Elyaszadeh v. RREF WB Acquisitions
Filed 12/6/13 Elyaszadeh v. RREF WB Acquisitions CA2/5
California Rules of Court, rule 8.1115(a), prohibits courts
and parties from citing or relying on opinions not certified for publication or
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publication or ordered published for purposes of rule 8.1115
IN
THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND
APPELLATE DISTRICT
DIVISION
FIVE
SHAHRAM ELYASZADEH et al.,
Cross-complainants and Appellants,
v.
RREF WB ACQUISITIONS, LLC,
Cross-defendant and Respondent.
B243477
(Los Angeles
County Super.
Ct.
No. BC468648)
APPEAL from
a judgment of the Superior Court
of
County, Richard E. Rico, Judge. Reversed and remanded.
Kaplan,
Kanegos & Kadin, David Scott Kadin and Leslie McAfee for Cross-complainants
and Appellants.
Greenberg
Traurig LLP, Howard J. Steinberg and Nicholas A. Insogna for Cross-defendant
and Respondent.
__________________________________
Cross-complainants
and appellants Shahram Elyaszadeh, Elko Mall, LLC, and Malibu Ocean View
Villas, LLC, appeal from a judgment of
dismissal following an order sustaining a demurrer without leave to amend
in favor of cross-defendant and respondent RREF WB Acquisitions, LLC, in this
action arising out of loan guarantees. Appellants
contend their amended cross-complaint states a cause of action for
recent decision in Riverisland Cold
Storage, Inc. v. Fresno-Madera Production Credit Assn. (2013) 55 Cal.4th
1169 (Riverisland). We conclude the principles expressed in
proceedings.
FACTS
Elyaszadeh owns property in Van Nuys, California. He is also the managing member of Elko LLC,
which owns real property in Elko, Nevada, and of Malibu LLC, which
owns real property in Malibu, California.
On August
22, 2007, Wilshire State Bank agreed to loan $4.3 million to Malibu LLC for the
development of four ocean view homes.
The loan was secured by a deed of trust on the Malibu property. Elyaszadeh also executed a guaranty.
In June 2009, prior to the date that
the loan was due, Elyaszadeh negotiated an extension and construction financing
with the Bank’s chief financial officer, Joanne Kim. Kim, as well as Dan Young, a construction loan
department representative, and other loan officers and loan processors, told
Elyaszadeh that the Bank would extend the due date and provide construction
financing of at least $4.6 million in exchange for additional collateral. In reliance on the Bank’s representations
that it would provide construction financing, Elyaszadeh provided a second deed
of trust on the Elko property for $4.3 million, a deed of trust on the property
in Van Nuys, and another guaranty.
At the same time, the Bank provided
a loan of $3 million to Elko LLC, secured by a first deed of trust on the Elko
property. Kim presented Elyaszadeh with
a “Notice of Final Agreement,†dated June 22, 2009. Kim told Elyaszadeh that the Bank would make
the construction loan. She said the loan
documents, including the notice of final agreement, reflected that the Bank
would make the construction loan. In
reliance on her representations, Elyaszadeh signed the deeds of trust,
guarantees, loan documents, and notice of final agreement. As part of the agreement, the Bank agreed to
hold $300,000 in interest reserves.
The representations made on behalf
of the Bank were false. The Bank did not
intend to provide construction financing and refused to provide construction
financing. The Bank took the interest
reserves and commenced foreclosure proceedings on the Elko and Malibu
properties. On June 27, 2011, the Bank
assigned its interest in the loans, guarantees, and deeds of trust to RREF.
PROCEDURAL
BACKGROUND
In August 2011, RREF filed a
complaint against Elyaszadeh to recover on the guarantees. In October 2011, Elyaszadeh, Elko LLC, and
Malibu LLC filed a cross-complaint against RREF and the Bank. In December 2011, they filed an amended
cross-complaint. In addition to the
facts above, they alleged that they were fraudulently induced to enter the
transactions. If they had known the Bank
did not intend to provide construction financing, they would not have provided
additional collateral as security. The
amended cross-complaint alleged that RREF assumed the Bank’s liabilities
related to the loans as follows:
“Cross-Complainants are informed and believe, and on those grounds
allege, that Cross-Defendant RREF is an assignee and/or successor-in-interest
of the Bank in connection with the transactions involving the Bank which are
alleged in this Cross-Complaint, including, but not limited to, the deeds of
trust which are the subject of the within action and that Defendant RREF
assumed, either contractually and/or by operation of law, the obligations of
the Bank to Plaintiff which are alleged in the within action, and that RREF is
liable for the acts and/or omissions alleged in this action.†The amended cross-complaint similarly alleged
the Bank assigned its rights and obligations in the deeds of trust on the
Malibu and Elko properties to RREF in June 2011, as well as the guarantees, and
based on information and belief, RREF assumed the liabilities of the Bank when it
acquired its interest in the Malibu loan.
The amended cross-complaint asserted
causes of action against RREF for declaratory relief, to set aside a fraudulent
transfer, for cancellation of deeds of trust, and for injunctive relief to
prevent foreclosure of the three properties at issue.
On January 25, 2012, RREF filed a
demurrer to the amended cross-complaint on the ground that all of the causes of
action were barred by the parol evidence rule.
The extrinsic promise to provide construction financing directly
contradicted the express terms of the agreements saying the Bank had not made
any collateral promises. RREF noted the
parol evidence rule applies to fraud claims.
RREF argued the causes of action for declaratory relief, cancellation of
documents, and to enjoin foreclosure were remedies and not separate causes of
action. In addition, Elyaszadeh had not
alleged any representations were made on behalf of RREF. RREF asserted it could not be held
vicariously liable for representations of the Bank, because the purchaser of a
mortgage is not liable for a loan originator’s fraudulent
misrepresentation. With respect to the
cause of action for fraudulent transfer, RREF argued that Elyaszadeh received
valuable consideration, as shown by the allegations of the cross-complaint, and
only creditors can assert claims for fraudulent transfers.
Elyaszadeh, Elko LLC, and Malibu LLC
opposed the demurrer on the ground that the amended cross-complaint stated a
cause of action for fraud in the inducement, which was an exception to the
parol evidence rule. They argued that by
accepting the benefits of the loan, RREF accepted the obligations.
RREF filed a reply. A hearing was held on February 22, 2012. The trial court found the parol evidence rule
barred the causes of action in the amended cross-complaint, which were based on
fraudulent promises in direct conflict with the written terms of the
agreements. The court sustained the
demurrer without leave to amend. On June
15, 2012, the court entered a judgment of dismissal in favor of RREF. Elyaszadeh, Elko LLC, and Malibu LLC filed a
timely notice of appeal.
In January 2013, the Supreme Court
issued Riverisland, reaffirming that
evidence of a fraudulent promise which contradicts the terms of a written
agreement is admissible under the fraud exception to the parol evidence rule,
and expressly overruling
(1935) 4 Cal.2d 258 (Pendergrass). (Riverisland,
supra, 55 Cal.4th at p. 1172.)
DISCUSSION
Standard of Review
“‘On appeal from a judgment
dismissing an action after sustaining a demurrer without leave to amend, the
settled. The reviewing court gives the
complaint a reasonable interpretation, and treats the demurrer
as admitting all material facts properly pleaded. [Citations.]
The court does not, however, assume the truth of contentions, deductions
or conclusions of law. [Citation.] The judgment must be affirmed “if any one of
the several grounds of demurrer is well taken. [Citations.]â€
[Citation.] However, it is error
for a trial court to sustain a demurrer when the
plaintiff has stated a cause of action under any possible legal theory. [Citation.]
And it is an abuse of discretion to sustain a demurrer
without leave to amend if the plaintiff shows there is a reasonable possibility
any defect identified by the defendant can be cured by amendment. [Citation.]’ [Citation.]â€
(McAllister v. Los Angeles Unified
School Dist. (2013) 216 Cal.App.4th 1198, 1206.)
Fraud
On appeal, Elyaszadeh, Elko LLC, and
Malibu LLC contend the amended cross-complaint states causes of action against
RREF based on fraud. We agree.
The elements of fraud are: (a) a
misrepresentation (false representation, concealment, or nondisclosure), (b) with knowledge of falsity, (c) the intent to defraud, (d) justifiable reliance, and (e) resulting damage. (Lazar v. Superior Court (1996) 12
Cal.4th 631, 638.) “Every element of the
fraud cause of action must be pleaded specifically, and the policy of liberal
construction of the pleadings will not sustain a defective pleading. [Citation.]â€
(Thrifty Payless, Inc. v. The Americana at Brand, LLC (2013) 218
Cal.App.4th 1230, 1239 (Thrifty Payless).)
leave no room for a reasonable difference of opinion, the question of whether a
plaintiff’s reliance is reasonable is a question of fact.â€â€™ [Citation.]â€
(Ibid.) “A defrauded party may elect to stand on the
contract and recover damages, or rescind the contract. [Citation.]â€
(Id. at pp. 1239-1240.)
“The
parol evidence [rule] provides that an integrated written agreement may not be
varied by extrinsic evidence to alter or add to the terms of the writing. [Citation.]â€
(Thrifty Payless,
parol evidence rule, set forth in Code of Civil Procedure section 1856, allows
a party to present extrinsic evidence to show that the agreement was procured
by fraud. (Code Civ. Proc., § 1856, subds.
(f) & (g); Riverisland, supra, 55 Cal.4th at
pp. 1174-1175.) Code
of Civil Procedure section 1856, subdivision (f), provides a broad exception to
the parol evidence rule for evidence relevant to the validity of the agreement,
while Code of Civil Procedure section 1856, subdivision (g), expressly allows
evidence of fraud. (Riverisland,
supra, at pp. 1174-1175.)
“Riverisland
reaffirmed
that ‘“[i]t was never
intended that the
parol evidence rule
should be used
as a shield
(Riverisland,
[supra, 55 Cal.4th] at p. 1182.)†(Thrifty
Payless, supra, 218 Cal.App.4th at p. 1240.) Pendergrass had
held that representations inconsistent with the provisions of the written
contract are inadmissible. The
decision in Pendergrass was not supported by the plain language of Code
of Civil Procedure section 1856 and “failed
that fraud undermines
the essential validity
of the parties’
agreement.
be maintained that
the parties freely
entered into an
agreement reflecting
at p. 1182.) “Thus, characterizing Pendergrass
as ‘an aberration,’ that ‘finds no
parol evidence rule
and the exception
for evidence of
fraud,’ the Supreme Court overruled Pendergrass. (Riverisland,
at pp. 1172, 1182.)†(
“As a general rule a decision of a
court overruling a prior decision or invalidating a
statute will be given full retroactive effect. [Citation.]
However, there are exceptions to the general rule of retroactivity
to protect those who acted in reliance on the overruled
law. The United States Supreme Court has
held a state may make a choice for itself between the principles of forward
operation and relation back on the grounds of equity and fairness. The federal Constitution does not compel
[Citations.] Furthermore, the
California Constitution permits an appellate court to restrict retroactive
application in the interest of fairness and equity, even though prospective
application of the new decision temporarily preserves a mistaken rule of
law. [Citations.]†(Kawasaki
Motors Corp. v. County of Orange (1983) 146 Cal.App.3d 780, 783.)
In this case, the amended
cross-complaint alleged causes of action for cancellation of the written
documents and declaratory relief as a result of the fraudulent representations
of Bank employees, which Elyaszadeh and his companies relied upon, and for
which RREF became liable by way of assignment.
However, the trial court found that the amended cross-complaint failed
to state any cause of action based on the parol evidence rule and the decision
in Pendergrass. We conclude the holding of
retroactive effect. As explained in
section 1856 at all times provided an exception to the parol evidence rule for
evidence of fraud. RREF has not shown
that the contracting parties relied on the erroneous rule in
promises would not be admissible to contradict the terms of the written
agreement. Fairness and equity require
retroactive application of Riverisland to
prevent use of the parol evidence rule as a shield for fraudulent conduct. We conclude the general rule of retrospective
application of court decisions applies in this case.
RREF contends the trial court’s
ruling should be affirmed on alternative grounds raised in the demurrer which
the trial court did not reach, including whether the amended cross-complaint
sufficiently alleged that RREF was liable for the Bank’s representations. Given the change in the law represented by
further amendment of the complaint in light of its holding, this is not an
appropriate case to rule on alternative grounds not addressed in the trial
court. We remand for further
proceedings. (See Giraldo v. California Dept. of Corrections and Rehabilitation (2008)
168 Cal.App.4th 231, 252.)
DISPOSITION
The judgment and the order
sustaining the demurrer are reversed.
The matter is remanded to the trial court for further proceedings
consistent with this opinion. Appellants
Shahram Elyaszadeh, Elko Mall, LLC, and Malibu Ocean View Villas, LLC, are
awarded their costs on appeal.
KRIEGLER,
J.
We concur:
TURNER,
P. J.
MOSK,
J.
standard of review on appeal, we state the material facts properly pleaded in
the complaint as true. (
District (2013) 216 Cal.App.4th 1198, 1206-1207.)
