Date: 05-31-2018

Case Style: Placer Foreclosure, Inc. v. Solomon Aflalo

Case Number: B268589

Judge: Tangeman

Court: California Court of Appeals Second Appellate District Division Six on appeal from the Superior Court, Ventura County

Plaintiff's Attorney: Patric J. Kelly

Defendant's Attorney: Samuel Elias Chilakos and Harris L. Cohen

Description: Placer Foreclosure, Inc., acting as trustee, conducted
a foreclosure sale of property owned by Solomon Aflalo. The
foreclosure sale resulted in surplus proceeds. When Aflalo filed a
wrongful foreclosure action against Placer and the third-party
buyer, Pro Value Properties, Inc., Placer filed a complaint in
interpleader and deposited the surplus proceeds with the court.
Placer appeals judgment of dismissal after the trial
court sustained Aflalo’s demurrer to the interpleader complaint
without leave to amend. In a cross-appeal, Aflalo contends: the
trial court erred when it did not direct the clerk of the court to
release the interpleaded funds to him. We affirm the judgment of
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dismissal. We remand with directions to the trial court to release
the interpleaded funds to Aflalo.
FACTUAL AND PROCEDURAL HISTORY
Aflalo borrowed funds to buy a home. The loan was
secured by a deed of trust. Placer was the trustee under the deed
of trust. Aflalo defaulted on the loan, and Placer conducted a
foreclosure sale. Pro Value bought the property. The sale
resulted in $974,786.81 in surplus proceeds, after payment of the
fees and costs of sale and the obligations on the loan.
Aflalo filed a wrongful foreclosure action. He named
Placer and Pro Value as defendants. He sought to invalidate the
foreclosure sale and quiet title to the property.
Placer responded with the interpleader complaint.
Placer alleged the wrongful foreclosure action gave rise to
conflicting claims to the surplus funds. It alleged it has “no
interest in the Surplus and is indifferent with respect to which
Defendant, or combination of Defendants, should receive the
Surplus.”
After the trial court sustained Aflalo’s demurrer to
the interpleader complaint without leave, Aflalo filed an
application for a judgment of dismissal. He asked the court to
release the interpleaded surplus funds to him.
The trial court entered a judgment of dismissal of the
interpleader complaint and ordered that Placer “may apply to the
court for a release of the [surplus] Funds deposited with the
court.” The trial court denied Aflalo’s request to release the
interpleaded funds to him.
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DISCUSSION1
Mootness
While this appeal was pending, Aflalo and Pro Value
entered a settlement agreement in which Pro Value “disclaim[ed]
any interest whatsoever in the $974,786.[8]1 of Surplus Proceeds
deposited by Placer in the Interpleader Action with the Superior
Court.” It declared that it did not “object to the immediate
disbursement by the Superior Court to [Aflalo] of the Surplus
Proceeds.”
Based on the settlement agreement, Aflalo argues
that the appeal should be dismissed because the interpleader
complaint and the appeal are now moot. We disagree.
California courts will decide only “‘justiciable
controversies.’” (Association of Irritated Residents v. Department
of Conservation (2017) 11 Cal.App.5th 1202, 1221.) A moot case
is one in which there may have been an actual or ripe controversy
at the outset, but due to intervening events, it no longer presents

1 We grant Placer’s request for judicial notice filed on
February 7, 2017, which contains (1) recorded documents related
to the deed of trust and foreclosure sale, (2) pleadings related to
Aflalo’s wrongful foreclosure suit, and (3) moving papers related
to Aflalo’s motion to dismiss the appeal. (Evid. Code, §§ 452,
459.) We also grant Aflalo’s request for judicial notice filed on
October 6, 2017, which contains (1) the order of dismissal of the
interpleader complaint and (2) Aflalo’s complaint filed May 2017
against Placer, including an attached declaration from the
president of Pro Value disclaiming any interest in the surplus
funds. (Evid. Code, §§ 452, subd. (d), 459.) We deny Placer’s
request for judicial notice filed January 10, 2018, which also
contains Aflalo’s May 2017 complaint against Placer, because it is
duplicative.
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a context in which the court can grant effectual relief. (Id. at p.
1222.)
Although Pro Value and Aflalo’s settlement resolved
the dispute over the surplus proceeds, the appeal is not moot
because justiciable controversies remain. Here, Placer’s
interpleader complaint requests attorney fees, a discharge from
liability, and dismissal from the underlying wrongful foreclosure
action (Code Civ. Proc., §§ 386, 386.6). Because the award of
attorney fees, discharge from liability, and dismissal from the
wrongful foreclosure action are dependent on whether the trial
court properly ruled on the demurrer, the appeal is not moot.
(See White v. Lieberman (2002) 103 Cal.App.4th 210, 220.)
Although we determine the appeal is not moot, we
will conclude the interpleader was properly dismissed. Placer is
thus not entitled to attorney fees, discharge from liability, or an
order of dismissal from the wrongful foreclosure action.
Dismissal of the Interpleader Complaint
Placer contends that the trial court erred in
sustaining the demurrer without leave to amend and dismissing
the interpleader complaint because Aflalo and Pro Value’s
competing claims subjected it to multiple liability.
We review the order de novo, and independently
decide whether the complaint states a cause of action, reading it
as a whole, and deeming true all material facts properly pled.
(Westamerica Bank v. City of Berkeley (2011) 201 Cal.App.4th
598, 606-607 (Westamerica).)
A party “against whom double or multiple claims are
made,” that “may give rise to double or multiple liability,” may
bring an action against the claimants to compel them to
interplead and litigate their claims. (Code Civ. Proc., § 386, subd.
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(b).) The complaint must show that “‘the defendants make
conflicting claims’” to the subject matter, and that the plaintiff
“‘cannot safely determine which claim is valid and offers to
deposit the money in court . . . .’ [Citations.]” (Westamerica,
supra, 201 Cal.App.4th at pp. 607-608.) But an interpleader
action may not be maintained “‘upon the mere pretext or
suspicion of double vexation.’” (Id. at p. 608.)
Placer contends that the interpleader complaint was
proper because Placer was faced with liability from Pro Value if it
distributed the surplus funds to Aflalo. We reject this contention.
Placer could safely distribute the surplus funds to Aflalo as
required by statute without any risk of multiple liability.
The trustee’s role in preparing for and conducting a
nonjudicial foreclosure sale is set forth in detail in Civil Code2
section 2924 et seq., as part of a comprehensive statutory scheme.
The scope and nature of the trustee’s duties are exclusively
defined by the deed of trust and the governing statutes. (Pro
Value Properties, Inc. v. Quality Loan Service Corp. (2009) 170
Cal.App.4th 579, 583 (Quality Loan Service).) No other common
law duties exist. (Ibid.)
Placer was statutorily required under section 2924k
to disburse surplus funds to Aflalo. Section 2924k, subdivision
(a) provides that a trustee “shall distribute the proceeds” in the
following order of priority: (1) costs and expenses of the sale, (2)
payment of the “obligations secured by the deed of trust,” (3)
payment to any junior liens or encumbrances, and (4) payment
“to the trustor.” Placer paid the costs and expenses of the sale
and the encumbrances as directed under section 2924k,

2 Further unspecified statutory references are to the Civil
Code.
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subdivision (a)(1) through (3), including payment to the lender of
record, but did not pay the remaining funds to Aflalo, the trustor
(§ 2924k, subd. (a)(4)). Placer was required to do so.
Placer does not cite to any authority that would
prevent it from performing its statutory obligation to disburse the
sale proceeds as directed under section 2924k. Relying on section
2924j, it argues that it was not required to comply with section
2924k when there are “disputed unresolved claims.” Placer’s
reliance on section 2924j is misplaced.
Section 2924j does not apply because the conflicting
claims are not between parties who had recorded interests before
the sale. Section 2924j, subdivision (a) sets forth the procedure
for distributing proceeds to “persons with recorded interests in
the real property as of the date immediately prior to the trustee’s
sale.” It provides that “[o]nce an interpleader action has been
filed” because of disputed unresolved claims, “thereafter the
provisions of this section do not apply.” (§ 2924j, subd. (e).)
However, section 2924j procedures regarding disputed claims
apply to persons who make a claim to the property before the
foreclosure sale such as lienholders, not purchasers at the sale.
(See Banc of America Leasing & Capital, LLC v. 3 Arch Trustee
Services, Inc. (2009) 180 Cal.App.4th 1090, 1104; see also Pacific
Loan Management Corp. v. Superior Court (1987) 196 Cal.App.3d
1485, 1490 [interpleader proper where junior lienholder and
trustor disputed surplus funds].) The conflicting claims at issue
here are not between lienholders, and Placer admits that Pro
Value has no claim to the sale proceeds under section 2924k.
Nothing in section 2924j excuses Placer from carrying out its
duty of distributing the surplus proceeds in accordance with
section 2924k.
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Citing to Bank of America v. La Jolla Group II (2005)
129 Cal.App.4th 706 and Quality Loan Service, supra, 170
Cal.App.4th 579, Placer argues that if the foreclosure action
deemed the sale void, Placer “would not have had the power of
sale,” Pro Value would have been “entitled to . . . the return of the
purchase price, plus accrued interest,” and “an erroneous
payment of sale proceeds” would have subjected Placer to
liability. It argues the interpleader action was appropriate
because it was merely a stakeholder with no obligation to resolve
the disputed claims. (Cantu v. Resolution Trust Corp. (1992) 4
Cal.App.4th 857.)
But Placer did not face a valid threat of double
vexation because Pro Value’s claim was against Aflalo, not
Placer. (Westamerica, supra, 201 Cal.App.4th at p. 608.) This
case is like Westamerica, in which a demurrer to a bank’s
interpleader complaint was sustained without leave to amend
because the bank, acting as an escrow agent, faced no threat of
double vexation from the City of Berkeley and a building
contractor, who were litigating a contract dispute. (Id. at pp.
608-613.) The appellate court upheld the decision after
interpreting an escrow agreement, which tracked a statutory
scheme setting forth an escrow agent’s “specific list of rights and
duties” for the distribution of escrowed funds. (Id. at p. 608.)
The court determined there was no reasonable probability of
double vexation because (1) the statutory terms of the escrow
agreement clearly instructed the bank on how to pay funds (i.e.,
the bank must pay the city at the city’s direction and the
contractor could not direct payment of funds without the city’s
consent); (2) the agreement stated that the bank would be “held
harmless” by the parties if it followed the escrow instructions;
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and (3) even without the hold harmless clause, the matter would
resolve in the litigation between the city and the contractor, and
the contractor had a statutory remedy against the city if
distribution of the escrow funds were improper. (Id. at pp. 608-
610.) Here too, the statute directed Placer how to pay the funds,
the competing claims were to be resolved in the foreclosure
action, and Pro Value had a remedy against Aflalo who would
have to return the surplus funds to the buyer if he successfully
set aside the sale in the foreclosure action.
Placer argues that Westamerica is distinguishable
because the escrow agreement in that case contained a “hold
harmless” clause. But, even in the absence of an indemnity
clause protecting the stakeholder from being sued, there is no
threat of double vexation because there “would [be] little to gain
by filing an action against” the stakeholder. (Westamerica, supra,
201 Cal.App.4th at p. 610.) If the wrongful foreclosure action
invalidated the sale, Pro Value would be entitled to a refund from
Aflalo of its purchase proceeds, including the surplus, and would
have nothing to gain by an action against Placer. (See id. at pp.
609-610.)
This case is also like City of Morgan Hill v. Brown
(1999) 71 Cal.App.4th 1114, 1123, in which there was no right to
an interpleader action where the parties asserted rights over
different debts owed by different obligors. An attorney
represented the City of Morgan Hill when she was a member of a
law firm. When the law firm terminated her, she demanded her
share of attorney fees that the city owed the law firm. (Id. at pp.
1118-1119.) The city interpleaded the attorney fees. (Id. at p.
1119.) The appellate court affirmed the trial court’s order
granting the law firm’s summary judgment of the interpleader
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action and ordering the attorney fees to be released to the firm,
because the parties claimed different debts owed by different
obligors. (Id. at pp. 1121, 1123.) The firm claimed a debt of
attorney fees owed by the city; whereas, the attorney claimed a
debt of compensation owed by the firm. There was no
interpleader action because all that existed was a “possible
eventual right to a judgment that might be satisfied” out of the
disputed funds. (Id. at p. 1126.)
Aflalo claims a right to collect surplus funds from
Placer under section 2924k. Pro Value has no claim against
Placer. It has only a “possible eventual right” to a refund of its
purchase proceeds from Aflalo in the event that Aflalo succeeds in
its wrongful foreclosure lawsuit.
Placer notes that Aflalo’s counsel initially “refused to
accept distribution” of surplus funds pending the outcome of the
foreclosure lawsuit. Six months later and after he retained new
counsel, Aflalo demanded payment of the surplus funds. To the
extent that Placer is asserting that Aflalo is estopped from
claiming his entitlement to the immediate disbursement of
surplus funds, we reject the argument. Regardless of whether
Aflalo initially requested that Placer hold the funds, he
subsequently requested the funds under section 2924k, and there
is no evidence that his earlier request to hold the funds caused
harm to Placer. (Contra, Schafer v. City of Los Angeles (2015)
237 Cal.App.4th 1250 [estoppel appropriate where a party led
another to do what it would not otherwise have done and as a
result suffered injury or grave injustice].)
Leave to Amend
Placer contends the trial court should have granted
leave to amend the interpleader complaint. We review the court’s
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decision to sustain a demurrer without leave to amend for abuse
of discretion. (Westamerica, supra, 201 Cal.App.4th at p. 613.)
There is no abuse of discretion because Placer does
not meet its burden to demonstrate a reasonable possibility that
the defect can be cured by amendment. (Blank v. Kirwan (1985)
39 Cal.3d 311, 318 (Blank).) “If the plaintiff does not proffer a
proposed amendment, and does not advance on appeal any
proposed allegations that will cure the defect or otherwise state a
claim, the burden of proof has not been satisfied.” (Westamerica,
supra, 201 Cal.App.4th at pp. 613-614.)
Placer has not stated any allegations or facts that
would cure the defect in the interpleader complaint. The trial
court did not abuse its discretion when it denied leave to amend.
(See Blank, supra, 39 Cal.3d at p. 318.)
Disbursement of Surplus Funds
On cross-appeal, Aflalo contends that the trial court
erred when it refused to release the interpleaded funds of
$974,786.81 to him. While the cross-appeal was pending, Pro
Value and Aflalo settled their dispute. Placer and Pro Value do
not object to the disbursement of funds to Aflalo. We therefore
direct the trial court to order the release of the interpleaded
funds to Aflalo.

Outcome: We affirm the judgment of dismissal. We remand to the trial court with direction to the trial court to release the interpleaded funds of $974,786.81 to Aflalo. The clerk of the trial court is directed to amend the May 3, 2016, judgment of dismissal accordingly. Aflalo is awarded costs on appeal.

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