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Michael D. Scott v. Jpmorgan Chase Bank

March 18, 2013


Trial court: Solano County Superior Court Trial judge: Hon. Scott L. Kayes Super. Ct. No. FCS033424)

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


(Solano County

Michael D. Scott (Scott) appeals from an order sustaining a demurrer to his second amended complaint without leave to amend. He contends he alleged facts sufficient to state a cause of action against respondent JPMorgan Chase Bank, N.A. (JPMorgan), primarily because JPMorgan allegedly did not have standing to foreclose on his property. He further alleges that the trial court erred in taking judicial notice of facts in a contract between JPMorgan and the federal government, by which JPMorgan claims to have obtained a beneficial interest under the deed of trust on Scott's property without assuming related liabilities.

Because a direct appeal cannot be taken from an order sustaining a demurrer, we exercise our discretion to review the trial court's decision as an appealable final judgment of dismissal. In the published portion of our opinion, we conclude that the trial court properly took judicial notice of the fact and legal effect of the government's contract with JPMorgan, since Scott made no showing in the trial court that the contract was not authentic or otherwise argued it was reasonably subject to dispute. We also conclude that, based on the allegations of the second amended complaint, and in light of the facts the court judicially noticed, the court did not err in sustaining the demurrer. In the unpublished portion of our opinion, we conclude that the court did not err in denying further leave to amend. The judgment will be affirmed.


Scott received title to certain real property in February 2005. The following August, he obtained from First Magnus Financial Corporation (Magnus) a $975,000 construction loan, secured by a deed of trust on the property. In November 2007, Magnus assigned its interest under the deed of trust to Washington Mutual Bank (WaMu).

A. JPMorgan Becomes Beneficiary Under the Deed of Trust and Forecloses

According to documents judicially noticed by the trial court, the federal government's Office of Thrift Supervision (OTS) issued an order on September 25, 2008, appointing the Federal Deposit Insurance Corporation (FDIC) as the receiver of WaMu. As set forth in a Purchase and Assumption Agreement between the FDIC and respondent JPMorgan dated as of September 25, 2008 (P&A Agreement), the FDIC then sold to JPMorgan "all of the assets" of WaMu (with specified exceptions), but not WaMu's liabilities for claims by borrowers.

Scott defaulted on his loan, and in January 2009 the California Reconveyance Company (CRC), as trustee under the deed of trust, caused the recording of a Notice of Default and Election to Sell the property. At the time, Scott purportedly owed $1,046,708.52 under the corresponding note. In April 2009, CRC caused a notice of trustee's sale to be recorded, providing notification that the property would be sold in May 2009.

B. Scott's Complaint and First Amended Complaint

In April 2009, Scott filed a complaint in this case against JPMorgan (and perhaps others), but the complaint is not in the appellate record. A first amended complaint, filed in June 2009, asserted numerous causes of action against JP Morgan, WaMu, Magnus, and Cobs Homes, essentially seeking relief on the ground that Scott had been fraudulently induced to enter into a subprime loan with Magnus.

JPMorgan filed a motion for judgment on the pleadings, arguing that, under the P&A Agreement, it did not assume any of WaMu's liabilities related to Scott's loan, JPMorgan complied with applicable provisions of the Civil Code, and Scott did not tender the amount owed under the note and deed of trust.

In support of its motion, JPMorgan sought judicial notice of: (1) a copy of the grant deed by which Scott obtained title to the property; (2) a copy of the deed of trust on the property, recorded August 18, 2005, identifying Magnus as the beneficiary; (3) a copy of the assignment of the deed of trust from Magnus to WaMu, recorded on November 5, 2007; (4) the OTS order appointing the FDIC as receiver of WaMu; (5) a copy of the P&A Agreement (attaching excerpts from the agreement and asserting the availability of its entirety at the FDIC Web site); (6) the notice of default and election to sell, recorded on or about January 14, 2009; and (7) the notice of trustee's sale, recorded on or about April 20, 2009. Judicial notice was sought under Evidence Code sections 451, subdivision (f), and 452, subdivisions (d), (g), and (h).

Of particular relevance to this appeal are the provisions of the P&A Agreement regarding the sale of WaMu's assets to JPMorgan. Section 3.1 of the P&A Agreement provided that the Assuming Bank (JPMorgan) purchased from the Receiver (FDIC) "all right, title, and interest of the Receiver in and to all of the assets (real, personal, and mixed, wherever located and however acquired) . . . of the Failed Bank [WaMu] whether or not reflected on the books of the Failed Bank as of Bank Closing [September 25, 2008]." (Italics added.) Although Section 3.5 of the P&A Agreement provided that JPMorgan did "not purchase, acquire or assume, or (except as otherwise expressly provided in this Agreement) obtain an option to purchase, acquire or assume under this Agreement the assets or Assets listed on the attached Schedule 3.5," Schedule 3.5 sets forth assets not relevant here.

As to WaMu's liabilities, Section 2.5 of the P&A Agreement provided that JPMorgan did not assume liability for borrower claims related to loans, or commitments to lend, made by WaMu, held by WaMu, or purchased by WaMu. Specifically, Section 2.5 reads: "Borrowers' Claims. Notwithstanding anything to the contrary in this Agreement, any liability associated with borrower claims for payment of or liability to any borrower for monetary relief, or that provide for any other form of relief to any borrower, whether or not such liability is reduced to judgment, liquidated or unliquidated, fixed or contingent, matured or unmatured, disputed or undisputed, legal or equitable, judicial or extra-judicial, secured or unsecured, whether asserted affirmatively or defensively, related in any way to any loan or commitment to lend made by the Failed Bank [WaMu] prior to failure [September 25, 2008], or to any loan made by a third party in connection with a loan which is or was held by the Failed Bank, or otherwise arising in connection with Failed Bank's lending or loan purchase activities are specifically not assumed by the Assuming Bank [JPMorgan]."

Scott filed an opposition to JPMorgan's motion and boilerplate objections to its request for judicial notice, asserting generally that the documents did not fall within the cited Evidence Code provisions. He did not dispute that the P&A Agreement attached to the judicial notice request and published on the FDIC's Web site was authentic, accurate, and complete.

In November 2010, the trial court granted JPMorgan's motion for judgment on the pleadings, with leave to amend.

C. Scott's Second Amended Complaint

Later in November 2010, Scott filed his second amended complaint against JPMorgan and the other defendants sued in the first amended complaint. He asserted essentially the same causes of action, but added some allegations as to JPMorgan, contending: the assignment of the deed of trust from Magnus to WaMu was invalid because the notary had no record of notarizing it; JPMorgan did not complete the transfer of the "[WaMu] assets from the FDIC to [JPMorgan]," so JPMorgan had no interest in the property; and yet JPMorgan employees spoke with Scott before and after JPMorgan "acquired the certain assets and liabilities of [WaMu] from the FDIC."

1. Scott's Causes of Action

The vast majority of Scott's purported causes of action are expressly based on fraud and other wrongdoing allegedly perpetrated to induce Scott to enter into the loan in August 2005, before JPMorgan obtained an interest in the property. By cause of action, Scott alleges: (1) violation of Business and Professions Code section 17200, based on defendants' untrue or misleading statements (regarding the terms and payment obligations, prepayment penalty, home value and ability to refinance, and non-receipt of kickbacks and the like) and their failure to consider Scott's ability to pay; (2) violation of Financial Code section 4973 ("predatory lending") by acts perpetrated by Magnus, including approving construction loans to uninformed buyers, encouraging the use of false documentation to qualify unqualified borrowers for a loan, and making false statements; (3) fraud, based on statements made to Scott "in the origination of the [loan]" regarding the loan terms and value of his property; (4) breach of the implied covenant of good faith and fair dealing in the negotiation of the loan; (5) conversion, by inducing Scott to agree to the loan and inflating the value of his property to justify a larger mortgage and compel unjust monthly payments; (6) quiet title, seeking invalidation of the deed of trust due to fraud and undue influence employed to get Scott to take out the loan; (7) fraud in the inducement, based on promises made to induce Scott to agree to the loan; (8) unfair business practices, based on "fraudulent acts, business model or change of underwriting standards"; (9) breach of mortgage brokers' fiduciary duties in connection with Scott's entry into the loan; (12) "civil conspiracy" in the origination of the loan ; (13) "aiding and abetting," in that all defendants knew and encouraged what every other defendant did in regard to the origination of the loan; (14) unlawful joint venture, in an agreement to originate, purchase, assign, sell and transfer the loan; and (16) racial discrimination in regard to the financing Scott was provided

The tenth cause of action - entitled "Wrongful Foreclosure" - contends that the foreclosure proceedings should be stopped (even though the property had already been sold) due to the defendants' "reprehensible conduct throughout this transaction." More particularly, Scott alleges that the foreclosure was wrongful in two respects. First, in paragraph 104, he contends JPMorgan had no right to foreclose because there was no valid loan due to the alleged fraud in the origination process. Second, in paragraphs 105 through 107, he alleges JPMorgan had no right to foreclose because the "Notice of Default was defective," the amount stated as due and owing in the Notice of Default was incorrect, and interest was overcharged.

Lastly, the fifteenth cause of action for injunctive relief, and the eighteenth cause of action for unjust enrichment (there is no eleventh or seventeenth cause of action), seek specified remedies based on the foregoing claims.

2. JPMorgan's Demurrer

JPMorgan filed a demurrer to the second amended complaint, contending it was a rehash of Scott's earlier pleading, JPMorgan could not be liable for any of Magnus' loan origination acts because it did not assume this liability under the P&A Agreement, and the wrongful foreclosure claim failed because JPMorgan complied with its statutory notice requirements and Scott failed to tender amounts owing under the loan.

JPMorgan did not file a new request for judicial notice in connection with its demurrer, but the parties and the trial court proceeded as if the earlier request for judicial notice could be considered in ruling on the demurrer. Although JPMorgan's demurrer represented incorrectly that a "request for judicial notice" was being submitted concurrently, it also provided that its "motion" would be based on the "request for judicial notice" as well as "all documents, records, and pleadings on file."

Scott filed an opposition to the demurrer, urging that the court must accept as true his allegation that "defendants' notice of default was defective and in violation of Civil Code [section] 2924." He also argued that it would be inequitable to require a tender, in light of his allegations that JPMorgan's fraudulent acts had increased Scott's costs and risk and inflated the value of his home; alternatively, he proposed, the court should allow him to make the tender after entry of judgment. As to the materials JPMorgan had sought to be judicially noticed, Scott did not object to the absence of a new or separate request for judicial notice, but relied instead on his boilerplate objections to the earlier one and argued that the materials could not be considered in ruling on the demurrer.

In addition, Scott sought leave to amend in case the demurrer was sustained, based on the following "offer of proof:" "Plaintiff submits to the court that the discovery responses adduced in this case clearly demonstrate the active involvement of JPMorgan Chase's representatives with this transaction after the acquisition by JPMorgan Chase of Washington Mutual (again, however, ...

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