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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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.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 enforce' " a negotiable instrument within the meaning of Commercial Code section 3301.

A. Declaratory Relief Is Proper Only When There Is an Actual Controversy Between Adverse Parties Appropriate for Judicial Resolution

A threshold requirement for declaratory relief is the existence of a justiciable dispute. The declaratory judgment statute expressly provides that declaratory relief is available to parties to contracts or written instruments "in cases of actual controversy relating to the legal rights and duties of the respective parties." (Code Civ. Proc., § 1060, italics added.) Because Code of Civil Procedure section 1060 "makes the presence of an 'actual controversy' a jurisdictional requirement to the grant of declaratory relief ' " (Environmental Defense Project of Sierra County v. County of Sierra (2008) 158 Cal.App.4th 877, 885 (Environmental Defense Project)), a "court is only empowered to declare and determine the rights and duties of the parties 'in cases of actual controversy' " (Pittenger v. Home Savings & Loan Assn. (1958) 166 Cal.App.2d 32, 36 (Pittenger)). For this reason, the existence of an " 'actual, present controversy' " is " 'fundamental' " to an action for declaratory relief.*fn7 (City of Cotati v. Cashman (2002) 29 Cal.4th 69, 79 (Cashman); In re Claudia E. (2008) 163 Cal.App.4th 627, 639.)

One requirement for a justiciable controversy is ripeness: there must be a dispute between adverse parties on a specific set of facts that has reached the point that an invasion of one party's rights is likely unless the court orders relief and enters a conclusive judgment declaring the parties' rights and obligations. (See, e.g., Pacific Legal Foundation v. California Coastal Com. (1982) 33 Cal.3d 158, 170-171 (Pacific Legal Foundation); Selby Realty Co. v. City of San Buenaventura (1973) 10 Cal.3d 110, 117 (Selby Realty); County of San Diego v. State of California (2008) 164 Cal.App.4th 580, 606-608; Environmental Defense Project, supra, 158 Cal.App.4th at pp. 884-885.) Furthermore, because declaratory relief is designed to settle disputes before they lead to an actual violation of rights (Babb v. Superior Court (1971) 3 Cal.3d 841, 848; County of San Diego, at p. 607), the ripeness doctrine in the declaratory relief context requires that the dispute "has reached, but has not passed, the point that the facts have sufficiently congealed to permit an intelligent and useful decision to be made" (California Water & Telephone Co. v. County of Los Angeles (1967) 253 Cal.App.2d 16, 22; accord Pacific Legal Foundation, at p. 171; County of San Diego, at p. 606).

These requirements for a justiciable controversy must be met at the pleading stage. A plaintiff seeking declaratory relief "must allege facts from which a court may determine that an actual controversy relating to legal rights and duties of the respective parties exists." (Lord v. Garland (1946) 27 Cal.2d 840, 851.) "Unless all the allegations of a complaint show that an actual controversy does exist between the parties, there is no basis for declaratory relief." (Amer. Mission Army v. City of Lynwood (1956) 138 Cal.App.2d 817, 819 (American Mission Army).) Accordingly, to withstand demurrer, " 'an actual, present controversy must be pleaded specifically' and 'the facts of the respective claims concerning the [underlying] subject must be given.' " (Cashman, supra, 29 Cal.4th at p. 80.) If it appears no such controversy exists, then an action for declaratory relief should be dismissed. (Connerly, supra, 146 Cal.App.4th at p. 746; Pittenger, supra, 166 Cal.App.2d at p. 36.)

B. Doan Has Not Alleged an "Actual Controversy" with the Bank

Applying these general principles, we do not discern in the factual allegations of Doan's complaint any justiciable controversy.*fn8 Doan has not alleged that he is in default or that the Bank has taken steps to enforce the terms of the Note or the Deed of Trust against him or otherwise to deprive him of his interest in the property that secures performance of his obligations. Nor does the record indicate the Bank has ever threatened to do so. Indeed, the record is to the contrary. In the complaint Doan alleged he "is current on his payments under the Note." In opposition to the Bank's demurrer, Doan wrote he is not "seeking to avoid the obligation" and "is making advance payments under the obligation and is ahead of the payment schedule."*fn9 In his opening brief on appeal, Doan states he "has not missed any payments, and is current on the obligation. There is no enforcement activity to seize the collateral liened against the mortgage. There is no pending foreclosure and the non-judicial foreclosure statute has not been invoked by [the Bank]." (Italics added.) In his reply brief on appeal, Doan admits he has been paying the insurance and the taxes on the property. It thus appears that Doan has been faithfully keeping his promises to the Bank and that the Bank has never taken a contrary position.*fn10

Unless Doan actually defaults, the Bank's right to enforce the Note and Deed of Trust will not be triggered.*fn11 A lender generally enforces a borrower's repayment and other obligations by foreclosure proceedings, which may be either judicial (i.e., by lawsuit) or non-judicial (i.e., by private trustee's sale). (See Code Civ. Proc., §§ 725a-730.5 [judicial foreclosure]; Civ. Code, §§ 2924-2924l [non-judicial foreclosure]; Alliance Mortgage Co. v. Rothwell (1995) 10 Cal.4th 1226, 1236 [describing "elaborate and interrelated set of foreclosure and antideficiency statutes relating to the enforcement of obligations secured by interests in real property"].) Indeed, a secured creditor must "proceed against the security before enforcing the underlying debt." (Security Pacific National Bank v. Wozab (1990) 51 Cal.3d 991, 999.) Consistent with the usual practices in residential mortgage lending, the Deed of Trust Doan signed expressly authorizes the Lender to exercise foreclosure remedies only if a default is not timely cured after notice. (See Bank of America v. La Jolla Group II (2005) 129 Cal.App.4th 706, 712 ["As is typical, the deed of trust involved in this case allows the beneficiary to exercise its power of sale only if an 'event of default' occurs."].) The Bank therefore cannot invoke these remedies unless and until Doan defaults. (See Civ. Code, § 2924, subd. (a)(1) [notice of default must be recorded before power of sale can be exercised]; Newhall v. Sherman (1899) 124 Cal. 509, 511 [borrower's nonpayment of amount due essential for judicial foreclosure]; Pacific Mut. Life Ins. Co. v. Hansen (1919) 44 Cal.App. 463, 465-466 [borrower's default essential for judicial foreclosure].)

It is therefore not surprising that courts in California have approved declaratory relief in cases concerning enforcement of notes and deeds of trust only in cases in which the borrower has defaulted. In R. G. Hamilton Corp, Ltd., v. Corum (1933) 218 Cal. 92, declaratory relief was available to determine the validity of a deed of trust after the notice of default had been recorded. In Holland v. Pendleton Mtge. Co. (1943) 61 Cal.App.2d 570, declaratory relief was available to determine whether a trustee's sale was invalid for noncompliance with the requirements for notices of default and sale. In a case in which the borrowers sought a declaratory judgment as to the enforceability of certain provisions of a deed of trust in which the lender had recorded a notice of default, we held "[t]he time was ripe for such a declaration, inasmuch as [the bank's] proceedings for foreclosure under the trust deed were not by court action." (Lomanto v. Bank of America (1972) 22 Cal.App.3d 663, 668.)

When, by contrast, the borrower (or buyer) has not defaulted or the lender (or seller) has not sought to foreclose, courts have held that purported controversies regarding the validity of encumbrances or the lender's right to enforce them were not justiciable. For example, in Shepherd v. Paul A. Hauser, Inc. (1934) 138 Cal.App. 384 (Shepherd), the court held there was no actual controversy warranting declaratory relief as to the validity of an encumbrance because, as is true in this case, the parties fully understood their obligations under the contract and had performed their obligations for several years. In fact, other courts have refused to decide the very issue raised by Doan -- whether a lender has the right to enforce a note or mortgage -- when, as in this case, there was no foreclosure attempt by the lender. (See, e.g., Coffin v. Malvern Federal Savings Bank (3d Cir. 1996) 90 F.3d 851, 854 ["The determination of whether the Bank's lien is enforceable will eventually have to be made by another court in foreclosure proceedings and the bankruptcy court's advice will have no legal effect."]; Colonial Sav., FA v. Gulino (D.Ariz. May 19, 2010, No. CV-09-1635-PHX-GMS) 2010 U.S.Dist Lexis 49755, *9 ["Similarly, to the extent Borrowers argue that Colonial Savings and MERS are not entitled to enforce the note, whether or not they are in possession of it, that issue is not properly before the Court as Borrowers do not allege that Colonial Savings or MERS has attempted to foreclose on Borrower's property."].) We agree with the dispositive principle of these cases that the issue of who has the right to enforce a note is not justiciable without an attempt at enforcement.

In sum, Doan does not challenge the validity of his obligations under the Note or the Deed of Trust, and he admits both that he is not in default and that the Bank has not sought to pursue its foreclosure remedies against him. Thus, declaratory relief is not available because "[n]o dispute has arisen that would cause these remedial provisions to come into play, and [Doan] do[es] not allege that the continuation of the contractual relationship depends on the resolution of [any] questions [concerning the Bank's right to invoke them]." (Meyer v. Sprint Spectrum L.P. (2009) 45 Cal.4th 634, 648.) Any judgment at this time would be advisory only, since Doan might never default, and even if he did, the Bank might have sold the Note by that time and so might not seek to enforce it. We have no power to render declaratory judgments that are purely advisory. (Selby Realty, supra, 10 Cal.3d at p. 117 ["The judgment must decree, not suggest, what the parties may or may not do."]; Winter v. Gnaizda (1979) 90 Cal.App.3d 750, 756 (Winter) [advisory opinions are "explicitly forbidden by law in an action brought for declaratory relief"].)

C. Doan's Arguments That He Has an Actual Controversy with the Bank Have No Merit

Doan offers several reasons why the controversy is ripe and the trial court's dismissal of his case should be reversed. None is persuasive.

Doan initially asserts, "As a primer, [the Bank] did not raise the ripeness doctrine at the trial court, thus it apparently argues this issue de novo." If by this statement Doan means we may not consider the Bank's ripeness argument, we disagree. A jurisdictional point, such as ripeness, may be raised for the first time on appeal. (See, e.g., In re Estevez (2008) 165 Cal.App.4th 1445, 1458; Farm Sanctuary, Inc. v. Department of Food & Agriculture (1998) 63 Cal.App.4th 495, 501, fn. 5.) We may also decide a question of law that does not involve a factual dispute, such as whether a complaint alleges an "actual controversy" within the meaning of Code of Civil Procedure section 1060, even if the question was not raised in the trial court. (See, e.g., Tyre v. Aetna Life Ins. Co. (1960) 54 Cal.2d 399, 405; Sheller v. Superior Court (2008) 158 Cal.App.4th 1697, 1709.) Further, we may affirm the trial court's decision if it is correct on any theory supported by the record, even if the trial court relied on a different ground for its decision. (See, e.g., Davey v. Southern Pacific Co. (1897) 116 Cal. 325, 329; In re Marriage of Mathews (2005) 133 Cal.App.4th 624, 632.) We therefore may decide the ripeness point and affirm on that ground.

Doan next contends that although this controversy may not be a " 'traditional' " one regarding a residential mortgage loan, "the era of mortgage backed securities, and sloppy practices, ha[ve] created problems for consumers like [him]" that are ripe for judicial resolution. He asserts that "homeowners and the public have a right to know who[] owns the mortgage," and he complains that mortgage lenders are systematically frustrating this right and harming consumers by "hiding" that information. As other courts have recognized in similar cases, however, "the fact that an issue raised in an action for declaratory relief is of broad general interest is not enough for the courts to grant such relief in the absence of a true justiciable controversy." (Winter, supra, 90 Cal.App.3d at p. 756; see also Pittenger, supra, 166 Cal.App.2d at p. 38 [courts have no general control over business practices that may be of "great public interest"].) Thus, not until the practices alleged by Doan actually affect his rights may he seek a declaratory judgment regarding them.*fn12 (Pacific Legal Foundation, supra, 33 Cal.3d p. 170 [ripeness doctrine bars lawsuits that seek only general guidance rather than resolution of specific legal dispute]; Pittenger, supra, 166 Cal.App.2d at p. 38 [courts' duty limited to "declar[ing] and administer[ing] the law in controversies that are properly brought to them"].)

Doan reminds us that "the ripeness requirement does not prevent us from resolving a concrete dispute if the consequence of a deferred decision will be lingering uncertainty in the law, especially when there is widespread public interest in the answer to a particular legal question." (Hunt v. Superior Court (1999) 21 Cal.4th 984, 998, italics added; accord, Pacific Legal Foundation, supra, 33 Cal.3d at p. 170.) This rule does not apply here, however, because Doan has not alleged a "concrete dispute." Moreover, it does not appear there will be any lingering uncertainty in the law if we affirm the trial court's dismissal of this case. The uncertainty of immediate concern to Doan consists of the "serious doubts and suspicions" he has about who "is the rightful party to enforce the Note" at issue here. That is uncertainty about the specific facts of this particular case, not about the generally applicable legal rules governing who may enforce an obligation secured by residential real property when the borrower defaults. In any event, California statutes already clearly identify who has those rights (see Code Civ. Proc., § 725a [beneficiary or trustee under deed of trust or mortgagee under mortgage or their successors]; Civ. Code, § 2924, subd. (a)(1) [trustee, mortgagee, beneficiary or authorized agent]); and the cases from federal trial courts that Doan contends "are creating a body of law inconsistent with California law" are not to the contrary. (See, e.g., Garcia v. HomEq Servicing Corp. (E.D.Cal. Aug. 18, 2009, No. CIV-F-09-0374 AWI SMS) 2009 U.S.Dist. Lexis 77697, *11-12 [trustee may initiate non-judicial foreclosure]; Gamboa v. Trustee Corps (N.D.Cal. Mar. 12, 2009, No. 09-0007 SC) 2009 U.S.Dist. Lexis 19613, *9 [assignee of note may direct substituted trustee to initiate non-judicial foreclosure]; Putkkuri v. ReconTrust Co. (S.D.Cal. Jan. 5, 2009, No. 08cv1919 WQH (AJB)) 2009 U.S.Dist. Lexis 32, *6 [trustee may initiate non-judicial foreclosure].)*fn13

Doan lastly argues his dispute is ripe for resolution because the Bank is enforcing the Note and he is suffering "hardship" as a result. According to Doan, the Bank enforces the Note by "threatening to notify credit bureaus if [he] is 30 days late in payment" and by "requiring [him to] pay insurance and substantial amounts for taxes," and he "is burdened by having to pay the loan amounts, possibly to the wrong party, which he now does under protest." (Italics added.) We reject this argument.

Doan has not alleged that the Bank actually notified any credit bureau that he had been late on his payments. To the contrary, he alleges in his complaint that he "is current on his payments under the Note" and stated in his brief in opposition to the Bank's demurrer that he "is making advance payments under the obligation and is ahead of the payment schedule." Moreover, Doan does not cite any authority to support or otherwise explain how the obligations to repay the loan and to pay the insurance and taxes on the property pledged as security for these obligations -- obligations he voluntarily undertook when he executed the Note and Deed of Trust, which he has been performing for years, and which he admits he is not trying to avoid -- could possibly constitute "hardship." We are "not required to examine undeveloped claims, nor to make arguments for parties." (Paterno v. State of California (1999) 74 Cal.App.4th 68, 106; see also Wright v. City of Los Angeles (2001) 93 Cal.App.4th 683, 689 ["Generally, asserted grounds for appeal that are unsupported by any citation to authority and that merely complain of error without presenting a coherent legal argument are deemed abandoned and unworthy of discussion."].) These circumstances simply do not present an actual controversy ripe for declaratory relief. (Shepherd, supra, 138 Cal.App. at pp. 387-388.)

D. Doan Is Not Entitled to Leave to Amend His Complaint

Doan argues on appeal, as he did in the trial court, that the trial court should not have sustained the Bank's demurrer without leave to amend because he "can amend his complaint to assert other causes of action for relief. For example, Doan can amend his complaint for an action in interpleader, where [he] makes his mortgage payments in trust to the court, or another trustee, until the party with the legal rights to the money can appear in the case to prove its standing." To be entitled to leave to amend, Doan must specify the facts or legal theory he can add that "would change the legal effect of [his] pleading." (Hernandez v. City of Pomona (2009) 46 Cal.4th 501, 520, fn. 16; accord, Hendy v. Losse (1991) 54 Cal.3d 723, 742.) Addition of a request for interpleader would not solve the justiciability problem, however, because it would merely add a remedy, not new facts that show the existence of a present, actual controversy.

Interpleader is a remedy available to a plaintiff against whom two or more defendants are making claims for the same thing. (Code Civ. Proc., § 386, subd. (b); Fidelity Sav. etc. Assn. v. Rodgers (1919) 180 Cal. 683, 684-685; Pfister v. Wade (1880) 56 Cal. 43, 47.) "Interpleader speaks of conflicting claims against the same obligor over the same fund . . . ." (City of Morgan Hill v. Brown (1999) 71 Cal.App.4th 1114, 1126.) The plaintiff "may not maintain such a suit upon the mere pretext or suspicion of double vexation; he must allege facts showing a reasonable probability of double vexation." (Hancock Oil Co. v. Hopkins (1944) 24 Cal.2d 497, 510.) Doan has not alleged different entities are actually demanding the same loan payments from him. Neither his "serious doubts and suspicions [about] who[] is the rightful party to enforce the Note" nor his speculation that he may be making monthly loan payments "possibly to the wrong party" and "some other strange party ten years from now [might] step[] forward and say[] that [it] ha[s] a legal right and that [it was] not paid," suffices to "show[] a reasonable probability of double vexation." (Hancock Oil Co., at p. 510.) Therefore, since Doan's proposed amendment would not present a justiciable controversy, leave to amend was properly denied. (Wilson, supra, 199 Cal.App.2d at p. 726.)

In sum, Doan's present complaint does not present a justiciable controversy, and he has not shown how he can amend it to do so. The trial court therefore did not err in sustaining the Bank's demurrer without leave to amend and dismissing the action. (Otay Land Co. v. Royal Indemnity Co. (2008) 169 Cal.App.4th 556, 561, 567; Connerly, supra, 146 Cal.App.4th at p. 752; Wilson, supra, 199 Cal.App.2d at pp. 721-722.)


The judgment is affirmed.


HALLER, Acting P. J.


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