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Gaines v. Fidelity National Title Ins. Co.

California Court of Appeal, Second District, Eight Division

December 12, 2013

Milton Howard GAINES, Plaintiff and Appellant,


APPEAL from a judgment of the Superior Court of Los Angeles County. Rolf M. Treu, Judge. Affirmed in part, reversed in part. (Los Angeles County Super. Ct. No. BC361768).

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Ivie, McNeill & Wyatt, W. Keith Wyatt and Antonio K. Kizzie, for Plaintiff and Appellant.

[165 Cal.Rptr.3d 549] Fidelity National Law Group and Kevin R. Broersma, for Defendants and Respondents Fidelity National Title Insurance Company and Bobbie Jo Rybicki.

Knapp, Petersen & Clarke and Steven Ray Garcia, for Defendants and Respondents Lehman Brothers Holdings, Inc. and Aurora Loan Services, LLC.

No appearance for Defendants and Respondents Joshua Tornberg, Craig Johnson, Ray Management Group, Inc., or A.J. Roop.



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In November 2006, Fannie Marie Gaines filed a complaint alleging causes of action for fraud and related claims arising out of the sale of her home.[1] By May 2012, the action had not been brought to trial. In August 2012, the trial court dismissed the suit for failure to bring the action to trial within five years, within the meaning of Code of Civil Procedure section 583.310, et seq. On appeal, plaintiff contends the trial court erred in failing to exclude certain periods from the computation of the five-year deadline. Plaintiff also asserts the trial court erred in dismissing the action as to all defendants, including ones who did not seek dismissal. We find no error in the trial court's ruling dismissing the action as to the defendants named in the original complaint. However, we conclude the trial court erred in dismissing the action as to one later-named defendant. We therefore affirm in part, and reverse in part.


Facts Underlying the Complaint

According to plaintiff's complaint, Milton and Fannie Marie Gaines owned a property in Los Angeles (the Property) that, prior to February 2006, was encumbered by a first deed of trust loan of $554,000. The loan was held by Countrywide Home Loans, Inc. (Countrywide). The complaint alleged the Gaineses had over $500,000 in equity in the Property. By February 2006, they had fallen two months behind in payments on the Countrywide loan. They received a notice of default and acceleration from Countrywide warning of foreclosure proceedings if they did not cure the default. The Gaineses began investigating refinancing the Countrywide loan.

In March 2006, A.J. Roop contacted the Gaineses. Roop identified herself as a Countrywide employee and informed the Gaineses that they had been preapproved for a refinance loan. In April 2006, the Gaineses again became delinquent in their loan payments. They received a second notice of default and acceleration. As of June 2006, the Property was appraised at $1 million. In June or July 2006, Roop told the Gaineses Countrywide had not approved their loan refinance application. Roop subsequently contacted the Gaineses and suggested her fiancé, Joshua Tornberg, could assist them in obtaining a refinance loan. Roop said Tornberg worked with Craig Johnson and Ray

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Management to assist people who had difficulty obtaining financing. Roop had given Tornberg and Johnson the Gaineses' loan application and contact information.

In June or July 2006, Tornberg, Johnson, and Ray Management (collectively the Tornberg defendants) contacted the Gaineses and offered to help them find a refinance loan. Another appraisal valued [165 Cal.Rptr.3d 550] the property at $1.25 million. According to the complaint, the Tornberg defendants told the Gaineses not to seek refinancing from any other lenders. In early July 2006, foreclosure proceedings were initiated. The Gaineses were $16,625.34 in arrears. The balance on the Countrywide loan was $554,000. In mid-July 2006, the Tornberg defendants informed the Gaineses they were unable to obtain a refinance loan. The Tornberg defendants proposed that they would purchase the Property for $950,000, including $100,000 to be used for repairs they would oversee. The Tornberg defendants also promised to lease the Property back to the Gaineses. They represented the lease would give the Gaineses an option to re-purchase the Property.

The Gaineses agreed to sell the Property to the Tornberg defendants. An escrow was opened at Fidelity to complete the transaction. In early August 2006, the Gaineses executed a warranty deed to transfer title of the Property to Tornberg. The complaint alleged, however, that the deed recorded was an altered warranty deed, recorded without the Gaineses' permission. The complaint also alleged Fidelity National Title Insurance Company (Fidelity), and its employee, Bobbie Jo Rybicki (collectively the Fidelity defendants), improperly released $90,000 to the Tornberg defendants from the escrow account. Further, according to the complaint, after the close of escrow, the Tornberg defendants presented the Gaineses with a revised month-to-month lease that did not include a purchase option. Milton Gaines died in late August 2006.

To purchase the Property, Tornberg took out an $855,000 loan secured by the Property. Tornberg subsequently refinanced the loan with a new $865,000 loan (the Tornberg loan), and procured an additional $150,000 loan secured by a deed of trust encumbering the Property. By June 2007, Tornberg owed $25,000 in delinquent payments for at least one of the loans secured by the Property. Fannie Marie Gaines paid the delinquent amount to avoid foreclosure proceedings. After multiple transfers between various entities, the Tornberg loan was eventually held or serviced by Aurora Loan Services, LLC (Aurora) and Lehman Brothers Holdings, Inc. (Lehman).

Procedural Background

On November 13, 2006, Fannie Marie Gaines filed a complaint against the Tornberg defendants, Roop, Countrywide, and the Fidelity defendants. The

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complaint also included fictitiously named Doe defendants 1 to 30. Plaintiff asserted claims for fraud, violation of Civil Code home equity sales contract requirements, intentional infliction of emotional distress, and negligence. The complaint sought rescission and cancellation of the deed transferring title of the Property to Tornberg. In January 2008, plaintiff filed a fourth amended complaint naming Aurora as a defendant, and Doe defendants 31 to 50.[2] In March 2008, the parties agreed to participate in mediation. In early April 2008, plaintiff's counsel filed an ex parte application for an order striking the existing September 2008 trial date and related dates, staying the action for 120 days except for responses to [165 Cal.Rptr.3d 551] outstanding discovery requests, and directing the parties to participate in good faith in a mediation within the next 90 days. The trial court granted the application and set a post-mediation and trial setting conference for July 2008.

The mediation was unsuccessful. The case was reassigned to a new judge. At a November 2008 status conference, the court terminated the stay of the proceedings. The court scheduled a trial setting conference for December 2008, and subsequently set an August 2009 trial date. Around that time, Aurora began indicating it did not hold legal title to the Property or have legal rights with respect to the Tornberg Loan. The trial date was vacated as a result. In early November 2009, Aurora sought leave to file an amended verified answer. In a declaration accompanying the motion for leave, Aurora's counsel declared he learned in May 2009 that Lehman owned the Tornberg Loan, and that Aurora did not have any title to the deed of trust securing the loan. Aurora's counsel further declared he promptly provided this information to plaintiff's counsel. Aurora's counsel also reported that, at plaintiff's counsel's request, he had eventually secured a declaration from a Lehman Vice President, attesting to the ownership of the Tornberg Loan. In the amended answer, Aurora denied having an interest in the Property or the Tornberg Loan. Lehman had declared bankruptcy in 2008.

On November 29, 2009, Fannie Marie Gaines passed away. Plaintiff had scheduled a motion for leave to file a fifth amended complaint to be heard on December 18, 2009; plaintiff's counsel sought to file an ex parte application on that date to substitute a successor in interest as the plaintiff in the action. The hearing on the motion and application was continued to January 28, 2010, the then-scheduled trial date. On January 28, the court granted plaintiff's motion for leave to file a fifth amended complaint, and granted the

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application substituting Gaines's son as the successor in interest and plaintiff in the action. The court set a new trial date of August 30, 2010. The fifth amended complaint did not name Lehman as a defendant.

In mid-August 2010, Aurora filed an answer to the fifth amended complaint in which it again denied owning the promissory note at issue, or possessing any rights as a beneficiary of the deed of trust securing the Tornberg Loan against the Property. Aurora alleged, on information and belief, that Lehman had rights in the loan, and was in bankruptcy.

At a subsequent August 2010 status conference, Aurora's counsel informed the court that Lehman was still in bankruptcy. Plaintiff's counsel suggested that the court continue the matter to allow plaintiff time to " bifurcate" as to Lehman and proceed against the other defendants. The court suggested it would not " look with a great deal of favor on bifurcating things," but also stated: " I'm not saying I'm going to deny your motion, I'm just sending up the yellow flag." The court continued the matter to November 2010.

At the November 2010 status conference, plaintiff's counsel informed the court they were ready to set the matter for trial. Aurora's counsel informed the court that Lehman was still in bankruptcy and plaintiff had not sought relief from the bankruptcy stay. Bankruptcy proceedings were taking place in the United States Bankruptcy Court for the Southern District of New York. Aurora's counsel suggested that without having Lehman as a party, the case would have to be tried twice. The court said it would not do that and asked why plaintiff had not named [165 Cal.Rptr.3d 552] Lehman as a defendant. Plaintiff's counsel indicated plaintiff did not have proof that Lehman was a titleholder, and a declaration was not sufficient proof of interest in the Property. The court expressed frustration with the parties for the lack of progress on the Lehman issue. It suggested the parties come up with a solution, and set a status conference for mid-December 2010.

At the December status conference, Aurora indicated an assignment document would be recorded the next day, documenting Lehman's ownership interest in the Tornberg Loan. Plaintiff's counsel reported plaintiff's next step would be to seek relief from the bankruptcy stay. At the next status conference in February 2011, plaintiff's counsel indicated he had authorization to retain New York counsel to file a petition for relief from the bankruptcy. The court continued the matter to June 20, 2011. In October 25, 2011, the bankruptcy court entered a stipulation, agreement, and order, lifting the bankruptcy stay as to plaintiff's claims.

On November 15, 2011, plaintiff amended her complaint to add Lehman to the action as previously-named Doe 31. Lehman answered the complaint in

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December 2011. Trial was set for August 6, 2012. Lehman sought leave to file a cross-complaint seeking a declaratory judgment validating its deed of trust " or impressing and enforcing an equitable lien against the subject property."

In May 2012, the Fidelity defendants moved to dismiss plaintiff's complaint under Code of Civil Procedure sections 583.310 and 583.360.[3] The Fidelity defendants argued neither the bankruptcy stay nor Fannie Marie Gaines's death tolled the five-year period so as to extend it beyond November 2011.

In opposition to the motion, plaintiff argued the action was stayed for seven months and three days in 2008 when the court granted the parties' application for a 120-day stay in April 2008, and the court did not lift the stay until November 2008. Plaintiff further argued the two-month period between Fannie Marie Gaines's death and the substitution of a successor should be excluded from the five-year period. Plaintiff additionally contended the five-year period was tolled for the period in which plaintiff sought relief from the bankruptcy stay between June and October 2011, because it was impossible, impracticable, or futile to bring the action to trial while the bankruptcy stay was in effect as to Lehman. Plaintiff's counsel declared it took six months to secure New York counsel.[4] Plaintiff's counsel declared plaintiff had paid significant sums to stop foreclosure sales on the property, and there had been " extensive litigation" of the matter. Plaintiff noted the possibility of severing defendants from the action was not determinative, and the court had indicated it would not sever the action to allow trial to proceed against the Fidelity defendants first.

In reply, the Fidelity defendants argued the 2008 mediation stay did not qualify as a stay under section 583.340, subdivision (b). They also asserted the time it took [165 Cal.Rptr.3d 553] for plaintiff to secure relief from the bankruptcy stay and add Lehman as a defendant should not be excluded from the five-year period.

In a tentative ruling, the court indicated it would grant the motion to dismiss.[5] The trial court agreed with plaintiff's assessment that two months should be excluded from the five-year period due to Fannie Marie Gaines's death and the need to substitute a successor in interest as plaintiff. The court also accepted plaintiff's argument regarding the Lehman bankruptcy and

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excluded a 125-day period from the time plaintiff secured bankruptcy counsel, to the time she secured relief from the bankruptcy stay. However, the court determined the stay of the action between April 2008 and November 2008 was a partial stay and not a stay within the meaning of section 583.340, subdivision (b). The court further determined plaintiff had not demonstrated she was diligent in prosecuting the action during the stay, or that the stay made it impossible, impractical, or futile to bring the action to trial. With the permitted exclusions, the court concluded plaintiff should have commenced trial by May 16, 2012, to fall within the five-year period. The scheduled trial date exceeded the adjusted 5-year-period by 82 days. The tentative order indicated Lehman's motion for leave to file a cross-complaint was moot.

At the hearing on the motion, plaintiff contended that even if the court dismissed the action, it should be dismissed only as to the Fidelity defendants because they were the only parties who moved for dismissal. Plaintiff's counsel argued the failure to move for dismissal constituted a waiver of rights under the dismissal statute. Counsel further asserted plaintiff had been diligent in prosecuting the action, the 2008 stay was negotiated among all parties, and defendants were estopped from arguing the 2008 stay should be included in the five-year period. Although they had not filed or joined a motion to dismiss, counsel for Lehman and Aurora argued at the hearing. All defendants present at the hearing argued the five-year dismissal requirement was " jurisdictional" such that if the court granted the Fidelity defendants' motion, it would have no jurisdiction to hear the case against Lehman alone. On August 1, 2012, the court adopted its tentative as the final order.

On August 20, 2012, plaintiff filed a motion for reconsideration. Plaintiff asserted the trial court failed to take into account various factors concerning the 2008 stay, such as that it was agreed upon by all parties, and applied to all parties. Plaintiff asserted that because the Fidelity defendants did not explicitly argue the 2008 stay did not toll the five-year period until their reply on the motion to dismiss, she was unable to effectively present arguments on the issue. Further, plaintiff contended she had not been provided notice that the non-moving defendants would be included in the motion and she was therefore unable to offer evidence specific to those defendants. Plaintiff argued the court failed to consider that the five-year period had not expired as to Lehman.

On August 24, 2012, the trial court entered a judgment of dismissal. On September 6, 2012, Aurora and Lehman served a notice of entry of judgment. On October 22, 2012, the trial court denied the [165 Cal.Rptr.3d 554] motion for reconsideration. Plaintiff filed a notice of appeal on November 5, 2012.

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I. The Trial Court Did Not Err in Dismissing the Action as to the Fidelity ...

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