Preview
BUCHALTER E-FILED
A Professional Corporation 6/10/2020 2:05 PM
JOHN L. HOSACK (SBN: 42876) Superior Court of California
STEVEN M. SPECTOR (SBN: 51623) County of Fresno
WILLIAM M. MILLER (SBN: 216289)
1000 Wilshire Boulevard, Suite 1500 By: Louana Peterson, Deputy
Los A: les, CA_ 90017-1730
Telephone: 213.891.0700
Fax: 213.896.0400
E-mail: jhosack@buchalter.com
Attomeys for Third
DCR Mortgage 7 Sub 2, LLC
IN THE SUPERIOR COURT OF THE STATE OF CALIFORNIA
IN AND FOR THE COUNTY OF FRESNO
10
11 CITY OF FRESNO, a municipal corporation, CASE NO.: 20CECG01636
PEOPLE OF THE STATE OF CALIFORNIA,
12
Petitioners, REQUEST FOR JUDICIAL NOTICE IN
13 SUPPORT OF DCR MORTGAGE 7 SUB
VS. 2, LLC’S LIMITED OPPOSITION TO EX
14 PARTE APPLICATION FOR ORDER
SPIRIT OF WOMAN OF CALIFORNIA INC.; TO ABATE SUBSTANDARD BUILDING,
15 and DOES 1 THROUGH 50, inclusive, APPOINTMENT OF RECEIVER AND
ORDERS PURSUANT TO THE
16 Respondents. CALIFORNIA HEALTH AND SAFETY
CODE
17
Ex Parte Hearin
18 Date: June 11, 2020
Time: 8:
19 Dept: 40 2 (Hon. D. Tyler Tharpe)
20 Action filed: June 8, 2020
21 [Limited Opposition to Ex Parte Application,
Declaration of John Hosack and Declaration
22 of David P. Stapleton, filed concurrently
herewith.]
23
24
25
26
27
28
LTER
1
REQUEST FOR JUDICIAL NOTICE IN SUPPORT OF LIMITED OPP. TO EX PARTE APPLICATION
TO ALL PARTIES AND THEIR ATTORNEYS OF RECORD:
PLEASE TAKE NOTICE that in support of Third Party DCR Mortgage 7 Sub 2, LLC’s
(“DCR Mortgage”) Limited Opposition to Ex Parte Application for Order to Abate Substandard
Building, Appointment of Receiver and Orders Pursuant to the Califomia Health and Safety Code
(the “Limited Opposition”), DCR Mortgage hereby respectfully requests that, pursuant
to
Califomia Code of Civil Procedure Section 430.30 and Califomia Evidence Code sections 452
and 453, the Court take judicial notice of the following document:
Complaint filed on March 20, 2020, in the action entitled DCR Mortgage 7 Sub 2, LLC v.
North American Title Insurance Company, etc. which is currently pending before the Superior
10 Court of Califomia, County of Los Angeles as case number 20STCV 11554 a copy of which is
11 attached to the concurrently filed Declaration of John Hosack as Exhibit “A” and incorporated
12 herein
by this reference as though set forth in full.
13 Judicial notice of this document is appropriate because its authenticity cannot reasonably
14 be disputed and this is a document which is in the Los Angeles Superior Court's file.
15 DATED: June 10, 2020 BUCHALTER
A Professional Corporation
16
17 /s/ John L. Hosack
18 JOHN L. HOSACK
STEVEN M. SPECTOR
19 WILLIAM M. MILLER
Attol for Third
20 DCR Mortgage 7 Sub 2, LLC
21
22
23
24
25
26
27
28
P sista
L 2
REQUEST FOR JUDICIAL NOTICE IN SUPPORT OF LIMITED OPP. TO EX PARTE APPLICATION
EXHIBIT A
EXHIBIT A
Electronically FILED by Superior Court of California, County of Los Angeles on 03/20/2020 02:41 PM Sherri R. Carter, Executive Officer/Clerk of Court, by D. Williams,Deputy Clerk
20STCV11554
Assigned for all purposes to: Stanley Mosk Courthouse,
J udicial Officer: Elaine Lu
BUCHALTER
A Professional Corporation
JOHN L. HOSACK, ESQ. (SBN: 42876)
JASON E. GOLDSTEIN, ESQ. (SBN: 207481)
GORDON STUART, ESQ. (SBN: 294321)
1000 Wilshire Boulevard, Suite 1500
Los Angeles, CA 90017-2457
Telephone: 213.891.0700
Fax: 213.896.0400
E-mail: jhosack@buchalter.com
Attorneys for Plaintiff
DCR MORTGAGE 7 SUB 2, LLC, a Delaware Limited Liability Company
SUPERIOR COURT OF CALIFORNIA
COUNTY OF LOS ANGELES —- CENTRAL DISTRICT
10
11
DCR MORTGAGE 7 SUB 2, LLC, a Delaware CASENO. 20ST C¥11554
12 limited liability company,
13 Plaintiff, COMPLAINT FOR:
14 Vv. (1) BREACH OF CONTRACT BY
AGENTS AND FIDUCIARIES FOR
15 NORTH AMERICAN TITLE INSURANCE FAILURE TO STRICTLY COMPLY
COMPANY, a California corporation; NORTH WITH ESCROW INSTRUCTIONS;
16 AMERICAN TITLE COMPANY, a California
17
corporation; and DOES 1 THROUGH 50, @) NEGLIGENCE BY AGENTS AND
FIDUCIARIES IN THE
Defendants. PERFORMANCE OF THEIR DUTIES;
18
@) BREACH OF FIDUCIARY DUTIES;
19
4) NEGLIGENT MISREPRESENTATION
20 OF FACT BY AGENTS AND
FIDUCIARIES;
21
6) FRAUD AND DECEIT - -
22 SUPPRESSION OF FACTS BY
AGENTS AND FIDUCIARIES;
23
(6) BREACH OF INSURANCE
24 CONTRACT;
25 ™ BREACH OF THE IMPLIED
COVENANT OF GOOD FAITH AND
26 FAIR DEALING;
27 (8) VIOLATION OF PENAL CODE
SECTION 496;
28
aps
Los
COMPLAINT
BN 39554866v1
(9) REFORMATION NUNC PRO TUNC
OF POLICY OF TITLE INSURANCE
BASED UPON UNILATERAL
MISTAKE OF FACT;
(10) REFORMATION NUNC PRO TUNC
OF POLICY OF TITLE INSURANCE
BASED UPON MUTUAL MISTAKE
OF FACT; and,
(11) REFORMATION NUNC PRO TUNC
OF POLICY OF TITLE INSURANCE
BASED UPON FRAUD.
DEMAND FOR TRIAL BY JURY
10)
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
BUCHALTER
A onore
COMPLAINT
BN 39554866v1
Plaintiff DCR Mortgage 7 Sub 2, LLC, a Delaware Limited Liability Company (“DCR” or
“Insured”), for causes of action against Defendants, alleges as follows:
I
THE PURPOSES OF THIS COMPLAINT
1 The first purpose of this Complaint is for DCR to recover compensatory, bad faith
and punitive damages from its title insurer, North American Title Insurance Company, a
California corporation (“NATIC”), for its breaches of contract, breaches of the implied covenant
of good faith and fair dealing and violation of Penal Code § 496 which proximately caused
damages to DCR in an amount which currently exceeds $2,000,000.00. This amount must be
10 trebled to no less than $6,000,000.00 pursuant to Penal Code § 496.
11 2 The second purpose of this Complaint is for DCR to recover compensatory and
12 punitive damages from its assignor’s escrow agent and fiduciary, North American Title
13 Company, a California corporation (“NATC”), for Breach of Contract, Negligence, Breach of
14 Fiduciary Duties, Negligent Misrepresentation, Fraud and violation of Penal Code § 496 relative
15 to NATC’s breaches of duties, misrepresentations and concealments relative to escrow for a loan
16 (“Loan”), where NATC served as the escrow agent for State Bank of India (California) (“Bank”),
17 which proximately caused damages to the Bank and DCR in an amount which currently exceeds
18 $2,000,000.00. This amount must be trebled to no less than $6,000,000.00 pursuant to Penal
19 Code § 496.
20 3 Prior to the filing of this Complaint, DCR received an assignment of all causes of
21 action, claims and rights from the Bank against NATC and NATIC. DCR is the current owner of
22 the Loan which the Bank made to Spirit of Woman of California, Inc. (“Borrower”), the
23 beneficiary of the Deed of Trust and the insured under the Loan Policy of Title Insurance which
24 was originally issued by Defendants to the Bank (“Policy”). Therefore, this action is brought by
25 DCR both in its own right and as the assignee of the causes of action, claims and rights of the
26 Bank.
27
28
BUCHALTER
ap ores seaTiON
1
COMPLAINT
BN 39554866v1
Il.
THE PARTIES
4 DCR is informed and believes, and based thereon alleges, that NATIC is a
California corporation which is authorized to conduct business in the State of California, and
which conducts the business of an escrow agent and title insurer in the County of Los Angeles,
State of California, which renders personal jurisdiction appropriate here.
5 DCR is informed and believes, and based thereon alleges, that NATC is a
California corporation which is authorized to conduct business in the State of California, and
which conducts the business of an escrow agent and underwritten title company in the County of
10 Los Angeles, State of California, which renders personal jurisdiction appropriate here. NATC is
11 expressly authorized by Insurance Code Section 12389(b) to conduct escrows in the State of
12 California.
13 6 DCR is informed and believes, and based thereon alleges, that at all material times,
14 Defendants NATIC and NATC were both wholly owned subsidiaries of North American Title
15 Group (“NATG”) and that both NATIC and NATC do business under the fictitious business
16 names of “North American” and “North American Title.”
17 7 DCR is informed and believes, and based thereon alleges, that at all material times
18 NATIC, NATC and NATG, were the agents, servants or employees of each other and, in doing
19 the things hereinafter alleged, acted within the course and scope of their authority and with the
20 ratification and consent of each other. The acts and/or omissions alleged herein of NATIC and
21 NATC were part of a single enterprise which included NATIC, NATC and NATG.
22 8 DCR is informed and believes, and based thereon alleges, that the true names
23 and/or capacities, whether individual, corporate, associate, or otherwise, of Defendants Does 1
24 through 50, inclusive, are currently unknown to DCR and DCR therefore sues said Defendants by
25 such fictitious names. DCR is informed and believes, and based thereon alleges, that each of the
26 Defendants sued herein as a Doe is responsible, in some manner, for the misconduct and damages
27 alleged in this Complaint and DCR will request leave of this Court to amend this Complaint to
28
ape
Loe 2
COMPLAINT
BN 39554866v1
allege their true names and capacities when the same has been ascertained. DCR shall sometimes
refer to NATC, NATIC and Does 1-50 as “Defendants.”
iil.
STATUTE OF LIMITATIONS
9. DCR is informed and believes, and based thereon alleges, that Defendants
concealed from and/or misrepresented to the Bank and DCR the facts which gave rise to this
Complaint. Defendants’ concealment and/or misrepresentation of the facts which gave rise to this
Complaint results in a tolling or an estoppel or a waiver of Defendants’ ability to plead any
applicable statute of limitations as further alleged below.
10, 10. DCR and the Bank did not discover the facts constituting Defendants’ misconduct
11 until a date within the applicable limitations periods which govern this action. DCR and the Bank
12 were not at fault for failing to discover Defendants’ misconduct sooner because DCR and the
13 Bank had no knowledge of Defendants’ misconduct to put them on notice. Defendants NATIC
14 and NATC were and are fiduciaries and/or quasi-fiduciaries of the Bank and DCR. Therefore, the
15 Bank and DCR were entitled to rely upon the representations of their fiduciaries without any duty
16 to investigate the truth of their representations.
17 Iv.
18 JURISDICTION AND VENUE
19 11. The Court has proper jurisdiction for this action because certain of the acts and
20 omissions which are the subject of this action occurred in this Judicial District in the County of
21 Los Angeles, State of California.
22 12. This Court is the proper venue for this action because the acts and omissions
23 which are the subject of this action substantially occurred in this Judicial District in the County of
24 Los Angeles, State of California.
25 13, This Court is the proper venue for this action because the obligations arose and the
26 breaches occurred in this Judicial District in the County of Los Angeles, State of California.
27
28
Ans yarion
3
COMPLAINT
BN 39554866v1
Vv.
GENERAL ALLEGATIONS
14, DCR is informed and believes, and based thereon alleges, that on or about July of
2014, the Bank was considering making a Loan in the original principal amount of $1,753,383.00
to the Borrower. The Loan was to be secured by a valid and enforceable first priority lien
position Deed of Trust which was to be recorded by Defendants against the Borrower’s real
property which was commonly known as 327 W. Belmont Avenue, Fresno, California 93728
(“Property”).
15. DCR is informed and believes, and based thereon alleges, that the Bank opened an
10) escrow for the Loan with Defendants, and among other things, on or about July 31, 2014,
11 Defendants issued to the Bank a Preliminary Report which fraudulently misrepresented,
12 concealed and failed to disclose to the Bank that the Property was encumbered by a Declaration
13 of Restrictive Covenants which had been recorded against the Property on October 28, 2008. See,
14 Insurance Code Sections 330 and 332 and Alliance Mortgage Co. v. Rothwell (1995) 10 Cal. 4th
15 1226. A true and correct copy of the recorded Declaration of Restrictive Covenants is attached
16 hereto marked as Exhibit 1. DCR is informed and believes, and based thereon alleges that the
17 Bank would not have made the Loan if the Defendants had not concealed from and failed to
18 disclose to the Bank the existence of the recorded Declaration of Restrictive Covenants. DCR is
19 further informed and believes, and based thereon alleges that on or before July 31, 2014,
20 Defendants had actual knowledge of the existence of the recorded Declaration of Restrictive
21 Covenants and had a copy of it in their possession. DCR is further informed and believes, and
22 based thereon alleges that the Defendants were required to disclose to the Bank and not conceal
23 from the Bank their knowledge of the existence of the recorded Declaration of Restrictive
24 Covenants because they knew, among other things, that the Bank did not know of and did not
25 have the means of ascertaining the existence of the recorded Declaration of Restrictive
26 Covenants. See, Insurance Code Sections 330 and 332.
27 16. DCR is informed and believes, and based thereon alleges, that on or about
28 August 27, 2014, the Bank sent to the Defendants express and implied escrow instructions
Api 4
COMPLAINT
BN 39554866v1
(“Escrow Instructions”), Loan proceeds and Loan documents with respect to the proposed Loan
to the Borrower, a true and correct copy of the express written Escrow Instructions is attached
hereto marked as Exhibit 2. An escrow exists when a person deposits documents or funds with a
third person to be delivered on the occurrence of a specified condition or conditions. See, Summit
Financial Holdings, Ltd. v. Continental Lawyers Title Co. (2002) 27 Cal.4" 705, 711; Markowitz
v, Fidelity National Title Company (2006) 142 Cal.App.4"" 508, 526-528; Civil Code § 1057; and
Financial Code § 17003.
17. The Bank’s Escrow Instructions required that Defendants only close the escrow for
the Loan if the Bank’s Deed of Trust could be recorded by the Defendants in a “1 position.” A
10 Deed of Trust is recorded in a “1* position” when it is recorded as a valid, enforceable, first
ll priority lien position Deed of Trust on the Borrower’s Property. To the extent the words “valid
12 and enforceable” were not expressly stated in the Bank’s written Escrow Instructions, they were
13 an implied instruction, because no lender would instruct an escrow agent to record an invalid and
14 unenforceable Deed of Trust and all escrow agents, including Defendants, know that to be true.
15 18. DCR is informed and believes, and based thereon alleges, that on or about
16 August 27, 2014, Defendants, after having received the Bank’s Escrow Instructions, purportedly
17 closed the escrow for the Bank’s Loan to the Borrower. An escrow agent which accepts a set of
18 escrow instructions is deemed to have contracted to carry out those instructions and any promise
19 that can be implied from those instructions. Amen v. Merced County Title Co. (1962) 58 Cal.2d
20 528, 530-532; and Banville v. Schmidt (1974) 37 Cal.App.3d 92, 135. The escrow agent has a
21 duty to exercise reasonable skill and care and ordinary diligence in carrying out those instructions
22 and if the escrow agent acts negligently, the escrow agent is liable for any loss resulting from the
23 breach of this duty. Diaz v. United California Bank (1977) 71 Cal.App.3d 161, 168; and Wade v.
24 Lake County Title Co. (1970) 6 Cal.App.3d 824, 828. Professional escrow agents, such as
25 Defendants, are required to have the particular knowledge and to exercise the particular skill
26 expected of a professional agent. Amen v. Merced County Title Co. (1962) 58 Cal.2d 528, 532;
27 Rianda v. San Benito Title Guar. Co. (1950) 35 Cal. 2d. 170, 173; Seeley v. Seymour (1987) 190
28 Cal. App. 3d 844, 860; and 6 Witkin, Summary of Cal. Law, Torts § 1131 (11" Ed. 2017), p. 335.
AP
5
COMPLAINT
BN 39554866v1
19. The Loan to the Borrower was evidenced by, among other things, a Promissory
Note (“Note”), a Deed of Trust and an Assignment of Rents, dated August 26, 2014. True and
correct copies of the Note, Deed of Trust and the Assignment of Rents are attached hereto marked
as Exhibits 3-5, respectively. If the escrow were to close, the Note should have been secured by
a valid and enforceable first priority lien position Deed of Trust recorded by the Defendants
against the Borrower’s Property.
20. On or about August 28, 2014, at 8:00 am., Defendants, for a valuable
consideration, issued to the Bank a written Loan Policy of Title Insurance, being policy number
55601-14-1306345-01 (“Policy”). A true and correct copy of the Policy is attached hereto is
10 marked as Exhibit 6.
11 21. By the express terms of the Policy, the Defendants insured the Bank, and/or its
12 assignees, against any loss or damage sustained or incurred by the Bank and/or its assignees if the
13 Bank’s Deed of Trust were not a valid and enforceable first priority lien on the Borrower’s
14 Property.
15 22. On or about August 14, 2017, the Bank duly sold and assigned the Loan to DCR,
16 including, but not limited to, the Note, Deed of Trust, Assignment of Rents and the Policy. A true
17 correct copy of the Assignment of Deed of Trust is attached hereto and marked as Exhibit 7.
18 DCR, as the assignee of the Deed of Trust, is an insured under the Policy. The Bank also
19 assigned to DCR all of its causes of action, claims and rights, against NATC and NATIC.
20 23, DCR had no knowledge, when it purchased the Loan, including, but not limited to,
21 the Note and Deed of Trust, that the Property was subject to a Declaration of Restrictive
22 Covenants which had been of record since October 26, 2008, which rendered the title to the
23 Property and the Deed of Trust unmarketable and valueless.
24 24. When DCR purchased the Loan, including, but not limited to, the Note and Deed
25 of Trust, DCR held a good faith belief that the Deed of Trust was a valid, enforceable first
26 priority lien on the Property and was not subject to the recorded Declaration of Restrictive
27 Covenants which rendered title to the Property and the Deed of Trust unmarketable and valueless.
28
aes
6
COMPLAINT
BN 39554866v1
25. If DCR had known that the Deed of Trust had been recorded by the Defendants
subordinate to the recorded Declaration of Restrictive Covenants, DCR would not have purchased
the Loan, including, but not limited to, the Note and Deed of Trust.
26. DCR is informed and believes, and based thereon alleges that when the Bank made
the Loan to the Borrower and when the Bank sold the Loan to DCR that the Bank and DCR did
not know of the recorded Declaration of Restrictive Covenants because the Defendants had
concealed from and failed to disclose to the Bank and DCR the existence of the recorded
Declaration of Restrictive Covenants.
27. Defendants, in violation of the duties which they owed directly to the Bank and by
10 assignment to DCR, among other things, concealed from and misrepresented to the Bank and by
ll assignment to DCR the existence of the recorded Declaration of Restrictive Covenants.
12 28. DCR paid valuable consideration to the Bank to purchase the Loan, including, but
13 not limited to, the Note and Deed of Trust in reliance on the representations of Defendants that
14 the Note which DCR was purchasing was secured by a valid, enforceable first priority lien
15 position Deed of Trust on the Property and was not subordinate to a recorded Declaration of
16 Restrictive Covenants.
17 29. The Borrower failed to make the Note payments which were owed to DCR.
18 Accordingly, on or about April 16, 2019, DCR recorded a Notice of Default and Election to Sell
19 under the Deed of Trust, but has not completed the foreclosure because of the recorded
20 Declaration of Restrictive Covenants. DCR is informed and believes, and based thereon alleges,
21 that DCR is not required to complete the foreclosure proceedings because if: (A) the Bank had
22 known that there was a Declaration of Restrictive Covenants recorded against the Property which
23 made the title to the Property and the Deed of Trust unmarketable and valueless, then it would not
24 have made the Loan; (B) if DCR had known that there was a recorded Declaration of Restrictive
25 Covenants recorded against the Property which made the title to the Property and the Deed of
26 Trust unmarketable and valueless, then it would not have purchased the Loan. Since Defendants
27 recorded the Deed of Trust in violation of the Bank’s Escrow Instructions, the Defendants did not
28 have the Bank’s authorization to disburse the Bank’s Loan proceeds and as a matter of law and
ao
7
COMPLAINT
BN 39554866y1
fact the Defendants actually disbursed their own money and obtained and are withholding the
Bank’s Loan proceeds which now belong to DCR. Further, if DCR were to foreclose the Deed of
Trust, the Defendants would contend that DCR, by its foreclosure of the Deed of Trust, had
ratified the Defendants’ wrongful purported closure of the Loan escrow, and DCR would not be
able to restore to Defendants the Loan and Deed of Trust which were received by the Bank at the
purported close of escrow. Finally, when Defendants fully compensate DCR for all of the
damages, attorney fees and costs which it has suffered by reason of the wrongful acts of
Defendants, Plaintiff shall, without warranty, whether express or implied, assign the Loan,
including, but not limited to, the Note and Deed of Trust to Defendants.
10 30. The Bank and by assignment DCR in good faith relied upon Defendants’ repeated
ll representations that the Deed of Trust was a valid, enforceable first priority lien on the Property.
12 Contrary to the repeated representations by Defendants, Defendants concealed and failed to
13 disclose to the Bank the fact that the Deed of Trust was wrongfully recorded by them subject to a
14 recorded Declaration of Restrictive Covenants. See, Insurance Code Sections 330 and 372. DCR
15 is informed and believes, and based thereon alleges, that: (A) The existence of the recorded
16 Declaration of Restrictive Covenants was known to Defendants before July 31, 2014; and,
17 (B) Defendants had in their possession, since on or before July 31, 2014, a copy of the recorded
18 Declaration of Restrictive Covenants.
19 31. DCR is informed and believes, and based thereon alleges that before Defendants
20 purportedly closed the escrow for the Bank’s Loan to the Borrower, recorded the Deed of Trust,
21 disbursed money and issued the Policy, that Defendants: (A) had actual knowledge of the
22 existence of the recorded Declaration of Restrictive Covenants; (B) had in their possession a copy
23 of the Declaration of Restrictive Covenants; and (C) knew that upon recordation the Deed of
24 Trust would not be a valid, enforceable, first priority lien on the Property, but would be
25 subordinate to the recorded Declaration of Restrictive Covenants.
26 32. The existence of the recorded Declaration of Restrictive Covenants has caused loss
27 or damage to DCR in an amount in excess of $2,000,000.00, the exact amount to be proved at
28 trial, which is required to be trebled pursuant to Penal Code § 496. The loss or damage caused to
eo
8
COMPLAINT
BN 39554866v1
DCR by the existence of the recorded Declaration of Restrictive Covenants is specifically covered
by the Policy, including, but not limited to, Insuring Clauses 2 (“Any defect in or encumbrance on
the title”), 3 (“Unmarketability of the title”), 5 (‘The invalidity or unenforceability of the lien of
the insured mortgage upon the title”) and 6 (“The priority of any lien or unenforceability of the
lien of the insured mortgage”) (collectively, the “Covered Risks”).
33. On or about November 26, 2019, DCR duly submitted a claim under the Policy to
Defendants. Thereafter, Defendants by and through their claims agent Jacqueline Gibson, in bad
faith and in violation of California law, including but not limited to the Insurance Code and
California Fair Claims Settlement Practices Regulations, wrongfully denied DCR’s request for
10 payment of its claim on the false ground that DCR was allegedly required to foreclose before
11 Defendants were obligated to pay DCR’s claim.
12 34. Defendants’ denial of DCR’s claim for Policy benefits was wrongful and in bad
13 faith for the following reasons, among others: (A) California law, including but not limited to
14 Section 2695.7(d) of the California Fair Claims Settlement Practices Regulations required the
15 Defendants to conduct and diligently pursue a thorough, fair and objective investigation into
16 DCR’s claim, which Defendants failed to do; (B) had Defendants conducted and diligently
17 pursued a thorough, fair and objective investigation into DCR’s claim, they would have
18 discovered, among other things, that Defendants had violated the Bank’s Escrow Instructions
19 which they had received when they purported to close the escrow and recorded the Deed of Trust
20 subordinate to the recorded Declaration of Restrictive Covenants; (C) the recorded Declaration of
21 Restrictive Covenants materially impaired the title to the Property and the Deed of Trust and
22 made them worthless and unmarketable and the Deed of Trust failed to constitute viable security
23 for the Bank; (D) no prudent person, including DCR, would bid at the foreclosure sale of the
24 Deed of Trust; (E) if DCR were to conduct a foreclosure sale of the Deed of Trust and a third
25 party were to purchase the Property at the foreclosure sale, then DCR would not have the Note,
26 Deed of Trust or the Property to assign to Defendants when they paid DCR all of its damages,
27 attorneys’ fees and costs; and (F) Defendants’ citation to Karl v. Commonwealth Land Title Ins.
28 Co. (1993) 20 Cal.App.4th 972 and Cale v. Transamerica Title Ins. Co. (1990) 225 Cal. App. 3d
are mation
9
COMPLAINT
BN 39554866v1
442 are not applicable to DCR’s claims or this Complaint because: (1) the escrow for the Bank’s
Loan to the Borrower did not validly close in accordance with the Bank’s Escrow Instructions to
the Defendants since the Bank’s conditions for the close of escrow were not satisfied by the
Defendants because the Bank did not receive a Deed of Trust which was a valid and enforceable
first priority lien on the Borrower’s Property because of the existence of the recorded Declaration
of Restrictive Covenants; (2) the Defendants were not authorized by the Bank to disburse the
Bank’s loan funds to the Borrower and the money which was disbursed by the Defendants to the
Borrower was the Defendants’ money and the Defendants are still holding in trust the money
which they received from the Bank; (3) when the Defendants pay to DCR all of its damages,
10 including, but not limited to the principal amount of money which the Bank deposited with the
11 Defendants, interest, attorneys’ fees and costs, DCR, to avoid being unjustly enriched, shall need
12 to assign, without representation or warranty, whether express or implied, the Loan, Note or
13 Deed of Trust to the Defendants; (4) if DRC were to conduct a foreclosure sale, it would be
14 required to disclose to the potential bidders at the foreclosure sale all “...known facts materially
15 affecting the value of the property” including, but not limited to the recorded Declaration of
16 Restrictive Covenants (see, Karoutas v. Home Fed. Bank (1991) 232 Cal. App. 3d 767, 775) and
17 if a third party were the purchaser at the foreclosure sale then DCR would not have the Loan,
18 Note or Deed of Trust to assign to the Defendants; and (5) if DCR were the purchaser at the
19 foreclosure sale the foreclosure sale would have materially altered the Loan, the Note and the
20 Deed of Trust because the foreclosure sale would have, among other things, extinguished the lien
21 of the Deed of Trust on the Borrower’s Property and barred any further attempts to collect on the
22 Note. See, e.g., Jones v. First American Title Insurance Company (2003) 107 Cal.App.4th 381
23 (“A case is not authority for propositions not considered”).
24
25
26
27
28
an
10
COMPLAINT
BN 39554866v1
VI.
FIRST CAUSE OF ACTION FOR BREACH OF CONTRACT BY AGENTS AND
FIDUCIARIES FOR FAILURE TO STRICTLY COMPLY WITH ESCROW
INSTRUCTIONS
(Against Defendants NATC and DOES 1-50)
35. DCR incorporates herein by this reference as if set forth in full paragraphs 1 - 34
of this Complaint.
36. DCR is informed and believes, and based thereon alleges that it was not necessary
for the Bank to use the services of Defendants for the Bank to make the Loan to the Borrower.
10 Rather, the Bank was induced to use Defendants and paid their fees because the Bank wanted to
11 rely on the knowledge and expertise of paid professionals which were in the business of serving
12 as escrow agents and supplying information about land titles for the guidance of the public. As
13 escrow agents and fiduciaries Defendants were charged with a public trust and were obligated to
14 disclose to and not conceal from the Bank everything which Defendants knew which might have
15 affected the Bank’s proposed decision to make the Loan to Borrower. Amen v. Merced County
16 Title Co. (1962) 58 Cal. 2d 528m 534 (“The theory is that although the defendant makes no active
17 misrepresentation, this element ‘is supplied by an affirmative obligation to make full disclosure . .
18 ..””); Markowitz v. Fidelity Nat. Title Co. (2006) 142 Cal. App. 4"* 508, 528 (“When an escrow
19 agent knows a party to the escrow is relying on it for protection as to facts learned by the escrow
20 holder, the escrow holder can be held liable if it does not disclose those facts to the party.”);
21 Vournas v, Fidelity Nat. Title Ins, Co. (1999) 72 Cal. App. 4" 668, 674-675 (“When an escrow
22 holder knows the seller is relying on him for protection as to facts learned by the escrow holder,
23 the escrow holder can be held liable to the seller if he does not disclose those facts to the seller.”);
24 Kirby v. Palos Verdes Escrow Company (1986) 183 Cal. App. 3d 57, 64 (“An escrow holder has a
25 fiduciary duty ‘to communicate to his principal knowledge acquired in the course of his agency
26 with respect to material facts which might affect the principal’s decision as to a pending
27 transaction ....” ”); Contini v. Western Title Ins. Co. (1974) 40 Cal. App. 3d 536, 547 (“An
28 escrow holder is a fiduciary and like any other fiduciary is under a duty to communicate to his
are
ll
COMPLAINT
BN 39554866v1
principal knowledge acquired in the course of his agency with respect to material facts which
might affect the principal’s decision as to a pending transaction . . . .”); and Spaziani v. Millar
(1963) 215 Cal. App. 2d 667, 684 (“The law imposes on an agent the duty to exercise ordinary
care to communicate to his principal knowledge acquired in the course of his agency with respect
to matters pertaining thereto.”).
37. DCR is informed and believes, and based thereon alleges, that on or about
August 27, 2014, the Defendants received the Bank’s Escrow Instructions, and thereafter the
Defendants recorded the Deed of Trust, but failed to strictly comply with the Bank’s Escrow
Instructions because, among other things, the Defendants failed to disclose to the Bank and
10 instead concealed from the Bank its knowledge that the Deed of Trust could not be recorded as a
11 valid, enforceable first priority lien on the Property, because it would be subordinate to the
12 recorded Declaration of Restrictive Covenants. Despite the fact that the Defendants knew of the
13 existence of the recorded Declaration of Restrictive Covenants, the Defendants, in violation of the
14 Bank’s Escrow Instructions, recorded the Deed of Trust, purportedly closed the escrow, disbursed
15 the money and issued the Policy.
16 38. As a proximate result of Defendants’ failure to strictly comply with the Bank’s
17 Escrow Instructions, the Deed of Trust was recorded by the Defendants subordinate to the
18 recorded Declaration of Restrictive Covenants. As a result of the Defendants’ breach of contract,
19 the Bank and DCR sustained damages in excess of the jurisdictional limits of this Court, the exact
20 amount to be proved at trial, but is reasonably believed to exceed $2,000,000.00.
21 VIL.
22 SECOND CAUSE OF ACTION FOR NEGLIGENCE BY AGENTS AND FIDUCIARIES
23 IN THE PERFORMANCE OF THEIR DUTIES
24 (Against Defendants NATC and Does 1-50)
25 39. DCR incorporates herein by this reference as if set forth in full paragraphs 1 - 38
26 of this Complaint.
27 40. Defendants, as the Bank’s escrow agents and fiduciaries for the Loan to Borrower,
28 were required by their fiduciary duties of disclosure, non-concealment, Insurance Code §§ 330
a
12
COMPLAINT
BN 39554866v1
and 332, to disclose to and not
Preview
BUCHALTER E-FILED A Professional Corporation 6/10/2020 2:05 PM JOHN L. HOSACK (SBN: 42876) Superior Court of California STEVEN M. SPECTOR (SBN: 51623) County of Fresno WILLIAM M. MILLER (SBN: 216289) 1000 Wilshire Boulevard, Suite 1500 By: Louana Peterson, Deputy Los A: les, CA_ 90017-1730 Telephone: 213.891.0700 Fax: 213.896.0400 E-mail: jhosack@buchalter.com Attomeys for Third DCR Mortgage 7 Sub 2, LLC IN THE SUPERIOR COURT OF THE STATE OF CALIFORNIA IN AND FOR THE COUNTY OF FRESNO 10 11 CITY OF FRESNO, a municipal corporation, CASE NO.: 20CECG01636 PEOPLE OF THE STATE OF CALIFORNIA, 12 Petitioners, REQUEST FOR JUDICIAL NOTICE IN 13 SUPPORT OF DCR MORTGAGE 7 SUB VS. 2, LLC’S LIMITED OPPOSITION TO EX 14 PARTE APPLICATION FOR ORDER SPIRIT OF WOMAN OF CALIFORNIA INC.; TO ABATE SUBSTANDARD BUILDING, 15 and DOES 1 THROUGH 50, inclusive, APPOINTMENT OF RECEIVER AND ORDERS PURSUANT TO THE 16 Respondents. CALIFORNIA HEALTH AND SAFETY CODE 17 Ex Parte Hearin 18 Date: June 11, 2020 Time: 8: 19 Dept: 40 2 (Hon. D. Tyler Tharpe) 20 Action filed: June 8, 2020 21 [Limited Opposition to Ex Parte Application, Declaration of John Hosack and Declaration 22 of David P. Stapleton, filed concurrently herewith.] 23 24 25 26 27 28 LTER 1 REQUEST FOR JUDICIAL NOTICE IN SUPPORT OF LIMITED OPP. TO EX PARTE APPLICATION TO ALL PARTIES AND THEIR ATTORNEYS OF RECORD: PLEASE TAKE NOTICE that in support of Third Party DCR Mortgage 7 Sub 2, LLC’s (“DCR Mortgage”) Limited Opposition to Ex Parte Application for Order to Abate Substandard Building, Appointment of Receiver and Orders Pursuant to the Califomia Health and Safety Code (the “Limited Opposition”), DCR Mortgage hereby respectfully requests that, pursuant to Califomia Code of Civil Procedure Section 430.30 and Califomia Evidence Code sections 452 and 453, the Court take judicial notice of the following document: Complaint filed on March 20, 2020, in the action entitled DCR Mortgage 7 Sub 2, LLC v. North American Title Insurance Company, etc. which is currently pending before the Superior 10 Court of Califomia, County of Los Angeles as case number 20STCV 11554 a copy of which is 11 attached to the concurrently filed Declaration of John Hosack as Exhibit “A” and incorporated 12 herein by this reference as though set forth in full. 13 Judicial notice of this document is appropriate because its authenticity cannot reasonably 14 be disputed and this is a document which is in the Los Angeles Superior Court's file. 15 DATED: June 10, 2020 BUCHALTER A Professional Corporation 16 17 /s/ John L. Hosack 18 JOHN L. HOSACK STEVEN M. SPECTOR 19 WILLIAM M. MILLER Attol for Third 20 DCR Mortgage 7 Sub 2, LLC 21 22 23 24 25 26 27 28 P sista L 2 REQUEST FOR JUDICIAL NOTICE IN SUPPORT OF LIMITED OPP. TO EX PARTE APPLICATION EXHIBIT A EXHIBIT A Electronically FILED by Superior Court of California, County of Los Angeles on 03/20/2020 02:41 PM Sherri R. Carter, Executive Officer/Clerk of Court, by D. Williams,Deputy Clerk 20STCV11554 Assigned for all purposes to: Stanley Mosk Courthouse, J udicial Officer: Elaine Lu BUCHALTER A Professional Corporation JOHN L. HOSACK, ESQ. (SBN: 42876) JASON E. GOLDSTEIN, ESQ. (SBN: 207481) GORDON STUART, ESQ. (SBN: 294321) 1000 Wilshire Boulevard, Suite 1500 Los Angeles, CA 90017-2457 Telephone: 213.891.0700 Fax: 213.896.0400 E-mail: jhosack@buchalter.com Attorneys for Plaintiff DCR MORTGAGE 7 SUB 2, LLC, a Delaware Limited Liability Company SUPERIOR COURT OF CALIFORNIA COUNTY OF LOS ANGELES —- CENTRAL DISTRICT 10 11 DCR MORTGAGE 7 SUB 2, LLC, a Delaware CASENO. 20ST C¥11554 12 limited liability company, 13 Plaintiff, COMPLAINT FOR: 14 Vv. (1) BREACH OF CONTRACT BY AGENTS AND FIDUCIARIES FOR 15 NORTH AMERICAN TITLE INSURANCE FAILURE TO STRICTLY COMPLY COMPANY, a California corporation; NORTH WITH ESCROW INSTRUCTIONS; 16 AMERICAN TITLE COMPANY, a California 17 corporation; and DOES 1 THROUGH 50, @) NEGLIGENCE BY AGENTS AND FIDUCIARIES IN THE Defendants. PERFORMANCE OF THEIR DUTIES; 18 @) BREACH OF FIDUCIARY DUTIES; 19 4) NEGLIGENT MISREPRESENTATION 20 OF FACT BY AGENTS AND FIDUCIARIES; 21 6) FRAUD AND DECEIT - - 22 SUPPRESSION OF FACTS BY AGENTS AND FIDUCIARIES; 23 (6) BREACH OF INSURANCE 24 CONTRACT; 25 ™ BREACH OF THE IMPLIED COVENANT OF GOOD FAITH AND 26 FAIR DEALING; 27 (8) VIOLATION OF PENAL CODE SECTION 496; 28 aps Los COMPLAINT BN 39554866v1 (9) REFORMATION NUNC PRO TUNC OF POLICY OF TITLE INSURANCE BASED UPON UNILATERAL MISTAKE OF FACT; (10) REFORMATION NUNC PRO TUNC OF POLICY OF TITLE INSURANCE BASED UPON MUTUAL MISTAKE OF FACT; and, (11) REFORMATION NUNC PRO TUNC OF POLICY OF TITLE INSURANCE BASED UPON FRAUD. DEMAND FOR TRIAL BY JURY 10) 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 BUCHALTER A onore COMPLAINT BN 39554866v1 Plaintiff DCR Mortgage 7 Sub 2, LLC, a Delaware Limited Liability Company (“DCR” or “Insured”), for causes of action against Defendants, alleges as follows: I THE PURPOSES OF THIS COMPLAINT 1 The first purpose of this Complaint is for DCR to recover compensatory, bad faith and punitive damages from its title insurer, North American Title Insurance Company, a California corporation (“NATIC”), for its breaches of contract, breaches of the implied covenant of good faith and fair dealing and violation of Penal Code § 496 which proximately caused damages to DCR in an amount which currently exceeds $2,000,000.00. This amount must be 10 trebled to no less than $6,000,000.00 pursuant to Penal Code § 496. 11 2 The second purpose of this Complaint is for DCR to recover compensatory and 12 punitive damages from its assignor’s escrow agent and fiduciary, North American Title 13 Company, a California corporation (“NATC”), for Breach of Contract, Negligence, Breach of 14 Fiduciary Duties, Negligent Misrepresentation, Fraud and violation of Penal Code § 496 relative 15 to NATC’s breaches of duties, misrepresentations and concealments relative to escrow for a loan 16 (“Loan”), where NATC served as the escrow agent for State Bank of India (California) (“Bank”), 17 which proximately caused damages to the Bank and DCR in an amount which currently exceeds 18 $2,000,000.00. This amount must be trebled to no less than $6,000,000.00 pursuant to Penal 19 Code § 496. 20 3 Prior to the filing of this Complaint, DCR received an assignment of all causes of 21 action, claims and rights from the Bank against NATC and NATIC. DCR is the current owner of 22 the Loan which the Bank made to Spirit of Woman of California, Inc. (“Borrower”), the 23 beneficiary of the Deed of Trust and the insured under the Loan Policy of Title Insurance which 24 was originally issued by Defendants to the Bank (“Policy”). Therefore, this action is brought by 25 DCR both in its own right and as the assignee of the causes of action, claims and rights of the 26 Bank. 27 28 BUCHALTER ap ores seaTiON 1 COMPLAINT BN 39554866v1 Il. THE PARTIES 4 DCR is informed and believes, and based thereon alleges, that NATIC is a California corporation which is authorized to conduct business in the State of California, and which conducts the business of an escrow agent and title insurer in the County of Los Angeles, State of California, which renders personal jurisdiction appropriate here. 5 DCR is informed and believes, and based thereon alleges, that NATC is a California corporation which is authorized to conduct business in the State of California, and which conducts the business of an escrow agent and underwritten title company in the County of 10 Los Angeles, State of California, which renders personal jurisdiction appropriate here. NATC is 11 expressly authorized by Insurance Code Section 12389(b) to conduct escrows in the State of 12 California. 13 6 DCR is informed and believes, and based thereon alleges, that at all material times, 14 Defendants NATIC and NATC were both wholly owned subsidiaries of North American Title 15 Group (“NATG”) and that both NATIC and NATC do business under the fictitious business 16 names of “North American” and “North American Title.” 17 7 DCR is informed and believes, and based thereon alleges, that at all material times 18 NATIC, NATC and NATG, were the agents, servants or employees of each other and, in doing 19 the things hereinafter alleged, acted within the course and scope of their authority and with the 20 ratification and consent of each other. The acts and/or omissions alleged herein of NATIC and 21 NATC were part of a single enterprise which included NATIC, NATC and NATG. 22 8 DCR is informed and believes, and based thereon alleges, that the true names 23 and/or capacities, whether individual, corporate, associate, or otherwise, of Defendants Does 1 24 through 50, inclusive, are currently unknown to DCR and DCR therefore sues said Defendants by 25 such fictitious names. DCR is informed and believes, and based thereon alleges, that each of the 26 Defendants sued herein as a Doe is responsible, in some manner, for the misconduct and damages 27 alleged in this Complaint and DCR will request leave of this Court to amend this Complaint to 28 ape Loe 2 COMPLAINT BN 39554866v1 allege their true names and capacities when the same has been ascertained. DCR shall sometimes refer to NATC, NATIC and Does 1-50 as “Defendants.” iil. STATUTE OF LIMITATIONS 9. DCR is informed and believes, and based thereon alleges, that Defendants concealed from and/or misrepresented to the Bank and DCR the facts which gave rise to this Complaint. Defendants’ concealment and/or misrepresentation of the facts which gave rise to this Complaint results in a tolling or an estoppel or a waiver of Defendants’ ability to plead any applicable statute of limitations as further alleged below. 10, 10. DCR and the Bank did not discover the facts constituting Defendants’ misconduct 11 until a date within the applicable limitations periods which govern this action. DCR and the Bank 12 were not at fault for failing to discover Defendants’ misconduct sooner because DCR and the 13 Bank had no knowledge of Defendants’ misconduct to put them on notice. Defendants NATIC 14 and NATC were and are fiduciaries and/or quasi-fiduciaries of the Bank and DCR. Therefore, the 15 Bank and DCR were entitled to rely upon the representations of their fiduciaries without any duty 16 to investigate the truth of their representations. 17 Iv. 18 JURISDICTION AND VENUE 19 11. The Court has proper jurisdiction for this action because certain of the acts and 20 omissions which are the subject of this action occurred in this Judicial District in the County of 21 Los Angeles, State of California. 22 12. This Court is the proper venue for this action because the acts and omissions 23 which are the subject of this action substantially occurred in this Judicial District in the County of 24 Los Angeles, State of California. 25 13, This Court is the proper venue for this action because the obligations arose and the 26 breaches occurred in this Judicial District in the County of Los Angeles, State of California. 27 28 Ans yarion 3 COMPLAINT BN 39554866v1 Vv. GENERAL ALLEGATIONS 14, DCR is informed and believes, and based thereon alleges, that on or about July of 2014, the Bank was considering making a Loan in the original principal amount of $1,753,383.00 to the Borrower. The Loan was to be secured by a valid and enforceable first priority lien position Deed of Trust which was to be recorded by Defendants against the Borrower’s real property which was commonly known as 327 W. Belmont Avenue, Fresno, California 93728 (“Property”). 15. DCR is informed and believes, and based thereon alleges, that the Bank opened an 10) escrow for the Loan with Defendants, and among other things, on or about July 31, 2014, 11 Defendants issued to the Bank a Preliminary Report which fraudulently misrepresented, 12 concealed and failed to disclose to the Bank that the Property was encumbered by a Declaration 13 of Restrictive Covenants which had been recorded against the Property on October 28, 2008. See, 14 Insurance Code Sections 330 and 332 and Alliance Mortgage Co. v. Rothwell (1995) 10 Cal. 4th 15 1226. A true and correct copy of the recorded Declaration of Restrictive Covenants is attached 16 hereto marked as Exhibit 1. DCR is informed and believes, and based thereon alleges that the 17 Bank would not have made the Loan if the Defendants had not concealed from and failed to 18 disclose to the Bank the existence of the recorded Declaration of Restrictive Covenants. DCR is 19 further informed and believes, and based thereon alleges that on or before July 31, 2014, 20 Defendants had actual knowledge of the existence of the recorded Declaration of Restrictive 21 Covenants and had a copy of it in their possession. DCR is further informed and believes, and 22 based thereon alleges that the Defendants were required to disclose to the Bank and not conceal 23 from the Bank their knowledge of the existence of the recorded Declaration of Restrictive 24 Covenants because they knew, among other things, that the Bank did not know of and did not 25 have the means of ascertaining the existence of the recorded Declaration of Restrictive 26 Covenants. See, Insurance Code Sections 330 and 332. 27 16. DCR is informed and believes, and based thereon alleges, that on or about 28 August 27, 2014, the Bank sent to the Defendants express and implied escrow instructions Api 4 COMPLAINT BN 39554866v1 (“Escrow Instructions”), Loan proceeds and Loan documents with respect to the proposed Loan to the Borrower, a true and correct copy of the express written Escrow Instructions is attached hereto marked as Exhibit 2. An escrow exists when a person deposits documents or funds with a third person to be delivered on the occurrence of a specified condition or conditions. See, Summit Financial Holdings, Ltd. v. Continental Lawyers Title Co. (2002) 27 Cal.4" 705, 711; Markowitz v, Fidelity National Title Company (2006) 142 Cal.App.4"" 508, 526-528; Civil Code § 1057; and Financial Code § 17003. 17. The Bank’s Escrow Instructions required that Defendants only close the escrow for the Loan if the Bank’s Deed of Trust could be recorded by the Defendants in a “1 position.” A 10 Deed of Trust is recorded in a “1* position” when it is recorded as a valid, enforceable, first ll priority lien position Deed of Trust on the Borrower’s Property. To the extent the words “valid 12 and enforceable” were not expressly stated in the Bank’s written Escrow Instructions, they were 13 an implied instruction, because no lender would instruct an escrow agent to record an invalid and 14 unenforceable Deed of Trust and all escrow agents, including Defendants, know that to be true. 15 18. DCR is informed and believes, and based thereon alleges, that on or about 16 August 27, 2014, Defendants, after having received the Bank’s Escrow Instructions, purportedly 17 closed the escrow for the Bank’s Loan to the Borrower. An escrow agent which accepts a set of 18 escrow instructions is deemed to have contracted to carry out those instructions and any promise 19 that can be implied from those instructions. Amen v. Merced County Title Co. (1962) 58 Cal.2d 20 528, 530-532; and Banville v. Schmidt (1974) 37 Cal.App.3d 92, 135. The escrow agent has a 21 duty to exercise reasonable skill and care and ordinary diligence in carrying out those instructions 22 and if the escrow agent acts negligently, the escrow agent is liable for any loss resulting from the 23 breach of this duty. Diaz v. United California Bank (1977) 71 Cal.App.3d 161, 168; and Wade v. 24 Lake County Title Co. (1970) 6 Cal.App.3d 824, 828. Professional escrow agents, such as 25 Defendants, are required to have the particular knowledge and to exercise the particular skill 26 expected of a professional agent. Amen v. Merced County Title Co. (1962) 58 Cal.2d 528, 532; 27 Rianda v. San Benito Title Guar. Co. (1950) 35 Cal. 2d. 170, 173; Seeley v. Seymour (1987) 190 28 Cal. App. 3d 844, 860; and 6 Witkin, Summary of Cal. Law, Torts § 1131 (11" Ed. 2017), p. 335. AP 5 COMPLAINT BN 39554866v1 19. The Loan to the Borrower was evidenced by, among other things, a Promissory Note (“Note”), a Deed of Trust and an Assignment of Rents, dated August 26, 2014. True and correct copies of the Note, Deed of Trust and the Assignment of Rents are attached hereto marked as Exhibits 3-5, respectively. If the escrow were to close, the Note should have been secured by a valid and enforceable first priority lien position Deed of Trust recorded by the Defendants against the Borrower’s Property. 20. On or about August 28, 2014, at 8:00 am., Defendants, for a valuable consideration, issued to the Bank a written Loan Policy of Title Insurance, being policy number 55601-14-1306345-01 (“Policy”). A true and correct copy of the Policy is attached hereto is 10 marked as Exhibit 6. 11 21. By the express terms of the Policy, the Defendants insured the Bank, and/or its 12 assignees, against any loss or damage sustained or incurred by the Bank and/or its assignees if the 13 Bank’s Deed of Trust were not a valid and enforceable first priority lien on the Borrower’s 14 Property. 15 22. On or about August 14, 2017, the Bank duly sold and assigned the Loan to DCR, 16 including, but not limited to, the Note, Deed of Trust, Assignment of Rents and the Policy. A true 17 correct copy of the Assignment of Deed of Trust is attached hereto and marked as Exhibit 7. 18 DCR, as the assignee of the Deed of Trust, is an insured under the Policy. The Bank also 19 assigned to DCR all of its causes of action, claims and rights, against NATC and NATIC. 20 23, DCR had no knowledge, when it purchased the Loan, including, but not limited to, 21 the Note and Deed of Trust, that the Property was subject to a Declaration of Restrictive 22 Covenants which had been of record since October 26, 2008, which rendered the title to the 23 Property and the Deed of Trust unmarketable and valueless. 24 24. When DCR purchased the Loan, including, but not limited to, the Note and Deed 25 of Trust, DCR held a good faith belief that the Deed of Trust was a valid, enforceable first 26 priority lien on the Property and was not subject to the recorded Declaration of Restrictive 27 Covenants which rendered title to the Property and the Deed of Trust unmarketable and valueless. 28 aes 6 COMPLAINT BN 39554866v1 25. If DCR had known that the Deed of Trust had been recorded by the Defendants subordinate to the recorded Declaration of Restrictive Covenants, DCR would not have purchased the Loan, including, but not limited to, the Note and Deed of Trust. 26. DCR is informed and believes, and based thereon alleges that when the Bank made the Loan to the Borrower and when the Bank sold the Loan to DCR that the Bank and DCR did not know of the recorded Declaration of Restrictive Covenants because the Defendants had concealed from and failed to disclose to the Bank and DCR the existence of the recorded Declaration of Restrictive Covenants. 27. Defendants, in violation of the duties which they owed directly to the Bank and by 10 assignment to DCR, among other things, concealed from and misrepresented to the Bank and by ll assignment to DCR the existence of the recorded Declaration of Restrictive Covenants. 12 28. DCR paid valuable consideration to the Bank to purchase the Loan, including, but 13 not limited to, the Note and Deed of Trust in reliance on the representations of Defendants that 14 the Note which DCR was purchasing was secured by a valid, enforceable first priority lien 15 position Deed of Trust on the Property and was not subordinate to a recorded Declaration of 16 Restrictive Covenants. 17 29. The Borrower failed to make the Note payments which were owed to DCR. 18 Accordingly, on or about April 16, 2019, DCR recorded a Notice of Default and Election to Sell 19 under the Deed of Trust, but has not completed the foreclosure because of the recorded 20 Declaration of Restrictive Covenants. DCR is informed and believes, and based thereon alleges, 21 that DCR is not required to complete the foreclosure proceedings because if: (A) the Bank had 22 known that there was a Declaration of Restrictive Covenants recorded against the Property which 23 made the title to the Property and the Deed of Trust unmarketable and valueless, then it would not 24 have made the Loan; (B) if DCR had known that there was a recorded Declaration of Restrictive 25 Covenants recorded against the Property which made the title to the Property and the Deed of 26 Trust unmarketable and valueless, then it would not have purchased the Loan. Since Defendants 27 recorded the Deed of Trust in violation of the Bank’s Escrow Instructions, the Defendants did not 28 have the Bank’s authorization to disburse the Bank’s Loan proceeds and as a matter of law and ao 7 COMPLAINT BN 39554866y1 fact the Defendants actually disbursed their own money and obtained and are withholding the Bank’s Loan proceeds which now belong to DCR. Further, if DCR were to foreclose the Deed of Trust, the Defendants would contend that DCR, by its foreclosure of the Deed of Trust, had ratified the Defendants’ wrongful purported closure of the Loan escrow, and DCR would not be able to restore to Defendants the Loan and Deed of Trust which were received by the Bank at the purported close of escrow. Finally, when Defendants fully compensate DCR for all of the damages, attorney fees and costs which it has suffered by reason of the wrongful acts of Defendants, Plaintiff shall, without warranty, whether express or implied, assign the Loan, including, but not limited to, the Note and Deed of Trust to Defendants. 10 30. The Bank and by assignment DCR in good faith relied upon Defendants’ repeated ll representations that the Deed of Trust was a valid, enforceable first priority lien on the Property. 12 Contrary to the repeated representations by Defendants, Defendants concealed and failed to 13 disclose to the Bank the fact that the Deed of Trust was wrongfully recorded by them subject to a 14 recorded Declaration of Restrictive Covenants. See, Insurance Code Sections 330 and 372. DCR 15 is informed and believes, and based thereon alleges, that: (A) The existence of the recorded 16 Declaration of Restrictive Covenants was known to Defendants before July 31, 2014; and, 17 (B) Defendants had in their possession, since on or before July 31, 2014, a copy of the recorded 18 Declaration of Restrictive Covenants. 19 31. DCR is informed and believes, and based thereon alleges that before Defendants 20 purportedly closed the escrow for the Bank’s Loan to the Borrower, recorded the Deed of Trust, 21 disbursed money and issued the Policy, that Defendants: (A) had actual knowledge of the 22 existence of the recorded Declaration of Restrictive Covenants; (B) had in their possession a copy 23 of the Declaration of Restrictive Covenants; and (C) knew that upon recordation the Deed of 24 Trust would not be a valid, enforceable, first priority lien on the Property, but would be 25 subordinate to the recorded Declaration of Restrictive Covenants. 26 32. The existence of the recorded Declaration of Restrictive Covenants has caused loss 27 or damage to DCR in an amount in excess of $2,000,000.00, the exact amount to be proved at 28 trial, which is required to be trebled pursuant to Penal Code § 496. The loss or damage caused to eo 8 COMPLAINT BN 39554866v1 DCR by the existence of the recorded Declaration of Restrictive Covenants is specifically covered by the Policy, including, but not limited to, Insuring Clauses 2 (“Any defect in or encumbrance on the title”), 3 (“Unmarketability of the title”), 5 (‘The invalidity or unenforceability of the lien of the insured mortgage upon the title”) and 6 (“The priority of any lien or unenforceability of the lien of the insured mortgage”) (collectively, the “Covered Risks”). 33. On or about November 26, 2019, DCR duly submitted a claim under the Policy to Defendants. Thereafter, Defendants by and through their claims agent Jacqueline Gibson, in bad faith and in violation of California law, including but not limited to the Insurance Code and California Fair Claims Settlement Practices Regulations, wrongfully denied DCR’s request for 10 payment of its claim on the false ground that DCR was allegedly required to foreclose before 11 Defendants were obligated to pay DCR’s claim. 12 34. Defendants’ denial of DCR’s claim for Policy benefits was wrongful and in bad 13 faith for the following reasons, among others: (A) California law, including but not limited to 14 Section 2695.7(d) of the California Fair Claims Settlement Practices Regulations required the 15 Defendants to conduct and diligently pursue a thorough, fair and objective investigation into 16 DCR’s claim, which Defendants failed to do; (B) had Defendants conducted and diligently 17 pursued a thorough, fair and objective investigation into DCR’s claim, they would have 18 discovered, among other things, that Defendants had violated the Bank’s Escrow Instructions 19 which they had received when they purported to close the escrow and recorded the Deed of Trust 20 subordinate to the recorded Declaration of Restrictive Covenants; (C) the recorded Declaration of 21 Restrictive Covenants materially impaired the title to the Property and the Deed of Trust and 22 made them worthless and unmarketable and the Deed of Trust failed to constitute viable security 23 for the Bank; (D) no prudent person, including DCR, would bid at the foreclosure sale of the 24 Deed of Trust; (E) if DCR were to conduct a foreclosure sale of the Deed of Trust and a third 25 party were to purchase the Property at the foreclosure sale, then DCR would not have the Note, 26 Deed of Trust or the Property to assign to Defendants when they paid DCR all of its damages, 27 attorneys’ fees and costs; and (F) Defendants’ citation to Karl v. Commonwealth Land Title Ins. 28 Co. (1993) 20 Cal.App.4th 972 and Cale v. Transamerica Title Ins. Co. (1990) 225 Cal. App. 3d are mation 9 COMPLAINT BN 39554866v1 442 are not applicable to DCR’s claims or this Complaint because: (1) the escrow for the Bank’s Loan to the Borrower did not validly close in accordance with the Bank’s Escrow Instructions to the Defendants since the Bank’s conditions for the close of escrow were not satisfied by the Defendants because the Bank did not receive a Deed of Trust which was a valid and enforceable first priority lien on the Borrower’s Property because of the existence of the recorded Declaration of Restrictive Covenants; (2) the Defendants were not authorized by the Bank to disburse the Bank’s loan funds to the Borrower and the money which was disbursed by the Defendants to the Borrower was the Defendants’ money and the Defendants are still holding in trust the money which they received from the Bank; (3) when the Defendants pay to DCR all of its damages, 10 including, but not limited to the principal amount of money which the Bank deposited with the 11 Defendants, interest, attorneys’ fees and costs, DCR, to avoid being unjustly enriched, shall need 12 to assign, without representation or warranty, whether express or implied, the Loan, Note or 13 Deed of Trust to the Defendants; (4) if DRC were to conduct a foreclosure sale, it would be 14 required to disclose to the potential bidders at the foreclosure sale all “...known facts materially 15 affecting the value of the property” including, but not limited to the recorded Declaration of 16 Restrictive Covenants (see, Karoutas v. Home Fed. Bank (1991) 232 Cal. App. 3d 767, 775) and 17 if a third party were the purchaser at the foreclosure sale then DCR would not have the Loan, 18 Note or Deed of Trust to assign to the Defendants; and (5) if DCR were the purchaser at the 19 foreclosure sale the foreclosure sale would have materially altered the Loan, the Note and the 20 Deed of Trust because the foreclosure sale would have, among other things, extinguished the lien 21 of the Deed of Trust on the Borrower’s Property and barred any further attempts to collect on the 22 Note. See, e.g., Jones v. First American Title Insurance Company (2003) 107 Cal.App.4th 381 23 (“A case is not authority for propositions not considered”). 24 25 26 27 28 an 10 COMPLAINT BN 39554866v1 VI. FIRST CAUSE OF ACTION FOR BREACH OF CONTRACT BY AGENTS AND FIDUCIARIES FOR FAILURE TO STRICTLY COMPLY WITH ESCROW INSTRUCTIONS (Against Defendants NATC and DOES 1-50) 35. DCR incorporates herein by this reference as if set forth in full paragraphs 1 - 34 of this Complaint. 36. DCR is informed and believes, and based thereon alleges that it was not necessary for the Bank to use the services of Defendants for the Bank to make the Loan to the Borrower. 10 Rather, the Bank was induced to use Defendants and paid their fees because the Bank wanted to 11 rely on the knowledge and expertise of paid professionals which were in the business of serving 12 as escrow agents and supplying information about land titles for the guidance of the public. As 13 escrow agents and fiduciaries Defendants were charged with a public trust and were obligated to 14 disclose to and not conceal from the Bank everything which Defendants knew which might have 15 affected the Bank’s proposed decision to make the Loan to Borrower. Amen v. Merced County 16 Title Co. (1962) 58 Cal. 2d 528m 534 (“The theory is that although the defendant makes no active 17 misrepresentation, this element ‘is supplied by an affirmative obligation to make full disclosure . . 18 ..””); Markowitz v. Fidelity Nat. Title Co. (2006) 142 Cal. App. 4"* 508, 528 (“When an escrow 19 agent knows a party to the escrow is relying on it for protection as to facts learned by the escrow 20 holder, the escrow holder can be held liable if it does not disclose those facts to the party.”); 21 Vournas v, Fidelity Nat. Title Ins, Co. (1999) 72 Cal. App. 4" 668, 674-675 (“When an escrow 22 holder knows the seller is relying on him for protection as to facts learned by the escrow holder, 23 the escrow holder can be held liable to the seller if he does not disclose those facts to the seller.”); 24 Kirby v. Palos Verdes Escrow Company (1986) 183 Cal. App. 3d 57, 64 (“An escrow holder has a 25 fiduciary duty ‘to communicate to his principal knowledge acquired in the course of his agency 26 with respect to material facts which might affect the principal’s decision as to a pending 27 transaction ....” ”); Contini v. Western Title Ins. Co. (1974) 40 Cal. App. 3d 536, 547 (“An 28 escrow holder is a fiduciary and like any other fiduciary is under a duty to communicate to his are ll COMPLAINT BN 39554866v1 principal knowledge acquired in the course of his agency with respect to material facts which might affect the principal’s decision as to a pending transaction . . . .”); and Spaziani v. Millar (1963) 215 Cal. App. 2d 667, 684 (“The law imposes on an agent the duty to exercise ordinary care to communicate to his principal knowledge acquired in the course of his agency with respect to matters pertaining thereto.”). 37. DCR is informed and believes, and based thereon alleges, that on or about August 27, 2014, the Defendants received the Bank’s Escrow Instructions, and thereafter the Defendants recorded the Deed of Trust, but failed to strictly comply with the Bank’s Escrow Instructions because, among other things, the Defendants failed to disclose to the Bank and 10 instead concealed from the Bank its knowledge that the Deed of Trust could not be recorded as a 11 valid, enforceable first priority lien on the Property, because it would be subordinate to the 12 recorded Declaration of Restrictive Covenants. Despite the fact that the Defendants knew of the 13 existence of the recorded Declaration of Restrictive Covenants, the Defendants, in violation of the 14 Bank’s Escrow Instructions, recorded the Deed of Trust, purportedly closed the escrow, disbursed 15 the money and issued the Policy. 16 38. As a proximate result of Defendants’ failure to strictly comply with the Bank’s 17 Escrow Instructions, the Deed of Trust was recorded by the Defendants subordinate to the 18 recorded Declaration of Restrictive Covenants. As a result of the Defendants’ breach of contract, 19 the Bank and DCR sustained damages in excess of the jurisdictional limits of this Court, the exact 20 amount to be proved at trial, but is reasonably believed to exceed $2,000,000.00. 21 VIL. 22 SECOND CAUSE OF ACTION FOR NEGLIGENCE BY AGENTS AND FIDUCIARIES 23 IN THE PERFORMANCE OF THEIR DUTIES 24 (Against Defendants NATC and Does 1-50) 25 39. DCR incorporates herein by this reference as if set forth in full paragraphs 1 - 38 26 of this Complaint. 27 40. Defendants, as the Bank’s escrow agents and fiduciaries for the Loan to Borrower, 28 were required by their fiduciary duties of disclosure, non-concealment, Insurance Code §§ 330 a 12 COMPLAINT BN 39554866v1 and 332, to disclose to and not