Gateway Bank v. Metaxas

65 Cal.App.5th 71

279 Cal.Rptr.3d 779

GATEWAY BANK, F.S.B., Plaintiff and Respondent,

v.Poppi METAXAS, Defendant and Appellant.

A158793

Court of Appeal, First District, Division 2, California.

Filed June 3, 2021

As Modified on Denial of Rehearing June 25, 2021

Attorney for Plaintiff and Respondent, Gateway Bank, F.S.B.: Kirschenbaum Law, PC, Jeffrey B. Kirschenbaum, Raymond E. Loughrey, San Francisco, Kristin L. Williams.

Attorney for Defendant and Appellant, Poppi Metaxas: Katz Appellate Law, Paul J. Katz, San Francisco.

Richman, Acting P.J. Appellant Poppi Metaxas was the president and chief executive officer of Gateway Bank (Gateway or the bank) in 2008 when the subprime mortgage market collapsed, leading to the financial crisis. Following their examination of Gateway, federal regulators categorized it as a "troubled institution," and in response the bank set out to raise more capital and deal with its troubled assets. Certain transactions caused the regulators to be suspicious, leading to a lengthy investigation. Along the way, the United States Attorney also became involved, causing another investigation, which culminated in Metaxas being indicted—and in 2015 to her pleading guilty to conspiracy to commit bank fraud.

Shortly thereafter, the bank sued Metaxas based on two transactions involving Ideal Mortgage Brokers: (1) a March 2009 $3.65 million working capital loan; and (2) a November 2009 $757,000 wire transfer. Following a lengthy trial, the court-appointed referee found for the bank, awarding it $250,000 in tort of another damages arising from "the fallout" from the first transaction, and $132,000 in damages for the second. Metaxas appeals, asserting two arguments: (1) the tort of another damages must be reversed because the first transaction resulted in "substantial benefit" ( Rest.2d Torts, § 920 ) to Gateway, and (2) the award for the second transaction was error because Metaxas had no alternative but to approve the wire transfer and the wire transfer caused no damage. We reject both arguments and affirm.

BACKGROUND

The Parties and the General Setting

Plaintiff and respondent Gateway is a community bank headquartered in Oakland.

Defendant and appellant Poppi Metaxas joined Gateway in 1993 as a compliance officer. She was quickly promoted, to the dual position of chief compliance officer and chief lending officer, and promoted again in 1996, to president and chief executive officer (CEO). She also became a member of the Board of directors.

In 2008, the subprime mortgage market collapsed, and widespread defaults caused a chain reaction leading to a global financial crisis. It was a challenging time in the banking industry, and regulators pressured banks to improve their balance sheets. Gateway was no exception, and it became the subject of federal oversight.

The federal regulatory body overseeing Gateway was the Office of Thrift Supervision (OTS), an agency of the Department of Treasury. Following its examination, in late 2008 the OTS advised Gateway officials that the bank's financial condition had to be improved, and in February 2009, the OTS issued its formal conclusions and rating, categorizing the bank as a "troubled institution."

In response, the bank's Board embarked on a campaign to raise more capital and shed many of its "troubled assets," which consisted of real property Gateway had acquired through foreclosure (known as real estate owned or "REOs") and non performing loans ("NPLs") in various stages of default. What the bank—and Metaxas—did in connection with the effort became the subject of a lengthy investigation, as set forth in detail below. Suffice to say here that the investigation led to the OTS demanding in early 2010 that Gateway fire Metaxas, who in fact left the bank in May. The OTS investigation continued.

Then, in 2011, a New York Federal Grand Jury issued a subpoena to Gateway requiring documents and testimony, which resulted in an additional investigation, one that lasted several years. This investigation led to a March 2014 indictment charging Metaxas with three crimes: (1) conspiracy to commit bank fraud; (2) bank fraud; and (3) perjury, lying under oath to the OTS. And in 2015, Metaxas pled guilty to the conspiracy charge, and was sentenced to 18 months in prison.

This lawsuit followed.

The Proceedings Below

Gateway's Lawsuit

In July 2015, Gateway filed a complaint against Metaxas. It alleged eight causes of action, for fraud, breach of fiduciary duty, and negligence based on the two transactions with Ideal Mortgage Brokers.

In September, Metaxas filed an answer and in November, a cross-complaint, which she would come to dismiss in February 2016.

At a November 2015 case management conference, the case was set for jury trial for September 2016. Due to various motions, and stipulations, and numerous contested and uncontested matters held before several different judicial officers, trial was continued several times, ultimately to be heard as a court trial in March 2019.

The parties wanted the trial to be before the Honorable Robert Baines, a retired superior court judge. And in October 2018, the superior court filed an order pursuant to Code of Civil Procedure section 638 appointing retired Judge Baines to serve as referee, to hear and determine all issues of fact and law and to report a statement of decision. As the referee would later put it, at the parties’ request he was to decide five causes of action, three involving the working capital loan (the first, for fraud; the second, for concealment; and the fourth, for breach of fiduciary duty), and two involving the wire transfer (the fifth, for breach of fiduciary duty; and the sixth, for negligence).¹

The Trial and the Statement of Decision

Trial began on March 11, 2019, and took place over eight days, with the referee hearing from eight witnesses, five on behalf of Gateway and three on behalf of Metaxas. The five Gateway witnesses were Metaxas; James Keefe, a former Gateway director; Timothy Green, former Gateway chief financial officer (CFO); Grant Stifel, an expert on legal fees; and Brian Kelley, an expert on banking. The three Metaxas witnesses were herself; Joseph Anastasi, an expert on accounting; and James Wagstaffe, an expert on legal fees. The parties introduced 202 exhibits.

Following trial, the parties entered into a "Stipulation and Order Modifying the Order Appointing Referee" to address various posttrial procedures, including the schedule for submitting posttrial briefs and the timing and procedure for rendering the statement of decision. And the parties requested a statement of decision on whether Metaxas was liable to Gateway on its various causes of action; the amount of damages; whether Gateway's claims were barred by various affirmative defenses; and whether Gateway was liable to Metaxas for attorney fees and costs.²

On May 17, both sides filed lengthy posttrial briefs, to which each side filed replies.

On July 3, the referee served his proposed statement of decision, indicating his intent to rule for Gateway and to award tort of another damages for its legal costs in defending itself and its Board members, and damages in connection with the wire transfer.

The last day to file objections to the proposed statement of decision was July 17. No objections were filed by Metaxas. However, on July 29, Metaxas filed a nine-page brief constituting her objections to the proposed statement, arguing that California's "special benefit" doctrine required the referee to offset Gateway's purported gains against its tort of another losses. Gateway agreed to allow the referee to consider Metaxas's belated objections.

On August 5, the referee filed an amended statement of decision, a comprehensive 28-page decision, whose substance begins with eight pages of "facts" pertinent to the two transactions in issue. Metaxas spends many pages in her brief focusing on her lengthy experience at the bank, and various claimed successes. And as to the referee's facts, Metaxas's brief asserts there were "conflicts" or "competing" evidence. She also accuses an expert witness for the bank of "guessing" and "surmise." This, of course, is improper, as it disregards a fundamental rule of appellate review, that we view the facts favorably to the judgment ( David v. Hernandez (2014) 226 Cal.App.4th 578, 581, 172 Cal.Rptr.3d 204 ), under the principle requiring us to presume the lower court's judgment is correct, and drawing all inferences and presumptions necessary to support it. ( Chapala Management Corp. v. Stanton (2010) 186 Cal.App.4th 1532, 1535, 113 Cal.Rptr.3d 617, citing In re Marriage of Arceneaux (1990) 51 Cal.3d 1130, 1133, 275 Cal.Rptr. 797, 800 P.2d 1227.)

Thus, and because we can hardly improve on the referee's excellent exposition of the facts, we quote liberally from his statement of decision (deleting all citations), adding our embellishments where appropriate. And we begin with the facts after the OTS rated Gateway as a "troubled institution":

"The Gateway Board and Metaxas knew the OTS rating and the proposed cease and desist order could spell disaster for the bank. As the Board noted at its February 26, 2009 meeting, ‘[t]he Capital infusion, accompanied by a meaningful reduction of the Bank's NPAs will also result in the removal of the troubled designation, something the management and the Board consider key and critical to the institution's soundness and success.’ The Board set a deadline, March 31, 2009, to turn matters around.

"To raise capital, the Board authorized the issuance of a round of preferred shares. All Board members and bank executives were encouraged to find buyers, including themselves. The Board also requested that all attempt to find buyers for the troubled assets.

"For a number of years, Gateway had enjoyed a very close working relationship with Ideal Mortgage Bankers, Ltd., of New York, d/b/a Lend America (‘Ideal’). Gateway was the warehouse lender for Ideal's mortgage loans; it had granted Ideal a $100,000,000 warehouse...