California law: Quadri v. Sallie Mae Co.

David A. Szwak

California law: Quadri v. Sallie Mae Co.

Postby David A. Szwak » Sat Dec 03, 2005 11:06 am

Quadri v. Sallie Mae Co.,
Not Reported in Cal.Rptr.3d, 2004 WL 396877, Nonpublished/Noncitable, (Cal. Rules of Court, Rules 976, 977), Cal.App. 5 Dist., Mar 04, 2004

In this case, a pro. per. plaintiff-appellant alleges his guaranteed student loan was wrongfully declared in default by the company servicing the loan. The plaintiff filed a complaint against that company attempting to allege causes of action for breach of contract and a common count. The superior court sustained the defendant's first demurrer with leave to amend and sustained the second demurrer without leave to amend. The plaintiff appeals, contending his complaint and amendment stated causes of action or, alternatively, he should have been granted another opportunity to amend.
We conclude the plaintiff's complaint and amendment sufficiently allege the four elements necessary to state a cause of action for breach of contract and also state a claim for declaratory relief.
Accordingly, we reverse the judgment of dismissal and remand with instructions to the superior court to vacate that portion of its order granting the demurrer as to the breach of contract cause of action and to enter a new order directing the defendant to file an answer to the cause of action for breach of contract and declaratory relief.

This litigation began in August 2002 when Taofeek Quadri filed a complaint against ten Doe defendants and an entity he alleged was a corporation named Sallie Mae Company (Sallie Mae). Quadri used the Judicial Council form for a contract complaint and attached the Judicial Council forms for causes of action for breach of contract and common counts.
Under part BC-1 of the Judicial Council form for his breach of contract cause of action, Quadri alleged that in 2001 an agreement was made between himself and Sallie Mae, and in the space provided for the essential terms of the agreement he wrote "will be presented." The form contains three boxes used to indicate whether the contract was written, oral or other. Quadri marked all three of these boxes.
Under part BC-2, Quadri alleged that in 2002, the defendant breached the agreement by acts of "intentional deformation of character and deceit." Under part BC-3, Quadri alleged he performed all obligations to the defendant except those obligations he was prevented or excused from performing.
With respect to remedies, Quadri alleged he suffered damages caused by the breach in the form of "character deformated" and, under other relief, asserts he "is entitled to character restored." (Parts BC-4 and BC-6.)
On the Judicial Council form for his common count cause of action, Quadri alleged Sallie Mae became indebted to the United States Department of Education. Under part CC-1.b(6) of the form, Quadri marked the box labeled "other (specify)" and in the space provided wrote only, "school loan repayment." Quadri listed the amount due as $500,000, stated he was entitled to attorney fees if one was hired, and requested costs of suit.
On the Judicial Council form for the civil case cover sheet, Quadri indicated the remedies he sought were monetary and "nonmonetary; declaratory or injunctive relief."
*2 Sallie Mae Servicing, L.P., a Delaware limited partnership, [FN1] appeared in the matter and filed a demurrer to both causes of action contending, among other things, that they were uncertain and factually insufficient to state the intended cause of action.

FN1. This entity was formerly Sallie Mae Servicing Corporation, a Delaware corporation. Sallie Mae Servicing Corporation is the name used on a letter sent to Quadri and dated March 26, 2003, which letter he included
as exhibit F of his second proposed amendment filed after judgment was entered.

In response, Quadri filed papers that included his declaration in which he asserted (1) the defendant's acts were intentional, outrageous, malicious and caused him oppression, mental anguish and emotional physical distress and (2) he made several efforts to resolve the variance between himself and the defendant but the defendant showed no interest in resolving anything.
In its tentative written ruling, which it later adopted, the superior court observed that Quadri (1) had checked off boxes in the form complaint pertaining to an action based on contract, but did not state any facts upon which his cause of action was based and (2) failed to attach a copy of the contract to the complaint or plead its legal effect. As a result, the superior court sustained the demurrer with leave to file a first amended complaint. [FN2]

FN2. Code of Civil Procedure section 472a, subdivision (c) gives the superior court the discretion to require either (1) an amendment to the complaint or (2) an amended complaint. An amended complaint is a separate, self-contained document that contains all of the allegations the plaintiff wishes to pursue in the matter and does not refer back to, or incorporate, the original complaint.

Instead of filing a first amended complaint as directed by the superior court, Quadri filed an amendment that addressed parts BC-1, BC-2 and BC-4 of his breach of contract cause of action and paragraph b(6) of part CC-1 of his common count cause of action.
As introductory information, Quadri stated (1) he obtained a student loan from Manhattan Bank while a student at California State University, Stanislaus in the total amount of $17,639.47 and (2) Sallie Mae purchased the student loan contract from Manhattan Bank.
Quadri amended part BC-1 of his breach of contract cause of action by alleging Sallie Mae purchased his contract and advised him to forward his student loan repayment to it. Quadri also alleged Sallie Mae sent a booklet of monthly vouchers for $50 monthly payments despite his "request for monthly payment of about $280.00 for a quick payoff, instead the defendant Sallie Mae demanded total payment of $17,639.47 in full." [FN3] Quadri attached a copy of two coupons for the $50 monthly payment and a list he prepared showing eight figures totaling $2,281 that he alleged represented the payments [FN4] he made to Sallie Mae. The dates the payments were made are not given.

FN3. Quadri used all capital letters in his typewritten papers. For
purposes of this opinion, we have omitted the unnecessary capitalization when quoting his papers.

FN4. The column of payments listed the following amounts: $289, $284, $284, $284, $284, $288, $284 and $284.

In amending part BC-2 regarding the breach of contract, Quadri alleged in "2002 the defendant breached the agreement by intentional default of plaintiff student loan account for full payment from the California State Government, student loan guarantor despite receiving payments on the account from plaintiff."
In amending part BC-4 regarding damages, Quadri alleged the defendant's breach of the agreement negatively affected his credit history and caused him to be unable to finance personal necessities or get another student loan and that his search for a job was affected. Quadri described the negative effects as "character deformation and assassinated of credit history."
*3 In amending his common count cause of action, Quadri alleged that "within the last year, defendant intentionally deformated plaintiff character and intentionally assassinated years of plaintiff good credit history, preventing the plaintiff from gaining credible employment."
In response to the new allegations, Sallie Mae Servicing, L.P. filed its second demurrer in December 2002. Quadri filed papers opposing the demurrer.
On February 11, 2003, the superior court tentatively ruled it would sustain the demurrer without leave to amend. To explain its ruling, the superior court stated:
"Nowhere in the 'amendment' to the complaint does the Plaintiff deny that he is in default. Although the original complaint was labeled 'breach of contract', the type of damages the Plaintiff seeks indicates that the gravamen of his action is defamation. See original complaint on page 3 at ¶¶ BC-2 and BC-4. See 'amendment' at ¶¶ BC-4 and CC-1.
"But, no cause of action lies in tort for reporting the default to credit reporting agencies. See Civil Code § 1785.32 entitled Actions barred. As for any statutory cause of action based upon Civil Code § 1785.31, again the Plaintiff does not deny that he is in default. Hence, no cause of action can be stated pursuant to the Consumer Credit Reporting Agencies Act based upon the facts alleged.
"... It would appear that the Plaintiff has 'stated his case' as strongly as he can. Unless the Plaintiff can allege that he made all payments timely and that he is neither delinquent [n]or in default, leave to amend will be denied...."
On February 14, 2003, the superior court (1) adopted its tentative ruling as the order of the court, (2) sustained the general demurrer without leave to amend, and (3) directed the defendant to submit a proposed judgment dismissing the action.
On March 7, 2003, a judgment of dismissal was entered in favor of Sallie Mae Servicing, L.P.
Following the entry of the minute order sustaining the demurrer, Quadri filed a motion for reconsideration and other papers. Among those papers was a proposed second amendment in which Quadri specifically alleged (1) he timely made nine payments totaling $2,569 and was not in default and (2) Sallie Mae inaccurately reported these payments and informed him that its records showed he made only seven payments totaling $1,520.59.
Quadri's requests for reconsideration were denied and he filed a notice of appeal from the judgment.

I. Standard of Review
When a general demurrer is sustained without leave to amend, the appellate court conducts an independent review to determine whether, as a matter of law, the plaintiff has stated a cause of action under any possible legal theory. (McCall v. PacifiCare of Cal., Inc. (2001) 25 Cal.4th 412, 415; Aubry v. Tri-City Hospital Dist. (1992) 2 Cal.4th 962, 966-967.)
The reviewing court assumes the truth of (1) all facts properly pleaded by the plaintiff, (2) all facts that reasonably may be inferred from the expressly pleaded facts, (3) all facts contained in exhibits to the complaint, and (4) all facts that are properly the subject of judicial notice. (See Blank v. Kirwan (1985) 39 Cal.3d 311, 318; Satten v. Webb (2002) 99 Cal.App.4th 365, 375 [exhibits]; Rose v. Royal Ins. Co. (1991) 2 Cal.App.4th 709, 716 [inferences drawn from allegations]; Code Civ. Proc., §§ 430.30, 430 .70; Evid.Code, § 452.) The reviewing court does not assume the truth of contentions, deductions or conclusions of law. (Aubry v. Tri-City Hospital Dist., supra, 2 Cal.4th at pp. 966-967.)
*4 Under this standard of review, our inquiry ends and reversal is required once we determine the pleadings have stated a cause of action under any legal theory. (E.g., Genesis Environmental Services v. San Joaquin Valley Unified Air Pollution Control Dist. (2003) 113 Cal.App.4th 597 [judgment of dismissal reversed because complaint stated an equal protection claim].)
II. Potential Legal Theories
Legal theories suggested by Quadri's complaint and first amendment include (1) breach of contract, (2) declaratory relief pursuant to Code of Civil Procedure section 1060(3) defamation, (4) intentional or negligent interference with prospective economic relations, (5) intentional or negligent misrepresentation or deceit, (6) violation of Business and Professions Code section 17200, (7) violation of the federal Fair Credit Reporting Act, 15 United States Code section 1681, (8) violation of the statutory obligations imposed by Civil Code section 1785.25 upon furnishers of credit information to consumer credit reporting agencies and recovery under Civil Code section 1785.31, and (9) intentional infliction of emotional distress. [FN5]

FN5. Causes of action under the Truth in Lending Act, 15 United States Code section 1601 et seq., Regulation Z, 12 Code of Federal Regulations part 226.1 (2004), and the Fair Debt Collection Practices Act, 15 United States Code section 1692 et seq., are not likely because student loans are expressly exempted from the truth-in-lending requirements (see 15 U.S.C. § 1603(7); 12 C.F.R. § 226.3(f) (2004)) and the debt collection requirements do not apply if the debt was acquired when not in default (15 U.S.C. § 1692a(6)(F)).

A. Breach of Contract
To state a cause of action for breach of contract, a plaintiff must plead the following elements: (1) the existence of a contract between the parties; (2) the plaintiff's performance or excuse for nonperformance; (3) the defendant's failure to perform (breach); and (4) resulting damages. (Careau & Co. v. Security Pacific Business Credit, Inc. (1990) 222 Cal.App.3d 1371, 1388.) "[A] plaintiff is required only to set forth the essential facts of his case with reasonable precision and with particularity sufficient to acquaint a defendant with the nature, source and extent of his cause of action." (Youngman v. Nevada Irrigation Dist. (1969) 70 Cal.2d 240, 245.)
First, Quadri alleged in his amendment that he entered into a student loan with Manhattan Bank and that Sallie Mae purchased the loan from Manhattan Bank. These allegations satisfy the first element regarding the existence of a contract between the plaintiff and defendant.
Second, pursuant to part BC-3 of his complaint, Quadri alleged he performed all obligations to the defendant except those obligations he was prevented or excused from performing. This allegation of ultimate fact satisfies the second element of a breach of contract cause of action. "A cardinal rule of pleading is that only the ultimate facts need be alleged." (Ludgate Ins. Co. v. Lockheed Martin Corp. (2000) 82 Cal.App.4th 592, 606.)
Quadri's allegation that he performed his obligations is sufficient to apprise Sallie Mae that Quadri contends he was not in default of the student loan. Quadri need not make a redundant, more specific allegation that he is not in default of his payment obligations arising under the student loan.
Third, Quadri alleged in his amendment that in 2002 Sallie Mae breached the agreement by intentionally defaulting his student loan despite receiving payments on the loan from him. This allegation that Sallie Mae intentionally put the loan into default, when combined with the allegation that Quadri performed his obligations, is sufficient to state a breach and, therefore, satisfies the third element.
*5 Fourth, Quadri prayed for damages in the amount of $500,000 and alleged that the breach has caused him consequential damages because of difficulty in getting credit and employment. Quadri also alleged he was entitled to have his character restored and indicated on the civil case cover sheet that, in addition to monetary damages, he sought "nonmonetary; declaratory or injunctive relief."
Whether Quadri will be able to prove the special damages he alleges meet the standards for recovery applicable to consequential damages arising from a breach of contract [FN6] is not presently before us. [FN7] We need only decide if he has met the pleading requirements related to a type of damage that might be recoverable in a breach of contract cause of action. According to a leading commentator:

FN6. " 'Contract damages are generally limited to those within the contemplation of the parties when the contract was entered into or at least reasonably foreseeable by them at that time; consequential damages beyond the expectation of the parties are not recoverable. [Citations.] This limitation on available damages serves to encourage contractual relations and commercial activity by enabling parties to estimate in advance the financial risks of their enterprise.' " (Erlich v. Menezes (1999) 21
Cal.4th 543, 550; see Civ.Code, §§ 3300, 3301.)

FN7. The defendant's appellate brief does not analyze the sufficiency of the allegations regarding this particular element of a breach of contract claim. (See Sweet v. Johnson (1959) 169 Cal.App.2d 630, 632- 633; Civ.Code, § 3360.)

"[I]f the plaintiff seeks damages, the prayer should demand a particular sum. [Citation.] This is enough where general damages (losses that necessarily or usually result from the acts alleged) are sought. The statement of the cause of action for the injury sufficiently informs the defendant that damages of this kind resulted, and there is no necessity for an allegation that they did result. Accordingly, general damages may be proved at the trial and recovered under a complaint that merely alleges a cause of action for a particular injury or wrong, and prays for damages in a certain amount." (5 Witkin, Cal. Procedure (4th ed. 1997) Pleading, § 887, p. 346.)
In accordance with the foregoing requirements, Quadri's prayer included a request for a particular sum. Furthermore, he alleged that the loan was put in default and full payment made by the guarantor. The usual result of collecting the full amount of the loan from a guarantor is that the borrower is then liable to the guarantor for the full amount paid by the guarantor plus whatever transaction costs were incurred by the guarantor and added to the borrower's liability under the terms of the guarantee. Therefore, Quadri's allegations sufficiently raise the prospect of general damages and, under the above-quoted standards, we conclude Quadri has satisfied the fourth and final element necessary to state a cause of action for breach of contract.
B. Declaratory Relief
Code of Civil Procedure section 1060 [FN8] sets forth the requirements for obtaining declaratory relief, which are more easily met than the requirements for a breach of contract cause of action. The three pleading and proof prerequisites are (1) an actual present controversy between the parties, (2) a controversy relating to one or more terms of a legal writing, and (3) a controversy that is capable of full and final adjudication by the court.

FN8. This section provides in part: "Any person interested ... under a contract, or who desires a declaration of his or her rights or duties with respect to another, or in respect to, in, over or upon property, ... may, in cases of actual controversy relating to the legal rights and duties of the respective parties, bring an original action or cross-complaint in the superior court for a declaration of his or her rights and duties in the premises, including a determination of any question of construction or validity arising under the instrument or contract. He or she may ask for a
declaration of rights or duties, either alone or with other relief; and the court may make a binding declaration of these rights or duties, whether or not further relief is or could be claimed at the time. The declaration may be either affirmative or negative in form and effect, and the declaration shall have the force of a final judgment. The declaration may be had before there has been any breach of the obligation in respect to which said declaration is sought."

Generally, a complaint should be labeled to show that it is seeking a declaratory judgment, but "a declaration of rights will be upheld if the complaint states sufficient facts even though the pleader did not think he was proceeding under C.C.P. 1060 and did not appropriately label his complaint." (5 Witkin, Cal. Procedure, supra, Pleading, § 810, p. 265.) Accordingly, while Quadri has not labeled his complaint as one for declaratory relief, we will consider whether or not his allegations satisfy the three pleading requirements.
*6 First, Quadri is financially interested in his student loan and is involved in a controversy with Sallie Mae Servicing, L.P. about the payments he actually made on his student loan.
Second, this controversy relates to the terms of his student loan. Quadri has alleged that the terms of the student loan contract are, at least in part, in writing.
Third, the controversy regarding the stream of payments actually made by Quadri is capable of full and final adjudication. When evidence is presented, the superior court will be able to resolve what payments were made and how those payments should have been accounted for under the terms of the student loan.
Consequently, we conclude Quadri has stated sufficient facts to proceed with such an action and obtain a declaration of rights with respect to (1) Sallie Mae's receipt of a particular stream of payments from him, (2) his compliance with the terms of his student loan, (3) the amount of his outstanding obligation under the student loan, or (4) all or some of the foregoing. For example, even if Quadri were in default of the loan, he still is entitled to have the payments he made correctly accounted for by the loan servicer, whether or not the loan servicer owns the loan or is acting as the agent for the owner.
Accordingly, the complaint and amendment have stated a cause of action for declaratory relief.
C. Common Count
The allegations made in Quadri's common count do not appear to state a cause of action. On one hand, Quadri seems to be alleging that Sallie Mae deceived the guarantor, received full payment under the guarantee, and therefore is indebted to Quadri.
In reviewing the types of common counts generally recognized, the most likely theory to fit these allegations appears to be "money had and received." [FN9] However, that legal theory of recovery does not fit the allegations because it does not appear that Sallie Mae appropriated money due to Quadri, but appropriated money from the guarantor.

FN9. See generally 4 Witkin, California Procedure (4th ed. 1997) Pleading, section 522, pages 611-613 (discussing the common count for money had and received).

Because Quadri does not request that the guarantor be repaid, we do not interpret his common count allegations as brought on behalf of the taxpayers to recover money obtained by the loan servicer or one of the Doe defendants by defrauding the government.
Accordingly, the demurrer regarding the common count cause of action was sustained on appropriate grounds. Furthermore, because Quadri's complaint, as amended, states valid causes of action, we need not decide if the common count allegations can be amended to state a recognizable cause of action.
III. Additional Grounds for Affirmance Raised by the Defendant
A. Insufficiency of Appellate Record
Sallie Mae Servicing, L.P. argues that Quadri did not designate an adequate record on appeal to show that reversible error occurred. However, under our discretionary authority contained in California Rules of Court, rule 12(a)(1), we ordered the record to be augmented to include the documents necessary to adequately review this appeal, such as the original complaint, the demurrers, Quadri's first amendment and other documents.
*7 As augmented, the appellate record shows reversible error and, thus, this argument is without merit.
B. Appropriate Entity As Defendant
Of the many subsidiaries of SLM Corporation, the entity that chose to respond to the complaint against "Sallie Mae Company" was Sallie Mae Servicing, L.P. In its demurrer, Sallie Mae Servicing, L.P. goes outside the pleadings and asserts that it "never had a contractual relationship with Plaintiff." From this factual assertion, the demurrer contends a misjoinder of parties is apparent on the face of the complaint.
We reject these arguments as a basis for upholding the judgment of dismissal because they are outside the scope of matters appropriately raised by demurrer. Quadri has alleged that "Sallie Mae Company" purchased his loan and he included ten Doe defendants in his original complaint. Matters concerning the proper names of the defendants and whether (1) Sallie Mae Servicing, L.P. is the actual owner of the student loan, (2) the loan is owned by another affiliated entity, or (3) Sallie Mae Servicing, L.P. is servicing the loan for an unrelated third party are issues that should be addressed later in the proceeding after Quadri has had an opportunity to conduct discovery regarding the various entities that may have a connection to his student loan. Then, as appropriate, he may choose to name those entities as additional defendants using a Doe amendment procedure. (See Code Civ. Proc., § 474 [addressing Doe pleading when a plaintiff is "ignorant of the name of a defendant"].)
Furthermore, if Sallie Mae Servicing, L.P. is only the servicer of the student loan and does not own the loan, it still may be subject to declaratory relief concerning the stream of payments it received and the correct accounting for those payments.
C. Special Demurrer Regarding Whether the Contract Is Written or Oral
The demurrer of Sallie Mae Servicing, L.P. asserted that because Quadri marked all three boxes addressing whether the agreement was written, oral or other, it was the equivalent of saying none of the above.
We reject this argument because these allegations, when given the required liberal construction, [FN10] mean that a part of the agreement is alleged to be written, a part is oral and other parts may be implied by conduct or implied by law.

FN10. City of Pomona v. Superior Court (2001) 89 Cal.App.4th 793, 800.

The purpose underlying this particular pleading requirement relates to possible defenses involving either the statute of limitations or the statute of frauds. (Weil & Brown, Cal. Practice Guide: Civil Procedure Before Trial (The Rutter Group 2003) ¶¶ 7:90 to 7:91, p. 7-36 (rev.# 1, 2002).) In this case, the difference between the two-year statute of limitations applicable to oral contracts and the four-year statute of limitations applicable to written contracts is not significant because the complaint was filed in August 2002 and the alleged breach occurred in 2002. In addition, a breach of contract for failure to properly account for loan payments actually made does not appear to be subject to a statute of frauds defense and the defendant has cited no authority for such a proposition. Thus, the allegations made are adequate.
IV. Quadri's Request for Judicial Notice of Proposed Second Amendment
*8 On September 4, 2003, Quadri filed a request for judicial notice of a proposed amendment and related points and authorities. In an order filed September 22, 2003, this court deferred ruling on that request pending consideration of the merits of the appeal.
Judicial notice may be taken only if authorized or required by law. (Evid.Code, § 450.) Quadri has not cited any provision from the applicable statutes that would permit this court to take judicial notice of his second proposed amendment. (See Evid.Code, § 459 [judicial notice by an appellate court].) Furthermore, none of the provisions in the Evidence Code concerning judicial notice appear to authorize judicial notice of a proposed pleading. (See Evid.Code, §§ 451, 452.)
Accordingly, Quadri's request for judicial notice is denied.
V. Costs Award
Quadri is entitled to recover his costs on appeal. If the matter of costs is raised below, the superior court shall decide if the defendant should reimburse costs on appeal that did not come directly from Quadri's pocket to the entity that incurred those costs.

The judgment of dismissal is reversed and the matter remanded to the superior court with instructions to vacate its prior order sustaining the demurrer and to issue a new order (1) sustaining the demurrer as to the common count cause of action, (2) denying the demurrer as to the breach of contract cause of action, and (3) directing the defendant to file an answer to the causes of action stated for breach of contract and declaratory relief. The defendant is responsible for costs on appeal.
Cal.App. 5 Dist.,2004.
Quadri v. Sallie Mae Co.
Not Reported in Cal.Rptr.3d, 2004 WL 396877 (Cal.App. 5 Dist.) Not Officially Published, (Cal. Rules of Court, Rules 976, 977)

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