13340 MDR LLC v. Preferred Bank

13340 MDR LLC, Cross-complainant and Appellant, v. PREFERRED BANK, Cross-defendant and Respondent.

B286008

COURT OF APPEAL OF THE STATE OF CALIFORNIA SECOND APPELLATE DISTRICT DIVISION FIVE

July 16, 2019

NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS

California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.

(Los Angeles County Super. Ct. No. SC116038)

APPEAL from a judgment of the Superior Court of Los Angeles County, Nancy L. Newman, Judge. Affirmed.

Law Office of David W. Martin and David W. Martin for Cross-complainant and Appellant.

Frandzel Robins Bloom & Csato, Thomas M. Robins III and Hal D. Goldflam for Cross-defendant and Respondent.

A real estate developer obtained a construction loan for a condominium project. When the project failed, the bank and the developer resolved their differences by means of a deed in lieu of foreclosure, which contained a release of the developer's claims against the bank. The developer subsequently sued the bank for multiple causes of action arising out of its funding of the condominium project. The bank obtained summary judgment based on the release. The developer appeals, arguing that it raised a triable issue of fact that the release is unenforceable due to fraud, lack of consideration, duress, or equitable estoppel. We disagree and affirm.

FACTUAL AND PROCEDURAL BACKGROUND

1. The Transaction

The case involves a dispute between Preferred Bank (Bank), on one hand, and Areg (sometimes called Eric) Baghdassarians, on the other. Baghdassarians is a sophisticated businessman with over 18 years of experience in the construction industry. Prior to the transaction at issue in this case, he had been the developer of multiple projects which had been financed by Bank. Baghdassarians' participation in this transaction was largely through two entities in which he is a principal: Angeleno Builders and 13340 MDR, LLC (MDR). MDR was created purely for this construction project; its name relates to the street address of the planned condominiums in Marina del Rey.

Because this appeal concerns only the enforceability of the release, not the underlying transaction itself, we provide an abbreviated view of the complex transaction, simplifying the facts where we can. Many of the facts are disputed. For the purposes of our discussion here, we rely on the text of the governing documents, and the parties' positions as set forth in theirrespective separate statements of undisputed facts. This discussion is to provide context to the only legal issue presented by this appeal—the enforceability of the release.

The project was funded by two loans to MDR: (1) a $16.5 million construction loan, secured by a senior deed of trust on the property; and (2) a $2.1 million loan, secured by a junior deed of trust on the property. Robert Havai, a friend of Baghdassarians and a member of MDR, guaranteed MDR's obligation under the senior loan.

The documents were dated March 27, 2009. They provided for interest payments to begin in April 2009. According to the governing construction loan agreement, the project would be completed by September 1, 2010, and the senior loan would be due on October 5, 2010; however, the loan could be extended to April 5, 2011. In other words, it was agreed that the project would be completed before the loan came due, and this would occur no later than April 5, 2011. Once the senior note was paid off from the proceeds of the project, certain set payments would be made to MDR and Bank, and the balance of the profits would be split 60 percent to MDR and 40 percent to Bank. This profit-sharing arrangement creates what is known as a "shared appreciation loan." (Civ. Code, § 1917.)¹ By statute, the additional percentage is considered " '[c]ontingent deferred interest' " (§ 1917, subd. (a)) and is exempt from usury laws (§ 1917.005). Pursuant to section 1917.001, "[t]he relationship of the borrower and the lender in a shared appreciation loan transaction is that of debtor and creditor and shall not be, or beconstrued to be, a joint venture, equity venture, partnership, or other relationship." Nonetheless, as we shall discuss, MDR takes the position that MDR and the Bank were engaged in a joint venture with respect to the project.

There is a third related loan. In December 2009, Angeleno Builders took out a $585,000 line of credit (the Angeleno line of credit) accompanied by a personal guarantee from Baghdassarians, secured by a deed of trust on Baghdassarians's house.² The circumstances surrounding this line of credit are disputed. According to Bank, it had been required to place the senior loan on non-accrual status because MDR's initial cash down payment was not sufficient under accounting standards. Once the Angeleno line of credit was established, MDR used $302,500 of that line of credit to pay down the senior loan sufficiently to return it to accrual status. In consideration for this additional capital contribution, Bank increased MDR's share of the final profits from the transaction from 60 percent to 65 percent. While MDR does not dispute the language of the line of credit, the guarantee, the deed of trust, or its increase in the anticipated profits, it does dispute the reason for the documents and their enforceability. According to MDR, "[t]he reason the Bank asked for 'additional security' was to placate banking regulators. No money changed-hands and the transaction was a self-serving fiction for the benefit of the Bank." MDR argued, "[t]he Bank simply told Baghdassarians that he needed to sign the document so that they could continue to fund. No paymentswould be required." The line of credit was to mature in January 2012—long after the project was expected to be completed.

2. The Project Fails

In late 2010, the parties amended the construction loan agreement, extending the maturity dates of the notes to September 5, 2011, and providing an increase in the face amount of the junior note by nearly $500,000.³

By August 18, 2011, four months after the original expected completion date, the project was still not finished. The Bank wrote MDR and guarantor Havai reminding them that the loans in connection with the project would mature on September 5, 2011, and it did not appear that construction would be completed on time. The Bank indicated that it would consider an additional extension, if certain terms were met.

MDR never completed construction. The Bank took the position that the failure to complete construction within the extended maturity date constituted a breach; MDR believed that the maturity dates were irrelevant and the Bank inappropriately stopped funding the loan, causing construction to halt.

3. The Deed in Lieu of Foreclosure and Release

The Bank found a buyer for the project, an entity known as Anastasi. Bank sold its interest in the loans to Anastasi. At the same time, MDR gave Anastasi, as Bank's assignee, a deed in lieu of foreclosure. The deed in lieu was accompanied by a deed in lieu agreement. The deed in lieu extinguished MDR'sobligations on both loans; Anastasi also released Havai from his guaranty.⁴

The deed in lieu agreement contained a general release, whereby MDR and Havai released Anastasi and Bank (among others) "from any and all lawsuits, debts, losses, claims, liens, liabilities, demands, obligations, promises, acts, agreements, costs, expenses, damages, actions and causes of action, of whatever kind or nature, whether known or unknown, suspected or unsuspected, contingent or fixed, that the Releasor Parties have or may have against the Released Parties, including, but not limited to any of the foregoing that concern, relate or pertain to, in any way whatsoever, the Loans, the Loan Documents (including, without limitation, the Guaranty), and/or the Property." A waiver of Civil Code section 1542 was also included.⁵ Additionally, the release provided "In entering into the release provided for in this Agreement[,] Borrower and Guarantor, and each of them, recognize that no facts or representations are ever absolutely certain; accordingly, Borrower and Guarantor, and each of them, assume the risk of any misrepresentation, concealment, or mistake, and if, except as reserved above, Borrower or Guarantor, or any of them, should subsequently discover that any fact that they relied upon inentering into these releases was untrue, or that any fact was concealed from them, or that any understanding of the facts or of the law was incorrect, Borrower and Guarantor, and each of them, shall not be entitled to set aside these releases by reason thereof, regardless of any claims of fraud, misrepresentation, promise made without the intention of performing it, concealment of fact, mistake of fact or law, or any other circumstances whatsoever."

The actual deed in lieu attached an estoppel affidavit, signed by Baghdassarians for himself and on behalf of MDR, stating, among other things, "[t]hat, in the execution and delivery of the Deed, [MDR] was not acting under any misapprehension with regard to the effect of the Deed, acted freely and voluntarily, and was not acting under coercion or duress; [and t]hat the consideration for the Deed was, and is, full cancellation of all of Grantor's debts, obligations, costs, and charges secured by two (2) Construction Deeds of Trust . . . ."

Bank would present some evidence that the deed in lieu was part of a global settlement agreement, which resolved not only the MDR project, but the Angeleno deed of trust, and several other projects in which Baghdassarians was also in default. Although we conclude the evidence of a global settlement agreement is disputed—due to its apparent shifting terms and continuous renegotiation—it is certainly clear that all parties believed that reciprocal obligations were being...