Dhillon et al v. U.S. Bank National Association et al

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UNITED STATES BANKRUPTCY COURT
EASTERN DISTRICT OF CALIFORNIA
In re:
SUKHRAJ S. PAMMA dba SUKHRAJ S.
PAMMA FARMS,
Debtor(s).
________________________________
BALRAJ DHILLON, INDERJIT
DHILLON, MANDIP DHILLON, and
JASPREET DHILLON,
Plaintiff(s),
v.
U.S. BANK NATIONAL ASSOCIATION,
as Custodian/Trustee for
Federal Agricultural Mortgage
Corporation Programs; CITIZENS
BUSINESS BANK, as Successor to
Suncrest Bank; SUKHRAJ SINGH
PAMMA; and JAISMIN KAUR PAMMA,
Defendant(s).
________________________________
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Case No. 24-23489-B-11
Adversary No. 25-2015
DC No. DJN-3
MEMORANDUM DECISION GRANTING IN PART
AND DENYING IN PART CITIZENS BANK’S MOTION TO DISMISS
I.
Introduction
On January 28, 2025, plaintiffs Balraj Dhillon, Inderjit
Dhillon, Mandip Dhillon and Jaspreet Dhillon (“Plaintiffs”) filed
a Complaint against defendants U.S. Bank National Association, as
Custodian/Trustee for Federal Agricultural Mortgage Corporation
Programs; Citizens Business Bank, as Successor to Suncrest Bank;
Sukhraj Singh Pamma; and Jaismin Kaur Pamma (“Defendants”)
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initiating this adversary proceeding. Docket 1. On March 27,
2025, defendant Citizens Business Bank, as successor by merger to
Suncrest Bank (“Citizens Bank”), filed a Motion to Dismiss the
Third Through Fifth Causes of Action from the Adversary Complaint
Pursuant to Federal Rules of Civil Procedure, Rule 12(b)(6).
Docket 30. On May 27, 2025, the court issued its ruling orally
on the record, granting the motion to dismiss without prejudice
and allowing Plaintiffs an opportunity to amend their complaint
by June 17, 2025. Order, Docket 69; Court Audio, Docket 60.
On June 17, 2025, Plaintiffs filed a First Amended Complaint
(“FAC”) and supporting Exhibits. FAC, Docket 73; Exs., Docket
74. Citizens Bank thereafter filed a Motion to Dismiss First
Amended Complaint Pursuant to Federal Rules of Civil Procedure
Rule 12(b)(6) (“Motion”). Citizens Bank moves to dismiss Counts
4 through 7. Mot. 3:2-5, Docket 88. Plaintiffs filed an
opposition. Citizens Bank filed a reply. For the reasons below,
the Motion will be granted in part and denied in part.1 The
Motion will be granted as to Count 4 which will be dismissed with
prejudice. The Motion will be denied as to Counts 5, 6, and 7.
II.
Relevant Facts
A. Facts Alleged in the First Amended Complaint
The subject of this adversary proceeding stems from
1The court has reviewed and considered the Motion,
opposition, and reply. The court has also reviewed and takes
judicial notice of the docket. See Fed. Evid. 201(c)(1). Oral
argument is not necessary and will not assist in the decision-
making process. See Local Bankr. R. 1001-1(f), 9014-1(h).
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Plaintiffs’ purchase of real property identified as Sutter County
APN 10-210-023 (“Parcel 23”) on September 30, 2022. FAC 2:18-21,
Docket 73. Plaintiffs purchased Parcel 23 from defendant-debtor
Sukhraj S. Pamma (“Pamma”) for $3,024,035.00. Id. at 2:22-24.
Pamma and his wife, defendant Jaismin Kaur Pamma, are the
borrowers on an outstanding loan made by Suncrest Bank on or
about August 3, 2016, in the original principal amount of
$4,050,000 (“2016 Suncrest Loan”). Id. at 3:7-9. The 2016
Suncrest Loan was cross-collateralized with other parcels of real
property the Pammas owned. Id. at 3:9-22.
Plaintiffs engaged the title company, Old Republic Title
Company (“ORTC”), to hold escrow for the transaction. ORTC
issued written preliminary reports for Parcel 23 on or about
April 2022 and September 2022, in each case listing as exceptions
on title two deeds of trust in favor of Suncrest Bank as
“Beneficiary/ Lender:” (a) the first lien Sutter County deed of
trust securing the 2016 Suncrest Loan; and (b) a third lien deed
of trust securing a $4,630,000 loan made to the Pammas on or
about March 4, 2020 (“2020 Suncrest Loan”). ORTC, as escrow
agent for Plaintiffs, submitted to Citizens Bank two separate
written requests for payoff demand statements, one seeking a
statement of the amount of the unpaid balance on the 2016
Suncrest Loan and one seeking a statement of the amount of the
unpaid balance on the 2020 Suncrest Loan. Id. at 4:4-12.
In response to these requests, Citizens Bank submitted to
ORTC two written payoff demand statements demanding one payment
totaling $1,197,730.82 for the 2016 Suncrest Loan and the other
payment totaling $408,000.00 for the 2020 Suncrest Loan. Id. at
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4:13-17. Plaintiffs believed at the close of escrow and after
paying these two demands in full that they had purchased Parcel
23 in fee title absolute without any encumbrances. Id. at 4:17-
23.
Citizens Bank never informed ORTC that it had previously
assigned its interest in the 2016 Suncrest Loan, or that Citizens
Bank did not have the authority to demand and accept payoff of
that obligation from Plaintiffs’ purchase escrow, or that
Citizens Bank did not have authority to release and reconvey the
2016 Sutter County deed of trust. Id. at 4:24-5:3.
At the close of escrow, ORTC disbursed a portion of
Plaintiffs’ purchase funds to satisfy in full Citizens Bank’s two
payoff demand statements. Id. at 5:4-7. Plaintiffs believed
that the deeds of trust associated with the 2016 Suncrest Loan
and 2020 Suncrest Loan were paid off in full and extinguished.
Id. at 2:7-12.
Following the close of escrow, Citizens Bank caused the deed
of trust associated with the 2020 Suncrest Loan to be reconveyed
as against Parcel 23, but Citizens Bank did not reconvey the deed
of trust associated with the 2016 Suncrest Loan. Id. at 5:13-16.
ORTC then made repeated emails requesting Citizens Bank reconvey
the deed of trust associated with the 2016 Suncrest Loan,
including on February 2023, March 2023, April 2023, July 2023,
August 2023, September 2023, October 2023, November 2023,
December 2023, January 2024, February 2024, March 2024, and April
2024. Id. at 5:16-20. Citizens Bank never advised it lacked
authority to reconvey the 2016 Sutter County deed of trust or
that it had assigned the 2016 Suncrest Loan.
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However, on April 29, 2024, Citizens Bank recorded a
Substitution of Trustee and a Partial Reconveyance of Parcel 23
under the Sutter Deed of Trust, as Document No. 2024-0003484 in
the Official Records of Sutter County (“Parcel 23 Reconveyance”).
Id. at 6:1-3. Then, on October 1, 2024, Citizens Bank recorded a
Rescission of Reconveyance as Document No. 2024-0008602 in the
Official Records of Sutter County, purporting to rescind the
Parcel 23 Reconveyance of the Sutter Deed of Trust as against
Plaintiffs’ Parcel 23 (“Recision”). Id. at 6:13-16. Defendant
U.S. Bank National Association, as Custodian/ Trustee for Federal
Agricultural Mortgage Corporation Programs (“FAMC”), now contends
it had been assigned the 2016 Suncrest Loan and associated deeds
of trust in Sutter and Butte Counties. Id. at 6:9-13.
Plaintiffs assert that Citizens Bank actively and
affirmatively misrepresented through the payoff demand statements
submitted to Plaintiffs’ escrow agent, ORTC, which Citizens Bank
intended and reasonably expected would be communicated to and
relied upon by Plaintiffs as buyers in the subject escrow, that
Citizens Bank was the beneficiary of the 2016 Sutter County deed
of trust at the time it demanded and accepted the $1,197,730.82
payoff for Parcel 23. Id. at 6:4-9.
Plaintiffs assert that with the exception of Parcel 23 now
owned by Plaintiffs, at the time of the bankruptcy petition,
title to the real property secured by the 2016 deeds of trust
remained in the Pammas, either jointly or singly, as the
borrowers on the 2016 Loan. Id. at 6:20-23.
FAMC has caused to be recorded a Notice of Default and
Election to Sell Parcel 23 (“NOD”). Id. at 6:20-23. FAMC intends
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to notice a non-judicial foreclosure sale of only Parcel 23 under
the 2016 Sutter County deed of trust, the only parcel among its
real property security for the 2016 Suncrest Loan that its
borrowers, the Pammas, no longer own. Id. at 7:1-3.
Plaintiffs allege they learned for the first time on
September 26, 2024, that FAMC claimed it was the holder of the
2016 Sutter County deed of trust, notwithstanding payoff to
Citizens Bank and Citizens Bank reconveying Parcel 23 to
Plaintiffs. Id. at 7:8-16. Plaintiffs assert the statute of
limitations has been tolled by Citizens Bank’s conduct, including
affirmative acts and omissions, and that the statute of
limitations only began to run when Plaintiffs learned that FAMC
claimed to be holder of the 2016 Sutter County deed of trust on
September 26, 2024. Id. at 8:8-17.
Plaintiffs filed seven claims for relief in the FAC based on
these factual allegations. Citizens Bank only seeks dismissal of
Counts 4 through 7, so the court only addresses those Counts.
The specifics of Counts 4 through 7 are discussed in
Section IV., infra.
III.
Legal Standard
A complaint may be dismissed for “failure to state a claim
upon which relief can be granted.” Fed. R. Civ. P. 12(b)(6);
Fed. R. Bankr. P. 7012(b). “A Rule 12(b)(6) dismissal may be
based on either a lack of a cognizable legal theory or the
absence of sufficient facts alleged under a cognizable legal
theory.” Johnson v. Riverside Healthcare System, LP, 534 F.3d
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1116, 1121 (9th Cir. 2008).
“To survive a motion to dismiss, a complaint must contain
sufficient factual matter, accepted as true, to ‘state a claim to
relief that is plausible on its face.’” Ashcroft v. Iqbal, 556
U.S. 662, 678 (2009) (quoting Bell Atlantic Corporation v.
Twombly, 550 U.S. 544, 570 (2007)). “A claim has facial
plausibility when the plaintiff pleads factual content that
allows the court to draw the reasonable inference that defendant
is liable for the misconduct alleged.” Id. (citing Twombly, 550
U.S. at 556).
In ruling on a Rule 12(b)(6) motion to dismiss, the court
accepts all factual allegations as true and construes them, and
reasonable inferences drawn from them, in a light most favorable
to the non-moving party. Arizona Students’ Association v.
Arizona Board of Regents, 824 F.3d 858, 864 (9th Cir. 2016).
Legal conclusions are not accepted as true. Iqbal, 556 U.S. at
678.
The court may also consider limited materials outside the
pleadings. These include documents attached to the complaint,
documents incorporated by reference in the complaint, and matters
subject to judicial notice. Swartz v. KPMG LLP, 476 F.3d 756,
763 (9th Cir. 2007) (per curium). The latter includes the
court’s own records. Kelly v. Johnston, 111 F.2d 613, 615 (9th
Cir. 1940).
If the court takes judicial notice of particular materials,
the court must “consider—and identify—which fact or facts it is
noticing[.] Just because the document itself is susceptible to
judicial notice does not mean that every assertion of fact within
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that document is judicially noticeable for its truth.” Khoja v.
Orexigen Therapeutics, Inc., 899 F.3d 988, 999 (9th Cir. 2018).
Regarding incorporation by reference, “a defendant may seek
to incorporate a document into the complaint if the plaintiff
refers extensively to the document or the document forms the
basis of the plaintiff's claim.” Id. at 1002 (internal
quotations omitted). The court is tasked with engaging in a
factual determination regarding how extensively a complaint
relies on a certain document that a defendant seeks to have
incorporated into the record by reference. Importantly, “if the
document merely creates a defense to the well-pled allegations in
the complaint, then that document did not necessarily form the
basis of the complaint. Otherwise, defendants could use the
doctrine to insert their own version of events into the complaint
to defeat otherwise cognizable claims. . . Although the
incorporation- by-reference doctrine is designed to prevent
artful pleading by plaintiffs, the doctrine is not a tool for
defendants to short-circuit the resolution of a well-pleaded
claim.” Id. at 1002-03.
IV.
Analysis
As an initial matter, the court denies the request made by
Citizens Bank to incorporate by reference various documents filed
as Exhibits at Docket 90. The court should only consider
incorporating documents by reference when the complaint refers so
extensively to the documents that the documents form the basis of
the plaintiff’s claim. In this case, the FAC makes reference to
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various communications between Plaintiffs, ORTC, and Citizens
Bank that form the basis of the claims. It is true that the
payoff demand statements are referenced and partially form the
basis of Count 4; however, the basis of Count 4 also alleges
misrepresentations made outside the contents of the payoff
demands. See FAC 12:13-22, Docket 73.
The court only considers well-pleaded factual allegations
within the four corners of the FAC for purposes of the Motion.
Otherwise, the court risks considering an incomplete record by
allowing in certain documents through incorporation by reference,
thereby improperly treating a Rule 12(b)(6) motion as a Rule 56
summary judgment motion.
However, the court does take judicial notice of Exhibit 3,
the recorded assignment of the 2016 Sutter County deed of trust
as Instrument Nos. 2016-0028481 and 2016-0028481. Ex. 3, Docket
90. This document is public information from the county
recorder’s office. Exhibit 3 is generally known or can be
accurately and readily determined from sources whose accuracy
cannot be reasonably questioned. Fed. R. Evid. 201.
A. Count 4 - Negligent Misrepresentation Against Citizens
Bank
Plaintiffs allege in Count 4 a claim for negligent
misrepresentation based on Citizens Bank making affirmative
misrepresentations throughout the sale and purchase process of
Parcel 23. The FAC states in Count 4 that these affirmative
misrepresentations include Citizens Bank stating it has already
reconveyed the 2016 Sutter County deed of trust when it had not.
FAC 12:17-18, Docket 73. The FAC also alleges Citizens Bank
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engaged in an affirmative misrepresentation when it actually
eventually reconveyed Parcel 23. Id. at 12:18. Citizens Bank
also never disclosed the fact it lacked authority to release the
2016 Sutter County deed of trust or that it lacked authority to
accept payment for any outstanding amounts owed on the 2016
Sutter County deed of trust. The latter factual allegation is an
omission while the former allegations are affirmative statements.
In California, a cause of action for negligent
misrepresentation contains five elements: “(1) the
misrepresentation of a past or existing material fact, (2)
without reasonable ground for believing it to be true, (3) with
intent to induce another's reliance on the fact misrepresented,
(4) justifiable reliance on the misrepresentation, and (5)
resulting damage.” Apollo Capital Fund, LLC v. Roth Capital
Partners, LLC, 70 Cal. Rptr. 3d 199, 213 (Cal. Ct. App. 2007)
(citing Shamsian v. Atlantic Richfield Co., 132 Cal.Rptr.2d 635
(2003)). Importantly, “a positive assertion is required; an
omission or an implied assertion or representation is not
sufficient.” Id. Negligent misrepresentation does not require
actual knowledge of falsity or the intent to deceive. Id.
The statute of limitations to bring a negligent
misrepresentation claim is two years. Cal. Code Civ. P. § 339;
Platt Elec. Supply, Inc. v. EOFF Elec., Inc., 522 F.3d 1049, 1054
(9th Cir. 2008). The date from which the statute of limitations
begins to run is when the injury accrues. A cause of action
“accrues when the claim is complete with all of its elements.”
Id. (internal citations omitted). The date would ordinarily
start on the date of injury, but there are factors that can
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postpone accrual. Accrual is postponed until the plaintiff
“either discovers or has reason to discover the existence of a
claim. . . [However,] so long as there is a reasonable ground for
suspicion, the plaintiff must go out and find the facts; she
cannot wait for the facts to find her.” Id. (internal citations
omitted).
(i). Statute of Limitations
In this case, the cause of action for negligent
misrepresentation in Count 4 still sounds in negligence which
means it is time-barred by the applicable two-year statute of
limitations.2 The injury in question accrued at the close of
escrow when Citizens Bank did not reconvey the 2016 Sutter County
deed of trust on September 30, 2022. FAC 5:5, Docket 73. At
that point in time, surely Plaintiffs were on inquiry notice that
harm had occurred, and Plaintiffs were under the obligation to
conduct a reasonable inquiry to discover the extent of the harm,
and to ultimately bring a timely action. The two-year statute of
2The negligent misrepresentation claim alleged in the
initial Complaint was based on an express allegation of a duty
and, thence, a standard of care making it a claim sounding more
in negligence than fraud. Docket 1, Compl., at 8:18-22. The
negligent misrepresentation claim in Count 4 of the FAC continues
to implicate a duty. It alleges that Citizens Bank knew its
representations made in connection with the payoff demands were
false, incomplete, or inaccurate and had no reasonable ground for
believing them to be true and complete because the payoff demands
were submitted pursuant to or in accordance with California Civil
Code § 2943. California Civil Code § 2943 imposes a statutory
duty to submit payoff demands that are true, correct, and
complete. See Cal. Civ. Code § 2943(b)(1), (c); see also
Milestone Financial, LLC v. Moon (In re Moon), 648 B.R. 73, 90
n.8 (9th Cir. BAP 2023). The point here is that the allegations
made in support of the negligent misrepresentation claim continue
to implicate a duty, and thence a standard of care, which is the
hallmark of a negligence claim.
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limitations would therefore expire on September 30, 2024, unless
some mitigating factors delayed discovery.
Plaintiffs argue that the injury accrued on September 26,
2024, when FAMC first informed Plaintiffs that it was the holder
of the 2016 Sutter County deed of trust, and so any applicable
statute of limitations had been tolled. FAC 7:8-27, Docket 73.
The court disagrees. When Citizens Bank did not reconvey the
2016 Sutter County deed of trust at close of escrow on September
30, 2022, Plaintiffs had reason to investigate the facts and
discover the extent of the harm for purposes of accrual.
Plaintiffs further argue the statute of limitations had been
tolled because Citizens Bank’s conduct, its acts and omissions,
prevented Plaintiff from discovering the cause of action at close
of escrow on September 30, 2022. FAC 8:8-17, Docket 73. The
court again disagrees. Plaintiffs attempt to invoke here the
common law principle of delayed discovery. The standard for
pleading delayed discovery is that “the plaintiff must
specifically plead facts which show (1) the time and manner of
discovery and (2) the inability to have made earlier discovery
despite reasonable diligence.” Yumul v. Smart Balance, Inc., 733
F.Supp. 1134, 1141 (C.D. Cal. 2010) (quoting In re Conseco
Insurance Co. Annuity Marketing & Sales Practices Litigation,
2008 WL 4544441, *8 (N.D. Cal., Sept. 30, 2008).
The court concludes that the doctrine of delayed discovery
is not in effect. The case Javier v. Assurance IQ, LLC, 649
F.Supp.3d 891 (N.D. Cal. 2023), is instructive on this point. In
Javier, the plaintiff, Javier, brought a complaint against
defendant Assurance IQ, LLC et al. (“Assurance”) alleging
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Assurance improperly collected data relating to Javier’s online
visit to Assurance’s website, including “keystrokes, mouse
clicks, and other electronic communications.” Id. at 894.
Javier visited the website in January of 2019 but argued delayed
discovery prevented accrual until Javier discovered the injury in
April of 2020 when the data collection was actually produced to
him. Id. at 901. The district court did not find this argument
persuasive. The district court held, “under the delayed
discovery doctrine, knowledge of injury, not knowledge of a
particular defendant's role in the injury, triggers inquiry
notice.” Id. Javier had pleaded facts in his complaint
indicating he had assumed Assurance was collecting his
information in January 2019, so Javier was on inquiry notice on
that date. Id. at 902.
In this case, Plaintiffs plead that Citizens Bank did not
reconvey the 2016 Sutter County deed of trust at close of escrow
on September 30, 2022. ORTC, Plaintiffs agent, clearly knew of
the harm, which was evidenced by ORTC’s multiple demands to
Citizens Bank to reconvey the 2016 Sutter County deed of trust.
Moreover, Plaintiffs affirmatively plead that while the deed of
trust for the 2020 Suncrest Loan recorded against Parcel 23 was
reconveyed when escrow closed on September 30, 2022, the deed of
trust for the 2016 Suncrest Loan was not similarly (and
simultaneously) conveyed at the close of escrow. Compl., at
5:13-16. Certainly, the conveyance of one deed of trust and not
the other is enough to trigger suspicion of, and therefore the
need to inquire about, a potential problem. Like in Javier,
Plaintiffs’ own allegations in the FAC belie the argument that
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discovery was delayed.
The court concludes the cause of action had fully accrued on
September 30, 2022, at the close of escrow. All facts giving
rise to the cause of action had occurred on that day, thereby
creating a duty on Plaintiffs to conduct a reasonable inquiry
into the facts surrounding the cause of action. Plaintiffs
failed to timely conduct a reasonable inquiry into the facts.
Moreover, Plaintiffs fail to plead there was an inability to have
made earlier discovery despite reasonable diligence. In fact,
Plaintiffs allege that at the close of escrow, the facts are that
Citizens Bank did not reconvey the 2016 Sutter County deed of
trust. FAC 5:13-16, Docket 73. At that very moment surely
Plaintiffs were implored to conduct reasonable diligence into the
facts of the injury. Any affirmative misrepresentations made
after close of escrow by Citizens Bank do not alleviate this
reasonable diligence requirement; instead, later affirmative
misrepresentations would only further compound Plaintiffs’ duty
to inquire into the facts of the injury given Citizens Bank
failure to reconvey the 2016 Sutter County deed of trust at close
of escrow on September 30, 2022.
It is true that on April 29, 2024, Citizens Bank recorded
the Parcel 23 Reconveyance, purportedly reconveying the 2016
Sutter County deed of trust to Plaintiffs at the behest of ORTC’s
repeated demands. However, this purported reconveyance does not
change the fact that Plaintiffs were still on notice of the
injury on September 30, 2022, and therefore had a duty to conduct
a reasonable inquiry.
The statute of limitations for a negligent misrepresentation
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claim is two years, and it began to run on September 30, 2022.
Delayed discovery was not in effect under the facts as pleaded in
the FAC. Therefore, the final day that this action could have
been brought was on September 30, 2024. The action was brought
on January 28, 2025, outside the statute of limitations period.
Therefore, the court concludes that the cause of action for
negligent misrepresentation, Count 4, is not timely and must be
dismissed.
(ii). Elements of Negligent Misrepresentation
There is an additional or alternative basis to dismiss Count
4 from the FAC: the FAC fails to allege a cause of action for
negligent misrepresentation because the FAC fails to show
reasonable reliance on any affirmative misrepresentations.
Citizens Bank urges the court to consider the fact that the
assignment of the 2016 Sutter County deed of trust was recorded
years before the sale ever took place, and Plaintiffs, or at
least ORTC as their agent, had constructive knowledge that
Citizens Bank was not beneficiary of the 2016 Sutter County deed
of trust. Id. at 14:27-15:18. Therefore, there was no
justifiable reliance on any misrepresentations. The court
agrees.
It is true in California that “constructive notice of an
interest in real property is imparted by the recording and proper
indexing of an instrument in the public records.” First Bank v.
East West Bank, 132 Cal. Rptr. 3d 267, 271 (Cal. Ct. App. 2011).
The assignment of the 2016 Sutter County deed of trust was public
information. It was properly recorded and indexed on August 4,
2016. Therefore, ORTC had constructive knowledge of the
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assignment, and this knowledge was imputed to Plaintiffs as
principal in the agency relationship. It was not justifiable to
rely on misrepresentations made by Citizens Bank when ORTC and
Plaintiffs had constructive knowledge that Citizens Bank no
longer was beneficiary of the 2016 Sutter County deed of trust.
Therefore, the court concludes that Plaintiffs have not
adequately pleaded justifiable reliance on the alleged
misrepresentations, and so Count 4 must be dismissed for failure
to state a claim on this alternative and independent basis.
B. Count 5 - Breach of Contract and the Implied Covenant
of Good Faith and Fair Dealing Against Citizens Bank
Plaintiffs allege in Count 5 that Plaintiffs on the one
hand, through their escrow agent ORTC, and Citizens Bank on the
other hand, entered into a contract whereby Citizens Bank would
release the 2016 Sutter County deed of trust upon receipt of the
$1,197,730.82 in full satisfaction of its payoff demand (“Payoff
Agreement”). FAC 14:9-13, Docket 73. Plaintiffs allege:
If it is determined that Plaintiffs’ fee title to
Parcel 23 is subject to any right, title, estate, lien
or interest of defendants, including the Sutter Deed of
Trust, which Plaintiffs deny, Plaintiffs are informed
and believe that CBB is in breach of the Payoff
Agreement and the implied covenant of good faith and
fair dealing therein by purporting to rescind the
Parcel 23 Reconveyance and by failing to release,
extinguish and/or reconvey the Sutter Deed of Trust as
to Parcel 23.
Id. at 15:1-5. Plaintiffs allege that they have performed each
term of the contract required on their part, and that as a direct
and proximate cause of Citizens Bank’s breach of the Payoff
Agreement, Plaintiffs have suffered damages in an amount to be
proven at trial. Id. at 15:9-12.
In California, to plead a breach of contract claim a
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“plaintiff must allege (1) a contract existed, (2) plaintiff
performed or is excused for nonperformance, (3) defendant
breached, and (4) plaintiff was damaged.” Satvati v. Allstate
Northbrook Indemnity Company, 634 F.Supp.3d 792, 797 (C.D. Cal.
2022) (quoting Walsh v. W. Valley Mission Cmty. Coll. Dist., 78
Cal.Rptr.2d 725 (Cal. Ct. App. 1998). “A written contract may be
pleaded either by its terms—set out verbatim in the complaint or
a copy of the contract attached to the complaint and incorporated
therein by reference—or by its legal effect.” Heritage Pac. Fin.,
LLC v. Monroy, 215 Cal.App.4th 972, 993 (2013)(citing McKell v.
Washington Mutual, Inc. 142 Cal.App.4th 1457, 1489 (2006)). “In
order to plead a contract by its legal effect, plaintiff must
allege the substance of its relevant terms.” Id. “This is more
difficult, for it requires a careful analysis of the instrument,
comprehensiveness in statement, and avoidance of legal
conclusions.” Id.
The implied covenant of good faith is “implied as a
supplement to express contractual covenants to prevent a
contracting party from engaging in conduct that frustrates the
other party's rights to the benefits of the agreement.” Thompson
Pacific Construction, Inc. V. City of Sunnyvale, 66 Cal.Rptr.3d
175, 188 (Cal. Ct. App. 2007) (quoting Charpentier v. Los Angeles
Rams Football Co., 89 Cal.Rptr.2d 115 (Cal. Ct. App. 1999)). If
the breach of the implied covenant of good faith and fair dealing
does not sound in tort, then only garden-variety contractual
damages are recoverable. Id.
Citizens Bank’s first argument is that the court should read
the payoff demands included as Exhibits 1 and 2 to the Motion and
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find that the payoff demands are not contracts between Plaintiffs
and Citizens Bank. Mem. 17:23-18:10, Docket 92. As addressed in
Section IV., supra, the court is declining to consider these
additional documents at this stage, and so this argument is
without merit.
Citizens Bank’s second argument is that, contrary to
Plaintiffs’ allegations, Citizens Bank did not promise to
reconvey the 2016 Sutter County deed of trust upon receipt of
payment. Mem. 18:17-18, Docket 92. This second argument fails
for two reasons. First, Citizens Bank is again referring to
Exhibits 1 and 2 that the court is not considering.
Second, the court accepts all factual allegations as true
and construes them, and reasonable inferences drawn from them, in
a light most favorable to the Plaintiffs as the non-moving party.
Therefore, the court accepts as true that Plaintiffs, through
their authorized escrow agent ORTC, on the one hand, and
defendant Citizens Bank, on the other hand, entered into an
agreement whereby Citizens Bank agreed that upon receipt of
$1,197,730.82 in full satisfaction of its payoff demand, Citizens
Bank would release, extinguish and/or reconvey the 2016 Sutter
County deed of trust as a lien against Parcel 23. FAC 14:9-13,
Docket 73. The court, therefore, does not consider Citizens
Bank’s contrary allegation that it did not promise to reconvey
the 2016 Sutter County Deed of Trust upon receipt of payment.
See Mem. 18:17-18, Docket 92.
Citizens Bank’s third argument is that Plaintiffs have not
alleged an actual breach of contract because Plaintiffs have only
alleged a potential future breach that is contingent upon events
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that may or may not occur. Id. at 18:24-28. Citizens Bank cites
Clinton v. Acequia, Inc., 94 F.3d 568 (9th Cir. 1996), in support
of this argument.
In Clinton, plaintiff Clinton brought a breach of contract
claim as Count 4. Id. at 572. Count 4 of the complaint alleged
defendant Acequia failed to timely liquidate a corporation by the
agreed upon deadline of the year 1997. Id. However, the action
was considered in 1996, one year before the final deadline for
Acequia to liquidate. The court was tasked with deciding whether
Count 4 was ripe for consideration. The Ninth Circuit held:
Clinton’s breach of contract claim presents no live
case or controversy. The parties agree that, if an
agreement to liquidate the corporation even exists,
Acequia has until 1997 to perform its obligation. We
have no way of knowing whether Acequia will actually do
so, but a case is not ripe where the existence of the
dispute itself hangs on future contingencies that may
or may not occur.
Id.
Unlike the facts in Clinton, Count 5 in this case has fully
accrued and was ripe for consideration on or around September 30,
2022, when the 2016 Sutter County deed of trust was not
reconveyed at close of escrow. See Thomas v. Anchorage Equal
Rights Com’n., 220 F.3d 1134, 1139 (9th Cir. 2000) (discussing
ripeness and the idea that a cause of action is ripe when the
alleged injury is “real and concrete rather than speculative and
hypothetical.”). It is true Plaintiffs appear to plead that
there will only have been a breach of contract if it is later
determined that fee title to Parcel 23 is subject to any
defendants’ rights. See FAC 15:1-5, Docket 73. However, it is
also true that Plaintiffs have alleged in the FAC facts to
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support there being a contract and the contract was breached when
Citizens Bank indicated it would, and then did not, reconvey the
2016 Sutter County deed of trust. See Id. at 6:4-19. The court
is able to draw reasonable inferences that the breach had
occurred, despite language in Count 5 suggesting the breach is
contingent upon a further determination.
Finally, Citizens Bank’s fourth argument is that Plaintiffs
fail to adequately plead a contract because Plaintiffs did not
attach the alleged contract to the FAC, allege the contract
verbatim, or allege the legal effect of the contract, as is
required when pleading a breach of contract claim. Mem. 19:3-14,
Docket 92. Citizens Bank cites the court to Heritage Pac. Fin.,
LLC v. Monroy, 215 Cal.App.4th 972, 993 (2013); Parrish v. Nat'l
Football League Players Ass'n, 534 F.Supp.2d 1081, 1094 (N.D.
Cal. 2007); and Gilmore v. Lycoming Fire Ins. Co. 55 Cal. 123,
124 (1880), in support of this argument.
In Heritage, the appellate court cited the same standard for
pleading a contract that Citizens Bank cites. Specifically, the
standard for pleading a breach of contract claim is:
A written contract may be pleaded either by its
terms—set out verbatim in the complaint or a copy of
the contract attached to the complaint and incorporated
therein by reference—or by its legal effect. In order
to plead a contract by its legal effect, plaintiff must
‘allege the substance of its relevant terms. This is
more difficult, for it requires a careful analysis of
the instrument, comprehensiveness in statement, and
avoidance of legal conclusions.
Heritage, 215 Cal.App.4th at 993 (citing McKell v. Washington
Mutual, Inc. 142 Cal.App.4th 1457, 1489 (2006)).
The appellate court in Heritage found a contract had not
been properly alleged because “the allegations in Heritage’s
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pleadings did not set forth with specificity any assignment of
the tort claims.” Id. Moreover, due to the lack of specific
allegations supporting an assignment, the trial court ordered
Heritage to “attach the written agreement that evinced an intent
to assign the tort claims,” and Heritage failed to do so. Id.
For these reasons, the appellate court decided the trial court
did not err.
In this case, contrary to the facts in Heritage, Plaintiffs
have specifically alleged that there was a contract between ORTC,
as Plaintiffs agent, on the one hand, and Citizens Bank on the
other hand. FAC 14:9-19, Docket 73. The alleged contract is not
some far-fetched agreement; the contract as alleged clearly
exists for the purpose of purchasing Parcel 23 free and clear.
Heritage is readily distinguishable from this case.
In Parrish, the district court considered whether a group of
former National Football League players had actually entered into
contracts identified as group licensing agreements (“GLAs”) with
defendants. The court cited the standard that, when the contract
is not actually attached to the complaint, a heightened standard
is applicable to determine whether a contract has been alleged.
Parrish, 534 F.Supp.2d at 1094. The district court concluded
that the plaintiffs failed to meet this pleading threshold for
various reasons.
The district court engaged in a discussion in Parrish
listing reasons why the plaintiffs had failed to adequately
allege the legal effect of any purported contracts when those
contracts were not attached to the complaint. Id. at 1095. One
such reason was that plaintiffs alleged “under the GLAs, all
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players who signed them, including plaintiffs, were entitled to
payments from the licenses, regardless of whether any particular
former player's name or likeness was actually used by a third
party. . . [there has been no adequate explanation provided to]
support the allegation that all players who signed GLAs were
automatically entitled to at least some licensing revenues
whether or not their images were used.” Id.
Parrish is again readily distinguishable from this case. A
fatal flaw for the complaint in Parrish was that Plaintiffs
failed to plead the legal effect of a contract when facts were
not pleaded to support the claim that all plaintiffs entered into
a contract, even in cases where a particular plaintiff’s likeness
was not used.
In this case, Plaintiffs have alleged the legal effect of
the contract. Plaintiffs have alleged the parties of the
contract, the essential terms of the contract, the breach, and
the related damages. Plaintiffs pleaded that they entered into a
contract with Citizens Bank, through their agent ORTC, whereby
Citizens Bank agreed to reconvey the 2016 Sutter County deed of
trust after receiving $1,197,730.82 from escrow. The FAC alleges
Plaintiffs performed their contractual duties. The FAC alleges
that Citizens Bank originally failed to reconvey the 2016 Sutter
County deed of trust at close of escrow, eventually reconveyed
it, and then ultimately rescinded the reconveyance, all in breach
of the contract. This case is distinguishable from Parrish for
these reasons.
The final case Citizens Bank cites is the old case Gilmore
v. Lycoming Fire Ins. Co., 55 Cal. 123, 124 (1880). In Gilmore,
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the Supreme Court of California decided the rule that “[w]here a
party relies upon a contract in writing, and it affirmatively
appears that all the terms of the contract are not set forth in
hæc verba, nor stated in their legal effect, but that a portion
which may be material has been omitted, the complaint is
insufficient.” Id. at 124. The court in Gilmore considered
whether a contract of insurance was pleaded sufficiently to
survive defendant’s demurrer. A crucial piece of the contract
was an “application, survey, plan, or description of the property
insured.” Id. at 125. Gilmore submitted the insurance contract
with the complaint but failed to include the application, survey,
plan, or description of the property insured in the complaint.
The court found that the “application of the assured is not set
forth in the complaint, nor are its contents alleged. . . The
plaintiff avers that she has ‘duly performed all the conditions’
of the contract on her part, but the averment fails to make the
complaint complete in the absence of a portion of the policy
which is necessary to explain the agreement as a whole, and which
in connection with the policy proper may determine what the
conditions are.” Id.
Gilmore is again readily distinguishable. Here, there has
been no omission of an essential element of the alleged contract.
The contract’s legal effect has been sufficiently alleged without
any piece being omitted. What is in contest is not that there
are missing pieces of the alleged contract, but that the actual
language and terms of the contract are not as alleged. The terms
of the contract and their legal effect are not now decided
because the court is to accept all factual allegations as true
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and construe these facts in favor of the nonmoving party for
purposes of deciding this Rule 12(b)(6) Motion.
The court further concludes that Plaintiffs have alleged a
cause of action for breach of implied covenant of good faith and
fair dealing. The implied covenant of good faith and fair
dealing is “implied as a supplement to express contractual
covenants to prevent a contracting party from engaging in conduct
that frustrates the other party's rights to the benefits of the
agreement.” Thompson, 66 Cal. Rptr. at 188. Citizens Bank
claims that “[i]n order for the Bank to evaluate a claim for
breach of an implied covenant, all terms of the express agreement
must be alleged.” Mem. 19:19-20, Docket 92. However, no law is
provided to support this assertion.
On the contrary, turning to the case Citizens Bank cites,
Storek & Storek, Inc. v. Citicorp Real Estate, Inc., 100
Cal.App.4th 44 (2002), Storek does not maintain that all terms of
the express agreement must be alleged. Storek states the
“implied covenant of good faith and fair dealing cannot
contradict the express terms of a contract.” Id. at 55.
In the case before the court, Plaintiffs do not allege that
the implied covenant of good faith and fair dealing contradicts
any express terms of the contract; rather, Plaintiffs allege the
implied covenant was breached when “[Citizens Bank] actively and
affirmatively misrepresented through the payoff demand statements
submitted to Plaintiffs’ escrow agent Old Republic Title Company,
which [Citizens Bank] intended and reasonably expected would be
communicated to and relied upon by Plaintiffs as buyers in the
subject escrow, that [Citizens Bank] was the beneficiary of the
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Sutter Deed of Trust at the time it demanded and accepted the
$1,197,730.82 payoff for Parcel 23 from Plaintiffs’ purchase
funds as alleged herein.” FAC 6:4-9, Docket 73. The court is
able to infer from this allegation that the implied covenant of
good faith and fair dealing has been breached, which breach is
consistent with the express terms of the alleged contract.
The court also notes that an issue with the original
complaint was that the alleged contract was not clearly pleaded
to be between Plaintiffs and Citizens Bank. However, in the FAC,
ORTC is repeatedly referred to as Plaintiffs’ escrow agent, which
bridges this gap, allowing the court to reasonably infer
Plaintiffs were parties to the alleged contract through an agency
relationship with ORTC. See FAC 14:1-21, Docket 73.
In conclusion, Plaintiffs have adequately pleaded a cause of
action for breach of contract and the implied covenant of good
faith and fair dealing to survive the Motion. The court reaches
this conclusion because the court does not now read the payoff
requests and demands included as Exhibits 1 and 2 to the Motion,
and many of Citizens Bank’s arguments rely on the text of the
payoff requests and payoff demands. The court also reaches its
decision because the court concludes Plaintiffs have adequately
alleged the legal effect of the contract and have not omitted
material pieces of the contract that would be detrimental to the
cause of action. The court further concludes that facts have
been alleged to support the cause of action for a breach of the
implied covenant of good faith and fair dealing, the breach of
the implied covenant being consistent with express terms of the
alleged contract. Therefore, the Motion is denied as to Count 5.
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C. Count 6 - Unjust Enrichment Against Citizens Bank
Plaintiffs allege in Count 6 that Citizens Bank’s acceptance
of approximately $1,197,730.82 in satisfaction of its demand from
Plaintiffs’ purchase funds, and Citizens Bank’s subsequent
purported Rescission of the Parcel 23 Reconveyance, Citizens Bank
has been unjustly enriched in the amount of at least
$1,197,730.82. FAC 15:17-22. Importantly, Count 6 existed in
the original complaint. Compl. at 10, Docket 1. Citizens Bank
did not move to dismiss the cause of action for unjust enrichment
in its original motion to dismiss. See Mot. to Dismiss, Docket
30. Therefore, Fed. R. Civ. P. 12(g)(2) is now implicated. Fed.
R. Civ. P. 12(g)(2) states:
Limitation on Further Motions. Except as provided in
Rule 12(h)(2) or (3), a party that makes a motion under
this rule must not make another motion under this rule
raising a defense or objection that was available to
the party but omitted from its earlier motion.
Moore’s Federal Practice Treatise states regarding Rule
12(g)(2):
Mandatory consolidation applies only to defenses and
objections that are “available” to the moving party at
the time of the motion. If, for example, the defendant
moves for and obtains a more definite statement and
that statement reveals a ground for a motion to
dismiss, the defendant may then advance such a motion
instead of answering (see § 12.36[6]). But, amending a
complaint does not revive omitted defenses or
objections that the defendant could have raised in
response to the original complaint. Exceptions to the
Rule 12(g) consolidation requirement appear in Rule
12(h)(2) and may be raised in any Rule 7(a) pleading.
2 James Wm. Moore et al., Moore’s Federal Practice – Civil §
12.21 (2024) (footnote omitted).
In its Reply, Citizens Bank argues the court should now
consider dismissal of the unjust enrichment claim, Count 6, under
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principles discussed in In re Apple iPhone Antitrust Litig., 846
F.3d 313, 317 (9th Cir. 2019). Reply at 17:1-11, Docket 103.
However, In re Apple does not assist Citizens Bank’s position.
In re Apple states the rule that “Rule 12(g)(2) provides that a
defendant who fails to assert a failure-to-state-a-claim defense
in a pre-answer Rule 12 motion cannot assert that defense in a
later pre-answer motion under Rule 12(b)(6), but the defense may
be asserted in other ways.” Id. at 318. Here, Citizens Bank is
attempting to assert the defense to the unjust enrichment claim
under Rule 12(b)(6) when the same defense was available to it
when it filed the original motion to dismiss.3 The law does not
permit Citizens Bank’s attempt to now assert the defense or
objection it had available earlier.
Citizens Bank argues that new information has become part of
the record justifying now raising the objection to Count 6,
claiming its own Exhibits “are now incorporated into the FAC by
way of the Motion [to Dismiss] and the incorporation-by-
reference doctrine.” Id. at 17:7-8. However, the court has
declined to include Exhibits 1 and 2 to the Motion in the record
by incorporation by reference or through judicial notice. This
argument is without merit.
The court concludes that Citizens Bank could have moved to
3The defense was fully available to Citizens Bank on March
27, 2025, when Citizens Bank brought the original motion to
dismiss. The defense is essentially that Citizens Bank was not
unjustly enriched because it accepted payments from escrow based
on a valid debt. Mem. 20:11-19, Docket 92. Indeed, all factual
events supporting this defense occurred well before March 27,
2025, and were known to Citizens Bank on or before close of
escrow on September 30, 2022.
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dismiss Count 6 for unjust enrichment in its original motion to
dismiss, the defense or objection being available at that time,
and so Fed. R. Civ. P. 12(g)(2) bars Citizens Bank from now
moving to dismiss Count 6 under Rule 12(b)(6). Therefore, the
Motion is denied as to Count 6.
D. Count 7 - Declaratory and Injunctive Relief
Against Citizens Bank
Plaintiffs request declaratory and injunctive relief in
Count 7 of the FAC. Plaintiffs request that if it is determined
that the 2016 Sutter County deed of trust remains a valid and
enforceable lien against Plaintiffs’ fee interest in Parcel 23,
the payment of $1,197,730.82 to Citizens Bank from Plaintiffs’
purchase funds should be found to have been made by mutual
mistake. FAC 16:5-9, Docket 73. Plaintiffs request Citizens
Bank restore to Plaintiffs the payment of $1,197,730.82, with
applicable interest, that was tendered due to the mutual mistake.
Id. at 16:14-18. Furthermore, Plaintiffs request the court
determine the respective rights and duties of Plaintiffs and all
defendants with respect to the payment of $1,197,730.82 to
Citizens Bank, or else the parties risk facing a multiplicity of
litigation in deciding rights and interests. Id. at 16:19-17:1.
Declaratory judgment is a remedy created by statute, the
Declaratory Judgment Act (“DJA”), authorizing courts of the
United States to “declare the rights and other legal relations of
any interested party seeking such declaration, whether or not
further relief is or could be sought.” 28 U.S.C. § 2201(a).
Importantly, the DJA “does not create new substantive rights.”
Republic of Marsh. Is. v. United States, 865 F.3d 1187, 1199 n.10
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(9th Cir. 2017). “Instead, the DJA is a purely remedial statute
that provides an affirmative remedy only when a cause of action
otherwise exists.” Siino v. Foresters Life Insurance and Annuity
Company, 133 F.4th 936, 945 (9th Cir. 2025) (internal quotations
omitted). When a breach of contract claim accompanies the
declaratory judgment request, as is the case here, “the
declaratory judgment may be used to affirm the existence of a
breach of contract or to clarify any attending contractual
obligations.” Id.
Citizens Bank moves to dismiss Count 7 not for the substance
of the claim, but on procedural grounds, arguing adding Count 7
in the FAC is beyond the scope of the court’s order granting
leave to amend the complaint. Mem. 21:4-15, Docket 92. Citizens
Bank specifically argues that the court only granted leave to
amend Counts 3 through 5 and nothing more in its order granting
the motion to dismiss the original complaint. See Order, Docket
69. Citizens Bank cites the court to Strifling v. Twitter Inc.,
2024 WL 54976, at *1 (N.D. Cal., Jan. 4, 2024), in support of
this argument.
The district court in Strifling granted defendant Twitter,
Inc.’s initial motion to dismiss the original complaint with
leave to amend “solely to cure the deficiencies identified by
th[at] order.” Id. Plaintiff Strifling filed an amended
complaint that added new causes of action, and so the district
court ruled the “amended complaint plainly exceeds the scope of
this Court's dismissal order,” and it granted the motion to
dismiss the amended complaint on that basis. Id. The district
court made a comprehensive list of cases that followed the rule
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that leave to amend must be within the limits provided by the
order granting leave to amend. Id. Importantly, the cases cited
in Strifling all contained orders with specific limitations on
amending complaints.
In this case, leave to amend was not limited to only those
original counts. The text of this court’s Order granting
Citizens Bank’s initial motion to dismiss contained no specific
limiting language.4 The court authorized Plaintiffs to file an
amended complaint by June 17, 2025. Leave to amend was not
limited to only Counts 3 through 5 in the text of the court’s
Order. Therefore, the Motion is denied as to Count 7.
V.
Conclusion
Based on the foregoing, the Motion is GRANTED IN PART AND
DENIED IN PART. The Motion is GRANTED as to Count 4 of the FAC
which is DISMISSED WITH PREJUDICE AND WITHOUT LEAVE TO AMEND.
The Motion is DENIED as to Counts 5, 6, and 7 of the FAC.
4The text of the court’s order dismissing the original
complaint stated:
IT IS ORDERED that the motion is GRANTED. As it
pertains to Defendant Citizens Bank, the third, fourth
and fifth claims of relief of the adversary complaint
are DISMISSED WITHOUT PREJUDICE with leave to amend.
Plaintiffs shall have until June 17, 2025 to file and
serve an amended complaint. If an amended complaint is
not timely filed or a dismissed claim not amended, the
dismissal without prejudice will become a dismissal
with prejudice. The defendant will then have until
July 1, 2025 to file and serve an answer or other
response.
Order, Docket 69.
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Citizens Bank must file an answer by December 9, 2025.
A separate order and judgment will issue.
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INSTRUCTIONS TO CLERK OF COURT
SERVICE LIST
The Clerk of Court is instructed to send the attached
document, via the BNC, to the following parties:
Edward Egan Smith
235 Pine Street, 15th Floor
San Francisco, California 94104
Dustin J. Nirschl
2855 E. Guasti Road
Suite 400
Ontario, California 91761
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Filed 11/24/25 Case 25-02015 Doc 127