Egrovich v. CCFG Costebelle La Jolla, LLC

• Court: District Court, S.D. California
• Decided: February 16, 2022
• Docket: 3:21-cv-00774
• Status: Unknown

Opinion

1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 SOUTHERN DISTRICT OF CALIFORNIA 10 11 JOANNE EGROVICH, an individual, Case No.: 21-CV-774 TWR (MDD) 12 Plaintiff, ORDER GRANTING PLAINTIFF’S 13 v. MOTION FOR PARTIAL SUMMARY JUDGMENT AND 14 CCFG COSTEBELLE LA JOLLA, LLC, DENYING AS MOOT MOTION a California limited liability company, et 15 FOR WRIT OF ATTACHMENT al., 16 Defendant. (ECF No. 13, 14) 17 18 Plaintiff Joanne Egrovich moves for a writ of attachment and partial summary 19 judgment. (ECF Nos. 13, 14.) Defendants Alan Lewis and Craig Cecilio oppose, 20 (“Opp’n,” ECF No. 15), and Egrovich has replied. (“Reply,” ECF No. 16.) For the reasons 21 set forth below, the Court GRANTS the motion for partial summary judgment and 22 DENIES AS MOOT the motion for a writ of attachment. 23 BACKGROUND 24 This case is about a loan that was never repaid. Plaintiff Joanne Egrovich, a New 25 York citizen, loaned $750,000 to CCFG Costebelle La Jolla, LLC, to further a construction 26 project for a multi-million-dollar, custom built home in La Jolla, California. (ECF No. 13- 27 2, “Egrovich Decl.” ¶ 2.) By the time Egrovich made the loan, the construction project 28 was already underway, but more capital was needed to complete and market the property. 1 (Id. ¶ 3.) Egrovich began talking with CCFG’s principal, Alan Lewis, who was the co- 2 founder and Chief Investment Officer of DiversyFund, Inc., an online, tech-based financial 3 literacy platform that raises money for real estate “primarily in large portfolios of existing 4 commercial real estate assets.” (Id. ¶ 3; ECF No. 15-2, “Lewis Decl.” ¶ 4–5.) DiversyFund 5 managed CCFG. (Lewis Decl. ¶ 6.) Eventually, the talks materialized, and Lewis prepared 6 the initial draft of the loan. (Egrovich Decl. ¶ 3.) The parties signed a Promissory Note, 7 effective March 1, 2017, for a loan of $750,000. (Id. ¶ 4.) Craig Cecilio, the co-founder 8 and CEO of DiversyFund, executed the Note. (Id.) The loan was guaranteed by Lewis and 9 Cecilio, as evidenced by the Unconditional Guaranty. (Id. ¶ 5; ECF No. 14-3.) By 10 December 31, 2017, CCFG was required to pay the full principal amount of $750,000, plus 11 the greater of: (1) thirty percent (30%) interest per annum on the outstanding principal 12 balance; or (2) one hundred fifty thousand dollars ($150,000) on the maturity date of the 13 Note. (Id. ¶ 4.) As the maturity date approached, CCFG needed more time to finish 14 renovating the custom-built home, so CCFG, the Guarantors, and Egrovich executed an 15 Extension Agreement, which allowed four additional months, until April 30, 2018, to repay 16 the loan in full. (Id. ¶ 6; ECF No. 14-4.) Cecilio executed the Extension Agreement on 17 behalf of DiversyFund and both Defendant Guarantors. (Id.) 18 But things did not go according to plan. CCFG defaulted, and it could not repay its 19 loans by the new deadline of April 30, 2018. (Id. ¶ 7.) Although the loan was secured by 20 a Deed of Trust against the Property, the Note was—and remains—unsecured because the 21 first position lender, Genesis Capital, issued a Notice of Default and Election to Sell on 22 December 30, 2019, which was recorded with the San Diego County Recorder. (Id. ¶ 8.) 23 According to the Note, Genesis Capital was owed $5,642,885.77, and since CCFG could 24 not cure the default, a foreclosure sale took place. (Id. ¶ 8.) In July 2020, a Trustee’s Deed 25 Upon Sale was recorded with the San Diego County Recorder, and the property was 26 transferred to Goldman Sachs Bank USA. (Id. ¶ 9.) At the time of this transfer, CCFG 27 owed Genesis $6.2 million, and the foreclosure sale was $4,414,743.33. (Id.) Egrovich 28 has not been paid back for her original loan, and since the foreclosure sale generated less 1 money than was owed to Genesis, Egrovich moves for a writ of attachment to ensure that 2 she can recover on her claims against Lewis and Cecilio. (Id. ¶¶ 9–10.) She also asserts 3 several causes of action against Lewis and Cecilio directly, including a breach of guaranty. 4 She now moves for partial summary judgment on that claim. 5 LEGAL STANDARD 6 Under Federal Rule of Civil Procedure 56, a party may move for summary judgment 7 as to a claim or defense or part of a claim or defense. Fed. R. Civ. P. 56(a). Summary 8 judgment is appropriate where “the movant shows that there is no genuine dispute as to 9 any material fact and the movant is entitled to judgment as a matter of law.” Fed. R. Civ. 10 P. 56(a); Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). Although materiality is 11 determined by substantive law, “[o]nly disputes over facts that might affect the outcome of 12 the suit . . . will properly preclude the entry of summary judgment.” Anderson v. Liberty 13 Lobby, Inc., 477 U.S. 242, 248, (1986). A dispute is “genuine” only “if the evidence is 14 such that a reasonable jury could return a verdict for the nonmoving party.” Id. When 15 considering the evidence presented by the parties, “[t]he evidence of the non-movant is to 16 be believed, and all justifiable inferences are to be drawn in his favor.” Id. at 255. 17 The initial burden of establishing the absence of a genuine issue of material fact falls 18 on the moving party. Celotex, 477 U.S. at 323. The moving party may meet this burden 19 by “identifying those portions of ‘the pleadings, depositions, answers to interrogatories, 20 and admissions on file, together with the affidavits, if any,’ which it believes demonstrate 21 the absence of a genuine issue of material fact.” Id. “When the party moving for summary 22 judgment would bear the burden of proof at trial, ‘it must come forward with evidence 23 which would entitle it to a directed verdict if the evidence went uncontroverted at trial.’” 24 C.A.R. Transp. Brokerage Co. v. Darden Rests., Inc., 213 F.3d 474, 480 (9th Cir. 2000) 25 (quoting Houghton v. South, 965 F.2d 1532, 1536 (9th Cir. 1992)). 26 Once the moving party satisfies this initial burden, the nonmoving party must 27 identify specific facts showing that there is a genuine dispute for trial. Celotex, 477 U.S. 28 at 324. This requires “more than simply show[ing] that there is some metaphysical doubt 1 as to the material facts.” Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 2 586 (1986). Rather, to survive summary judgment, the nonmoving party must “go beyond 3 the pleadings and by her own affidavits, or by the ‘depositions, answers to interrogatories, 4 and admissions on file,’ designate ‘specific facts’” that would allow a reasonable fact finder 5 to return a verdict for the non-moving party. Celotex, 477 U.S. at 324; see also Anderson, 6 477 U.S. at 248. Accordingly, the non-moving party cannot oppose a properly supported 7 summary judgment motion by “rest[ing] upon mere allegations or denials of his pleading.” 8 Anderson, 477 U.S. at 256. 9 ANALYSIS 10 Egrovich moves for summary judgment on the breach of guaranty claim and seeks 11 a writ of attachment in the sum of $765,000. Those motions are addressed below. 12 A. Motion for Summary Judgment – Breach of Guaranty 13 In California, a breach of guaranty claim can be raised based on “undisputed 14 evidence that (1) there is a valid guaranty, (2) the borrower has defaulted, and (3) the 15 guarantor failed to perform under the guaranty.” First Am. Com. Bancorp, Inc. v. Vantari 16 Genetics, LLC, No. 219CV04483VAPFFM, 2020 WL 5027990, at *3 (C.D. Cal. Mar. 12, 17 2020) (citation omitted). The same standard for breach of contract applies here. See 18 Gerritsen v. Warner Bros. Ent. Inc., 116 F. Supp. 3d 1104, 1123 (C.D. Cal. 2015). In 19 moving for summary judgment, Egrovich argues that there was a valid agreement for a 20 loan of $750,000, the Defendants consented to the terms of that agreement, and although 21 Egrovich performed her obligations under the contract, the Defendants did not. As a result, 22 Egrovich was damaged and argues that there exists no triable issue on the underlying 23 breach of guaranty claim. Defendants disagree, claiming that summary judgment should 24 be denied because (1) the loan contained an illegal and unenforceable late charge, (2) the 25 loan itself was usurious, (3) the affirmative defense of offset, (4) estoppel, and (5) unclean 26 hands. The Court addresses each in turn. 27 / / / 28 / / / 1 1. Late Charge 2 According to the Defendants, the contract with Plaintiff contained an “illegal 3 maturity late fee,” which renders the entire contract void. Specifically, Defendants 4 challenge the “Balloon late charge” provision, which states that “if any balloon payment is 5 delinquent more than TEN days, the borrower will be charged a monthly late charge plus 6 an additional monthly late charge for each month the balloon remains late.” (Egrovich 7 Decl. Ex. A.) Defendants emphasize that California Business & Professions Code § 8 10242.5 provides that a “charge shall not exceed an amount equal to the maximum late 9 charge that could have been assessed with respect to the largest single monthly installment 10 previously due.” Cal. Bus. & Prof. Code § 10242.5(c). Without explaining much further, 11 Defendants argue Section 10242.5(c) renders the balloon late charge illegal, since the 12 Promissory Note does not contain a late fee provision. (Opp’n at 6.) According to 13 Defendants, because the balloon late charge is illegal, there is a triable issue of fact as to 14 whether that illegality renders the Promissory Note and the Guarantees unenforceable. 15 (Opp’n at 6–7.) 16 The Court finds the Defendants’ argument to be without merit because of the 17 provision in the Note which provides that any terms in the contract inconsistent with 18 California law are “hereby modified to confirm to said law at the time of the signing of 19 these loan documents.” (ECF No. 14-1, Ex. A.) As such, the Note is “self-limiting” and 20 cannot be properly construed as violative of California law. Indeed, it is well-settled that 21 a court may sever certain provisions in a contract if the “illegality is collateral to the main 22 purpose of the contract,” and the operative portions of the contract are “wholly independent 23 of the unlawful object.” MKB Mgmt., Inc. v. Melikian, 184 Cal. App. 4th 796, 803, 108 24 Cal. Rptr. 3d 899, 905 (2010). Such is the case here. The central purpose of the contract 25 at issue is the repayment of the $750,000 which Plaintiff loaned to the Defendants. Plaintiff 26 has never sought to enforce the balloon late charge provision and a fair reading of the Note 27 reveals that the balloon provision is collateral to the main purpose of the contract. 28 1 2. Usurious 2 Next, Defendants argue that summary judgment should not be granted because the 3 underlying loan is usurious. To assert a usury defense, the Defendants must show that: (1) 4 the transaction must be a loan or forbearance; (2) the interest to be paid must exceed the 5 statutory maximum; (3) the loan and interest must be absolutely repayable by the borrower; 6 and (4) the lender must have a willful intent to enter into a usurious transaction, See 7 Beechum v. Navient Sols., Inc., No. EDCV 15-8239-JGB-KKX, 2016 WL 5340454, at *4 8 (C.D. Cal. Sept. 20, 2016). The usurious defense only applies to the collection of interest. 9 See Blue Growth Holdings Ltd. v. Mainstreet Ltd. Ventures, LLC, No. CV 13-1452 CRB, 10 2013 WL 4758009, at *2 (N.D. Cal. Sept. 4, 2013) (“If a loan is found to be usurious, the 11 lender may not collect interest.”). In other words, the usurious defense, “if successful, does 12 not preclude Plaintiff’s liability for the principal on the notes.” t’Bear v. Forman, 359 F. 13 Supp. 3d 882, 911 (N.D. Cal. 2019); see also In re Dominelli, 820 F.2d 313, 318 n. 3 (9th 14 Cir. 1987) (“Under California law, if a transaction is usurious, generally the interest 15 provision of the loan is void, but the principal of the loan is unaffected.”). Here, Defendants 16 cite several cases to argue that if the interest is usurious, Plaintiff cannot recover any of the 17 interest. (Opp’n at 9.) Defendants’ interest-based usury argument misses the point because 18 Plaintiff is merely seeking the principal sum and not the interest owed.1 As such, whether 19 the loan is usurious or not has no bearing on the pending summary judgment motion. 20 / / / 21 / / / 22 23 24 1 None of the cases cited by Defendants prohibit the collection of the principal sum of the loan. See 25 Gibbo v. Berger, 123 Cal. App. 4th 396, 398, 19 Cal. Rptr. 3d 829, 830 (2004); Hardwick v. Wilcox, 11 Cal. App. 5th 975, 979, 217 Cal. Rptr. 3d 883, 886 (2017) (“‘When a loan is usurious, the creditor is 26 entitled to repayment of the principal sum only. He is entitled to no interest whatsoever.”); Dev. Acquisition Grp., LLC v. ea Consulting, Inc., 776 F. Supp. 2d 1161, 1165 (E.D. Cal. 2011) (“Under 27 California's usury laws, DAG wrongfully chargded EA interest on the Note in excess of 10% per annum and, as such, is entitled only to the original principal of $500,000.”); Creative Ventures, LLC v. Jim Ward 28 1 3. Offset 2 Defendants also assert the offset defense to defeat summary judgment. In the 3 Superior Court action against her attorneys, Plaintiff recovered “lost interest . . . per the 4 terms of the Promissory Note dated March 1, 2017. . . and none of the Settlement Payment 5 constitute[d] prepayment of Egrovich’s principal investment of CCFG.” (Egrovich Decl. 6 Ex. E at 4.) Plaintiff received $550,000 from that settlement (Lewis Decl. ¶ 26), which 7 Defendants argue should offset the principal amount at issue here and defeat summary 8 judgment because there exist factual disputes about (1) “the nature, amount, and calculation 9 of damages, if any;” and (2) “the nature, amount, and calculation of any offsets owed to 10 Defendants.” (Opp’n at 11–12.) Defendants argue that the offset applies even if the 11 interest payment in the Superior Court action was made by a third party because Plaintiff 12 should not receive any interest on the illegally usurious loan. 13 Defendants cite Simmons v. Patrick, 211 Cal. App. 2d 383, 390, 27 Cal. Rptr. 347, 14 352–53 (Ct. App. 1962), to support their claim that a payment made by a third party can 15 offset their debt. In Simmons, the court found that “if someone pays usurious interest at 16 the borrower's request for and on behalf of the borrower, it does not change the fact that 17 the usurious interest has been paid by the borrower direct.” Id. But that is not the case 18 here. The payment made in the Superior Court action was not made on behalf of Lewis, 19 Cecilio, DiversyFund, or CCFG. As Plaintiff points out, that payment was “compelled by 20 litigation” and not done in response to the “borrower’s request” or “on behalf of the 21 borrower.” Accordingly, Simmons is not instructive. Defendants also cite Aspeitia v. 22 California Tr. Co., 158 Cal. App. 2d 150, 154, 322 P.2d 265, 268 (1958), in support of 23 their offset theory. But because the Aspeitia court merely reiterated the rule discussed in 24 Simmons it also fails to meaningfully support Defendants’ argument. 25 Defendants’ offset argument fails for at least one other reason. As Plaintiff 26 acknowledges, an offset may be allowed under Section 877 of the California Code of Civil 27 Procedure for a settlement with “one or more joint tortfeasors,” Cal. Civ. Proc. Code § 877, 28 and “[w]hether individuals are joint tortfeasors . . . depends upon whether they caused ‘one 1 indivisible injury’ or ‘the same wrong.’” C.B. v. City of Sonora, 769 F.3d 1005, 1031 (9th 2 Cir. 2014). Here, Lewis and Cecilio were not joint tortfeasors with the defendants who 3 settled in the Superior Court action. Indeed, as Plaintiff notes, the claims against Lewis 4 and Cecilio are purely contractual and do not arise from tortious conduct on the 5 Defendants’ part. Moreover, the injuries in the Superior Court action and the case here are 6 different and not part of “the same wrong.” The Superior Court action involved claims of 7 legal malpractice and breach of contract arising out of the defendant attorneys’ 8 representation of Plaintiff in connection with the loan transaction. In contrast, the instant 9 case involves a loan that was never repaid. Since the offset principle is “to preclude a 10 double recovery arising out of the same wrong,” Vesey v. United States, 626 F.2d 627, 633 11 (9th Cir. 1980), it simply does not apply here. 12 4. Concurrent Jurisdiction 13 Defendants next argue that this court should not exercise jurisdiction because of 14 estoppel. In particular, Defendants argue that because there is a similar case pending in the 15 Los Angeles Superior Court, this Court should refrain from ruling on the summary 16 judgment motion under the “first-to-file” rule. “The first-to-file rule allows a district court 17 to stay proceedings if a similar case with substantially similar issues and parties was 18 previously filed in another district court.” Kohn L. Grp., Inc. v. Auto Parts Mfg. 19 Mississippi, Inc., 787 F.3d 1237, 1239 (9th Cir. 2015). In deciding whether the first-to-file 20 rule applies, the court must consider three factors: “chronology of the lawsuits, similarity 21 of the parties, and similarity of the issues.” Id. at 1240. Further, “courts should be driven 22 to maximize ‘economy, consistency, and comity.’” Id. 23 Here, none of those values will be served by applying the first-to-file rule. The 24 Superior Court action appears to be complete; a Notice of Settlement was filed (ECF No. 25 16-9, Ex. Q), and though the Superior Court set a hearing for October 15, 2021, on an Order 26 to Show Case Re. Dismissal (Settlement), the defendants filed a Request for Dismissal on 27 October 12, 2021 and the hearing was subsequently vacated. See The Superior Court of 28 California, County of Los Angeles, Online Services (Feb. 16, 2022, 1:40 PM), 1 https://www.lacourt.org/casesummary/ui/. No future hearings have been set. Id. As a 2 result, there appears no reason to deny summary judgment now as the Superior Court action 3 appears to be complete and has no bearing on the merits of this case. It would not maximize 4 “economy, consistency, and comity.” So concurrent jurisdiction, or the first-to-file rule, 5 does not apply. 6 5. Unclean Hands 7 Finally, Defendants try to overcome summary judgment by asserting the defense of 8 unclean hands. Defendants assert that they were forced to enter into the loan agreement 9 and guaranty because they were placed “under financial duress.” (Opp’n at 14–15.) 10 According to the Defendants, when originally negotiating the terms of the loan, Egrovich 11 knew that the existing lienholder was “threatening imminent foreclosure” and that “CCFG 12 was in dire straights with no other alternative to procure construction financing in time to 13 avoid foreclosure.” (Opp’n at 15; Lewis Decl. ¶¶ 10, 15.) And yet, on the eve of signing 14 the loan documents, Egrovich “demanded substantial modifications to the investment 15 terms” and “refused to invest unless CCFG agreed to a Promissory note with a 30% interest, 16 a deed of trust encumbering the Property, and personal guaranties from Defendants.” 17 (Opp’n at 15.) At that point, Defendants claim they had no time to look for other lenders 18 and were essentially forced to sign the agreement. (Lewis Decl. ¶ 16.) 19 “Economic duress can excuse an innocent party’s contractual obligations when the 20 other contracting party does ‘a wrongful act which is sufficiently coercive to cause a 21 reasonably prudent person faced with no reasonable alternative to succumb to the 22 perpetrator’s pressure.’” Hicks v. PGA Tour, Inc., 897 F.3d 1109, 1119 (9th Cir. 2018). 23 “Although the wrongful act at issue need not be a tort or a crime, it must be something 24 more than ‘a voluntary choice of perfectly legitimate alternatives.’” Quiksilver, Inc. v. 25 Juelle, No. CV093535AHMRNBX, 2010 WL 11520196, at *4 (C.D. Cal. Sept. 22, 2010). 26 “[A] reasonably prudent person subject to such an act may have no reasonable alternative 27 but to succumb when the only other alternative is bankruptcy or financial ruin.” Rich & 28 1 Whillock, Inc. v. Ashton Dev., Inc., 157 Cal. App. 3d 1154, 1159, 204 Cal. Rptr. 86, 89 (Ct. 2 App. 1984). 3 Here, economic duress is inapplicable because Defendants have not produced 4 evidence of a wrongful act. Instead, Plaintiff points to a series of emails starting from 5 February 23, 2017, which suggest that the Defendants were not acting under duress. For 6 example, in response to an email where Egrovich proposed the terms of the loan, which 7 included the 30 percent interest rate, Defendant Alan Lewis wrote “Excited about the 8 prospect of getting this done!” (ECF No. 16-18 at 4.) In another email sent that same day, 9 Lewis wrote about the “Equity Kicker analysis on the sales price,” again mentioning the 10 30 percent interest rate with no protest and ending the email by saying, “if that works for 11 you, I think I can get the investors on board[,] and we have ourselves a deal!” (Id. at 2–3.) 12 This does not resemble other situations where courts have found duress. See In Rich & 13 Whillock, Inc. v. Ashton Dev., Inc., 157 Cal. App. 3d 1154, 1161, 204 Cal. Rptr. 86, 91 (Ct. 14 App. 1984) (“Rich strenuously protested Britton's and Aghadjian’s coercive tactics, and 15 succumbed to them only to avoid economic disaster to themselves and the adverse ripple 16 effects of their bankruptcy on those to whom they were indebted.”) Lastly, Lewis alleges 17 that Egrovich modified the terms of the loan on the eve of the foreclosure, but it appears 18 that the modification was only five percent, from 25 percent, which Lewis originally 19 proposed (ECF No. 16-17 at 2), to 30 percent. (ECF No. 16-18.) “The fact that a plaintiff 20 feels economic pressure to sign an agreement does not raise any inferences about a 21 defendant’s conduct, much less their wrongful conduct.” Osanitsch v. Marconi PLC, No. 22 CV 05-3988 CRB, 2009 WL 5125821, at *5 (N.D. Cal. Dec. 21, 2009). Without evidence 23 of the wrongfulness of Egrovich’s conduct, economic duress does not apply. 24 In sum, because Lewis and Cecilio have failed to raise a triable issue of fact 25 regarding the breach of guaranty claim, the Court GRANTS Plaintiff’s motion for 26 summary judgment. 27 / / / 28 / / / 1 B. Motion for a Writ of Attachment 2 In addition, Plaintiff seeks a writ of attachment against Lewis and Cecilio for the 3 |}amount of $765,000. (ECF No. 13 at 4.) Because the Court has granted Plaintiff's motion 4 || for summary judgement her request for the preyudgment remedy of a writ of attachment 5 || pursuant to Rule 64 of the Federal Rules of Civil procedure is DENIED AS MOOT. 6 CONCLUSION 7 For the reason stated above, the Court GRANTS Plaintiff's motion for partial 8 ||summary judgment and DENIES AS MOOT Plaintiff's motion for a wt of attachment. 9 IT IS SO ORDERED. 10 || Dated: February 16, 2022 —_—— 11 [ OSD 2 (re Honorable Todd W. Robinson United States District Judge 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28