1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 FOR THE EASTERN DISTRICT OF CALIFORNIA 10 11 THE BANK OF NEW YORK MELLON No. 1:17-cv-01335-DAD-EPG FKA THE BANK OF NEW YORK, AS 12 TRUSTEE FOR THE BENEFIT OF THE CERTIFICATE HOLDERS OF THE 13 CWABS INC., ASSET-BACKED ORDER GRANTING IN PART AND CERTIFICATES, SERIES 2006-SD3, DENYING IN PART PLAINTIFF’S MOTION 14 FOR SUMMARY JUDGMENT, GRANTING Plaintiff, THE STIPULATION BETWEEN PLAINTIFF 15 AND THE UNITED STATES, AND v. DENYING AS MOOT THE UNITED 16 STATES’ MOTION FOR JUDGMENT ON BRENDA L. DAVIDSON, an individual; THE PLEADINGS 17 UNITED STATES OF AMERICA; CITY OF PORTERVILLE; and DOES 1 through (Doc. Nos. 22, 23) 18 50, inclusive, 19 Defendants. 20 21 This matter is before the court on defendant United States of America’s motion for 22 judgment on the pleadings and plaintiff’s motion for summary judgment. (Doc. Nos. 22, 23.) On 23 May 7, 2019, those motions came before the court for hearing. Attorney Cuong Nguyen appeared 24 on behalf of plaintiff Bank of New York Mellon. U.S. Department of Justice, Tax Division, Trial 25 Attorney Jonathan Hauck appeared on behalf of defendant United States. Defendant Brenda 26 Davidson appeared pro se. Having considered the parties’ briefing and argument, plaintiff’s 27 motion for summary judgment will be granted in part and denied in part, the stipulation between 28 ///// 1 plaintiff and the United States will be granted, and the United States’ motion for judgment on the 2 pleadings will be denied as moot. 3 BACKGROUND 4 The following convoluted facts are taken from plaintiff’s motion for summary judgment 5 and appear to be undisputed.1 On or around June 7, 2006, defendant Brenda Davidson 6 (“Davidson” or “Borrower”) executed and delivered to Zone Funding an Adjustable Rate Note 7 (“Note”) evidencing a mortgage loan to Borrower in the amount of $304,500.00. (Doc. No. 23-2 8 at 7–14.) The Note was subsequently lost or destroyed, and an Affidavit of Lost Note was 9 executed by Bank of America, National Association, which was the servicer of the loan at the 10 time of execution. (Id. at 16–18.) 11 To secure payment of the principal sum and interest on the Note, Borrower executed and 12 delivered to Mortgage Electronic Registrations Systems, Inc. (“MERS”), as nominee for Zone 13 Funding, a deed of trust dated June 7, 2006 (“First DOT”) and encumbering the real property 14 commonly known as 22278 West Thurman Avenue, Porterville, CA 83257 (the “Property”). (Id. 15 at 20–41.) Through inadvertence or mistake by Zone Funding’s escrow company, the First DOT 16 was never recorded in the Official Records of Tulare County. (Doc. No. 23-4 at ¶ 5.) 17 The beneficial interest in the Note was subsequently transferred from Zone Funding to 18 plaintiff. (Id. at ¶ 6; Doc. No. 23-2 at 14.) Plaintiff is in possession of the Affidavit of Lost Note 19 and is the current holder of the rights to the loan and the First DOT. (Doc. No. 23-4 at ¶ 7.) 20 The beneficial interest in the First DOT was intended to be transferred to plaintiff as well, 21 as evidenced by a written Assignment of Deed of Trust (“ADOT”) recorded on April 4, 2012, as 22 Instrument No. 2012-0020384, in the Official Records of Tulare County. (Doc. No. 23-2 at 43– 23 44.) The ADOT correctly describes the First DOT with reference to the original lender as Zone 24 Funding, the borrower as Brenda Davidson, the trustee as United Independent Title Insurance 25 Company, the loan date as June 7, 2006, and the original loan amount as $304,500.00. (Id. at 44.) 26 1 Defendant United States filed a statement of non-opposition to plaintiff’s motion for summary 27 judgment. (Doc. No. 27.) Defendant Davidson did not file an opposition or otherwise respond to plaintiff’s motion for summary judgment. Defendant City of Porterville has not appeared in this 28 action. 1 The ADOT was furthermore signed by MERS, the nominee of the original lender Zone Funding. 2 (Id.) However, the ADOT references the assigned deed of trust as having been recorded as 3 Instrument No. 2006-0065344. (Id.) Because the First DOT was never recorded, this recording 4 number cannot refer to the First DOT. 5 In the title history for the Property, there is a document recorded under Instrument No. 6 2006-0065344—the recording number specified in the ADOT. (Doc. No. 23-2 at 46–63.) That 7 document is a deed of trust in the amount of $326,000.00 (“Second DOT”), which was signed by 8 Borrower in May 2006, but was not recorded until fifteen days after plaintiff’s Note and First 9 DOT were signed. (Id.) The lender identified in the Second DOT is SRI, a California 10 corporation. (Id.) 11 In any event, Borrower defaulted under the obligations of the Note and First DOT by 12 failing to tender the monthly installment payment first coming due November 1, 2006 and each 13 monthly installment thereafter. (Doc. No. 23-4 at ¶ 16.) 14 As a result of Borrower’s default under the Note and First DOT, plaintiff commenced 15 foreclosure proceedings against the Property pursuant to the terms of the First DOT. (Id. at ¶ 17.) 16 Plaintiff ordered a title report and discovered that the First DOT was unrecorded. (Id. at ¶ 18.) 17 Moreover, there was no recorded assignment properly transferring the beneficial interest in the 18 First DOT to plaintiff, although there was a recorded assignment that identified the correct lender 19 and dollar amount. (Id. at ¶ 19.) 20 There are three Notices of Federal Tax Lien recorded in the title history to the property. 21 (Doc. No. 23-3 at 39–41.) The first was recorded on September 28, 2010, in the amount of 22 $243,789.01; the second was recorded on March 15, 2016, in the amount of $69,403.42; and the 23 third was recorded on July 6, 2016, in the amount of $1,937.47. (Id.) 24 Plaintiff commenced this action in Tulare County Superior Court on August 7, 2017, 25 bringing causes of action for: (1) imposition of equitable lien (mortgage); (2) enforcement of 26 lost, destroyed or stolen instrument; (3) declaratory relief; and (4) reformation of instrument. 27 (Doc. No. 1-1.) Specifically, plaintiff seeks a judgment imposing a lien in the form of an 28 equitable mortgage in favor of plaintiff, including all rights and interests as set forth in the deed 1 of trust dated June 7, 2006 and executed by Brenda Davidson; a judgment declaring that the lien 2 created by the deed of trust has priority over all liens recorded in connection with the Property in 3 the Official Records of Tulare County on or after June 7, 2006; a judgment assigning all rights, 4 title, and interest in the subject deed of trust to plaintiff; a judgment allowing plaintiff to enforce 5 the lost, destroyed, or stolen Note for all purposes and against any and all persons; a judicial 6 declaration that the beneficial interest in the unrecorded deed of trust and Note were intended to 7 be assigned to plaintiff; that the deed of trust recorded as Document No. 2006-0065344 be 8 reformed by replacing its text with the text of the unrecorded deed of trust; and that the 9 unrecorded deed of trust be declared to be recorded on June 7, 2006. (Id. at 15–16.)2 10 On October 4, 2017, the United States removed this action to federal court. (Doc. No. 1.) 11 On March 1, 2019, the United States filed a motion for judgment on the pleadings, and plaintiff 12 filed a motion for summary judgment. (Doc. Nos. 22, 23.) On April 2, 2019, plaintiff and the 13 United States filed a stipulation and proposed order regarding the relative priority between the 14 interests of the United States and plaintiff in the Property. (Doc. No. 26.) The same day, the 15 United States filed a statement of non-opposition to plaintiff’s motion for summary judgment, and 16 plaintiff filed a statement of non-opposition to the United States’ motion for judgment on the 17 pleadings. (Doc. Nos. 27, 28.) Borrower, defendant Davidson, did not file any opposition to or 18 otherwise respond to the pending motions. 19 At the May 7, 2019 hearing on these motions, the court noted that defendant City of 20 Porterville had not appeared in this action, and that plaintiff had not filed a motion for default 21 judgment against it. The court further noted that plaintiff’s motion identified “SRI” as another 22 party potentially interested in the litigation, who was not named as a defendant in the matter. The 23 court directed plaintiff to take any steps necessary to clarify the status of these entities and notify 24 the court when such steps had been completed. (See Doc. No. 34.) On July 17, 2019, the court 25 directed plaintiff to file a status report addressing the status of its efforts in this regard, which 26 plaintiff did on July 24, 2019. (Doc. Nos. 35, 36.) 27
28 2 In short, plaintiff seeks to put Humpty-Dumpty back together again. 1 LEGAL STANDARDS 2 A. Summary Judgment 3 Summary judgment is appropriate when the moving party “shows that there is no genuine 4 dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed. R. 5 Civ. P. 56(a). 6 In summary judgment practice, the moving party “initially bears the burden of proving the 7 absence of a genuine issue of material fact.” In re Oracle Corp. Sec. Litig., 627 F.3d 376, 387 8 (9th Cir. 2010) (citing Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986)). The moving party 9 may accomplish this by “citing to particular parts of materials in the record, including 10 depositions, documents, electronically stored information, affidavits or declarations, stipulations 11 (including those made for purposes of the motion only), admissions, interrogatory answers, or 12 other materials” or by showing that such materials “do not establish the absence or presence of a 13 genuine dispute, or that the adverse party cannot produce admissible evidence to support the 14 fact.” Fed. R. Civ. P. 56(c)(1)(A), (B). If the moving party meets its initial responsibility, the 15 burden then shifts to the opposing party to establish that a genuine issue as to any material fact 16 actually does exist. See Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586 17 (1986). In attempting to establish the existence of this factual dispute, the opposing party may 18 not rely upon the allegations or denials of its pleadings but is required to tender evidence of 19 specific facts in the form of affidavits, and/or admissible discovery material, in support of its 20 contention that the dispute exists. See Fed. R. Civ. P. 56(c)(1); Matsushita, 475 U.S. at 586 n.11; 21 Orr v. Bank of Am., NT & SA, 285 F.3d 764, 773 (9th Cir. 2002) (“A trial court can only consider 22 admissible evidence in ruling on a motion for summary judgment.”). The opposing party must 23 demonstrate that the fact in contention is material, i.e., a fact that might affect the outcome of the 24 suit under the governing law, see Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986); T.W. 25 Elec. Serv., Inc. v. Pac. Elec. Contractors Ass’n, 809 F.2d 626, 630 (9th Cir. 1987), and that the 26 dispute is genuine, i.e., the evidence is such that a reasonable jury could return a verdict for the 27 nonmoving party. See Wool v. Tandem Computs., Inc., 818 F.2d 1433, 1436 (9th Cir. 1987). 28 ///// 1 In the endeavor to establish the existence of a factual dispute, the opposing party need not 2 establish a material issue of fact conclusively in its favor. It is sufficient that “the claimed factual 3 dispute be shown to require a jury or judge to resolve the parties’ differing versions of the truth at 4 trial.” T.W. Elec. Serv., 809 F.2d at 631. Thus, the “purpose of summary judgment is to ‘pierce 5 the pleadings and to assess the proof in order to see whether there is a genuine need for trial.’” 6 Matsushita, 475 U.S. at 587 (citations omitted). 7 “In evaluating the evidence to determine whether there is a genuine issue of fact,” the 8 court draws “all reasonable inferences supported by the evidence in favor of the non-moving 9 party.” Walls v. Cent. Contra Costa Cty. Transit Auth., 653 F.3d 963, 966 (9th Cir. 2011). It is 10 the opposing party’s obligation to produce a factual predicate from which the inference may be 11 drawn. See Richards v. Nielsen Freight Lines, 602 F. Supp. 1224, 1244–45 (E.D. Cal. 1985), 12 aff’d, 810 F.2d 898, 902 (9th Cir. 1987). Undisputed facts are taken as true for purposes of a 13 motion for summary judgment. Anthoine v. N. Cent. Counties Consortium, 605 F.3d 740, 745 14 (9th Cir. 2010). Finally, to demonstrate a genuine issue, the opposing party “must do more than 15 simply show that there is some metaphysical doubt as to the material facts. . . . Where the record 16 taken as a whole could not lead a rational trier of fact to find for the nonmoving party, there is no 17 ‘genuine issue for trial.’” Matsushita, 475 U.S. at 587 (citation omitted). 18 B. Judgment on the Pleadings 19 Rule 12(c) of the Federal Rules of Civil Procedure provides that “[a]fter the pleadings are 20 closed—but early enough not to delay trial—a party may move for judgment on the pleadings.” 21 In reviewing a motion brought under Rule 12(c), the court “must accept all factual allegations in 22 the complaint as true and construe them in the light most favorable to the nonmoving party.” 23 Fleming v. Pickard, 581 F.3d 922, 925 (9th Cir. 2009). 24 The same legal standard applicable to a Rule 12(b)(6) motion applies to a motion brought 25 pursuant to Rule 12(c). Dworkin v. Hustler Magazine, Inc., 867 F.2d 1188, 1192 (9th Cir. 1989). 26 Accordingly, “judgment on the pleadings is properly granted when, taking all the allegations in 27 the non-moving party’s pleadings as true, the moving party is entitled to judgment as a matter of 28 law.” Marshall Naify Revocable Tr. v. United States, 672 F.3d 620, 623 (9th Cir. 2012) (quoting 1 Fajardo v. County of Los Angeles, 179 F.3d 698, 699 (9th Cir. 1999)); see also Fleming, 581 F.3d 2 at 925 (noting that “judgment on the pleadings is properly granted when there is no issue of 3 material fact in dispute, and the moving party is entitled to judgment as a matter of law”). The 4 allegations of the nonmoving party must be accepted as true, while any allegations made by the 5 moving party that have been denied or contradicted are assumed to be false. MacDonald v. 6 Grace Church Seattle, 457 F.3d 1079, 1081 (9th Cir. 2006). The facts are viewed in the light 7 most favorable to the non-moving party and all reasonable inferences are drawn in favor of that 8 party. Living Designs, Inc. v. E.I. DuPont de Nemours & Co., 431 F.3d 353, 360 (9th Cir. 2005). 9 Courts have discretion both to grant a motion for judgment on the pleadings with leave to 10 amend or to simply grant dismissal of causes of action rather than grant judgment as to them. 11 Lonberg v. City of Riverside, 300 F. Supp. 2d 942, 945 (C.D. Cal. 2004) (citations omitted); see 12 also Pac. W. Grp. v. Real Time Sols., Inc., 321 Fed. App’x 566, 569 (9th Cir. 2008);3 Woodson v. 13 State of California, No. 2:15-cv-01206-MCE-CKD, 2016 WL 524870, at *2 (E.D. Cal. Feb. 10, 14 2016). Generally, dismissal without leave to amend is proper only if it is clear that “the 15 complaint could not be saved by any amendment.” Intri-Plex Techs. v. Crest Grp., 499 F.3d 16 1048, 1056 (9th Cir. 2007) (citing In re Daou Sys., Inc., 411 F.3d 1006, 1013 (9th Cir. 2005)); see 17 also Ascon Props., Inc. v. Mobil Oil Co., 866 F.2d 1149, 1160 (9th Cir. 1989) (noting that 18 “[l]eave need not be granted where the amendment of the complaint . . . constitutes an exercise in 19 futility”). 20 ANALYSIS 21 A. Plaintiff’s Request for Judicial Notice 22 In connection with its motion for summary judgment, plaintiff requests that the court take 23 judicial notice of: (1) an assignment of deed of trust recorded on April 4, 2012, as Instrument No. 24 2012-0020384, in the Official Records of Tulare County; (2) a deed of trust recorded on June 22, 25 2006, as Instrument No. 2006-0065344, in the Official Records of Tulare County; (3) a notice of 26 federal tax lien recorded on September 28, 2010, as Instrument No. 2010-0059652, in the Official 27 3 Citation to this unpublished Ninth Circuit opinion is appropriate pursuant to Ninth Circuit Rule 28 36-3(b). 1 Records of Tulare County; a notice of federal tax lien recorded on March 15, 2016, as Instrument 2 No. 2016-0013816, in the Official Records of Tulare County; and a notice of federal tax lien 3 recorded on July 6, 2016, as Instrument No. 2016-0039412, in the Official Records of Tulare 4 County; (4) defendant Brenda L. Davidson’s answer to plaintiff’s complaint in this action, filed 5 on February 8, 2019; and (5) business records for SRI from the California Secretary of State 6 Business Information Search. (Doc. No. 23-3.) 7 Federal Rule of Evidence 201 provides that “[t]he court may judicially notice a fact that is 8 not subject to reasonable dispute because it: (1) is generally known within the trial court’s 9 territorial jurisdiction; or (2) can be accurately and readily determined from sources whose 10 accuracy cannot reasonably be questioned.” Fed. R. Evid. 201. A court may also take judicial 11 notice of undisputed “matters of public record.” Lee v. City of Los Angeles, 250 F.3d 668, 688– 12 89 (9th Cir. 2001). A court may take judicial notice of a public record not for the truth of the 13 facts recited therein, but for the existence of the document. Id. at 690. 14 It is unclear to the court why plaintiff seeks judicial notice of documents identified above. 15 At the summary judgment stage, these documents could have been attached to the moving papers 16 without judicial notice. Indeed, some of the documents for which plaintiff requests judicial notice 17 are duplicative of the documents attached to plaintiff’s declaration in support of summary 18 judgment. (Compare Doc. No. 23-2 at 43–44, 46–63 with Doc. No. 23-3 at 14–15, 18–35.) 19 Moreover, if the court took judicial notice, it would only notice the existence of the documents, 20 and not the truth of any facts asserted therein. Finding no reason to take judicial notice at this 21 stage of the litigation, the court denies plaintiff’s request for judicial notice, but will consider the 22 documents identified above as admissible evidence submitted in support of plaintiff’s motion for 23 summary judgment. 24 B. Plaintiff’s Motion for Summary Judgment 25 Plaintiff seeks summary judgment in its favor on each of its claims for relief. Specifically, 26 plaintiff seeks the imposition of an equitable lien securing the Borrower’s loan obligation, an 27 order confirming its entitlement to enforce the missing promissory note, reformation of the 28 erroneously recorded deed of trust, and a judicial declaration of the rights and duties of the parties 1 in relation to the Property. (Doc. No. 23-1 at 2.) The United States filed a statement of non- 2 opposition to plaintiff’s motion for summary judgment (Doc. No. 27), and defendant Davidson 3 has failed to oppose or otherwise respond to plaintiff’s motion. The court addresses each of 4 plaintiff’s claims for relief below. 5 1. Imposition of Equitable Lien 6 California’s codification of the statute of frauds generally requires a written agreement to 7 create an interest in property. See Cal. Civ. Pro. Code § 1971. The “equitable lien” doctrine, 8 however, is an exception to this requirement, creating a lien on property where necessary to 9 accomplish substantial justice and protect creditors. See Grappo v. Coventry Fin. Corp., 235 Cal. 10 App. 3d 496, 509 (1991); see also In re Henshaw’s Estate, 68 Cal. App. 2d 627, 636 (1945) 11 (“The accepted rule is that equitable liens are favored to do justice and prevent unfair results.”). 12 Courts have thus construed the existence of equitable liens: 13 where the parties have erroneously created a defective mortgage; where, despite the lack of any formal mortgage or deed of trust it is 14 apparent that the parties intended to create a security interest in property; where the parties have otherwise clearly attempted or 15 intended to make real property security for an obligation; or, even in the absence of any agreement, where it is necessary to prevent unjust 16 enrichment. 17 Id. (internal citations omitted); see also Farmers Ins. Exchange v. Zerin, 53 Cal. App. 4th 445, 18 453 (1997) (“An equitable lien . . . may arise from a contract which reveals an intent to charge 19 particular property with a debt or out of general considerations of right and justice as applied to 20 the relations of the parties and the circumstances of their dealings.”); In re Cedar Funding, Inc., 21 408 B.R. 299, 314 (Bankr. N.D. Cal. 2009) (“[T]here are two categories of equitable liens, those 22 used to give effect to the parties’ agreement or intention and those imposed because equity 23 demands it despite the absence of intent or even evidence of contrary intent.”). 24 Plaintiff argues that if it appears from an instrument that there is an intent to give or 25 pledge real or personal property as security for an obligation, and the property is so described that 26 the principal things intended to be given or pledged can be sufficiently identified, a lien follows. 27 (Doc. No. 23-1 at 7.) Here, plaintiff contends that it cannot be reasonably disputed that the 28 parties intended to pledge the Property as collateral for the loan: the First DOT references the 1 loan extended to Borrower by lender Zone Funding in the amount of $304,000.00, states that it 2 constitutes a “Security Instrument,” and identifies the Property—by address, Parcel ID Number, 3 and legal description—as collateral for the loan. (Id.) Although the First DOT was never 4 recorded, plaintiff argues that it is an instrument indicating that upon obtaining the loan from 5 plaintiff’s predecessor in interest, Zone Funding, Borrower intended to pledge the Property as 6 security for the obligation currently owed to plaintiff. (Id.) Alternatively, plaintiff argues that 7 even if the First DOT did not evidence intent to create a lien on the Property, Borrower does not 8 deny the fact that she obtained the loan from plaintiff’s predecessor in interest nor does she deny 9 that she subsequently defaulted under the terms of the Note and the First DOT. (Id. at 8; see 10 generally Doc. No. 12.) Permitting Borrower to retain and enjoy the benefit of the loan proceeds, 11 while depriving plaintiff of a security interest in the Property and a recourse following 12 Borrower’s default, would result in Borrower’s unjust enrichment. (Id. at 8.) 13 The court finds that the undisputed facts establish an intent by the parties to pledge the 14 Property as collateral for the loan, and that, in the absence of a lien, Borrower would be unjustly 15 enriched. Accordingly, the court finds that plaintiff is entitled to an equitable lien against the 16 Property. The court further concludes that the equitable lien relates back to the conduct on which 17 it is founded. Hise v. Superior Court, 21 Cal.2d 614, 627 (1943) (“Although an equitable lien is 18 not judicially recognized until a judgment is rendered declaring its existence, the lien relates to 19 the time it was created by the conduct of the parties.”). Thus, the equitable lien here relates back 20 to June 7, 2006, the date on which Borrower obtained the proceeds of the loan and executed the 21 Note and First DOT. (Doc. No. 23-1 at 8.) 22 However, with respect to the three recorded Notices of Federal Tax Lien, federal law 23 prohibits plaintiff from relating back its equitable lien to obtain priority over federal tax liens. 24 See United States v. Sec. Tr. & Sav. Bank, 340 U.S. 47, 50 (1947) (holding that federal tax liens 25 are superior to inchoate attachment liens); see also United States v. Acri, 348 U.S. 211, 213–14 26 (1955) (holding that state relation-back doctrine did not render otherwise inchoate state lien 27 choate as against competing federal tax lien). Based on this authority, plaintiff states that it does 28 not seek a declaration that its lien take priority over those notices of federal tax lien recorded 1 (1) on September 28, 2010 in the amount of $243,789.01; (2) on March 15, 2016 in the amount of 2 $69,403.42; and (3) on July 6, 2016 in the amount of $1,937.47. (Doc. No. 23-1 at 9.) Plaintiff 3 thus concedes that, to the extent these three notices of federal tax lien remain enforceable, they 4 would retain priority over plaintiff’s equitable lien and/or reformed deed of trust. (Id.) 5 2. Enforcement of the Note 6 The California Commercial Code defines a “person entitled to enforce” an instrument as 7 “(a) the holder of the instrument, (b) a nonholder in possession of the instrument who has the 8 rights of a holder, or (c) a person not in possession of the instrument who is entitled to enforce the 9 instrument pursuant to Section 3309 or subdivision (d) of Section 3418.” Cal. Com. Code 10 § 3301. Plaintiff argues that it is entitled to enforce the Note pursuant to § 3309 of the California 11 Commercial Code, which specifies the conditions under which a negotiable instrument can be 12 enforced even if the original instrument cannot be located: 13 A person not in possession of an instrument is entitled to enforce the instrument if (1) the person was in possession of the instrument and 14 entitled to enforce it when loss of possession occurred, (2) the loss of possession was not the result of a transfer by the person or a lawful 15 seizure, and (3) the person cannot reasonably obtain possession of the instrument because the instrument was destroyed, its 16 whereabouts cannot be determined, or it is in the wrongful possession of an unknown person or a person that cannot be found or is not 17 amenable to service of process. 18 Id. § 3309(a). 19 Here, the court finds that plaintiff does not meet the requirements under § 3309(a) to 20 enforce the Note. Plaintiff presents evidence that after the Note was lost, stolen, or destroyed, the 21 ALN was executed by Bank of America, National Association, the servicer of the loan at the 22 time, and is currently in plaintiff’s possession. The ALN attests that the loss of possession of the 23 Note was not the result of a transfer or a lawful seizure of the Note. (See Doc. No. 23-2 at 17.) 24 The ALN also attests that possession of the Note cannot reasonably be obtained because the Note 25 was destroyed, its whereabouts cannot be determined, or it is in the wrongful possession of an 26 unknown person. (Id.) However, in moving for summary judgment plaintiff has presented no 27 evidence that it was in possession of the instrument and entitled to enforce it when loss of 28 possession occurred. Rather, plaintiff has come forward only with evidence of an allonge, 1 attached to the Note and made a part thereof, endorsing the Note in blank (see Doc. No. 23-2 at 2 14) and therefore ostensibly payable to plaintiff as its last bearer. See Cal. Com. Code § 3205(b) 3 (“When indorsed in blank, an instrument becomes payable to bearer and may be negotiated by 4 transfer of possession alone until specially indorsed.”). However, plaintiff offers no evidence 5 addressing when it became the bearer of the Note, when the Note was lost, and whether plaintiff 6 possessed the Note and the entitlement to enforce the Note at the time it was lost. For these 7 reasons, the court concludes that plaintiff has not yet met the requirements to enforce the Note 8 pursuant to California Commercial Code § 3309(a). 9 3. Reformation of the Second Deed of Trust 10 Plaintiff next seeks reformation of the Second DOT. Plaintiff argues that it is undisputed 11 that the unrecorded First DOT represents the parties’ intended agreement to be recorded in the 12 Official Records of Tulare County, but that the Second DOT in the amount of $326,000.00 13 recorded as Document No. 2006-0065344 in connection with the Property was recorded in place 14 of the First DOT due to mistake, inadvertence, or neglect. (Doc. No. 23-1 at 11.) In order to 15 effectuate the intent of the parties, plaintiff seeks reformation of the Second DOT by replacing its 16 text with that of the unrecorded First DOT. (Id. at 12.) Plaintiff contends that reformation would 17 not be prejudicial to defendants because, based on the recorded Second DOT, all junior interests 18 were aware of an encumbrance upon the Property as of June 2006. (Id.) 19 “The purpose of reformation is to correct a written instrument in order to effectuate a 20 common intention of both parties which was incorrectly reduced to writing.” Lister v. Sorge, 260 21 Cal. App. 2d 333, 338 (1968) (citation omitted). “To justify the court in changing the language of 22 the instrument sought to be reformed, . . . it must be established that both parties agreed to 23 something different from what is expressed in the writing, and the proof upon this point should 24 be . . . clear and convincing.” Id. (citation omitted); see also Mills v. Schulba, 95 Cal. App. 2d 25 559, 561 (1950) (“Our courts have repeatedly held that the mistake of a draftsman is a good 26 ground for the reformation of an instrument which does not truly express the intention of the 27 parties.”) (citation omitted). Reformation is proper “so far as it can be done without prejudice to 28 ///// 1 rights acquired by third persons, in good faith and for value.” Shupe v. Nelson, 254 Cal. App. 2d 2 693, 698 (1967). 3 Here, plaintiff seeks an order substituting the recorded Second DOT altogether for the 4 unrecorded First DOT in the Tulare County records. It is entirely unclear whether such a 5 substitution would constitute “reformation” of a written contract at all, because plaintiff seeks to 6 “reform” a contract that it was never a party to. Moreover, plaintiff has presented no authority 7 supporting the proposition that it would be entitled to do so. Relatedly, reformation by 8 substituting the recorded Second DOT for the unrecorded First DOT would seem to implicate the 9 interests of the beneficiary under the Second DOT, i.e. lender SRI, who is not a party to this 10 litigation. As discussed above, the court raised this issue at the May 7, 2019 hearing on the 11 pending motions, and counsel for plaintiff represented that SRI’s status according to the 12 California Secretary of State’s website is “suspended.” The court directed plaintiff to take the 13 steps necessary to name SRI as a defendant and seek the entry of default judgment against it if 14 necessary.4 15 As noted above, on July 17, 2019, having received no update from plaintiff on the status 16 of this litigation, the court issued an order directing plaintiff to file a status report within seven 17 days. (Doc. No. 36.) Plaintiff filed its status report on July 24, 2019. (Doc. No. 36.) Therein, 18 plaintiff stated that should SRI need to be named as a defendant in order to grant the requested 19 relief, the court is authorized to order such joinder pursuant to Federal Rule of Civil Procedure 20 19. (Id. at 2.) Plaintiff further stated that if the court does not order joinder, plaintiff will seek a 21 stipulation from the parties, and if such stipulation cannot be obtained, plaintiff will move for 22 leave to amend its complaint. (Id.) 23 The court declines to order joinder of SRI. The court previously alerted plaintiff to its 24 concerns on May 7, 2019 and granted plaintiff time to decide how to proceed in this action
25 4 The court also directed plaintiff to notify the court whether the City of Porterville had defaulted in this action and to seek default judgment against it. In plaintiff’s status report filed July 24, 26 2019, plaintiff explained that prior to removal of this action to federal court, default was entered 27 against the City of Porterville on October 3, 2017 and attached copies of the proof of service and request for entry of default filed in state court. (Doc. No. 36 at 4–9.) To date, however, plaintiff 28 has not moved for a default judgment against the City of Porterville. 1 against SRI. Plaintiff’s status report provided no new information with respect to SRI but rather 2 attempts to shift the onus to the court to join SRI as a defendant in this action. It is not the court’s 3 responsibility to litigate this action on plaintiff’s behalf. Because plaintiff has provided the court 4 with no authority for its request to “reform” a contract to which it is not a party, and because 5 granting such relief would, in any event, prejudice the rights of a non-party to this action, the 6 court concludes that plaintiff is not entitled to reformation of the Second DOT. 7 4. Declaratory Relief 8 Finally, plaintiff seeks a determination of the rights and duties of the parties. Plaintiff 9 seeks a judicial declaration that: (1) the First DOT has priority over all liens recorded against the 10 Property in the Official Records of Tulare County on or after June 7, 2006; (2) plaintiff is the 11 proper assignee of the First DOT pursuant to the ADOT; and (3) the interests of defendants and 12 all other claimants created after June 7, 2006 are inferior to that of plaintiff, with the exception 13 that, to the extent the three notices of federal tax lien remain enforceable, those three notices will 14 retain priority over plaintiff’s equitable lien and/or reformed deed of trust. (Doc. No. 23-1 at 13.) 15 The decision to grant declaratory relief is discretionary. United States v. Washington, 759 16 F.2d 1353, 1356 (9th Cir. 1985). “Declaratory relief should be denied when it will neither serve a 17 useful purpose in clarifying and settling the legal relations in issue nor terminate the proceedings 18 and afford relief from the uncertainty and controversy faced by the parties.” Id. at 1357 (citations 19 omitted). In light of the court’s denial of plaintiff’s motion for summary judgment as to its claims 20 for enforcement of the Note and reformation of the Second DOT, plaintiff’s request for 21 declaratory relief will also be denied. 22 B. United States’ Motion for Judgment on the Pleadings 23 The United States has separately moved for judgment on the pleadings that its federal tax 24 liens are superior to plaintiff’s interest in the Property. (Doc. No. 22.) The United States argues 25 that a federal tax lien takes priority over competing liens unless the competing lien was choate, or 26 fully established, prior to the attachment of the federal lien. (Doc. No. 22-1 at 4) (citing Noriega 27 & Alexander v. United States, 859 F. Supp. 406, 409 (E.D. Cal. 1994)). Because plaintiff’s lien 28 was inchoate, or not fully perfected, at the time the federal tax liens were recorded, the United 1 States asserts that plaintiff’s interest in the Property remains inferior to that of the United States. 2 (Id. at 4–5.) The United States also argues that the relation back doctrine is ineffective against 3 federal tax liens, and thus even if the court reforms the Second DOT and relates it back to the date 4 on which it was originally filed, the priority of the federal tax liens will not be displaced. (Id. at 5 5–6) (citing cases). 6 Plaintiff does not oppose the United States’ motion for judgment on the pleadings (Doc. 7 No. 28), and indeed, plaintiff’s motion for summary judgment concedes that, to the extent the 8 United States’ tax liens are enforceable under applicable law, such tax liens take priority over 9 plaintiff’s interest in the Property. (See Doc. No. 23-1 at 9, 13.) Accordingly, on April 2, 2019, 10 plaintiff and the United States filed a joint stipulation. (Doc. No. 26.) The stipulation states that 11 Notices of Federal Tax Lien were filed against Davidson with the County of Tulare on September 12 28, 2010, March 15, 2016, and July 6, 2016. (Id. at ¶ 6.) The parties stipulate that, to the extent 13 the identified tax liens are enforceable under applicable law, such tax liens are senior to and have 14 priority over plaintiff’s interest in the Property. (Id. at ¶ 7.) The parties agree to bear their 15 respective costs related to this litigation, including any possible attorney’s fees, and that plaintiff 16 claims no monetary relief against the United States. (Id. at ¶¶ 8–9.) 17 The court will adopt and grant the parties stipulation. The United States’ motion for 18 judgment on the pleadings will be denied as having been rendered moot by the court’s order 19 adopting the stipulation.5 20 CONCLUSION 21 For the reasons stated above: 22 1. Plaintiff’s motion for summary judgment (Doc. No. 23) is granted as to its first 23 claim for an equitable lien, and is denied in all other respects; 24 2. Plaintiff’s request for judicial notice (Doc. No. 23-3) is denied; 25 ///// 26
27 5 At the hearing on the pending motions counsel for both plaintiff and the United States agreed that if the parties’ stipulation was adopted by the court the same relief being sought by the United 28 States in its motion for judgment on the pleadings would be granted. 1 3. The stipulation of Plaintiff and the United States (Doc. No. 26) is adopted and 2 granted; 3 a. To the extent the United States’ tax liens identified in the stipulation are 4 enforceable under applicable law, such tax liens are senior to and have 5 priority over plaintiff's interest in the Property; 6 4. The United States’ motion for judgment on the pleadings (Doc. No. 22) is denied 7 as having been rendered moot by the stipulation; and 8 5. The Clerk of the Court is directed to terminate the United States from the docket in 9 this action. 10 | IT IS SO ORDERED. a Dated: _ August 15, 2019 J aL A 4 7 a 12 UNITED STATES DISTRICT JUDGE 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 16