STEPHANIE GAUSS VS DAVID DE WISPELAERE, ET AL.

Case Number: *******3015 Hearing Date: December 17, 2024 Dept: E

Hearing Date: December 17, 2024

Moving Parties: Defendants David de Wispelaere, Annie Maes, and Maes Capital

Responding Party: Plaintiff Stephanie Gauss

HEARING: DEMURRER TO THIRD AMENDED COMPLAINT

The Court considered the moving, opposition, and reply papers.

RULING

The Court sustains the Demurrer to causes of action 1, 3, and 6 without leave to amend as to Defendants David de Wispelaere and Maes Capital.

The Court sustains the Demurrer to cause of action 2 without leave to amend as to all Defendants.

The Court sustains the Demurrer to cause of action 5 with leave to amend as to all Defendants.

The Court overrules the Demurrer to causes of action 4 and 7 as to all Defendants.

The Court strikes paragraph 88 with leave to amend.

The Court strikes paragraphs 5, 8, 10, 11, 45, 103 and the prayer for relief for punitive and exemplary damages as to the third cause of action without leave to amend.

The Court denies Defendants' motion to strike paragraphs 63, 64, 88, 103, 107, 109, 114, 123, 133, and the prayer for relief as to the second, third, fourth, fifth, and sixth causes of action.

Plaintiff has 20 days from the date of this ruling to file an amended complaint.

BACKGROUND

On September 12, 2023, Plaintiff Stephanie Gauss filed a complaint against Defendants David De Wispelaere ("De Wispelaere"), Annie Maes ("Maes"), Maes Capital ("Maes Capital"), First American Title Insurance Company ("FATIC") (collectively, "Defendants"), and DOES 1 through 50, inclusive.

On January 17, 2024, the Court granted Plaintiff's application for a preliminary injunction.

On April 9, 2024, Plaintiff filed the First Amended Complaint ("FAC") against the same Defendants.

On April 26, 2024, Maes filed a Cross-Complaint against Ime Inyang Oduok ("Oduok"), Beach Cities Re, Inc. ("Beach"), Stephanie Gauss (collectively, "Cross-Defendants"), and ROES 1-25, alleging (1) Negligence; (2) Equitable Indemnity; (3) Fraudulent Nondisclosure; (4) Negligent Nondisclosure; (5) Impress and Foreclose Equitable Lien - Count I; (6) Impress and Foreclose Equitable Lien - Count II; and (7) Declaratory Relief.

On August 22, 2024, Plaintiff filed the Second Amended Complaint ("SAC") against the same defendants, alleging (1) Violations of the Truth in Lending Act; (2) Violations of Real Estate Settlement Procedures Act; (3) Usury; (4) Violations of California Business & Professions Code ; 17200, et seq; and (5) Breach of Contract.

On September 5, 2024, the Court granted Wispelaere defendants' motion to bifurcate trial on punitive damages and denied the request to stay pretrial discovery of the Wispelaere defendants' financial condition. The Court also granted Plaintiff's motion for pretrial discovery of financial condition.

On September 13, 2024, the Court granted Plaintiff's motion for leave to file a third amended complaint. On the same day, Plaintiff filed the operative Third Amended Complaint ("TAC"). The TAC alleges as follows:

Plaintiff purchased a property in Los Angeles in September 2020 and later demolished the existing structure to build a duplex. (TAC ¶ ¶ 14, 16.) In March 2022, Plaintiff sought refinancing and was referred to Defendant David by Oduok, a real estate agent. (TAC ¶ 19.) Plaintiff initially entered into a loan agreement for $1.5 million with David but later discovered that the loan terms were altered without their knowledge to increase the amount to $1.7 million and change the lender to Maes. (TAC ¶ 21, 24.)

Defendants David, Maes, and Maes Capital engaged in fraudulent conduct by acting as unlicensed brokers and failing to provide necessary loan disclosures as required under federal and state laws. (TAC ¶ ¶ 26, 27, 45.) They misled Plaintiff by using an altered loan commitment letter and did not provide essential loan documentation or disclosures required under the Truth in Lending Act (TILA) and Real Estate Settlement Procedures Act (RESPA). (TAC ¶ ¶ 47-51, 56-58, 59-60.) Defendants also violated California's usury laws by charging excessive interest rates, including a 12.75% rate and a default rate of 21%, and by charging interest on loan funds before the documents were signed. (TAC ¶ ¶ 61-64.)

Defendants also violated other state lending laws, such as HUD disclosures and the Fair Lending Notice. (TAC ¶ 65.) They further engaged in unfair and illegal business practices, violating California's Unfair Competition Law by charging excessive interest and failing to provide required disclosures. (TAC ¶ ¶ 66-72.)

On September 25, 2024, Defendants filed a demurrer to the TAC.

On October 17, 2024, Plaintiff filed an opposition.

On October 23, 2024, Defendants filed a reply.

No trial date has been set.

LEGAL STANDARD

A demurrer can be used only to challenge defects that appear on the face of the pleading under attack or from matters outside the pleading that are judicially noticeable. (Blank v. Kirwan (1985) 39 Cal.3d 311, 318.) "To survive a demurrer, the complaint need only allege facts sufficient to state a cause of action; each evidentiary fact that might eventually form part of the plaintiff's proof need not be alleged." (C.A. v. William S. Hart Union High School Dist. (2012)

53 Cal.4th 861, 872.) For the purpose of testing the sufficiency of the cause of action, the demurrer admits the truth of all material facts properly pleaded. (Aubry v. Tri-City Hospital Dist. (1992) 2 Cal.4th 962, 966-967.) A demurrer "does not admit contentions, deductions or conclusions of fact or law." (Daar v. Yellow Cab Co. (1967) 67 Cal.2d 695, 713.)

A pleading is uncertain if it is ambiguous or unintelligible. (Code Civ. Proc., ; 430.10, subd. (f).) A demurrer for uncertainty may lie if the failure to label the parties and claims renders the complaint so confusing defendant cannot tell what he or she is supposed to respond to. (Williams v. Beechnut Nutrition Corp. (1986) 185 Cal.App.3d 135, 139, fn. 2.) However, "[a] demurrer for uncertainty is strictly construed, even where a complaint is in some respects uncertain because ambiguities can be clarified under modern discovery procedures." (Khoury v. Maly's of California, Inc. (1993) 14 Cal.App.4th 612, 616.)

REQUEST FOR JUDICIAL NOTICE

Defendants request that the Court take judicial notice of the Complaint filed on September 12, 2023, the Court's minute order filed on March 14, 2024, and the tentative ruling for the hearing on the Demurrer to the First Amended Complaint.

The Court grants Plaintiff's requests for judicial notice in full, pursuant to Evidence Code sections 452(d) and (h).

DISCUSSION

Meet and Confer

Before filing a demurrer, "the demurring party shall meet and confer in person or by telephone with the party who filed the pleading that is subject to demurrer for the purpose of determining whether an agreement can be reached that would resolve the objections to be raised in the demurrer." (emphasis added, CCP ; 430.41(a).)

Defendants' counsel states that on September 20, 2024, he emailed Plaintiff's counsel, regarding the factual and legal basis for the demurrer. The parties attempted to meet and confer between September 20 and September 25, 2024. (Labarre Decl. ¶ ¶ 2-4.) Defendants' counsel states that there was no response to his email requests to schedule a time to meet and confer.

In opposition, Plaintiff states the meet and confer requirement was not satisfied. Plaintiff points out that Defendant's counsel fails to acknowledge that Plaintiff's counsel was invited to a telephone conference twice to discuss the pending demurrer and motion to strike. According to the Declaration of Plaintiff's counsel, he states that he emailed Defendant's counsel with proposed dates and times for the discussion. (Richman Decl. ¶ ¶ 2-3.). However, the Demurrer and Motion to Strike were filed before two of the three suggested dates, all of which were within four business days of the meet-and-confer request and scheduled for Mr. Richman's first two days back in the office after being out of town.

In reply, Defendants argue that the meet-and-confer process was adequate and, in any case, does not affect whether the demurrer should be sustained or overruled pursuant to Code of Civil Procedure section 430.41(a)(4), which states that insufficient meet-and-confer efforts are not grounds to rule on a demurrer. Defendants state they complied with the meet and confer requirement by initiating the process via email on September 20, 2024, with the demurrer filed five days later. While Plaintiff's counsel requested a phone call the following week, Defendants assert Plaintiff's counsel avoided further discussion on September 25, when Defendants sought another meeting. Defendants contend they should not be delayed indefinitely by Plaintiff's counsel and note that the demurrer has been pending for nearly a month without further engagement from Plaintiff's side.

The Court finds the meet and confer requirement to be satisfied because Defendants demonstrated a good faith effort to initiate and complete the meet and confer process.

Cause of Action 1 - Violations of the Truth in Lending Act as to Defendants David De Wispelaere and Maes Capital

To plead alter ego liability, a plaintiff must show that there is a unity of interest and ownership between the corporate and individual defendants, and (2) there would be an inequitable result if the acts in question were treated as those of the corporation alone. (Robbins v. Blecher (1997) 52 Cal. App. 4th 886.)

Defendants do not argue against the substance of this cause of action but rather state that David De Wispelaere and Maes Capital should be dismissed from the case because there are no factual allegations linking them to the claims against Annie Maes, the actual lender. Maes Capital had no role in the loan, and Plaintiff has not shown any relationship with Maes Capital. Similarly, although De Wispelaere was once considered the intended lender, Plaintiff concedes the loan was issued by Annie Maes. Since all claims, such as TILA, RESPA, usury, slander of title, and breach of contract, are directed at the lender, Defendants argue they cannot apply to non-lenders like De Wispelaere and Maes Capital, who had no obligation to provide disclosures or engage in a borrower-lender relationship. Defendants state that Plaintiff's "alter ego" allegations linking De Wispelaere and Maes Capital to Annie Maes are conclusory and lack factual support. (TAC ¶ ¶ 5,10)

In opposition, Plaintiff argues that Defendants De Wispelaere and Maes Capital are proper parties to the case and that the TAC provides specific facts establishing their involvement and liability. Plaintiff claims that De Wispelaere, acting on behalf of Maes, issued a payoff demand with inflated, usurious interest and excessive charges, intentionally frustrating Plaintiff's refinancing efforts. (TAC ¶ ¶ 48, 50, 52, 54, 111.) Additionally, De Wispelaere allegedly caused the recording of foreclosure-related notices, further impacting Plaintiff's financial position. (TAC ¶ ¶ 116, 118.) Plaintiff also alleges that De Wispelaere and Maes Capital acted as agents for Maes, handling loan negotiation, servicing, and foreclosure processes, as Maes lives abroad and relied on them for all communications. Moreover, Plaintiff asserts that De Wispelaere, Maes, and Maes Capital operate interchangeably as alter egos without adhering to legal distinctions, creating grounds for joint liability. (TAC ¶ ¶ 5, 6.)

In reply, Defendants argue that Plaintiff's claims against Maes Capital and De Wispelaere are inadequately pled because they improperly group all Defendants together without distinguishing individual actions. Defendants contend that Plaintiff has not shown why Maes Capital or De Wispelaere, neither of whom was a lender on the loan, should be liable under claims intended for the lender, Annie Maes. Regarding Plaintiff's "alter ego" allegations, Defendants argue these are merely boilerplate allegations and lack factual support, failing to establish any legal basis for treating the three parties as the same entity. They note that Maes Capital and De Wispelaere successfully demurred to prior complaints for similar deficiencies, and since Plaintiff has not rectified these issues, Defendants request the demurrer be sustained without leave to amend for Maes Capital and De Wispelaere.

The Court finds that Plaintiff fails to allege sufficient factual allegations against Defendants Maes Capital and De Wispelaere. The TAC groups all Defendants together without specifying individual actions, making it unclear how Maes Capital and De Wispelaere are individually liable. Further, Plaintiff fails to support her alter ego allegations with any substantive facts that would justify treating Maes Capital, De Wispelaere, and Annie Maes as a single entity. Thus, Plaintiff has failed to state sufficient facts to plead alter ego liability. (Robbins, supra, 52 Cal. App. 4th 886.) Given that this is the third amended complaint, Plaintiff has failed to show that an amendment could be made to remedy this issue.

Thus, the Court sustains the Demurrer to the first cause of action as to Defendants David De Wispelaere and Maes Capital without leave to amend.

Cause of Action 2 - Violations of RESPA

Defendants argue that the RESPA does not apply to this case because RESPA governs "federally related mortgage loans," which excludes short-term construction loans. (12 U.S.C ; 2602.) Here, Defendants assert that the loan was a one-year, temporary construction loan with no intent to resell or insure it federally, confirmed by its construction-based disbursement schedule. (TAC, ¶ ¶16, 18.) Although Plaintiff claims the loan is "federally insured," Defendants assert this claim lacks factual support, noting that the lender, Annie Maes, is an individual not regulated or insured by federal entities and does not meet the statutory criteria for a RESPA-related lender. Additionally, Defendants emphasize that the Court has already sustained two previous demurrers on similar grounds, indicating that Plaintiff failed to allege specific facts to classify the loan as "federally related."

In opposition, Plaintiff argues that the RESPA claim is properly pleaded, as it meets the two key requirements for applying to a federally related mortgage loan: (1) the loan is secured by a lien on residential property, and (2) the funds used to make the loan came from a federally insured financial institution. In the TAC, Plaintiff alleges the loan is secured by a first lien on residential property and that the funds came from deposits insured by the federal government. (TAC ¶ 100.) Plaintiff also claims a pattern of noncompliance by Defendants under RESPA, entitling her to an additional statutory penalty. Plaintiff further supports that the loan funds were federally insured by noting that Defendant De Wispelaere transferred the loan funds from his JPMorgan Chase account, a federally insured institution, with documents from Defendants confirming this.

In reply, Defendants argue that the RESPA claim is inadequately pleaded because the assertion that the loan is "federally insured" is conclusory and lacks supporting facts. Plaintiff's claim rests solely on the allegation that the loan funds came from an account with JPMorgan Chase, but Defendants contend this is insufficient under RESPA because having funds in a federally insured bank does not make a loan "federally related" unless the lender itself is federally insured, which does not apply to private individuals like De Wispelaere. (12 U.S.C. ; 2602(1).) Defendants highlight that this RESPA claim has been previously dismissed for similar reasons and remains unsupported by specific facts in the latest complaint. Additionally, Plaintiff did not address the RESPA exemption for temporary construction financing, which applies because the loan is a short-term construction loan, as confirmed by the loan agreement and disbursement schedule. (12 C.F.R. 1024.5.)

"For purposes of RESPA, a federally related mortgage loan is one involving any loan that is secured by a mortgage on residential real estate where the proceeds are used to pay an existing loan secured by the same property and the loan is made by a federally-insured lender or another agency of the federal government through a housing or urban development program." (12 U.S.C.A. ; 2602(1)(A)(B); Miller & Starr ; 6:15, The Real Estate Settlement Procedures Act (RESPA), 2 Cal. Real Est. ; 6:15 (4th ed.).) The Court finds the allegations in the TAC remain deficient. Plaintiff argues that the money that Defendants used to fund the loan was transferred to escrow by Defendant David De Wispelaere from his bank account at JPMorgan Chase Bank, but Plaintiff fails to adequately explain how this establishes that the loan is federally insured. Plaintiff points to paragraph 10 of the TAC, but this paragraph merely states that the funds used to make the loan were federally insured deposits. (TAC ¶ 10.) Plaintiff fails to allege specific facts to demonstrate that this particular loan would, in fact, qualify as a federally related loan. Furthermore, Plaintiff has had two prior chances to remedy this issue

Thus, the Court sustains the Demurrer to the second cause of action without leave to amend.

Cause of Action 3 - Usury as to Defendants David De Wispelaere and Maes Capital

The Court incorporates the arguments and analysis discussed under the first cause of action.

Thus, the Court sustains the Demurrer to the third cause of action as to Defendants David De Wispelaere and Maes Capital without leave to amend.

Cause of Action 4 - Intentional Interference with Prospective Economic Advantage

"Intentional interference with prospective economic advantage has five elements:(1) the existence, between the plaintiff and some third party, of an economic relationship that contains the probability of future economic benefit to the plaintiff; (2) the defendant's knowledge of the relationship; (3) intentionally wrongful acts designed to disrupt the relationship; (4) actual disruption of the relationship; and (5) economic harm proximately caused by the defendant's action." (Roy Allan Slurry Seal, Inc. v. American Asphalt South, Inc. (2017) 2 Cal.5th 505, 512.)

Defendants argue that Plaintiff's claim for intentional interference with prospective economic advantage is unsupported because Plaintiff did not specify an existing economic relationship with a third party likely to provide future economic benefit, as the alleged interference relates to a potential, yet unrealized loan relationship with a new lender. (TAC ¶ ¶111, 114.) Additionally, Defendants argue that Plaintiff's claimed benefit from a new loan with a lower interest rate is speculative, as the proposed loan wouldn't fully cover Plaintiff's debt to Maes, and refinancing costs would negate any alleged savings. (TAC ¶ 47.) Defendants further contend that they did not engage in wrongful acts but merely upheld their contractual rights, which is neither tortious nor wrongful. Asserting one's economic rights in good faith is not considered interference, especially where Plaintiff agreed to the loan terms and disputes only their enforceability in these proceedings. (Bridges v. Cal-Pac. Leasing Co. (1971) 16 Cal.App.3d 118, 131-132.)

In opposition, Plaintiff argues that all elements for intentional interference with prospective economic advantage are properly pleaded, and Defendants' objections incorrectly interpret pleading standards as requiring trial-level evidence. (Aubry v. Tri-City Hosp. Dist. (1992) 2 Cal. 4th 962, 966-967.) Plaintiff asserts that a valid cause of action exists if there is a factual basis that Defendants interfered with an existing economic relationship, even if it hadn't fully materialized. (Muddy Waters, LLC v. Superior Court (2021) 62 Cal. App. 5th 905.) Plaintiff contends the relationship with the new lender was concrete, not speculative, as the lender had committed to refinancing the loan. In the TAC, Plaintiff alleges Defendants interfered by providing an inflated payoff demand, which they knew would impede the refinancing. Plaintiff claims that Defendants were aware of the pending loan and its importance in repaying sums owed under lawful terms. Despite demands to lower the inflated amount, Defendants allegedly refused, knowing this would block Plaintiff's refinancing efforts. (TAC ¶ ¶ 111, 112.)

In reply, Defendants state that the TAC alleges that Plaintiff's refinancing offer was contingent on Defendants accepting a payoff less than the amount owed. Defendants assert that there is nothing wrongful or tortious about refusing to accept such an offer, as they were merely asserting their contractual rights under the loan agreement, which provided for the amounts in question. Defendants also argue that Plaintiff's alleged relationship with the third-party lender was speculative and conditional, and that liability cannot rest on a speculative expectation of a beneficial relationship. (Muddy Watters, supra, 62 Cal.App.5th 905, 926.) Since the loan commitment required Defendants' acceptance of a reduced payoff, which never occurred, Defendants conclude that Plaintiff's allegations do not establish a viable claim.

The Court finds that the TAC alleges sufficient facts to support a claim for intentional interference with prospective economic advantage. Defendants take issue with the fact that the alleged "new lender" was not an actual economic relationship but rather a speculative expectation. However, the reasons in support of this argument are beyond the scope of the pleadings. For the purposes of demurrer, the Court finds the allegations that Defendants were aware of "the new lender [who] had committed to provide Plaintiff a loan for an amount that would fully repay all sums lawfully due to Defendants under the Loan" to be sufficient. (TAC ¶ 111.)

Thus, the Court overrules the Demurrer to the fourth cause of action.

Cause of Action 5 - Slander of Title

"Slander of title occurs when a person, without a privilege to do so, publishes a false

statement that disparages title to property and causes pecuniary loss. The false statement must be maliciously made with the intent to defame." (Cyr v. McGovran (2012) 206 Cal.App. 4th 645, 651.)

Defendants argue that Plaintiff's slander of title claim is invalid because the Notice of Default and Notice of Trustee's Sale were accurate, reflecting the actual loan amount owed under the contractual terms. Plaintiff does not dispute receiving the loan, signing the documents, or failing to make payments, only alleging that the loan amount is unlawful due to excessive interest. However, Defendants assert that slander of title requires a false statement that inaccurately reflects the debt, not merely a dispute over enforceability. Defendants also contend that Plaintiff's partial payment offer was insufficient and did not legally satisfy the loan, so Defendants were justified in initiating foreclosure proceedings. Defendants state that Plaintiff's claim lacks specifics regarding the alleged "inflated" payoff amounts. Additionally, the notices did not challenge Plaintiff's property ownership but rather enforced loan terms, which is within the lender's rights. Finally, Defendants state there is no evidence of pecuniary loss, as no foreclosure has occurred, and the qualified privilege to record these notices has not been rebutted by Plaintiff. (Civ. Code ;2924(d); Kachlon Markowitz (2008) 168 Cal.App.4th 316.)

In opposition, Plaintiff argues that Defendants' foreclosure proceedings constitute slander of title, as wrongful foreclosure actions can create a valid claim for this cause of action. In the TAC, Plaintiff alleges that Defendants falsely published these notices, claiming Plaintiff defaulted despite tendering all amounts lawfully owed. The TAC states that these documents wrongly cast doubt on Plaintiff's property rights, implying a disputed debt amount. By publishing and recording these notices, Defendants allegedly made false statements about Plaintiff's title, fulfilling the requirements for a slander of title claim. (TAC ¶ ¶ 116-118.)

In reply, Defendants argue that Plaintiff's slander of title claim fails because she cannot establish that the Notice of Default was false, as she admits to being in default on the loan. Plaintiff's opposition focuses on alleged unlawful interest due to usury but lacks any specific calculation or evidence to substantiate these claims, which are yet to be adjudicated. Defendants assert that the Notice of Default accurately reflected Plaintiff's default status under the loan agreement, so the notice was valid. Further, Plaintiff did not address the qualified privilege for foreclosure notices, which protects foreclosure documents unless malice is shown. (Civil Code ; 2924 subd. (d).) Defendants note that they waited nearly a year after Plaintiff's default before initiating foreclosure, showing good faith rather than malice. Thus, Defendants argue the demurrer should be sustained without leave to amend, as Plaintiff has not established falsity, relies on inapplicable legal authorities, and failed to overcome the privilege that shields the foreclosure process.

The Court finds that the TAC fails to adequately allege facts to support the slander of title claim. Plaintiff's allegations lack specific facts demonstrating that the recorded Notice of Default or Notice of Trustee's Sale contained false information or were maliciously recorded. While Plaintiff claims the amounts stated are "unlawful," she does not provide any further information as to how the figures are inaccurate under the terms of the loan agreement. Furthermore, Plaintiff does not allege facts sufficient to overcome the qualified privilege afforded to foreclosure notices, nor does she show malice, which is necessary to challenge this privilege. (Civil Code ; 2924 subd. (d).)

Thus, the Court sustains the Demurrer to the fifth cause of action with leave to amend.

Cause of Action 6 - Violations of Business and Professions Code section 17200, et seq. as to Defendants David De Wispelaere and Maes Capital

The Court incorporates the arguments and analysis discussed under the first cause of action.

Thus, the Court sustains the Demurrer to the sixth cause of action as to Defendants David De Wispelaere and Maes Capital without leave to amend.

Cause of Action 7 - Breach of Contract

To establish a cause of action for breach of contract, the plaintiff must plead and prove (1) the existence of the contract, (2) the plaintiff's performance or excuse for nonperformance, (3) the defendant's breach, and (4) resulting damages to the plaintiff. (Oasis West Realty, LLC v. Goldman (2011) 51 Cal.4th 811, 821.)

Defendants argue that Plaintiff's breach of contract claim lacks merit because it does not meet the necessary elements. Defendants point out that the Court previously sustained a demurrer, stating that Plaintiff failed to show her own performance or excuse for non-performance. Here, Plaintiff alleges that Defendant Maes breached the loan agreement by violating laws, charging pre-disbursement interest, improperly disbursing funds, initiating foreclosure, and harming Plaintiff's credit. However, Defendants assert none of these actions constitute breaches of the contract. Defendants argue that the alleged legal violations are covered under separate claims and are not within the contract terms. Additionally, the loan agreement allows interest to accrue from March 18, 2022, and as a construction loan, funds were customarily disbursed over time as construction progressed. Plaintiff does not allege that disbursements were withheld or that any contractual obligations regarding foreclosure or credit protection were violated. The contract allows foreclosure upon default, which Plaintiff admits, and no provisions in the loan documents address credit reporting. Defendants state that claims of "improper disbursements" are unsupported by specific allegations. Defendants conclude that Plaintiff's claims do not constitute contractual breaches and are mostly conclusory, lacking factual support.

In opposition, Plaintiff argues that the breach of contract claim is properly pleaded, with all essential elements established and reiterated in the TAC. In paragraph 135, Plaintiff lists Defendants' alleged breaches, including charging interest on undisbursed loan funds, failing to fully disburse the loan, making improper disbursements, proceeding with foreclosure, harming Plaintiff's credit, and demanding excessive and illegal payoff amounts, all in violation of contractual obligations. (TAC ¶ 135.) Plaintiff also asserts that she has fully performed her obligations under the contract and incurred damages as a result of Defendants' actions.

In reply, Defendants argue that Plaintiff's breach of contract claim fails due to a lack of specific contractual support. Defendants also note inadequate legal analysis in Plaintiff's opposition. The loan agreement specifies that interest accrues from March 18, 2022, and, as a customary construction loan, allows for disbursements over time, making interest on undisbursed funds lawful. Defendants further argue that the loan documents permit foreclosure upon default, which Plaintiff admits, so initiating foreclosure is within contractual rights and does not breach the agreement. Additionally, impacts on Plaintiff's credit are not addressed in the loan documents, nor is there evidence the loan affected Plaintiff's credit report. Since Plaintiff has not cited any specific contractual language to support her claims and previous amendments have not resolved these deficiencies, Defendants request that the demurrer to the breach of contract cause of action be sustained without leave to amend.

The Court finds that the TAC alleges sufficient facts to support a cause of action for breach of contract. Plaintiff alleges that Defendants breached their contractual obligations by charging interest on undisbursed loan proceeds, failing to fully disburse loan funds, imposing excessive fees, and initiating foreclosure proceedings despite Plaintiff's attempts to satisfy lawful amounts owed. Additionally, Plaintiff alleges Defendants demanded a payoff amount exceeding the contractually agreed sum and acted without required licensing, further supporting the claim of breach. (TAC ¶ 135.) Plaintiff also alleges that she fully performed her obligations. (TAC ¶ ¶ 136-137.) These allegations, taken as true for purposes of the demurrer, provide a sufficient basis to allow the breach of contract cause of action to proceed.

Thus, the Court overrules the Demurrer to the seventh cause of action.

Motion to Strike

According to Code of Civil Procedure ; 436:

The court may, upon a motion made pursuant to Section 435, or at any time in its discretion, and upon terms it deems proper:

(a) Strikeout any irrelevant, false, or improper matter inserted in any pleading.

(b) Strike out all or any part of any pleading not drawn or filed in conformity with the laws of this state, a court rule, or an order of the court.

However, motions to strike in limited jurisdiction courts may only challenge pleadings on the basis that "the damages or relief sought are not supported by the allegations of the complaint." (Code Civ. Proc. ; 92(d).) The Code of Civil Procedure also authorizes the Court to act on its own initiative to strike matters, empowering the Court to enter orders striking matters "at any time in its discretion, and upon terms it deems proper." (Code Civ. Proc. ; 436.) Furthermore, ; 435.5 requires that "[b]efore filing a motion to strike pursuant to this chapter, the moving party shall meet and confer in person or by telephone with the party who filed the pleading that is subject to the motion to strike for the purpose of determining whether an agreement can be reached that resolves the objections to be raised in the motion to strike." (Code Civ. Proc. ; 435.5(a).)

Defendants request that the Court strike paragraphs 5, 8, 10, 11, and 45, which include claims about Defendants' alter ego relationships, alleged reckless disregard for Plaintiff's rights, and accusations of unlicensed broker activity by Defendant De Wispelaere; portions of paragraphs 63 and 107 (lines 10-14), which allege that Defendants charged a usurious default interest rate and imposed interest prior to disbursement; paragraphs 64 (line 18), 88, 103, 107(d), 109, 114, 123, and 133, which make claims of oppression, fraud, or malicious intent and request punitive damages; and requests for "punitive and exemplary damages" on specific causes of action throughout the prayer section on page 30-31 (lines 5, 16, 28, and on page 31 at lines 7, 14, and 22).

Defendants argue that Plaintiff's claim for punitive damages is unfounded, as punitive damages require specific factual allegations of malice, fraud, or oppression, which are absent in the TAC. Instead, Plaintiff provides only conclusory statements without clear evidence of malicious or fraudulent intent. Additionally, Defendants state that punitive damages are not recoverable under several of Plaintiff's claims, including TILA, RESPA, usury, and violations of Business & Professions Code Section 17200. (People v. Jayhill Corporation (1973) 9 Cal.3d 283, 287; Soleimany v. Narimanzadeh (2022) 78 Cal.App.5th 915; 15 U.S.C. ;1640; 12 U.S.C. 2605.)

In opposition, Plaintiff argues that the TAC contains sufficient facts to support a claim for punitive damages. (Unruh v. Truck Insurance Exchange (1973) 7 Cal.3d 616, 632; Perkins v. Superior Court (1981) 117 Cal.App.3d. Plaintiff asserts that punitive damage claims are viable if supported by general allegations of malicious intent alongside relevant facts. Plaintiff maintains that her TAC provides such support by detailing Defendants' alleged intentional misconduct, including usurious interest charges, falsified payoff demands, slander of title, failure to follow federal lending laws, and unlicensed broker activities. Plaintiff states that these intentional torts, such as intentional interference with prospective economic advantage and slander of title, justify the inclusion of punitive damages because they imply intentional wrongdoing. Plaintiff further asserts that she is not required to prove punitive damages at the pleading stage but only to present sufficient facts to notify Defendants of her intent to seek them. According to Plaintiff, the TAC's allegations that Defendants knowingly provided a usurious loan, demanded unlawful fees, failed to make good faith disclosures under lending laws, and interfered with her refinancing effort demonstrate, at minimum, a conscious disregard for her rights. Plaintiff argues that while she will ultimately need to prove oppression, fraud, or malice at trial, the facts alleged in the TAC provide a reasonable foundation for punitive damages, justifying their inclusion at this stage.

In reply, Defendants argue that Plaintiff's allegations are insufficient to support a claim for punitive damages. They contend that paragraphs cited by Plaintiff in her opposition fail to meet the required standard as they lack specific facts showing fraud, malice, or oppression. (Civ. Code ; 3294.) Defendants note that while Plaintiff alleges the payoff demand, Notice of Default, and Notice of Trustee's Sale included unaccounted payments and excessive charges, she does not provide evidence of any payments or clarify the alleged inaccuracies. Plaintiff's assertion that the loan was for consumer purposes, while contradicted by a real estate broker's testimony that the loan was intended for building and selling a new home, is unsupported by factual details in the TAC. Defendants argue that making a business loan under these conditions is not evidence of fraud or malice. Defendants further contend that allegations regarding mandatory consumer loan disclosures and usurious interest rates lack supporting details and, instead, reflect Plaintiff's own contradictory statements about the broker's involvement in arranging the loan. They argue there is nothing unlawful in a lender relying on documents that Plaintiff admits to signing. Defendants also argue that Plaintiff's allegations of unlicensed broker activity are conclusory, with no supporting facts about prior transactions involving De Wispelaere, making his licensing status irrelevant to this case. Lastly, Defendants point out that punitive damages are not recoverable under Business & Professions Code Section 17200 (UCL), and Plaintiff's failure to address this in her response implies acceptance of their motion to strike punitive damages for UCL violations.

"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." (Clauson v. Superior Court (1998) 67 Cal.App.4th 1253, 1255.) A request for punitive damages may be made pursuant to Civil Code section 3294 subdivision (a), which provides that "[i]n an action for the breach of an obligation not arising from contract, where it is proven by clear and convincing evidence that the defendant has been guilty of oppression, fraud, or malice, the plaintiff, in addition to the actual damages, may recover damages for the sake of example and by way of punishing the defendant." (Civil Code ; 3294 subd. (a).)

Under the statute, malice is defined as "conduct which is intended by the defendant to cause injury to the plaintiff or despicable conduct which is carried on by the defendant with a willful and conscious disregard of the rights or safety of others," and oppression is defined as "despicable conduct that subjects a person to cruel and unjust hardship in conscious disregard of that person's rights." (Code Civ. Proc. ; 3294(c)(1), (c)(2).) Although not defined by the statute, despicable conduct refers to circumstances that are base, vile, or contemptible. (College Hospital, Inc. v. Superior Court (1994) 8 Cal.4th 704, 725.) Also, "[u]nder the statute, malice does not require actual intent to harmConscious disregard for the safety of another may be sufficient where the defendant is aware of the probable dangerous consequences of his or her conduct and he or she willfully fails to avoid such consequences. [Citation.]" (Pfeifer v. John Crane, Inc. (2013) 220 Cal.App.4th 1270, 1299.)

As to the first cause of action, Defendants point out that damages for TILA are set by statute and nowhere therein is there reference to punitive damages. (15 U.S.C. ;1640.) Plaintiff fails to respond to this argument. Thus, the Court strikes paragraph 88 with leave to amend since the cause of action was only sustained without leave to amend as to Defendants David De Wispelaere and Maes Capital.

Given the Court's finding that the TAC fails to sufficiently allege facts to support the third cause of action and the Court's sustaining without leave to amend, the Court strikes paragraphs 103 and prayer for relief for punitive and exemplary damages as to the third cause of action, without leave to amend.

The remaining causes of action have either been overruled or only apply to Defendants David De Wispelaere and Maes Capital. Thus, there is no basis to strike on the grounds that the TAC fails to allege facts to support a request for punitive damages. Furthermore, the Court finds that Plaintiff's allegations are sufficient to support a claim for punitive damages. Thus, the Court denies Defendants' motion to strike paragraphs 63, 64, 88, 103, 107, 109, 114, 123, 133, and prayer for relief as to the second, third, fourth, fifth, and sixth causes of action.

Defendants also argue that Plaintiff's "alter ego" allegations, which claim that Defendants are essentially the same entity, lack the necessary factual foundation.

Given the Court's sustaining of the causes of action without leave to amend, regarding the alter ego allegations, the Court strikes paragraphs 5, 8, 10, 11, and 45 without leave to amend.

Hearing Date: December 17, 2024

Moving Parties: Defendants David de Wispelaere, Annie Maes, and Maes Capital

Responding Party: Plaintiff Stephanie Gauss

HEARING: Motion for Sanctions

The Court considered the moving, opposition, and reply papers.

RULING

The Court orders Plaintiff to appear for Deposition in the next twenty days and imposes monetary sanctions in the amount of $4,950.

BACKGROUND

On September 12, 2023, Plaintiff Stephanie Gauss filed a complaint against Defendants David De Wispelaere, Annie Maes, Maes Capital, First American Title Insurance Company, and DOES 1 through 50, inclusive.

On April 9, 2024, Plaintiff filed the First Amended Complaint against the same defendants.

On April 26, 2024, Maes filed a Cross-Complaint against Ime Inyang Oduok, Beach Cities Re, Inc. ("Beach"), Stephanie Gauss, and DOES 1-25, alleging (1) Negligence; (2) Equitable Indemnity; (3) Fraudulent Nondisclosure; (4) Negligent Nondisclosure; (5) Impress and Foreclose Equitable Lien - Count I; (6) Impress and Foreclose Equitable Lien - Count II; and (7) Declaratory Relief.

On November 7, 2024, Defendants David De Wispelaere, Annie Maes, and Maes Capital filed the instant Motion to Enforce the Court's Order and for Monetary, Evidentiary, Issue, Contempt, and Terminating Sanctions.

On November 26, 2024, Plaintiff filed the Opposition.

On December 10, 2024, Defendant filed the Reply.

LEGAL STANDARD

The court is authorized, after notice and opportunity for hearing, to impose the following sanctions against anyone engaging in conduct that is a misuse of the discovery process: monetary sanctions, issue sanctions, evidence sanctions, terminating sanctions, and contempt. (Code Civ. Proc., ; 2023.030 subd. (a)-(e).) A terminating sanction may be imposed by an order dismissing the action against whom the sanction is imposed. (Code Civ. Proc., ; 2023.030 subd. (d)(3).)

Code of Civil Procedure, section 2023.010, subdivision (g), provides that a misuse of the discovery process includes, but is not limited to, "[d]isobeying a court order to provide discovery."

"The discovery statutes evince an incremental approach to discovery sanctions, starting with monetary sanctions and ending with the ultimate sanction of termination." (Doppes v. Bentley Motors, Inc. (2009) 174 Cal.App.4th 967, 992; see J.W. v. Watchtower Bible and Tract Society of New York, Inc. (2018) 29 Cal.App.5th 1142, 1169.) If a lesser sanction fails to curb misuse, a greater sanction is warranted. (Doppes, supra, 174 Cal.App.4th at p. 992.) Discovery sanctions should be appropriate to the dereliction and should not exceed what is required to protect the interests of the party entitled to but denied discovery. (Ibid.) "But where a violation is willful, preceded by a history of abuse, and the evidence shows that less severe sanctions would not produce compliance with the discovery rules, the trial court is justified in imposing the ultimate sanction." (Ibid., quoting Mileikowsky v. Tenet Healthsystem (2005) 128 Cal.App.4th 262, 279-280; Creed-21 v. City of Wildomar (2017) 18 Cal.App.5th 690, 702 (quoting same).)

Because terminating sanctions are the most "drastic" penalty, they are typically a "last resort" to be "used sparingly"; however, they may still be appropriate "as a first measure" in "extreme cases" where a litigant violates a court order and "persists in the outright refusal to comply with [its] discovery obligations." (Siry Investment, L.P. v. Farkhondehpour (2020) 45 Cal.App.5th 1098, 1118, as modified on denial of reh'g (Mar. 23, 2020).)

REQUEST FOR JUDICIAL NOTICE

Defendants request that the Court take judicial notice of the Motion to Compel filed June 28, 2024, and the Minute order dated September 5, 2024.

The Court grants Plaintiff's requests for judicial notice pursuant to Evidence Code sections 452(d) and (h).

DISCUSSION

Defendants' motion seeks an order enforcing this Court's Order of September 5, 2024, and seeks monetary, evidentiary, issue, contempt, and terminating sanctions against Plaintiff. The September 5 Minute Order required Plaintiff to sit for a further deposition and answer questions that she had previously failed to answer in front of a discovery referee. (Sept. 5 Minutes Order.) Plaintiff states that Defendant has defied the Court order by refusing to sit for deposition.

Defendants argue that Plaintiff's failure to comply with a prior court order to sit for deposition before a discovery referee constitutes a clear misuse of the discovery process. (Code Civ. Proc. ; 2023.030 subd. (e); Code Civ. Proc. ;2023.010 (g).) As a result, Defendants seek sanctions, including terminating, issue, evidentiary, monetary, and contempt sanctions, due to Plaintiff's willful disobedience.

Defendants state that Defendants only need to show that Plaintiff did not comply with a court order, after which the burden shifts to Plaintiff who must show a satisfactory excuse to avoid sanction. (Corns v. Miller (1986) 181 Cal.App.3d 195, 201; Williams v. Russ (2008) 167

Cal.App.4th 1215, 1227.) Furthermore, Defendants assert that Plaintiff has no valid excuse for failing to comply. They highlight Plaintiff's repeated delays in scheduling her deposition and her refusal to confirm proposed dates, despite Defendants' willingness to accommodate her conditions. Plaintiff's excuses, including the alleged unilateral cancellation of a deposition, are disingenuous, as Plaintiff failed to follow up or finalize alternative dates.

Defendants emphasize that terminating sanctions are warranted because Plaintiff's refusal to cooperate prevents Defendants from obtaining critical discovery necessary to address Plaintiff's claims, including the purpose of the loan, her occupation as a real estate investor, and other representations regarding the property. Plaintiff's failure to answer these questions strikes at the core of the case. Defendants contend that terminating sanctions are appropriate because Plaintiff's disobedience meets the required elements: failure to comply, willfulness, and defiance of a prior court order. (Lang v. Hochman (2000) 77 Cal.App.4th 1225,1246; Valbona v. Springer (1996) 43 Cal.App.4th 1525, 1545; Ruvalcaba v. Government Employees Ins. Co. (1990) 222 Cal.App.3d 1579, 1580-1581.)

In the alternative, Defendants request issue sanctions, asking the Court to deem specific facts established as a matter of law. These facts include:

a. That when Plaintiff obtained the subject loan, she did so with the intention of constructing a new home and ADU, and to sell the same for profit, i.e., that Plaintiff obtained the subject loan as a "business purpose" loan.

b. That, at the time Plaintiff obtained the subject loan, her occupation was as a real estate investor who had previously purchased and developed real properties

c. That, at the time Plaintiff obtained the subject loan, she had previously purchased other real property, demolished the existing home, built a new home, and sold the same for profit.

d. That at no time prior to obtaining the subject loan did Plaintiff ever intend to occupy the subject real property as her primary residence.

e. That, at no time prior to obtaining the subject loan did Plaintiff ever reside in the subject real property as her primary residence.

f. That Plaintiff requested to change the initial loan amount from $1.5 Million to $1.7 Million as reflected in the loan agreement.

g. That Plaintiff represented in her loan application submitted to De Wispelaer that the loan was a business purpose loan, that she resided at other real property, namely 9728 Laraway, Los Angeles, California, and that she owned other investment real properties.

h. That Ime Oduok, a licensed real estate broker, made, arranged and negotiated the subject loan on behalf of Plaintiff.

If issue sanctions are not imposed, Defendants seek evidentiary sanctions to bar Plaintiff from introducing evidence on these issues at trial. Defendants further request monetary sanctions in the amount of $7,560 to compensate for the legal fees incurred in bringing this motion. Lastly, Defendants argue that Plaintiff's conduct rises to the level of contempt as she has willfully disobeyed multiple court orders without justification, impugning the integrity of the judicial process. (Code Civ. Proc. ; 2023.030(e).)

In opposition, Plaintiff argues that the motion is premature, unnecessary, and inequitable given Defendants' own failures to meet their pre-existing discovery obligations.

First, Plaintiff emphasizes that she has already attended three deposition sessions totaling thirteen hours and is willing to appear for the fourth session. However, she insists that Defendants David De Wispelaere, Annie Maes, and Maes Capital first comply with their own outstanding discovery obligations. These include attending their depositions, which were unilaterally canceled by each Defendant at the last minute and providing overdue supplemental responses to the written discovery that have been pending for over five months.

Plaintiff further highlights the significant costs she incurred when accommodating Defendant Annie Maes for a scheduled deposition in Brussels, Belgium. These costs included renting a conference room, hiring an interpreter, and bringing in a computer technician with a laptop, only for Ms. Maes to cancel at the last minute. Ms. Maes later appeared for a partial deposition via smartphone while sitting in a car, necessitating another session. Despite this, Ms. Maes refuses to reimburse Plaintiff for the over $1,000 in costs caused by her unusual demands and subsequent cancellation, claiming they are merely "costs of litigation."

Plaintiff contends that Defendants' repeated cancellations and failure to comply with discovery obligations undermine the credibility of their request for sanctions. She argues that paying a large non-refundable deposit for a Discovery Referee without assurances that Defendants will honor their obligations is unreasonable, particularly when two Defendants, De Wispelaere and Maes Capital, have not yet been deposed at all.

Plaintiff also asserts that the court's prior ruling requiring her to appear for a fourth session did not include a specific deadline or location. Given that no trial date has been set and no evidence of prejudice has been shown, she argues there is no urgency to proceed. She further notes that the parties had agreed to participate in an Informal Discovery Conference prior to the hearing on this motion, making the motion premature.

Plaintiff requests that the court deny the motion, refrain from imposing any sanctions, and order Defendants to fulfill their outstanding discovery obligations first. She also seeks reimbursement of $6,600 in legal fees incurred in opposing the motion, emphasizing that Defendants' own conduct has caused unnecessary costs and delays.

In reply, Defendants emphasize that the court's minute order is a valid and enforceable order, regardless of whether it specifies a date or location, and Plaintiff's failure to schedule her deposition for over 90 days demonstrates defiance of court authority.

Defendants refute Plaintiff's claims regarding the depositions of the Defendants, asserting that Annie Maes has already been deposed and that David De Wispelaere has provided numerous dates for his deposition, which Plaintiff has failed to confirm. Defendants highlight that Plaintiff's argument of discovery priority is unfounded since California law allows discovery in any sequence. (Code Civ. Proc. ; 2019.020). Further, they contend that Plaintiff's claim of unresolved discovery issues is meritless, as Defendants have produced substantial documents, with only minor pending verifications remaining.

They stress that Plaintiff's delays are a calculated strategy to obstruct justice and avoid repayment of the loan, which has been in default since September 2022. Defendants emphasize the financial harm to Annie Maes, who loaned her life savings to Plaintiff, and note that Plaintiff continues to occupy the property while preventing foreclosure through legal maneuvers.

Defendant has shown that Plaintiff has failed to comply with a Court ruling, and therefore, the burden shifts to Plaintiff, who must show a satisfactory excuse to avoid sanction. (Corns, supra, 181 Cal.App.3d 195, 201.

First, Plaintiff argues that the Court's ruling ordering the deposition of the Plaintiff was not in the form of an order. The Court finds this argument non-cognizable; the ruling was clear in stating that Plaintiff must submit for deposition. Next, Plaintiff argues that the ruling does not specify when and where Plaintiff must be deposed, and that Plaintiff is currently willing to be deposed. While this argument may have been persuasive if the instant motion was brought shortly after the ruling, given that it has been 3 months since the Court's ruling and Plaintiff has still not scheduled the deposition, the Court finds this argument unpersuasive. Last, Plaintiff states that Plaintiff will appear at deposition once Defendants respond to outstanding discovery requests. The Court questions why Plaintiff believes she has the standing to negotiate a Court ruling. Furthermore, Defendants' discovery obligations are immaterial to whether Plaintiff has complied with the September 5 ruling. Therefore, The Court finds that Plaintiff has willfully violated a Court Order and that sanctions are appropriate. (Code Civ. Proc. ; 2023.030 subd. (e); Code Civ. Proc. ;2023.010 (g).)

Sanctions

Defendants request terminating, issue, evidence, contempt, and monetary sanctions. However, "The discovery statutes evince an incremental approach to discovery sanctions, starting with monetary sanctions and ending with the ultimate sanction of termination." (Doppes supra, 174 Cal.App.4th 967, 992.) While Plaintiff has disobeyed a court ruling, she has attempted to show justification for it. Furthermore, while Plaintiff has been evasive regarding discovery requests, the Court finds that discovery has been contentious between both parties, and neither party has shown itself to be blameless. Last, no trial date has been set, and discovery is ongoing. Thus, no prejudice requiring issue or evidentiary sanctions is present. Consequently, the Court finds that only monetary sanctions are appropriate.

Defendants request that $7,560.00 in sanctions be imposed upon the Plaintiffs in accordance with the costs of bringing the instant motion. (Code Civ. Proc. ; 2023.030 subd. (a).) Defendants Counsel states they spent 13.8 hours preparing the instant motion, 1 hour preparing the reply, and 2 hours attending the hearing at $450 an hour. Defendants' counsel also requests $1,350 in additional fees. The Court lowers the 13.8 hours spent preparing the instant motion to 8 hours and strikes the additional fees.

Therefore, the Court orders Defendant to appear for Deposition in the next ten court days and imposes monetary sanctions in the amount of $4,950.