Tentative Rulings

1. SCV-247315, Mosier v. Kings River Resorts
Plaintiffs Richard J. Abel, Henry T. Crigler, Carl E. Barnes and Dolores M. Abel move for summary judgment of the first amended cross-complaint.

Plaintiffs, a number of individuals and trusts allegedly including several statutory “elders” over the age of 65, seek to recover damages resulting from their agreement to lend money to Defendant King’s River Resort, Inc. (KRR) for improvement and refinancing of an RV resort (the Resort) at 39700 Rd 28, Kingsburg, California (the Property). They assert that Defendants Alan Degenhardt (Degenhardt) and Robert Zuckerman (Zuckerman) “headed” the Resort, Defendants Charlene Goodrich (Goodrich) and Jeanne Triacca (Triacca) brokered the transaction and provided loan servicing, Defendant Leland Hill (Hill) performed the appraisal of the Property at the direction of Goodrich and Triacca (collectively, the Brokers), and Defendant Hasz Fund Control, Inc. (Hasz) was entrusted with the money for distribution.

Apparently, Plaintiffs loaned money initially for improvement on the Property, secured with a first deed of trust, but then Defendants persuaded Plaintiffs to provide additional financing, with Plaintiffs being placed into a subordinate second position. Plaintiffs agreed on several conditions, including a partial payment of the original loan and distribution of $1.1 million to a third party to ensure Resort would use the money for physical improvements on the Property. Plaintiffs assert that some money was improperly distributed, including payments to the new senior-position lender, D&A Intermediate-Term Mortgage Fund III (D&A).

Defendant Resort apparently defaulted and Plaintiffs wanted to foreclose. Another Defendant, George Adair (Adair), who was involved in some manner managing the funds, believed that D&A breached the “subordination Agreement” which was claimed to be part of the transaction by which Plaintiffs were put into the junior lending position. Therefore, Adair asserted, the “local investor group,” which appears to reference Plaintiffs, should go back into first position. He therefore, without authorization from Plaintiffs, directed PLM Lender Services, not a party, to record a notice of default naming Plaintiffs as the senior lenders in first position. The result was that D&A filed a lawsuit for damages against Plaintiffs, seeking to quiet title and recover damages.
Plaintiffs complain that Defendants intentionally engaged in a conspiracy to defraud Plaintiffs into lending the money, totaling over $3 million, in order to generate income for themselves and with no intent to pay back the money. Defendants allegedly falsely represented or concealed material facts about the Property and Resort, failed to inform Plaintiffs that Resort had just emerged from bankruptcy, and provided a “severely inflated” appraisal that was not based on “applicable standards” or “reflect the true market value” of the Property.

Defendants Goodrich and Triacca filed a cross-complaint against Plaintiffs Abel, Barnes & Crigler (the ABC Plaintiffs) and various other Cross-Defendants on May 18, 2012. They filed a first amended cross-complaint (FACC) on July 18 2012 and a first amendment to it on August 22, 2012. The FACC alleges that the Cross-Defendants have breached a hold-harmless/indemnity agreement (the Indemnity Agreement) in to which they entered with Goodrich and Triacca on January 28, 2008. This was asserted to be in connection with the modification of the note and deed, by which they agreed to let their note and deed be placed in second position behind a new note and deed in return for payment of part of the debt to them. According to Goodrich and Triacca, the Indemnity Agreement covers all of the investors’ and Cross-Defendants’ claims “and expense of any nature … arising from or relating to the modification of the existing promissory note and deed of trust ….” FACC, ¶ 9. They contend that had the Cross-Defendants not agreed to the modification and subordination, then they would not have suffered any damages. FACC, ¶¶ 9-12.

Abel, Barnes & Crigler move for summary judgment against the FACC. They argue that the Indemnity Agreement upon which the cross-complaint is based has already been established to be against public policy and unenforceable and the Indemnity Agreement only bars any claims “arising out of” the Modification Agreement, and does not apply to claims arising out of the original loan transaction, or based on alleged wrongdoing regarding that transaction.

Plaintiffs seek judicial notice of court documents, including a cease-and-desist order, declarations filed by Hill in this action, and the FAC. The court cannot judicially notice the truth of the assertions therein, but it may judicially notice the documents and that they say what they say. On this basis, the court grants this request for judicial notice.

The motion for summary judgment is granted.

Plaintiffs first contend that the Indemnity Agreement is void and unenforceable, with respect to Plaintiffs’ claims, as a matter of public policy pursuant to Civ. Code § 1668. This section provides as follows: “[a]ll contracts which have for their object, directly or indirectly, to exempt anyone from responsibility for his own fraud, or willful injury to the person or property of another, or violation of law, whether willful or negligent, are against the policy of the law.” Thus, under this statute, “a party may not contract away liability for fraudulent or intentional acts or for negligent violations of statutory law. On the other hand, ‘“a contract exempting from liability for ordinary negligence is valid where no public interest is involved ... and no statute expressly prohibits it ....” [Citation.]’ [Citations.]” Blankenheim v. E. F. Hutton & Co. (1990) 217 Cal.App.3d 1463, 1471-1472. The Blankenheim court ruled that a broker’s hold-harmless agreement into which investors had entered was void and unenforceable as a matter of law with respect to both intentional fraud and negligent misrepresentation and negligent violations of statutory law, distinguishing the latter forms of negligence from ordinary negligence.

Mortgage brokers must comply with state statutes governing their industry and profession, which impose, inter alia, duties to make full and accurate disclosures and fiduciary duties of undivided service and loyalty to their principals. Wyatt v. Union Mortgage Co. (1979) 24 Cal.3d 773, 782.

As against Defendants Goodrich and Triacca, Plaintiffs assert causes of action for violating California law on securities, fraud, breach of fiduciary duty, negligent misrepresentation and negligence, conspiracy to defraud, and elder abuse. The causes of action involved are in substance those addressed by the Blankenheim court. In addition, Plaintiffs’ allegations, as supported in this motion, generally demonstrate that the actual events at issue, and on which they are basing their causes of action, include misrepresentation or concealment, misrepresentation regarding the identity of the party obtaining the loan and the exact nature and circumstances of the transaction, as well as regarding conflicting appraisals of which Goodrich and Triacca were aware but which they did not disclose to Plaintiffs; misrepresentation of the alleged requirement to agree to the Modification; pressure on Plaintiffs to agree to the Modification; failure to comply with their promise or obligation to verify credit, obtain credit reports, or obtain personal guaranties as promised. See, e.g., Facts 5-22, 28-31, 33-46, 49, 51-57, 73-97.

Plaintiffs next contend that the Indemnification Agreement is invalid as a matter of law because such agreements are invalid if covering violations of securities laws and because Goodrich and Triacca are trying to use the agreement here in connection with, and to shield themselves from liability for, the Modification which breaches state law.

Corp. Code § 25019 appears to include the instrument here in the definition of “security.” It defines “security” and sets forth a long list of items that are “security” as well as exceptions or exemptions. It states that “security” means, inter alia, “any note” or “evidence of indebtedness.” Thus, the term “security” includes a mortgage or deed of trust. People v. Schock (1984) 152 Cal.App.3d 379, 390; Eberhard v. Pacific Southwest Loan & Mortgage Corp. (1932) 215 Cal. 226; 24 Op.Atty.Gen. 60. “Security” also includes fractional interests in any promissory note secured with a deed of trust. People v. Schock, supra. According to 10 California Administrative Code section 260.115, Goodrich and Triacca seem to have been the “issuer” of the notes. It states, in full,

“A licensed real estate broker, a licensed finance lender, or licensed industrial loan company who engages in the offer and sale of notes secured by real property of various makers, which are a series of notes or notes in which undivided interests are offered and sold, is the issuer of such notes and undivided interests if the notes of the various makers are offered and sold pursuant to a plan or arrangement which is common as to the various makers with respect to documentation and loan standards and which includes provisions for servicing such notes on behalf of the purchasers.”

 

Corp. Code § 25120 makes it illegal to offer or sell various securities in a manner that involves a change in the rights, preferences, privileges or restrictions of outstanding securities, exchange of securities between the issuer and holders solely, in an exchange with a merger or consolidation or purchase of assets in consideration of the securities, or an in entity conversion, unless the transaction meets the requirements set forth in subdivision (b). Subdivision (b) states, in full,

“Subdivision (a) shall not apply to a security if the security is qualified for sale under this chapter (and no order under Section 25140 or subdivision (a) of Section 25143 is in effect with respect to the qualification) or if the security or transaction is exempted or not subject to qualification under Chapter 1 (commencing with Section 25100) of this part.”

Section 25100 lists the securities that are exempt from section 25120 and none covers the instrument at issue here. Section 25121 sets forth the chapter’s method of qualification, by permit. It states, in full and with emphasis added,

“The securities qualified for sale under this chapter shall be qualified by permit under this section. The application for the permit shall be signed and verified by the issuer and shall contain such information and be accompanied by such documents as shall be required by rule of the commissioner, in addition to the information specified in Section 25160 and the consent to service of process required by Section 25165. For this purpose, the commissioner may classify issuers and types of securities and transactions.”

Plaintiffs show that Goodrich and Triacca violated these laws at least by offering and effecting the modification without obtaining a permit and they also show that the Defendants never obtained a permit. Facts 83, 89, 97. As noted above, the Modification appears to have required a permit as the transaction falls within the definition of “security,” and it appears to be one of the types of transactions set forth in Corp. Code § 25120 which is illegal without a permit. The result is that again the Indemnification Agreement appears to run afoul of Civ. Code § 1668, discussed above.

Plaintiffs also argue that the Indemnity Agreement is unenforceable here because it would be unconscionable. The court determines that this argument is here applicable and supports separately a basis for granting this motion. Under Civ. Code § 1670.5, the court may refuse to enforce an unconscionable contract or clause. “Unconscionability” requires both procedural and substantive unconscionability. See Lagatree v. Luce, Forward, Hamilton & Scripps (1999) 74 Cal.App.4th 1105; see also 6 Witkin, Cal. Proc. (5th Ed. 2008) Proceedings Without Trial, section 538. Unconscionability is generally recognized as including “an absence of meaningful choice on the part of one of the parties together with contract terms which are unreasonably favorable to the other party.” A&M Produce Co. v. FMC Corp. (1982) 135 Cal.App.3d 473, 486. Thus, procedural unconscionability exists when the contract is one of adhesion, when unequal bargaining power or surprise prevents real bargaining or informed assent, while substantive unconscionability is present when the terms are one-sided or oppressive. See Stirlen v. Supercuts (1997) 51 Cal.App.4th 1519, 1530; see also 1 Witkin, Summary of Cal. Law (9th Ed.1988) Contracts, section 34.

In this instance, Plaintiffs allege and show that Goodrich and Triacca had fiduciary duties to Plaintiffs, were in a superior bargaining position, had greater knowledge and apparently were aware of the fact, used their position and knowledge, combined with misrepresentation, to fraudulently persuade, or even pressure, Plaintiffs into entering into the Modification. For instance, they told Plaintiffs that if Plaintiffs did not agree, they would resign as loan servicers, leaving Plaintiffs, all or mostly elderly, in the lurch, and they falsely told Plaintiffs that Plaintiffs were required to agree to the Modification under the majority rule clause of Civ. Code § 2941.9, which actually only applies to defaults and foreclosures.

Finally, Plaintiffs argue that their claims do not even fall within the agreement’s scope. As discussed above, Plaintiffs’ claims are not “arising out of” the Modification itself but are instead based on the entire history of alleged fraud, violations of applicable statutes, and other such alleged conduct from the very start of the loan transaction, before the Modification arose. This provides another basis upon which to grant the summary judgment motion.

Plaintiffs’ motion for summary judgment is granted.

2. SCV-249507, Reeves v. Carriage, Inc.
Plaintiffs Catherine Reeves and John Reeves move pursuant to CCP § 473(b) to reopen the case; i.e., for relief from the dismissal of the entire action without prejudice that was entered on February 7, 2013.

CCP § 473(b) mandates setting aside a dismissal where an application for relief is based on an “attorney affidavit of fault” ... “attesting to his or her mistake, inadvertence, surprise or neglect.” (CCP § 473(b).) Attorney Michael Devlin has provided his sworn statement that he intended to appear at the hearing on the OSC RE Dismissal in order to inform the court of a disagreement between the parties regarding the interpretation of the parties’ settlement agreement. Mr. Devlin set up an appearance via CourtCall and sent opposing counsel notice of his Request for CourtCall Telephonic Appearance. (Devlin dec., ¶ 17, Ex. D.) Mr. Devlin’s colleague, Mr. Cline planned to appear on Mr. Devlin’s behalf. (Id. at 18.) However, Mr. Devlin failed to inform the court of his planned appearance. As Mr. Devlin has provided evidence of his attempt to make an appearance and his mistake or neglect in carrying that out, the court will set aside and vacate the dismissal entered on February 7, 2013.

Plaintiff’s counsel is to draft an order for the court’s signature.

3. SCV-251896, Perez v. Avalon Health Care, Inc.
CONTINUED to 6/26/13, 3:00 p.m., per stipulation and order.

4. SCV-252523, Brown v. Bank of America
Motion to set aside default is granted.

CCP § 473(b) states that “the court shall, whenever an application for relief is made no more than six months after entry of judgment, is in proper form, and is accompanied by an attorney’s sworn affidavit attesting to his or her mistake, inadvertence, or neglect, vacate” any resulting default or, default judgment, or dismissal. The provision is mandatory (under most circumstances not here applicable) “unless the court finds that the default or dismissal was not in fact caused by the attorney’s mistake, inadvertence, surprise, or neglect.” The attorney’s neglect, as the statute indicates, need not be excusable. Billings v. Health Plan of America (1990) 225 Cal.App.3d 250, 256.

Movant argues, and supports, that its attorney determined that service was improper and thus “did not file a responsive pleading to the complaint.” Hou Dec., ¶ 4.

There is no request for imposition of costs or other reasonable expenses. As such, none are ordered although otherwise required by statute.