Norris v. Arnold

courts have found that there is a one-year statute of limitations for claims under section 4970, and that the claims here accrued in August of 2022, when plaintiff entered into the loan agreement. Since plaintiff did not file her complaint until April of 2025, defendants conclude that plaintiff’s claims are time-barred. First, while there does not appear to be any binding California Court of Appeal decision ruling on the issue, “[c]ourts in the Ninth Circuit have held that ‘California Code of Civil Procedure § 340 provides a one-year limitation period for statutes such as §§ 4973 ... that do not prescribe a different period.’.” (Trujillo v.

Specialized Loan Servicing, LLC (C.D. Cal., June 23, 2022) 2022 WL 17220030, at *3, citations omitted.) Thus, the federal courts have found that “California Code of Civil Procedure § 340 provides a one-year limitation period for [predatory lending] statutes such as [California Financial Code] §§ 4973 and 4979.6 that do not prescribe a different period.” (DeLeon v. Wells Fargo Bank, N.A. (N.D. Cal. 2010) 729 F.Supp.2d 1119, 1127–1128.) Thus, where the plaintiffs allege a predatory lending claim under sections 4973 and 4949.6, the one-year statute applies and claims filed beyond one year are time-barred. (Ibid; see also Banayan v.

Specialized Loan Servicing, LLC (C.D. Cal., Feb. 4, 2019) 2019 WL 13257999, at *4; Medina v. Wells Fargo Bank, N.A. (C.D. Cal., Aug. 26, 2014) 2014 WL 12591126, at *5.) “[T]he majority of district courts have applied the one-year limitation period under section 340 to allegations of predatory lending.” (Gutierrez v. PNC Mortg. (S.D. Cal., Mar. 26, 2012) 2012 WL 1033063, at *3.) Thus, “a predatory lending claim must also be brought within a year of the alleged violation.” (Armstrong-Harris v. Wells Fargo Bank, N.A. (N.D.

Cal., Aug. 12, 2022) 2022 WL 3348426, at *5.) Furthermore, where the plaintiff alleges that the defendant engaged in predatory lending practices at the time the loan was negotiated and executed, the claim accrues at the time the loan is made. (Medina v. Wells Fargo Bank, supra, at *5; Gutierrez v. PNC Mortg., supra, at *3.) Although federal court decisions are not binding this court, the court will nevertheless follow the reasoning of the federal courts here, as their reasoning is persuasive. “Although not binding, unpublished federal district court cases are citable as persuasive authority.” (Aleman v.

Airtouch Cellular (2012) 209 Cal.App.4th 556, 576, fn. 8.) Since Financial Code section 4973 does not provide for a statute of limitations, the court will apply the one-year statute under section 340 to any claims based on section 4970. Plaintiff argues that the court should apply the three-year statute under section 338, subdivisions (a) and (b), because she has alleged that defendants violated various statutes and engaged in fraudulent conduct when they steered her into the commercial loan even though they knew she was not running a business and she could not afford to pay off the loan.

Code of Civil Procedure section 338, subdivision (a) provides a three-year period for bringing “[a]n action upon a liability created by statute, other than a penalty or forfeiture.” However, Financial Code section 4977 provides for the imposition of various penalties if a person violates any provision of section 4970, et seq. For example, under section 4977, subdivision (a), “[a] licensing agency may, after appropriate notice and opportunity for hearing, by order levy administrative penalties against a person who violates any provision of this division, and the person shall be liable for administrative penalties of not more than two thousand five hundred dollars ($2,500) for each violation.”

Also, under section 4977, subdivision (b), “Any person who willfully and knowingly violates any provision of this division shall be liable for a civil penalty of not more than twenty-five thousand dollars ($25,000) for each violation which shall be assessed and recovered in a 4

civil action brought in the name of the people of the State of California by the licensing agency in any court of competent jurisdiction.” Therefore, since the statute does provide for penalties, the three-year statute of limitation under section 338(a) does not apply to claims under Financial Code section 4970, et seq. Section 338(d) provides for a three-year limitation period for “[a]n action for relief on the ground of fraud or mistake. The cause of action in that case is not deemed to have accrued until the discovery, by the aggrieved party, of the facts constituting the fraud or mistake.”

Here, plaintiff has not alleged any facts showing that she entered into the loan agreement due to fraud or mistake, or that she was unaware of the facts underlying her claims. She does not allege that defendants concealed or misrepresented any material facts about the loan to her, or that she did not understand that the loan was commercial in nature and included a high interest rate and a balloon payment. In fact, she admits that she knew that the loan application included false statements about obtaining the loan to start a business, and she knew that she did not have the ability to repay the loan, but she felt that she had no choice but to follow defendants’ instructions and execute the false loan documents. (SAC, ¶¶ 30-33.)

Thus, while she does allege that defendants acted fraudulently in steering her into a commercial loan that she could not afford to pay off, her allegations do not support any claim that she was deceived about the nature of the loan or any other material facts regarding her claims. Thus, the three-year statute under section 338 does not apply here, and the court will apply the one-year statute under section 340 to any claims based on section 4370. Plaintiff also argues that the delayed discovery rule applies here and tolls the statute of limitations until she discovered the facts underlying her claims. “In order to rely on the discovery rule for delayed accrual of a cause of action, ‘[a] plaintiff whose complaint shows on its face that his claim would be barred without the benefit of the discovery rule must specifically plead facts to show (1) the time and manner of discovery and (2) the inability to have made earlier discovery despite reasonable diligence.’ In assessing the sufficiency of the allegations of delayed discovery, the court places the burden on the plaintiff to ‘show diligence’; ‘conclusory allegations will not withstand demurrer.’” (Fox v.

Ethicon Endo-Surgery, Inc. (2005) 35 Cal.4th 797, 808, citations omitted.) Here, plaintiff has not alleged any facts in her second amended complaint that would tend to show that she did not discover the facts underlying her claims, or that she could not have discovered the facts earlier with reasonable diligence. In fact, she has admitted that she was aware of the material facts underlying her claims since she first executed the loan agreement in August of 2022, so the delayed discovery rule does not apply here.

Next, while the second cause of action is labeled a claim for declaratory relief, the gravamen of the cause of action is that defendants violated Financial Code section 4970 and 4973, as well as Civil Code section 1788.17 and 15 U.S.C. section 1692b-j. (SAC, ¶¶ 67-72.) Thus, the one-year statute of limitation under Code of Civil Procedure section 340 applies to the first cause of action. Since plaintiff did not bring her claim within one year of when the claim accrued, the second cause of action is time-barred and the court will sustain the demurrer to it, without leave to amend.

However, the third cause of action for declaratory relief does not expressly rely on the consumer lending statutes. Instead, it alleges that the loan is unconscionable based on Civil Code section 1670.5 and common law court decisions like Orcilla v. Big Sur, Inc. (2016) 244 Cal.App.4th 982. (SAC, ¶¶ 81-90.) Therefore, the court will not apply the oneyear statute to the third cause of action, as the gravamen of the cause of action is not a violation of consumer lending laws. Instead, the court intends to overrule the demurrer to the third cause of action, as defendants have not met their burden of showing that the claim is time-barred.

The fourth cause of action for breach of fiduciary duty alleges that defendants breached their fiduciary duty they owed to plaintiff as mortgage brokers under Civil Code section 2923.1. (SAC, ¶¶ 93-97.) While plaintiff does rely to the same facts alleged in the other causes of action, it appears that the primary violation plaintiff alleges in the fourth cause of action is the alleged violation of fiduciary duty under section 2923.1, not violations of the consumer lending laws. Therefore, the court intends to find that defendants have not met their burden of showing that the fourth cause of action is timebarred, and it will overrule the demurrer to the fourth cause of action.

Finally, the court intends to overrule the demurrer to the fifth cause of action for violation of Business and Professions Code section 17200, the Unfair Competition Law. The UCL has its own four-year statute of limitations. “Any action to enforce any cause of action pursuant to this chapter shall be commenced within four years after the cause of action accrued.” (Bus. & Prof. Code, § 17208.) Nevertheless, defendants argue that the UCL claim relies on the same allegations of violation of consumer lending laws as the other claims, and thus it is subject to the oneyear statute of limitations under section 340.

However, “[t]he UCL has a four-year statute of limitations, which applies even if the borrowed statute has a shorter limitations statute. ‘That is because Business and Professions Code section 17208 states that any action to enforce any cause of action under the UCL chapter shall be commenced within four years after the cause of action accrued.’ This language ‘admits no exceptions.’ ... Thus, the general rule is that a UCL cause of action borrows the substantive portion of the borrowed statute to prove the ‘unlawful’ prong of that statute, but not the limitations procedural part of the borrowed statute.” (Blanks v.

Seyfarth Shaw LLP (2009) 171 Cal.App.4th 336, 364, citations omitted.) Here, plaintiff brought her UCL claim within four years of the date that she entered into the loan agreement, so her claim is not time-barred. As a result, the court intends to overrule the demurrer to the fifth cause of action. T&S’s Motion to Strike: First, while plaintiff contends that T&S Bluestone Trust is not a party to the action and thus has no standing to object to her second amended complaint, defendant has explained in its reply that defendant’s full name is actually “Steven Jaques as the managing member of the Jaya Peak Family Trust, LLC, as Trustee of the T&S Bluestone Trust.”

The parties have referred to the defendant as “T&S Bluestone Trust” or just “T&S” for the purpose of brevity. Therefore, the court intends to overrule plaintiff’s objection based on standing. Next, plaintiff has not alleged any facts showing that defendant T&S engaged in any conduct that was fraudulent, malicious, and oppressive such that it would be liable for punitive damages. (Civil Code, § 3294.)

“In order to survive a motion to strike an allegation of punitive damages, the ultimate facts showing an entitlement to such relief must be pled by a plaintiff. In passing on the correctness of a ruling on a motion to strike, judges read allegations of a pleading subject to a motion to strike as a whole, all parts in their context, and assume their truth. In ruling on a motion to strike, courts do not read allegations in isolation.” (Clauson v. Superior Court (1998) 67 Cal.App.4th 1253, 1255, citations omitted.) “Section 3294 of the Civil Code authorizes the recovery of punitive damages in noncontract cases ‘where the defendant has been guilty of oppression, fraud, or malice, express or implied. ...’ As we recently explained, ‘This has long been interpreted to mean that malice in fact, as opposed to malice implied by law, is required.

The malice in fact, referred to ... as animus malus, may be proved under section 3294 either expressly (by direct evidence probative on the existence of hatred or ill will) or by implication (by indirect evidence from which the jury may draw inferences).’” (Taylor v. Superior Court (1979) 24 Cal.3d 890, 894, citations omitted.) “Other authorities have amplified the foregoing principle. Thus it has been held that the ‘malice’ required by section 3294 ‘implies an act conceived in a spirit of mischief or with criminal indifference towards the obligations owed to others.’ In Dean Prosser's words: ‘Where the defendant's wrongdoing has been intentional and deliberate, and has the character of outrage frequently associated with crime, all but a few courts have permitted the jury to award in the tort action 'punitive' or 'exemplary' damages. ... [¶] Something more than the mere commission of a tort is always required for punitive damages.

There must be circumstances of aggravation or outrage, such as spite or “malice,” or a fraudulent or evil motive on the part of the defendant, or such a conscious and deliberate disregard of the interests of others that his conduct may be called wilful or wanton.’” (Id. at pp. 894–895, citations omitted, italics in original.) However, a “conclusory characterization of defendant's conduct as intentional, willful and fraudulent is a patently insufficient statement of ‘oppression, fraud, or malice, express or implied,’ within the meaning of section 3294.” (Brousseau v.

Jarrett (1977) 73 Cal.App.3d 864, 872.) Here, plaintiff has not alleged any facts showing that defendant T&S Bluestone Trust acted with fraud, malice, or oppression sufficient to support an award of punitive damages. Plaintiff has alleged that defendants Loancutters, Inc. dba Evoque Lending, Mike Arnold, and Medhi Luhrassebi engaged in a scheme to steer plaintiff into an illegal and predatory high interest rate commercial loan even though they knew that she was not running a business and that she was unemployed and had no ability to pay off the loan. (SAC, ¶¶ 5-15, 30-42.)

However, she does not allege any facts showing that defendant T&S was involved in the negotiation, drafting, or execution of the loan, or that T&S did anything to fraudulently or maliciously induce plaintiff to enter into the loan. Nor has she alleged that T&S engaged in any malicious or oppressive tactics after she entered into the loan, such as harassing her or using malicious and oppressive collection techniques. In fact, it appears that T&S was not involved in the negotiation and formation of the loan, as the loan was sold to T&S after plaintiff executed the loan documents. (Request for Judicial Notice, Exhibit A, Standard Loan Sale Agreement dated August 12, 2022.

The court will take judicial notice of the Loan Sale Agreement under Evidence Code section 452, subdivision (d).)

While plaintiff alleges that all defendants were engaged in the allegedly fraudulent scheme to have her enter into a commercial “hard money” loan even though they knew she was not running a business and would not be able to pay off the loan, she has not alleged any facts showing that T&S actually made any misrepresentations to her, or that she relied on its misrepresentations to her detriment. Conclusionary allegations that defendants acted with malice, fraud, or oppression are not enough to support a claim for punitive damages. (Brousseau v.

Jarrett, supra, 73 Cal.App.3d at p. 872.) Nor has plaintiff alleged any other facts showing that T&S acted with malice, fraud, or oppression in its dealings with her. In fact, she has not alleged any facts showing that T&S ever communicated with her in any way or did anything to harm her. At most, the allegations of the SAC show that T&S bought the loan after plaintiff had already been persuaded to enter into it by the Evoque defendants. Therefore, plaintiff has not alleged any facts showing that defendant T&S acted with malice, fraud, or oppression, and she has not shown that she is entitled to punitive damages against T&S.

As a result, the court intends to grant T&S’s motion to strike the prayer for punitive damages from the SAC. In addition, the court intends to deny leave to amend. The plaintiff has the burden of showing that there is a possibility of amending the complaint to state a valid claim after the court sustains a demurrer or grants a motion to strike. (Blank v. Kirwan (1985) 39 Cal.3d 311, 318.) Here, plaintiff asks the court to grant her leave to amend if it grants the motion to strike, but she has not explained what other facts she could allege that would tend to show that T&S acted with fraud, oppression, or malice.

Since plaintiff’s complaint is entirely based on the alleged fraudulent and illegal formation of the loan, and since T&S was not involved in negotiating, drafting, or executing the loan, it does not appear that there is any possibility that T&S could be liable for punitive damages in connection with the loan. Therefore, the court intends to deny leave to amend the SAC.

Pursuant to California Rules of Court, rule 3.1312(a), and Code of Civil Procedure section 1019.5, subdivision (a), no further written order is necessary. The minute order adopting this tentative ruling will serve as the order of the court and service by the clerk will constitute notice of the order.

Tentative Ruling

Issued By: lmg on 5-8-26. (Judge’s initials) (Date)

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