deficient securitization of the
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loan. We agree with the trial court's assessment that the primary right invaded by this
alleged conduct is "the right to be free from alleged wrongful foreclosure."
Fathi's UCL claim alleges an invasion of this same primary right. Indeed,
according to Fathi's allegations, were it not for Chase's allegedly unfair competition—
inducing him to default on his otherwise-current loan as a prerequisite to being
considered for a loan modification—Chase would not have been able to commence the
allegedly wrongful foreclosure proceedings. Thus, the basis of Fathi's UCL claim "was
within the scope of," "related to," and "relevant to" the claims asserted in the federal
lawsuit "so that it could have been raised" in that case. (Tensor Group, supra, 14
Cal.App.4th at p. 160.) It is no defense that the claim was not actually raised.
Accordingly, res judicata bars Fathi's UCL claim.
Second, Fathi misplaces his reliance on Lee v. American Nat. Ins. Co. (9th Cir.
2001) 260 F.3d 997 to support the proposition that he was precluded from bringing his
UCL claim in the federal lawsuit because the "case or controversy" requirement imposed
by Article III of the federal Constitution imposes a more stringent standing requirement
than does the UCL. (Lee, at pp. 1001-1002 [plaintiff had not "actually been injured" for
purposes of Article III standing where he never purchased certain of the insurance
policies he contended violated the UCL].) Lee was decided three years before the
California electorate " 'substantially revised the UCL's standing requirement; where once
private suits could be brought by "any person acting for the interests of itself, its
members or the general public" [citation], now private standing is limited to any "person
who has suffered injury in fact and has lost money or property" as a result of unfair
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competition.' [Citations.]" (Kwikset Corp. v. Superior Court (2011) 51 Cal.4th 310, 320-
321; Bus. & Prof. Code, § 17204.) Fathi makes no attempt to explain how the late fees
and derogatory credit reporting that he claims satisfy the UCL's new standing
requirements do not also satisfy Article III's requirements. Indeed, to the contrary, Rubio
v. Capital One Bank (9th Cir. 2010) 613 F.3d 1195, which Fathi cites to support his
assertion that these injuries convey standing under the UCL, also found that these injuries
convey standing under Article III. (Id. at pp. 1203-1204.) Consequently, we are not
persuaded that Fathi was unable to assert his UCL claim in the federal lawsuit.
E. Denial of Leave to Amend
Because res judicata bars relitigation of Fathi's claims, we find no abuse of
discretion in the trial court's denial of leave to amend.
DISPOSITION
The judgment is affirmed. Chase is entitled to its costs on appeal.
HALLER, J.
WE CONCUR:
BENKE, Acting P. J.
MCDONALD, J.
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