Henry Aguila vs First American Title Insurance Company et al

Case Number

23CV00204

Case Type

Hearing Date / Time

Mon, 08/19/2024 - 10:00

Nature of Proceedings

Demurrer re Second Amended Complaint

Tentative Ruling

Henry Aguila v. First American Title Ins. Co.

Case No. 23CV00204

Hearing Date:         8/19/2024                                                       

HEARING:    Demurrer to third cause of action of Second Amended Complaint

           

ATTORNEYS:          Ronald D. Tym of The Tym Firm for plaintiff Henry Aguila

                                    Sean R. Burnett / Ashley Dorris Egerer of Snyder Burnett Egerer for defendant First American Title Insurance Company

                                    Eric A. Woosley for defendants Pico Rivera First Mortgage Investors, LP, and Mortgage Co. of Santa Barbara, Inc.

                       

TENTATIVE RULING:  

The demurrer is sustained, with leave to amend on or before September 9, 2024.

Background: On January 18, 2023, plaintiff Henry Aguila (Aguila) filed a complaint, in pro per, against defendants First American Title Insurance Company (First American), Pico Rivera First Mortgage Investors, LP (Pico Rivera), Mortgage Co. of Santa Barbara (MCSB)—alleged to be a general partner in Pico Rivera, and Andrew Fuller (Fuller), alleging causes of action for (1) breach of contract, (2) breach of contract/third party beneficiary, (3) breach of the covenant of good faith and fair dealing, (4) inducing breach of contract, (5) intentional infliction of emotional distress, and (6) negligence.

After a motion to have Aguila declared a vexatious litigant, for a pre-filing order, and to post security of $35,000, was filed by defendants MCSB, Pico Rivera, and Fuller, attorney Ronald D. Tym substituted into the action on Aguila’s behalf. Because Aguila was now represented by counsel, the court denied the request for an order requiring Aguila to post security before proceeding with the action, but granted the motion finding Aguila to be a vexatious litigant (Code Civ. Proc., § 391, subd. (b)) and to require a prefiling order (Code Civ. Proc., § 391.7).

Aguila filed his First Amended Complaint (FAC) on July 31, 2023. The FAC named the same parties as defendants, and alleged causes of action for (1) breach of contract (against Pico Rivera and MCSB), (2) breach of the covenant of good faith and fair dealing (against Pico Rivera and MCSB), (3) breach of obligation to report payments on judgment (against Pico Rivera and MCSB), and (4) intentional interference with contractual relations (against First American).

The FAC’s first cause of action for breach of contract alleged that on July 16, 2015, Thee Aguila, Inc. (TAI) borrowed $5,700,000 from Pico Rivera, secured by property located at 8825 Washington Blvd. in Pico Rivera, CA. Plaintiff Aguila was, at that time, the sole shareholder of TAI. He entered into a personal guarantee of all of TAI’s obligations to Pico Rivera, including the loan. First American issued a lender’s policy of title insurance, insuring the priority of the Deed of Trust. Aguila believes that the policy was in an amount not to exceed the outstanding amount of the loan. Its purpose was to protect Pico Rivera against losses up to the outstanding amount of the loan, arising from the failure of Pico Rivera to be able to get fully repaid on the Loan due to encumbrances other than Excluded Encumbrances under the policy. First American’s obligation was directly connected to the status of the Loan, and the amount which was outstanding.

TAI defaulted on the Loan, and Pico Rivera conducted a trustee’s sale of the property on December 6, 2017, under which it took title to the property as a result of a credit bid of $5,105,000. Prior to the credit bid, $6,116,346.01 was due and owing on the loan. Following the trustee’s sale, no more than $1,011,346.01 remained due and owing on the Loan.

Aguila alleged that he was fraudulently induced by Pico Rivera to enter into a Settlement Agreement in November 2020, in which he agreed to a stipulated judgment against him (Case No. 18CV04958) in the amount of $3,867,113.84, to settle his obligations under the Guarantee. However, that amount was far in excess of the amount actually due under the Guarantee, since Pico Rivera intentionally failed to credit its $5,105,000 credit bid against the amount due and owing under the loan. On information and belief, Aguila alleges that on December 28, 2021, Pico Rivera received $1,100,000 from First American under the Lender’s Policy of Title Insurance, but failed to credit this amount received towards the Loan, against the amount Aguila allegedly owed pursuant to the Guarantee and the stipulated judgment. Its failure to credit the amounts received towards the amount due under the Guarantee is a breach of the Guarantee Agreement, and an attempt to double dip by attempting to be paid twice for the same loan.

After Pico Rivera and MCSB demurred to the causes of action alleged against them, the Court sustained the demurrer to the breach of contract, with leave to amend solely on the ground that the cause of action failed to allege the contractual provision within the Guarantee Agreement alleged to have been breached (the cause of action had also been challenged on a number of other bases, but the Court found none of them meritorious). It overruled the demurrer to the second cause of action for breach of the implied covenant of good faith and fair dealing. Finally, it sustained the demurrer to the third cause of action for failure to properly report credits toward the judgment, without leave to amend, on the ground that the procedure set forth in Code of Civil Procedure section 724.050 constitute the exclusive method for a judgment debtor to obtain an order for entry of satisfaction of judgment, including obtaining offsets to the amount owed under the judgment. That procedure could only be accomplished within the action which gave rise to the judgment against him, i.e., Case No. 18CV04958.

Aguila filed his Second Amended Complaint (SAC) on February 22, 2024. Rather than amending the cause of action for breach of contract, for which leave to amend had been granted, Aguila eliminated any breach of contract cause of action from the SAC, and replaced it with a cause of action for violation of Civil Code section 2822, which provides, in relevant part:

(a) The acceptance, by a creditor, of anything in partial satisfaction of an obligation, reduces the obligation of a surety thereof, in the same measure as that of the principal, but does not otherwise affect it. However, if the surety is liable upon only a portion of an obligation and the principal provides partial satisfaction of the obligation, the principal may designate the portion of the obligation that is to be satisfied.

 

The cause of action sought damages for emotional distress, [physical ailment, loss of qualify of life, and medical expenses, in an amount of at least $5,000,000, arising from Pico Rivera’s failure to properly credit the credit bid and the amount received from First American. (SAC @ ¶ 20) Additionally, Aguila amended the cause of action for breach of the implied covenant of good faith and fair dealing—for which no leave to amend had been granted—by eliminating all reference to a breach of an express provision of the Guarantee (former ¶ 26), and adding new paragraphs.

The third cause of action for intentional interference with contractual relations first incorporates all prior causes of action, and then alleges that when First American paid the $1,100,000 to Pico Rivera, it “encouraged” Pico Rivera to breach its obligations to Aguila under the Guarantee Agreement by “encouraging” Pico Rivera to continue to seek to collect against Aguila pursuant to the Guarantee agreement, even with respect to the amount that First American paid which should be credited to Aguila’s obligations. As a result, First American was aware of the Guarantee Agreement, which was the contractual relationship between Aguila and Pico Rivera. Aguila alleges that he was harmed by First American’s actions in suffering emotional distress and physical ailment in an amount of at least $5,000,000, loss of quality of life and medical expenses, and he has not been credited with the $1,100,000 payment.

Following the filing of the SAC, Case No. 23CV00204 was ordered related to Case No. 18CV04958 (the case in which the Stipulated Judgment was entered), and Case No. 23CV00204 was transferred to Dept. 5 and reassigned to the Honorable Collen K. Sterne for all purposes.

On March 13, 2024, defendants Pico Rivera and MCSB moved to strike portions of the SAC. After hearing on May 20, 2024, the Court granted the motion to strike, limited to the heading of the first cause of action (eliminating it as a separate cause of action), ¶¶ 20 and 22 of the former first cause of action (because they were necessary allegations for the remaining claims), and ¶ 28 of the “second” cause of action. 

Pico Rivera and MCSB then answered the SAC on May 29, 2024.

On June 24, 2024, defendant First American demurred to the “third” cause of action for intentional interference with contractual relations.

Demurrer: First American demurred to the cause of action against it both generally and specially based upon uncertainty.

The demurrer reiterates the factual background of the loan, Guarantee, foreclosure and full credit bid, and asserts that its sole involvement was the issuance of a policy of title insurance, related to the loan made by Pico Rivera to Thee Aguila Inc, the repayment of which was secured by the property. The demurrer notes that Pico Rivera filed a separate lawsuit against First American (Case No. 19CV02285), which was settled during mediation, with First American agreeing to pay money to Pico Rivera. The case was dismissed on January 18, 2022. Aguila’s current claim against First American for intentional interference with contractual relations alleges that First American interfered with the Guarantee contract relationship by “encouraging” Pico Rivera to breach the terms of the Guarantee—which First American contends makes no sense.

First American articulates the elements of a claim for intentional interference with contractual relations, and argues that it is not enough that the actor intended to perform the acts which caused the result; he or she must have intended to cause the result itself, citing Kasparian v. County of Los Angeles (1995) 38 Cal.App.4th 242, 261. It states that it appears that the contractual relationship at issue is the Guaranty, and the intentional act was “encouraging” Pico Rivera to continue to seek to collect from Aguila, the amount First America was paying to Pico Rivera, in the course of First American’s making of the payment.

First American asserts that the allegations fall short of meeting the required elements for an intentional interference claim for several reasons. First, the act of paying the amount was First American settling a breach of contract and bad faith claim brought against it by Pico Rivera, and Aguila has not pled and cannot plead that making the payment in any way “encouraged” Pico Rivera to enforce plaintiff’s obligations under the Guaranty. Judgment was entered in the matter involving the guaranty before First American reached the settlement.

Second, when, where, or how this was done in a manner “designed to induce a breach or disruption of the contractual relationship, or how First American intended to cause the alleged or harmful result is not alleged. Aguila mere alleges that First American “encouraged” Pico Rivera to continue to seek to collect against Aguila, without specifying any acts that could be viewed as “encouraging” Pico Rivera, who conducted the unspecified encouraging acts, or when it was done.

Third, even with the most liberal interpretation of the allegations in Aguila’s favor, there are no facts to support a finding that there was a “design” to induce a breach, that any alleged act was done by unlawful means, or by means otherwise lawful when there is a lack of sufficient justification for such interference. First American’s acts were limited to settling a lawsuit against it.

Finally, First American contends that there is no reasonable possibility that an amendment could cure the defect, and urges the court to sustain the demurrer without leave to amend.

Opposition In his opposition, Aguila references ¶¶ 14 and 18 of his SAC to assert that a “supposed defect” in the title to the property caused First American, which had issued a lender’s title insurance policy in connection with the loan, to have to pay $1,100,000 “of the outstanding loan amount.” Citing to ¶ 30, he contends further that, in an attempt to recover the $1,100,000 it paid to Pico Rivera, First American encouraged Pico Rivera to continue to try to collect that amount form Aguila under the Guaranty Agreement, even though it should have reduced Aguila’s obligations under that agreement.

Aguila reiterates the elements of a cause of action for intentional interference with contractual relations, contending they include (1) plaintiff had a valid and existing contract, (2) the defendant had knowledge of the contract and intended to induce its breach, (3) the contract was in fact breached by the contracting party, (4) the breach was caused by the defendant’s unjustified or wrongful conduct, and (5) the plaintiff suffered damage. He then cited Quelimane Co. v. Stewart Title Guaranty Co. (1998) 19 Cal.4th 26, 55) for the propositions that it is not necessary for the defendant’s conduct to be wrongful apart from the interference, that the defendant’s primary purpose need not be disruption of the contract, and that the tort is shown even where the actor does not act for the purpose of interfering with the contract, or desire it, but knows that interference is certain or substantially certain to occur as a result of his or her action.

Aguila contends the first element was met, since the SAC alleged a Guarantee Agreement between Aguila and Pico Rivera, referencing ¶ 13.

Aguila contends the second element was met, because the SAC alleges that First American knew about the contract, because it encouraged Pico Rivera to continue to pursue Aguila under the Guarantee Agreement for the $1,100,000 payment First American had “secretly” made to Pico Rivera that should have reduced Aguila’s obligations under the contract by that amount, referencing ¶¶ 30-31.

He contends the third element was met, because the SAC alleges that First American induced a breach of the Guarantee Agreement even though the amount paid by First American should have reduced Aguila’s obligations under the contract by that amount, referencing ¶ 30. He adds that “such continuing attempt to collect from Plaintiff Henry Aguila was an express condition” which First American imposed upon its agreement to make the payment to Pico Rivera, without referencing any paragraph of the SAC.

Aguila contends that the fourth element was met, because he alleged a cause of action for breach of the implied covenant of good faith and fair dealing, alleging that the Guarantee Agreement required Pico Rivera to credit the $1,100,000 amount it received from First American toward Aguila’s obligations under the Guarantee Agreement, that Pico Rivera failed to do so, and therefore breached the implied covenant. He concludes there was thus an actual breach of the contract and facts supporting the fourth element.

He concludes that the fifth amendment was met, because the SAC alleges that he suffered the damage of not being properly credited with the $1,100,000 payment, and has also suffered emotional distress and physical ailment necessitating medical expenses.

Reply In its reply, First American again contends the SAC does not allege facts to state a cause of action for intentional interference with contractual relations. While Plaintiff cites to Quelimane Co. to contend that he need not establish that defendant’s primary intention was to disrupt the contractual relationship, he omitted several key distinctions. Quelimane involved a real estate purchase agreement between a plaintiff entity which was engaged in holding, ownership, and financing of real property, and a third-party issuer. Defendant was a title insurance company, and the alleged contractual interference was the refusal to issue a title insurance policy. There were also allegations of conspiracy alleged against the company. Here, plaintiff alleges that the act of settling a breach of contract/bad faith lawsuit filed by First American’s insured, and paying money as part of that settlement, supports a cause of action for intentional interference. Further, the Quelimane court noted that the fact that the interference was not desired and was incidental was a factor to be considered, and if the actor was not acting criminally or with fraud, violence, or other wrongful means, but was advancing some interest of its own, the fact that he is aware that he will cause interference with the contract may be regarded as minor and incidental and so far removed form defendant’s objective to find that any interference was not improper.

It reiterates that the alleged “wrongful act” alleged in the SAC does not support a cause of action for intentional interference. It was not criminal, fraudulent, violent, or otherwise wrongful, and was merely the settlement of a lawsuit through the payment of money. Coupled with the fact there were no conspiracy allegations against it, the allegations are insufficient to support a cause of action for intentional interference.

Further, the SAC fails to allege what any acts of “encouraging” interference consisted of, rendering the allegations insufficient to state a cause of action.

ANALYSIS:  The demurrer is sustained, with leave to amend on or before September 9, 2024.

1.         Standards on demurrer.

The court’s task in ruling on a demurrer is to determine whether the complaint states a cause of action. (People ex rel. Lungren v. Superior Court (1996) 14 Cal.4th 294, 300.) A demurrer admits the truth of all material facts properly pleaded (Aubry v. Tri-City Hosp. Dist. (1992) 2 Cal.4th 962, 966-967), no matter how unlikely or improbable they may be (Del E. Webb Corp. v. Structural Materials Co. (1981) 123 Cal.App.3d 593, 604), or how unlikely it will be that plaintiff will be able to prove the claim (Committee on Children’s Television, Inc. v. General Foods Corp. (1983) 35 Cal.3d 197, 213-214). The court also assumes the truth of all reasonable inferences that may be drawn from the properly pleaded facts. (Reynolds v. Bement (2005) 36 Cal.4th 1075, 1083.) The assumption of truth does not apply, however, to contentions, deductions, or conclusions of law or fact. (Blank v. Kirwan (1985) 39 Cal.3d 311, 318.) A demurrer tests the pleadings alone and not the evidence or other extrinsic matters, and therefore lies only where the defects appear on the face of the pleading or are judicially noticed. (Id.)

A demurrer for uncertainty will be sustained only where the complaint is so incomprehensible that defendant cannot reasonably respond—i.e., he or she cannot reasonably determine what issues must be admitted or denied, or what counts or claims are directed against him or her. (Khoury v. Maly's of Calif., Inc. (1993) 14 Cal.App.4th 612, 616.) Any ambiguities short of that can be clarified in discovery. (S. J. Fistes Corp. v. GDL Best Contractors, Inc. (2019) 38 Cal.App.5th 677, 695.)

2.         Intentional interference with contractual relations.

Intention interference with contractual relations is a tort, the elements of which include: (1) the existence of a valid contract between the plaintiff and a third party, (2) the defendant’s knowledge of that contract, (3) the defendant’s intentional acts designed to induce a breach or disruption of the contractual relationship, (4) actual breach or disruption of the contractual relationship, and (5) resulting damage. (Pacific Gas & Electric Co. v. Bear Stearns & Co. (1990) 50 Cal.3d 1118, 1126.)

The defendant’s conduct need not be wrongful apart from the interference with the contract. (Quelimane Co. v. Stewart Title Guaranty Co. (1998) 19 Cal.4th 26, 55.) Further, a plaintiff need not establish that the primary purpose of the defendant’s action was to disrupt the contract, but must show the defendant’s knowledge that the interference was certain or substantially certain to occur as a result of his or her action. (Id. at p. 56.) The plaintiff need not show the defendant induced an actual or inevitable breach of the contract, and it is sufficient to show the defendant’s conduct made the plaintiff’s performance, and inferentially enjoyment, under the contract more burdensome or costly. (Ghazarian v. Magellan Health, Inc. (2020) 53 Cal.App.5th 171, 191.)

3.         Application

A.        Factual Information Disregarded in Resolving the Demurrer.

The Court notes that the information submitted by First American in its demurring and reply papers related to Case No. 19CV02285 between Pico Rivera and First American, including the nature and scope of that lawsuit and the settlement thereof, cannot properly be considered on this demurrer. (See Demurrer Points & Authorities at page 4, lines 3-8, page 6, lines 23-24 and 26-27, page 7, lines 12-14; Declaration of Sean R. Burnett at ¶¶ 3 and 4; and Reply at page 3, lines 3-5.) Those facts are outside the four corners of the SAC, which in fact alleged that the purpose of the policy issued to Pico Rivera by First American “was to was to protect PRFMI against losses up to the outstanding amount of the Loan arising from failure of PRFMI to be able to get fully repaid on the Loan due to encumbrances other than Excluded Encumbrances. Therefore, the obligation of First American was directly connected to the status of Loan and the amount of the Loan outstanding.” [SAC @ ¶ 15] Further, the demurrer is unaccompanied by any request for judicial notice of any document within that court file to support the factual contentions made by First American, as to the nature of the claims made in Case No. 19CV02285, the mediation of that action, or the nature or terms of the settlement of that litigation.

As noted above, a demurrer admits the truth of all material facts properly pleaded (Aubry v. Tri-City Hosp. Dist. (1992) 2 Cal.4th 962, 966-967), which would include Aguila’s allegations of the purpose of the policy. Further, a demurrer tests the pleadings alone and not the evidence or other extrinsic matters, and therefore lies only where the defects appear on the face of the pleading or are judicially noticed. (Blank v. Kirwan (1985) 39 Cal.3d 311, 318.) Consequently, in resolving this demurrer, the Court has disregarded all such information submitted in contravention of these basic principles.

On the other hand, the Court also notes that Aguila, in opposing the demurrer, also made several factual assertions in support of his claims that are not remotely reflected by the allegations of his SAC. First, Aguila argues that the $1,100,000 payment to Pico Rivera was made “secretly” by First American, referencing SAC ¶¶ 30 and 31 in support of his claim. (Opposition at p. 3, lines 9-12.) Those paragraphs are alleged within the third cause of action, and provide:

30. First American, when paying the $1,100,000 to PRFMI, encouraged PRFMI to breach PRFMI’s obligations to Aguila under the Guarantee Agreement by encouraging PRFMI to continue to seek to collect against Aguila pursuant to the Guarantee Agreement, even with respect to the $1,100,000 that First American was paying and that should be credited to Aguila’s obligations.

31. Therefore, First American was aware of the Guarantee Agreement which constituted the contractual relationship between Aguila and PRFMI.

As is apparent from these paragraphs, and after reviewing the SAC as a whole, the contention that the payment was “secretly” made is nowhere alleged in the SAC, and wholly unsupported by the referenced paragraphs.

Additionally, after reiterating that First American induced a breach of the Guaranty Agreement by expressly encouraging Pico Rivera to continue to try to collect from Aguila the $1,100,000 it had paid, despite that it should have reduced Aguila’s obligations under the Guaranty Agreement by that amount, Aguila goes on to argue (without citation to any allegations of the SAC) that “Such continuing attempt to collect form Plaintiff Henry Aguila was an express condition imposed by FATCO to FATCO making the payment to PRFMI.” [Emphasis added.] The SAC does not include any such allegation, nor is any such conclusion inferable from the facts which are actually alleged.

To the extent Aguila’s opposition makes arguments which rely upon facts never alleged in its SAC, in order to contend that the SAC adequately alleges a cause of action for intentional interference with contractual relations, the Court has disregarded all such facts.

B.        The facts actually alleged in the SAC are insufficient to state a cause of action for intentional interference with contractual relations.

As noted above, this Court has considered only those facts alleged in the SAC in evaluating whether it is sufficient to allege a valid cause of action for intentional interference with contractual relations. This means it has not considered First American’s facts showing that the payment was made in settlement of a breach of contract and bad faith claim brought against it by Pico Rivera on the policy of title insurance it had issued on the property at issue. It also means that the Court has not considered Aguila’s factual assertions that First American’s payment to Pico Rivera was made secretly, and was made upon the express condition that Pico Rivera continue to attempt to collect that amount from Aguila.

What this Court is left with, after disregarding the improperly argued facts, is a claim that First American allegedly interfered with the contractual relationship between Pico Rivera and Aguila in the Guaranty Agreement when or after it made the $1,100,000 payment under its policy—issued for the purpose of protecting Pico Rivera against losses up to the outstanding amount of the loan arising from the failure of Pico Rivera to be able to be fully repaid on the loan due to encumbrances other than Excluded Encumbrances (and, by inference, not simply a traditional title insurance policy)—by “encouraging” Pico Rivera to keep attempting to collect that amount from Aguila, even though it should  reduce Aguila’s obligations under the Guaranty Agreement, and that Pico Rivera in fact has continued to attempt to collect this amount from Aguila.

On those facts, the Court cannot find that the SAC alleges sufficient facts to constitute a valid cause of action for intentional interference with contractual relations. The use of the word “encourage” or “encouraging” is so vague as to provide virtually no information whatsoever on what acts First American is alleged to have performed that constituted an intentional interference with the contractual relationship between Aguila and Pico Rivera in the Guaranty Agreement. As alleged, such “encouragement” could have constituted little more than a conversation made in the course of settling the breach of contract/bad faith litigation, wishing Pico Rivera luck with its efforts to collect on the Guaranty Agreement. Along with virtually any other verbal “encouragement”—would have been patently insufficient to constitute an “intentional act designed to induce a breach or disruption of the contractual relationship”—an essential element of the cause of action. Without far more, the Court cannot find that the allegations in the SAC allege sufficient facts to constitute a valid cause of action for intentional interference with contractual relations, requiring that the general demurrer be sustained. The allegations are also fatally uncertain, requiring that the special demurrer for uncertainty be sustained.

The Court will therefore sustain First American’s demurrer to the SAC’s third cause of action, with leave to amend on or before September 9, 2024.

In sustaining the demurrer, the Court has not considered whether the additional unalleged facts argued by Aguila in his opposition to the demurrer would have sufficed to constitute a valid cause of action, if they had been alleged in the SAC. The Court will permit Aguila an opportunity to allege his best case against First American, to the extent he is permissibly able to do so. (See, Code Civ. Proc., § 128.7, subd. (b)(3).