Gray v. La Salle Bank, N.A.

95 Cal.App.5th 932

312 Cal.Rptr.3d 870

Gina M. GRAY et al., Plaintiffs and Appellants,

v.LA SALLE BANK, N.A., et al., Defendants and Respondents.

H049324, H049433

Court of Appeal, Sixth District, California.

Filed August 30, 2023

As Modified on Denial of Rehearing September 27, 2023

Attorneys for Plaintiffs and Appellants: Gina M. Gray, David A. Zamora, Edward C. McDonald Jr., Jensen & McDonald

Attorneys for Defendants and Respondents: La Salle Bank, N.A., Chase Home Finance, LLC, California Reconveyance Company, JPMorgan Chase Bank, National Association, Bryant Steven Delgadillo, Parker, Ibrahim & Berg LLP, Matthew Henderson, Parker Ibrahim & Berg LLP

Attorney for Defendants and Respondents: Yu Pan, San Diego, Ling Jin, In Pro Per

BAMATTRE-MANOUKIAN, ACTING P.J.

I. INTRODUCTION

Under the doctrine of res judicata (also known as claim preclusion), a party is prevented from relitigating a claim against the same party (or one in privity with such party) when there has been "a final judgment on the merits in the first suit. [Citations.]" ( DKN Holdings LLC v. Faerber (2015) 61 Cal.4th 813, 824, 189 Cal.Rptr.3d 809, 352 P.3d 378 ( DKN Holdings ).) Under California law, a plaintiff's voluntary dismissal without prejudice of a prior action is not a final judgment on the merits that bars a subsequent suit. ( Tokerud v. Capitolbank Sacramento (1995) 38 Cal.App.4th 775, 778, 45 Cal.Rptr.2d 345 ( Tokerud ).) And California does not prohibit a plaintiff from filing dismissals without prejudice in successive actions. But under federal rules, when a plaintiff files and dismisses without prejudice a state or federal action and thereafter files a second action in federal court and dismisses it without prejudice, the second dismissal is deemed to be "an adjudication on the merits." ( Fed. Rules Civ. Proc., rule 41(a)(1)(B), 28 U.S.C. (hereafter, Rule 41 ).) This is sometimes referred to as "the ‘two-dismissal rule.’ " ( Commercial Space Management Co. v. Boeing Co. (9th Cir. 1999) 193 F.3d 1074, 1075.)

This case presents the following question: In California, the filing of successive lawsuits which are both dismissed without prejudice by the plaintiff does not constitute a final judgment on the merits that would preclude a subsequent lawsuit in a California state court. But when, as here, the plaintiff has previously filed two federal suits, alleging federal and state claims, and has voluntarily dismissed them without prejudice, is a third suit filed in California state court alleging only state-law claims subject to claim preclusion because Rule 41(a)(1)(B) provides that a second voluntary dismissal of a federal suit is "an adjudication on the merits?"

In 2005, Gina M. Gray and David A. Zamora (collectively, Appellants) purchased a San Jose residence located on Cannes Place (the Property). They obtained a $1 million loan approximately one year later from Washington Mutual Bank, FA (WaMu), memorialized by a note secured by a deed of trust encumbering the Property. In July 2013, the Property was sold through a nonjudicial foreclosure sale (or trustee's sale) to Ling Jin and Yu Pan (collectively, Buyers).

Appellants, after two prior federal suits were dismissed without prejudice, filed the present lawsuit in April 2014 for wrongful foreclosure and related state-law claims. They named as defendants the Buyers, and financial entities (collectively, Lenders) alleged to have been original or successor beneficiaries or trustees under the note and deed of trust.¹ Generally, Appellants contend that the 2013 foreclosure sale was void because some or all of Lenders who directed, initiated, and concluded that sale were without legal authority to do so. The foundation of this "void foreclosure sale" theory is a challenge to an assignment of the deed of trust on April 17, 2008 (the Assignment) by WaMu to "La Salle Bank NA as Trustee for WAMU 2006-AR19." Appellants contend that this Assignment was void because the entity identified in the instrument, "WAMU 2006-AR19," was allegedly nonexistent. Lenders dispute these contentions. They respond that the Assignment was valid, and that the trust entity to which the deed of trust was assigned was an existing entity, WaMu Mortgage Pass-Through Certificates Series 2006-AR19 Trust (hereafter, WaMu Mortgage Trust).

In January 2015, the trial court sustained a demurrer without leave to amend to Appellants' second amended complaint. Appellants filed an appeal from the judgment of dismissal on the order sustaining demurrer. In May 2018, a panel of this court reversed and reinstated five of the eight causes of action. (See Gray v. La Salle Bank, N.A. (May 31, 2018, H042337) 2018 WL 2440658 [nonpub. opn.] ( Gray ).)²

On remand, Lenders filed a motion for summary judgment or, in the alternative, for summary adjudication of claims under Code of Civil Procedure section 437c.³ Lenders presented myriad arguments in support of their motion. One argument was: The entire action was barred by res judicata (claim preclusion), based upon Appellants' initiation and dismissal without prejudice of two prior federal lawsuits. Lenders argued that under Rule 41(a)(1)(B), the dismissal of the second federal suit was "an adjudication on the merits" that barred the present lawsuit. The trial court granted summary judgment on this basis alone.

Separate judgments in favor of Buyers and Lenders were entered by the court. Appellants filed separate notices of appeal from the two judgments.

We conclude that the voluntary dismissal of the second federal lawsuit by Appellants was not a final "adjudication on the merits" that barred the filing of this case in state court. The two-dismissal rule of Rule 41(a)(1)(B) applies when there is a voluntary dismissal in state or federal court, a second voluntary dismissal in federal court, and the subsequent filing of an action in the same federal court where the second suit was dismissed. We hold that this rule is inapplicable here to the filing of Appellants' state court lawsuit alleging state-law claims only that succeeded the filing of voluntary dismissals without prejudice in two federal lawsuits. Appellants are not precluded from asserting the claims in the present action because, under California law, (1) a dismissal without prejudice is not a judgment on the merits that precludes a subsequent action, and (2) there is no proscription against the filing of multiple actions that are voluntarily dismissed by the plaintiff. In reaching this conclusion, we rely on the analysis of the United States Supreme Court in Semtek Int'l Inc. v. Lockheed Martin Corp. (2001) 531 U.S. 497, 121 S.Ct. 1021, 149 L.Ed.2d 32 ( Semtek ), which addressed claim preclusion involving the same language ("adjudication on the merits") in the context of involuntary dismissals under Rule 41(b).

Our de novo review of this matter does not end, however, with our conclusion that the trial court improperly found that Rule 41(a)(1)(B) had claim-preclusive effect upon this lawsuit. Lenders made a number of arguments in support of summary judgment that were not considered by the court below. One argument was that the claim for wrongful foreclosure was without merit because it was based on Appellants' central position that the Assignment was void, and this position failed as a matter of law. Lenders argued that the fact that the trust entity was identified as "WAMU 2006-AR19," instead of "WaMu Mortgage Pass-Through Certificates Series 2006-AR19 Trust," rendered the Assignment, at most, voidable, and that Appellants lacked standing to assert such challenge. We hold, relying substantially on Yvanova v. New Century Mortgage Corp. (2016) 62 Cal.4th 919, 199 Cal.Rptr.3d 66, 365 P.3d 845 ( Yvanova ), that the Assignment was not void, and that Appellants may not contest any irregularity in the Assignment as the basis for their wrongful foreclosure claim.

We conclude further that Appellants' negligence claim is not maintainable because of the absence of a duty of due care owed by a lender to its borrower. (See Sheen v. Wells Fargo Bank, N.A. (2022) 12 Cal.5th 905, 290 Cal.Rptr.3d 834, 505 P.3d 625 ( Sheen ).) And we find that Appellants' three claims that derive from the wrongful foreclosure claim (violation of the Unfair Competition Law, quiet title, and cancellation of instruments) also lack merit.

Accordingly, we conclude that summary judgment was properly granted, and we will affirm the judgments.

II. PROCEDURAL BACKGROUND

A. Second Amended Complaint

On April 4, 2014, Appellants filed their initial complaint.⁴ Appellants filed their second amended complaint (Complaint) on October 14, 2014. They asserted eight causes of action. Five of the claims—wrongful foreclosure, negligence, violation of the Unfair Competition Law ( Bus. & Prof. Code, § 17200 et seq. ; unfair competition), quiet title, and cancellation of instruments—remain after the disposition of Gray .

Appellants alleged in the Complaint:

Appellants acquired the Property by grant deed that was recorded September 9, 2005. The Property was Gray's personal residence and, for a portion of the time, Zamora's personal residence. On October 27, 2006, Appellants executed an adjustable rate promissory note (Note) in the principal amount of $1 million in favor of WaMu, as lender. The Note was secured by a deed of trust (Deed of Trust) encumbering the Property; Appellants were the trustors, WaMu was the beneficiary, and Cal. Reconveyance was the trustee.

In the Assignment, recorded on April 17, 2008, "[WaMu] purported to assign its rights under the Deed of Trust to La Salle Bank NA as Trustee for WAMU 2006-AR19." At the time the Assignment was executed, WaMu "did not legally exist," and "WAMU 2006-AR19 Trust" did not exist (and never existed); the Assignment was therefore void.

On August 10, 2012, Cal. Reconveyance, as trustee, on behalf of Chase Bank, recorded a notice of default and election to sell (2012 Default Notice) under the Deed of Trust. On November 13, 2012, Cal. Reconveyance, "acting as...