First Citizens Bank v. Frank
Filed 2/5/13 First Citizens Bank v. Frank 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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IN
THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND
APPELLATE DISTRICT
DIVISION
FIVE
FIRST CITIZENS BANK,
Plaintiff and Respondent,
v.
DAVID FRANK et al.,
Defendants and Appellants.
B237283
(Los Angeles
County
Super. Ct.
No. BC426784)
APPEAL from
a judgment of the Superior Court
of
County.
David L. Minning, Judge.
Affirmed.
Robins,
Kaplan, Miller & Ciresi, Christopher S. Reeder, H. Mark Madnick, Andrew L.
Howard for Defendants and Appellants.
Horgan,
Rosen, Beckham & Coren, Mel Aranoff for Plaintiff and Respondent.
_______________
David
Frank, Kaveh Golshan, and Behzad Soofer appeal from the judgment entered
against them and in favor of respondent First Citizens Bank, after respondent's
motion for summary judgment was
granted. We affirm.
Facts
In February
2007, respondent's predecessor in interest, First Regional Bank, loaned $7.28
million to an entity called Hancock Regency Partners, LLC. (Hereinafter, "the Loan.") The Loan was secured by a deed of trust
encumbering real property which was improved with nine apartment buildings. Hancock Partners planned to demolish the
buildings and build a new condo development.
Golshan was
the Managing Partner of Hancock Partners.
Frank and Soofer were, apparently, also members of Hancock
Partners. Golshan, Frank, and Soofer
(hereinafter, "the Guarantors") guaranteed the Loan.
The Loan
was a bridge loan. It enabled Hancock
Partners to buy the property, but did not provide funds for construction. At summary judgment, the Guarantors proffered
evidence that when the loan was made, First Regional believed that it was
likely that it would provide the construction loan, too.
The Loan's
initial maturity date was February 1, 2009.
In 2008, after expending sums to evict tenants and obtain permissions
from the City of Los Angeles, Hancock Partners decided that the condominium
project was not feasible. It sought to
convert the buildings back to apartments, and sought an 18 to 24 month
extension of the Loan.
From the
outset, Hancock Partners seems to have worked with two First Regional Vice
Presidents, Ralph Downing and Paul Comilang.
In February 2009, Downing and Comilang submitted an application to First
Regional's Senior Loan Committee, seeking a six month extension of the
Loan. That extension was granted, but
that was the only extension granted.
After
August 2009, Hancock Partners failed to make payments due on the Loan.
In January
2010, the FDIC became the receiver for First Regional. First Citizens Bank soon bought the Loan,
along with other assets.
In April
2010, First Citizens sold the property at a non-judicial foreclosure sale. The sale price was lower than the amount due
on the Loan, and First Citizens filed this suit to recover the deficiency from
the Guarantors.
The trial
court granted respondent's motion for summary judgment and entered judgment in
respondent's favor in the amount of $3,710,665.18.
Standard of Review
"A
trial court properly grants a motion for summary judgment only if no issues of
triable fact appear and the moving party is entitled to judgment as a matter of
law. (Code Civ. Proc., § 437c, subd.
(c); see also id., § 437c, subd. (f) [summary adjudication of
issues].) The moving party bears the
burden of showing the court that the plaintiff 'has not established, and cannot
reasonably expect to establish, a prima facie case . . . .' [Citation.]"
v. Department of Corrections (2005) 36 Cal.4th 446, 460.)
"We review summary judgment appeals by applying the same
three-step analysis applied by the trial court:
First, we identify the issues raised by the
established entitlement to summary judgment, that is, whether the movant showed
the opponent could not prevail on any theory raised by the pleadings. Third, if the movant has met its burden,
we consider whether the opposition raised triable issues of fact. We review these matters de novo.
liberally construe the evidence in support of the party opposing summary
judgment and resolving doubts concerning the evidence in favor of that
party. (Wiener v. Southcoast
Childcare Centers, Inc. (2004) 32 Cal.4th 1138, 1142.)
Discussion
1. Promissory
Estoppel
The Guarantors first argue that respondent was estopped
from declaring the Loan in default, and thus has no claims against them. This estoppel claim is based on the Guarantors'
contention that First Regional promised Hancock Partners that the Loan would be
extended, and that Hancock Partners detrimentally relied on the promise by
continuing to improve the property.
In support
of this theory, the Guarantors proffered
evidence
title="">[1] that, for instance, in late 2008, Comilang and
Downing told Golshan that the Loan would be extended for 18 to 24 months from
the original maturity date, and that on December 13, 2008, Downing sent Golshan
a "term sheet" for the extension; evidence that First Regional took
various other steps in furtherance of its consideration of the request for an
extension, such as ordering an appraisal; and evidence that in July 2009, after
the Loan matured, First Regional continued to work on a loan extension,
gathering information from Hancock Partners and ordering information from
Chicago Title.
Even given
that evidence, we agree with respondent and the trial court that there is no
triable issue of fact on promissory estoppel, as a matter of law. (Greene v. Wilson (1962) 208
Cal.App.2d 852, 857.)
This is
because it was undisputed that First Regional informed Hancock Partners that
loans and loan extensions could only be approved by the Senior Loan
Committee. The December 13, 2008,
"term sheet" from Downing begins "I have prepared the following
proposal to extend your existing bridge loan," but then states "All .
. . extensions are subject to First Regional Bank's Senior Loan Committee in
their sole discretion," and "This information letter is given as a
courtesy and should not be construed to be a commitment in and of itself. All terms and conditions are subject to the
sole approval of the First Regional Bank Senior Loan Committee."
as an unsigned letter. It was signed by
Downing. There were signature lines for
the Guarantors, and those are blank.)
First
Regional made a similar statement in an August 27, 2009 letter to Hancock
Partners and its members (the Guarantors) stating "Prior to any loan
extension, a loan recommendation must be prepared and submitted to the Bank's
Senior Loan Committee which will either approve, decline or amend the loan
recommendation."
The
elements of promissory estoppel include a clear and unambiguous promise, and
"reasonable and forseeable" reliance.
(Advanced Choices, Inc. v. State Dept. of Health Services (2010)
182 Cal.App.4th 1661, 1672.) Here, any
promise made by Downing or Comilang was rendered ambiguous by the written
statement that they did not have authority to make such a promise. For the same reason, reliance was not
reasonable.
"Estoppel
cannot be established from such preliminary discussions and negotiations,"
(National Dollar Stores v. Wagnon (1950) 97 Cal.App.2d 915, 919) and
"hopeful expectations cannot be equated with the necessary justifiable
reliance." (Kruse v. Bank of
America (1988) 202 Cal.App.3d 38, 54.)
2. Breach of the covenant of good faith and fair
dealing
The
Guarantors argue that the court erred in granting summary judgment because
there are triable issues of fact on whether both First Regional and First
Citizen violated the covenant of good faith and fair dealing in the loan
guarantees. They further contend that if
there were breaches, their own nonperformance is excused.
"The
covenant of good faith and fair dealing, implied by law in every contract,
exists merely to prevent one contracting party from unfairly frustrating the
other party's right to receive the benefits of the agreement actually made. [Citation.]" (Guz v. Bechtel Nat. Inc.
(2000) 24 Cal.4th 317, 349.) "It
cannot
or limits on the contracting parties beyond those incorporated in the specific
terms of their agreement." (
contractual covenants, to prevent a contracting party from engaging in conduct
that frustrates the other party's rights to the benefits of the
agreement." (Waller v. Truck
Ins. Exchange, Inc. (1995) 11 Cal.4th 1, 36.)
We see no
triable issue of material fact on breach of the covenant in the guarantee
agreements.
a. First Regional's failure to disclose its
decision to stop making loans and its financial
problems
The
Guarantors proffered evidence that the FDIC started to investigate First
Regional in 2005; that by 2008, the FDIC was monitoring First Regional on a
daily basis, and that no one at First Regional told them of those facts or the
fact that in May 2008 First Regional decided to stop making loans. They contend that the failure to disclose
those facts amounted to a breach of the covenant, suggesting, at least, that
First Regional's refusal to extend the loan was the result of regulatory
problems. The Guarantors then argue that
there is a triable issue on whether, if they had known of First Regional's
problems, they would have entered into the lending relationship to begin with
or spent time and money on the development.
We are,
however, cited to no facts which would support either contention. Further, in deposition testimony proffered by
the Guarantors, Downing testified that First Regional decided to stop making
loans because the bank's board recognized that the market was in a decline;
that after the decision was made, First Regional would still make loans if the
directors believed that a loan was in the bank's best interest, and that in May
of 2008, First Regional was concerned about Hancock Partners' ability to make
payments on the Loan.
The
covenant of good faith and fair dealing in the guarantee certainly did not compel
First Regional to tell the Guarantors that First Regional would make loans only
if they were in the bank's best interest, or that the real estate market was in
decline. Those are obvious facts. We note in this respect that in December of
2008, when Golshan notified his partners that First Regional would be granting
an extension of the Loan, he also said "[w]e will not be able to obtain
financing with another lender at this time due to the economy, market, and
banking situation."
Legally,
the Guarantors rely on Sumitomo Bank of
Cal. v. Iwasaki (1968) 70 Cal.2d 81, which holds that ". . . the
creditor owes a duty to the surety to disclose facts known by the creditor if
the creditor has reason to believe that those facts materially increase the
risk beyond that which the surety intended to assume and that those facts are
unknown to the surety." (
As
respondent points out, however, the case concerns the duty to inform the surety
of facts concerning the debtor. We do not know that Sumitomo Bank, supra, could establish a breach of contract here,
but the Guarantors' argument would fail even if it did.
The
Guarantors' claim is essentially that First Regional breached the guarantee
because it did not agree to enter into a new, extended agreement with Hancock
Partners. The covenant of good faith and
fair dealing "cannot impose substantive duties or limits on the
contracting parties beyond those incorporated in the specific terms of their
agreement" (Guz v. Bechtel, supra, 24 Cal.4th at pp. 349-350), and
we are cited to nothing in the guarantee, or indeed in the Loan agreement,
which obligated First Republic to grant an extension of the Loan maturity
date.
b. The August 2009 appraisal
In
connection with its consideration of Hancock Partners' request for an extension
of the Loan, First Regional ordered an appraisal. The appraisal concluded that the property was
worth $7.56 million, and, as a result, First Regional requested a payment of
$1.232 million, in order to maintain a loan to value ratio of eighty percent --
apparently, a requirement of the Loan.
The
Guarantors proffered evidence that the appraisal was a limited appraisal, and
not the kind of appraisal First Regional would normally obtain in connection
with an evaluation of a loan; that a February 2009 appraisal valued the
property at $9.5 million; that Hancock Partners could not make the payment
requested, and that the failure to make that payment resulted in the denial of
the Loan extension.
In this
evidence, the Guarantors find a breach of the covenant of good faith and fair
dealing in the guarantees, arguing that the August 2009 appraisal was
deliberately and erroneously low, and that First Regional frustrated their
reasonable expectation that it would use the proper procedures in considering
their request for a loan extension.
The
argument fails for the reason recounted above:
the covenant of good faith and fair dealing in the Loan guarantee did
not extend to First Regional's conduct with respect to Hancock Partners' request
for a loan extension. In the absence of
a contractual duty to extend the Loan, the fact that First Regional did not do
so, for any reason, does not constitute a breach of the guarantee.
c. The foreclosure sale
The
Guarantors proffered evidence that prior to the foreclosure sale, a First
Citizens Vice President told a prospective bidder, Sean Leoni of Alexis
Ariella, LLC, that First Citizens' maximum credit bid would be $5 million. Alexis Ariella later bought the property at
the trustee's sale for $5,001,000. Leoni
told Golshan that he had been willing to make a much higher bid.
The
Guarantors contend that this conduct violated the covenant of good faith and
fair dealing in the guarantees, violated Civil Code section 2924h, subdivision
(g),
or not there was actually a deficiency.
We agree
with respondent and the trial court that the contentions are waived.
The
guarantee includes the provision that "Guarantor waives all rights and
defenses that Guarantor may have because Borrower's obligation is secured by
real property. This means among other
things: . . . . [i]f Lender forecloses
on any real property collateral pledged by Borrowers: (1) the amount of Borrower's obligation may
be reduced only by the price for which the collateral is sold at the
foreclosure sale, even if the collateral is worth more than the sale price. . .
. This is an unconditional and irrevocable waiver of any rights and defenses
Guarantor may have because Borrower's obligation is secured by real
property."
The
Guarantors contend that the waiver does not apply because "the scope of
the waiver never anticipated" these facts.
waiver is the intentional relinquishment of a known right. The argument is not persuasive.
The
Guarantors agreed that they would not claim that they were excused from payment
because the collateral was worth more than the sale price. They now seek to assert precisely that
defense. It is not outside the scope of
the waiver, but is included in it. The
rule that waiver is an intentional relinquishment of a known right does not
assist them. The right being waived is
clearly spelled out in the guarantee.
The
Guarantors also argue that the waiver is void, because it is against public
policy.
We see no
violation of public policy. Under Civil
Code section 2856, "(a) Any guarantor or other surety, including a
guarantor of a note or other obligation secured by real property or an estate
for years, may waive any or all of the following: [¶] . . . [¶] (3) Any rights
or defenses the guarantor or other surety may have because the principal's note
or other obligation is secured by real property or an estate for
years." Concerning this section,
the Legislature stated, "It is the intent of the Legislature that the
types of waivers described in Section 2856 of the Civil Code do not violate the
public policy of this state."
(Assem. Bill No. 2585, Stats. 1996, ch. 1013, § 3.)
The
Guarantors are obviously sophisticated investors who embarked on a significant
real estate development project. To that
end, they guaranteed repayment of a commercial loan, in an agreement which
included waiver of the many protections which the law provides to borrowers and
guarantors. We do not think public
policy requires that they be absolved from that agreement, particularly in
light of a strong expression of legislative intent.
Finally,
the Guarantors argue that a foreclosure sale will be set aside where there is
gross disparity between the sale price and actual value, and where there are
irregularities in the sale.
Union Bank (1971) 21 Cal.App.3d 137, 153.)
In support of their "gross disparity" theory, they assert that
the fair market value of the property at the time of the foreclosure was $7.9
million. They do not cite to anything in
the record to that effect, but respondent agrees that in April 2008, the
Guarantors obtained an appraisal which valued the property at that number. Even if this contention were not waived,
gross disparity cannot be found in the mere difference between those numbers.
Disposition
The
judgment is affirmed. Respondent to
recover costs on appeal.
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS
ARMSTRONG,
J.
We concur:
TURNER,
P. J.
KRIEGLER,
J.
sustained, and thus need not consider the Guarantors' contention that the trial
court's rulings on the objections were wrong.
followed Downing's recommendation, but in deposition testimony submitted by the
Guarantors, Downing testified that "The loan committee – so I usually have
good success, but until it's approved they have the right to change it, decline
it, do whatever they want to . . . . So I don't know what I'm going to get
until I get there."
