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Michael G. Doan v. E*Trade Bank

December 17, 2010


Super. Ct. No. 37-2009-00077966-CU-OR-SC APPEAL from a judgment of the Superior Court of San Diego County, William S. Cannon, Judge. Affirmed.

The opinion of the court was delivered by: Irion, J.

Doan v. E*TRADE Bank CA4/1


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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.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 this declaratory relief action concerning the right of defendant E*TRADE Bank (the Bank)*fn1 to enforce a promissory note executed by plaintiff Michael G. Doan, Doan appeals the judgment of dismissal entered after the trial court sustained the Bank's general demurrer to Doan's complaint without leave to amend. We agree with the Bank that there is no actual controversy between the parties that might warrant declaratory relief and affirm the judgment on that basis.


On appeal from a judgment entered after a general demurrer is sustained without leave to amend, we accept as true all material facts properly pleaded in the complaint and all relevant facts that may be judicially noticed and determine as a matter of law whether these facts state a cause of action. (Campbell v. Regents of University of California (2005) 35 Cal.4th 311, 320; Alameda County Land Use Assn. v. City of Hayward (1995) 38 Cal.App.4th 1716, 1719.) We recite the facts pertinent to our decision.*fn2

Doan borrowed $940,000 from E*TRADE Wholesale Lending Corp. to purchase a condominium in Imperial Beach in September 2006. As part of the loan transaction, Doan executed an "InterestFirstSM Adjustable Rate Note"*fn3 (the Note) in favor of E*TRADE Wholesale Lending Corp. The Note contains the usual terms included in residential mortgage loan documents (e.g., maturity date, interest rate, monthly payment amount and notice provisions). It also provides that "Lender may transfer this Note," and that the "Note Holder" may accelerate the maturity date and demand full payment if Doan does not pay the full amount of each monthly payment when due and cure any deficiency after notice. Doan alleged he "is current on his payments under the Note."

The Note was secured by a deed of trust that Doan signed on September 5, 2006 (the Deed of Trust).*fn4 The Deed of Trust identifies E*TRADE Wholesale Lending Corp. as "Lender" but lists other entities as trustee and beneficiary. Like the Note, the Deed of Trust states that the Note can be sold. The Deed of Trust obligates Doan, among other things, to pay all taxes and other assessments on the property and to keep the property insured against fire and other hazards. As stated in the Note, the Deed of Trust "protects the Note Holder from possible losses which might result" if Doan does not keep the repayment and other promises he made in the Note. In particular, if Doan were to default and not timely cure after written notice from the Lender, the Lender could exercise its power of sale. Doan does not allege that the Bank or any other entity has notified him of a default, demanded that he cure the default or attempted to exercise the power of sale.

Doan developed "reason to believe that the [Note] may not be enforceable," after E*TRADE Wholesale Lending Corp. dissolved in 2008, and "[i]n light of . . . recent global events arising from the securitization of residential loans . . . ." He therefore wrote a letter to E*TRADE Servicing Center in June 2009 requesting the identities of the owner and holder of the Note and other information and documents concerning his loan. Approximately two weeks later, E*TRADE Financial responded that the Bank currently owned the loan and that E*TRADE Financial was servicing the loan. Enclosed with the response were a payment history and copies of the "Note and Mortgage." E*TRADE Financial, however, declined to provide some of the other information and documents Doan had requested. Additional correspondence followed, in which E*TRADE Financial asserted "[t]he ownership of the loan has no [e]ffect on the enforceability of the Note . . . ," and refused to provide all of the information and documents Doan wanted, including the original endorsed Note.

Dissatisfied with E*TRADE Financial's responses to his inquiries and having "serious doubts and suspicions" about who "is the rightful party to enforce the Note," Doan filed this lawsuit to obtain a declaratory judgment regarding the right of the Bank to enforce the Note. In his verified complaint, Doan alleged he has no contractual relationship with the Bank or with E*TRADE Financial, and complained that "E*TRADE Financial's refusal [to produce the original endorsed Note and other documents] has raised serious doubts and suspicions that E*TRADE possesses the Note." He also alleged he "is entitled to know to whom the legal rights and duties under [the] Note in this mat[t]er belong." Doan sought a declaration that the Bank (1) "is not the holder of the instrument," (2) "is not a nonholder in possession of the instrument who has the rights of a holder," and (3) "is a person not in possession of the Note who is entitled to enforce the instrument pursuant to [Commercial] Code section 3309 or subdivision (d) of [Commercial Code] section 3418."*fn5 (Emphasis in original.) In short, Doan sought a declaratory judgment that the Bank has no right to enforce the Note against him.

The Bank demurred on the ground the complaint failed to state facts sufficient to constitute a cause of action. More specifically, the Bank contended "[t]here is no requirement under California law for a creditor to have actual physical possession of a note in order to enforce it." The trial court agreed, sustained the Bank's demurrer without leave to amend, and entered an "order of dismissal following sustaining of demurrer without leave to amend."*fn6


The issue dispositive of this appeal is whether Doan's complaint for declaratory relief presents a justiciable controversy. We hold that it does not. We therefore need not, and do not, determine whether Doan is correct that the Bank may not enforce the Note against him because the Bank does not qualify as a " '[p]erson entitled to ...

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