Piedmont Capital Mgmt., L.L.C. v. McElfish

94 Cal.App.5th 961

312 Cal.Rptr.3d 664

PIEDMONT CAPITAL MANAGEMENT, L.L.C., Plaintiff and Appellant,

v.Raymond MCELFISH, Defendant and Respondent.

B316372

Court of Appeal, Second District, Division 2, California.

Filed August 24, 2023

As Modified on Denial of Rehearing September 14, 2023

As Modified September 21, 2023

Certified for Partial Publication.^*

Wright, Finlay & Zak and Jonathan D. Fink, Newport Beach, for Plaintiff and Appellant.

Raymond McElfish, West Hollywood, in pro. per., for Defendant and Respondent.

HOFFSTADT, J.

* * * * * * The statute of limitations for a breach of contract claim begins to run at the time of breach (that is, when one party fails to perform as contractually required). ( Aryeh v. Canon Business Solutions, Inc. (2013) 55 Cal.4th 1185, 1199, 151 Cal.Rptr.3d 827, 292 P.3d 871 ( Aryeh ).) Where a contract imposes on a party multiple duties that are divisible , however, a breach of each divisible duty gives rise to a separate breach-of-contract claim, each with its own limitations period that begins to run at the time of each breach . ( Eloquence Corp. v. Home Consignment Center (2020) 49 Cal.App.5th 655, 661, 263 Cal.Rptr.3d 310 ( Eloquence ).) Here, we confront how this framework applies to a home equity line of credit (HELOC) agreement that requires the borrower to make monthly payments, but also sets a separate due date for the full debt and contains a discretionary acceleration clause that grants the lender the choice whether to demand immediate payment of the full amount if the borrower fails to make a monthly payment. We must thus ask: Is the borrower's duty to make a monthly payment under such a HELOC agreement indivisible from the borrower's duty to pay the full amount (such that the statute of limitations to recover the full amount begins to run upon the first missed monthly payment), or are the duties divisible (such that the statute of limitations to recover the full amount is not necessarily triggered by a missed monthly payment)? We hold it is the latter, chiefly because the HELOC agreement in this case—by setting a fixed maturity date for the full amount and leaving it to the discretion of the lender whether to accelerate that date—necessarily contemplates that a breach as to a monthly payment does not constitute a breach as to the full amount. Because the trial court came to a contrary conclusion, and dismissed the lender's complaint as untimely on that basis, we reverse.

FACTS AND PROCEDURAL BACKGROUND

I. Facts

In 2006, Raymond McElfish (McElfish) owned real property located at 3546 Multiview Drive in Los Angeles, California (the property). That year, he executed two deeds of trust against the property.

On March 3, 2006, McElfish executed a deed of trust in favor of MortgageIt, Inc.

On June 27, 2006, McElfish obtained a HELOC from National City Bank, memorialized in an Equity Reserve Agreement and secured by a deed of trust against the property (collectively, the HELOC agreement). The Equity Reserve Agreement states in pertinent part that: (1) McElfish could take "cash advances" against the credit line (of up to $150,000) during a "Draw Period" of 10 years; (2) McElfish then had 20 years—until June 27, 2036—to repay the amount drawn (plus interest and finance charges)¹ ; (3) McElfish was required to make monthly payments toward repaying the outstanding balance; and (4) National City Bank could "require" McElfish to "pay the entire outstanding balance in one payment" if he "breach[ed] a material obligation," which was defined to include "not meet[ing] the repayment terms." The deed of trust contained parallel provisions, including that National City Bank had the "option" to "accelerate" the debt and demand that "all or any part" of the outstanding debt "become immediately due and payable" "upon the occurrence ... or anytime thereafter" of a "default" by McElfish by "fail[ing] to make a payment when due." National City Bank further reserved the right to "delay exercising any of its rights" under the agreement "without losing" those rights.

On April 1, 2011, McElfish did not make his monthly HELOC payment. He has not made a payment since.

In December 2012, MortgageIt, Inc. foreclosed on its deed of trust and sold McElfish's property. The foreclosure sale did not net any surplus funds that could pay off the HELOC debt.

On October 10, 2019, Piedmont Capital, L.L.C. (Piedmont)—a debt buyer—purchased the HELOC debt.² That same day, Piedmont sent McElfish a "Notice of Acceleration of Debt and 30-Day Demand for Payment." Piedmont formally notified McElfish that it was accelerating the full amount of the HELOC debt owed (that is, $147,569.80 as of the date of the notice) because he was "in default ... for failing to pay the required monthly Loan installments when due."³ McElfish did not make any payments in response.

II. Procedural Background

On April 13, 2020, Piedmont sued McElfish. Following a demurrer to the original complaint sustained with leave to amend, Piedmont filed the operative first amended complaint for (1) breach of contract, (2) money lent, (3) money had and received, and (4) declaratory relief. Although Piedmont alleged that the full amount of the HELOC debt McElfish owed totaled $186,587.26, Piedmont conceded that it was "not seeking to collect on any [amounts] that were already barred by the applicable statute of limitations at the time [the] action was filed."

McElfish demurred, chiefly on the ground that Piedmont's 2020 lawsuit was barred by the four-year statute of limitations for breach of contract because the limitations period was triggered when defendant first missed a payment in 2011—not when Piedmont exercised the acceleration clause in October 2019 as alleged in the operative complaint. Following briefing and a hearing, the trial court sustained McElfish's demurrer without leave to amend. The court ruled that the HELOC agreement was "not an installment contract," so the limitations period ran "from the date of the last payment in 2011" and Piedmont's 2020 lawsuit therefore was time-barred.

Following the entry of judgment for McElfish, Piedmont filed this timely appeal.

DISCUSSION

Piedmont argues that the trial court erred in sustaining the demurrer without leave to amend on statute of limitations grounds.

In assessing whether the trial court erred in this ruling, we ask two questions: "(1) Was the demurrer properly sustained; and (2) Was leave to amend properly denied?" ( Shaeffer v. Califia Farms, LLC (2020) 44 Cal.App.5th 1125, 1134, 258 Cal.Rptr.3d 270 ( Shaeffer ).)

In answering the first question, we ask " " ‘whether the complaint states facts sufficient to constitute a cause of action.’ " " ( Centinela Freeman Emergency Medical Associates v. Health Net of Cal., Inc. (2016) 1 Cal.5th 994, 1010, 209 Cal.Rptr.3d 280, 382 P.3d 1116 ; Cal. Dept. of Tax & Fee Admin. v. Superior Court (2020) 48 Cal.App.5th 922, 929, 262 Cal.Rptr.3d 397 ( Tax & Fee Admin. ); see generally Code Civ. Proc., § 430.10, subd. (e).) In undertaking this inquiry, we accept as true "all material facts properly pled" in the operative complaint ( Winn v. Pioneer Medical Group, Inc. (2016) 63 Cal.4th 148, 152, 202 Cal.Rptr.3d 447, 370 P.3d 1011 ; Tax & Fee Admin. , at p. 929, 262 Cal.Rptr.3d 397 ) as well as those facts appearing in the exhibits attached to it, giving " " ‘precedence’ " " to the facts in the exhibits if they " " ‘contradict the allegations’ " " ( Gray v. Dignity Health (2021) 70 Cal.App.5th 225, 236, fn. 10, 285 Cal.Rptr.3d 343 ; Brakke v. Economic Concepts, Inc. (2013) 213 Cal.App.4th 761, 767, 153 Cal.Rptr.3d 1 ). A complaint does not state facts sufficient to constitute a cause of action when it shows, on its face, that the cause of action is barred by the applicable statute of limitations. ( County of Los Angeles v. Commission on State Mandates (2007) 150 Cal.App.4th 898, 912, 58 Cal.Rptr.3d 762 ; Doe v. Roman Catholic Archbishop of Los Angeles (2016) 247 Cal.App.4th 953, 960, 202 Cal.Rptr.3d 414.)

In answering the second question, we ask " " ‘whether " "there is a reasonable possibility that the defect [in the operative complaint] can be cured by amendment." " ’ " " ( Shaeffer, supra , 44 Cal.App.5th at p. 1134, 258 Cal.Rptr.3d 270 ; Loeffler v. Target Corp. (2014) 58 Cal.4th 1081, 1100, 171 Cal.Rptr.3d 189, 324 P.3d 50.) We review the trial court's ruling regarding the first question de novo, and review its ruling regarding the second for an abuse of discretion. ( People ex rel. Harris v. Pac Anchor Transportation, Inc. (2014) 59 Cal.4th 772, 777, 174 Cal.Rptr.3d 626, 329 P.3d 180 ; Branick v. Downey Savings & Loan Assn. (2006) 39 Cal.4th 235, 242, 46 Cal.Rptr.3d 66, 138 P.3d 214.)

I. Timeliness of Breach of Contract Claim

The trial court dismissed Piedmont's breach of contract claim as untimely.

A statute of limitations is the period during which, "in the judgment of the Legislature," a plaintiff must " ‘institut[e] suit’ " or be barred. ( Pooshs v. Philip Morris USA, Inc. (2011) 51 Cal.4th 788, 797, 123 Cal.Rptr.3d 578, 250 P.3d 181 ; Fox v. Ethicon Endo-Surgery, Inc. (2005) 35 Cal.4th 797, 806, 27 Cal.Rptr.3d 661, 110 P.3d 914 ( Fox ); Aryeh, supra , 55 Cal.4th at p. 1191, 151 Cal.Rptr.3d 827, 292 P.3d 871.) A statute of limitations is triggered, and thus the legislatively prescribed limitations period begins to run, when a claim "accrues"—that is, when all elements of the claim have occurred. ( Fox , at p. 806, 27 Cal.Rptr.3d 661, 110 P.3d 914 ; Howard Jarvis Taxpayers Assn. v. City of La Habra (2001) 25 Cal.4th 809, 815, 107 Cal.Rptr.2d 369, 23 P.3d 601 ; Code Civ. Proc., § 312.) A breach of contract claim has four elements—namely, "(1) the existence of [a] contract, (2) plaintiff's performance or excuse for nonperformance, (3) defendant's breach, and (4) the resulting damages to the plaintiff." ( Oasis West Realty, LLC v. Goldman (2011) 51 Cal.4th 811, 821, 124 Cal.Rptr.3d 256, 250 P.3d 1115.) Because the very existence of a contract is what gives rise to the...