Case Number: EC061967 Hearing Date: April 11, 2014 Dept: B

Demurrer

Motion for Sanctions

On December 8, 2008, Martin Yacoobian signed a note to obtain a loan of $500,000 from the Defendant, Ontario Development Partners, which was a fictitious business name for a general partnership formed by Defendants, Bernard Golditch and Michael Narvid. The note charged interest at 19% per year.

The note was secured by a deed of trust on real property. The Plaintiff purchased the real property from Martin Yacoobian, who promised to repay the note. The Complaint alleges that after Mr. Yacoobian failed to repay the loan, a notice of default and election to sell was issued. The Plaintiff paid $916,000 to satisfy the obligation and to stop the foreclosure sale.

It is alleged that the interest rate of 19% per year was usurious because it exceeds the maximum allowable rate under the California Constitution. Further, the Defendants engaged in elder abuse by causing the Plaintiff to pay $916,000 to stop the foreclosure sale. The two causes of action in the Complaint are for: 1) Usurious Interest and 5) Elder Abuse.

This hearing concerns the Defendants’ demurrer to the first cause of action for usurious interest and the Defendants’ motion for sanctions under CCP section 128.7.

1. Demurrer

The Defendants argue that the first cause of action for usurious interest in the Plaintiff’s Complaint is barred by the doctrine of res judicata because it was raised in a prior action between the parties. The Defendants make no meaningful effort to support their demurrer with any analysis or comparison of the pleadings in this action and the prior action. If they had, it would have been evident that there is no merit to the demurrer.

Instead, the Defendants argue that the issue was raised in an application for a temporary restraining order and that the opposition to the application for a temporary restraining order included arguments and evidence to demonstrate that the note was not usurious. The Defendants offer no legal authority holding that the doctrine of res judicata applies to a claim made in a motion, i.e., that parties can search through motions in prior cases, find arguments, and then claim that the doctrine of res judicata applies to the arguments.

Further, any decision regarding the application for a temporary restraining order is not an adjudication on the merits. A Court’s ruling on an application for injunctive relief prior to trial does not adjudicate the ultimate rights in the controversy and represents the Court’s discretionary decision whether a party should be restrained from engaging in specified conduct pending trial. Cohen v. Board of Supervisors (1985) 40 Cal. 3d 277, 286.

Accordingly, there are no grounds to find that raising the issue of usurious interest in an application for a temporary restraining order bars a subsequent action under the doctrine of res judicata.

The following performs the analysis of the pleadings that the Defendants neglected to perform in their demurrer. The analysis indicates that there was no claim in the prior pleadings regarding usurious interest and there is no basis to find that the doctrine of res judicata bars the pending case.

The principle of res judicata may be raised by demurrer where the facts which give rise to it appear in the complaint. Willson v. Security-First Nat’l Bank (1943) 21 Cal. 2d 705, 710-711. In addition, the Court may take judicial notice of another proceeding for the purpose of determining whether res judicata bars to the pending suit. Id. The doctrine applies when the following is shown:

1) the issue decided in the prior adjudication is identical with the one presented in the action in question;
2) there a final judgment on the merits; and
3) the party against whom the plea is asserted a party or in privity with a party to the prior adjudication.
Columbus Line, Inc. v. Gray Line Sight-Seeing Companies Associated, Inc. (1981) 120 Cal. App. 3d 622, 628.

The first cause of action in the pending case involves the Plaintiff’s claim that the Defendants charged usurious interest on the loan.

The Defendants request that the Court take judicial notice of the pleadings in EC059327, Golditch v. Rustam. There was a Complaint, a Cross-Complaint, and a First Amended Cross-Complaint (see exhibits 1, 2, and 3 to request for judicial notice).

A review of the pleadings in EC059327 reveals no claim based on usurious interest. In the Complaint, Bernard Golditch claimed that Mohammed Rustam has failed to provide a payoff statement, Bernard Golditch sought declaratory relief regarding the payoff amount, and an injunction to require Mohammed Rustam to provide a payoff amount. In the Cross-Complaint, Mardi Rustam and Sarah Rustam sought declaratory relief regarding Bernard Golditch’s right to proceed with the foreclosure sale, a claim that Bernard Golditch and the Ontario Development partners had made false representations in financial statements to induce an extension of credit, and a claim that Bernard Golditch had engaged in a conspiracy to obtain money under false pretences.

There is no claim about the promissory note, its terms, or the interest rate. Further, there is no claim regarding a Defendant in the pending action, Michael Narvid.

a. Issue Decided in Prior Action Are Not Identical

The analysis of issues in actions is done through the primary right theory, which is a theory of code pleading that has long been followed in California. Crowley v. Katleman (1994) 8 Cal. 4th 666, 681-682. It provides that a “cause of action” is comprised of a “primary right” of the plaintiff, a corresponding “primary duty” of the defendant, and a wrongful act by the defendant constituting a breach of that duty. Id. A primary right is indivisible: the violation of a single primary right gives rise to but a single cause of action. Id.

The primary right is simply the plaintiff’s right to be free from the particular injury suffered. Id. This must be distinguished from the legal theory on which liability for that injury is premised. Id. Even where there are multiple legal theories upon which recovery might be predicated, one injury gives rise to only one claim for relief. Id.

The primary right theory is invoked most often when a plaintiff attempts to divide a primary right and enforce it in two suits. Id. The theory prevents this result by either of two means:

1) if the first suit is still pending when the second is filed, the defendant in the second suit may plead that fact in abatement under CCP section 430.10(c); or
2) if the first suit has terminated in a judgment on the merits adverse to the plaintiff, the defendant in the second suit may set up that judgment as a bar under the principles of res judicata.

Under the latter circumstance, an adverse judgment in the first suit is a bar even though the second suit is based on a different theory or seeks a different remedy. Id.

A comparison of the pleadings in the prior action, EC059327, to the pending action, EC061967, reveals that the issues decided in the prior adjudication are not identical to the ones presented in pending action. The prior action did not involve any claim regarding the interest rate on the promissory note. The prior action did not involve any claim regarding the enforceability of the terms of the promissory note.

Therefore, a review of the pleadings in the prior action, EC059327, and the pending action, EC061967, reveals that the claims are not identical.

b. No Final Judgment on the Merits of Usurious Interest Claim

The pleadings in EC059327 were resolved by a dismissal with prejudice, which was entered on July 1, 2013. Since there was no claim regarding usurious interest, this dismissal was not a final judgment on the merits of the usurious interest claim.

c. Parties or Parties in Privity are Not Identical on Usurious Interest Claim

The pending action, EC061967, is brought by Mardi Rustam against Bernard Golditch, Michael Narvid, and Ontario Development Partners. The Complaint in the prior action, EC059237, was brought by Bernard Golditch against Mardi Rustam, Sarah Rustam, Cheeni Productions, and Mohammed Rustam. The Cross-Complaint in the prior action was brought by Mardi Rusam and Sarah Rustam against Bernard Golditch and Ontario Development Partners.

There was no claim in the prior action involving usurious interest. Accordingly, there is no claim involving usurious interest in both cases involving identical parties or parties in privity.

The Defendants’ sole ground for their demurrer to the first cause of action was res judicata. Since the doctrine does not apply, it is not grounds for a demurrer.

Therefore, the Court overrules the demurrer to the first cause of action.

2. Motion for Sanctions

The Defendants argue that there are grounds to impose monetary sanctions of $6,375 on the Plaintiff and his attorney because the claims in the Complaint are not warranted.

CCP section 128.7 requires an attorney filing a pleading to certify that to the best of the attorney’s knowledge, information, and belief, all of which were formed after an inquiry reasonable under the circumstances, that the pleading, petition, written notice of motion, or other similar paper contain the following:

1) the paper was not presented primarily for an improper purpose, such as to harass or to cause unnecessary delay or needless increase in the cost of litigation.
2) the claims and other legal contentions are warranted by existing law or can be supported only by non-frivolous arguments for the extension, modification, or reversal of existing law or the establishment of new law.
3) the allegations and other factual contentions have evidentiary support or are likely to have evidentiary support after an investigation or discovery.
4) the denials of factual contentions are warranted by the evidence.

CCP section 128.7 permits the Court to impose monetary sanctions on an attorney or an unrepresented party that violates any one of these requirements. Eichenbaum v. Alon (2003) 106 Cal App 4th 967, 976. In addition, section 128.7 does not require a finding of subjective bad faith; instead it requires only that the Court find that the conduct be objectively unreasonable. In re Marriage of Reese & Guy (1999) 73 Cal. App. 4th 1214, 1221.

The Defendants argue that the cause of action for usurious interest is barred by res judicata, that the second cause of action for elder abuse is barred by a release, and that the Plaintiff lacks standing.

a. First Cause of Action for Usurious Interest

The Defendants argue that this cause of action was raised in the prior action between the parties. As discussed above in the analysis of the demurrer, this argument has not merit and offers no grounds to find that the Complaint is objectively unreasonable.

Therefore, there are no grounds to find that the Plaintiff’s first cause of action for usurious interest is objectively unreasonable. This alone is grounds to deny the Defendants’ motion for sanctions because the Plaintiff’s Complaint contains a valid cause of action.

b. Second Cause of Action for Elder Abuse

The Defendants argue that this cause of action is barred by a release between the parties. The Defendants offer evidence of a written settlement agreement in which there was a waiver under Civil Code section 1542. A copy of the release is attached as exhibit A to the motion. Paragraph 4 includes the release of all claims.

However, this argument identifies no grounds to find that it is objectively unreasonable to bring the pending action. A release, like any other agreement in legal proceedings, may be challenged as unenforceable. There are no grounds to find that it is objectively unreasonable to make such a challenge to the release. In the pending case, the Plaintiff’s opposition papers indicate that he will challenge the release of claims in the prior action, EC059237, as obtained through fraud, economic duress, and undue influence. In addition, the Plaintiff claims that the release lacks consideration, mistake, or deceit. The Defendants may raise this issue as an affirmative defense in their answer.

Further, the release of claims in the prior case, EC059237, does not include any release of claims against Defendant, Michael Narvid, who was not a party to EC059237. Accordingly, it does not apply to the Plaintiff’s claims against Michael Narvid.

Therefore, there are no grounds to find that the Plaintiff’s second cause of action for elder abuse is objectively unreasonable.

c. Standing

The Defendants argue that the settlement agreement provides that the promissory note was purchased by Mohammad Rustam. This argument lacks any merit because it does not indicate that the Plaintiff, Mardi Rustam, has no damages or that the Plaintiff is not the real party in interest on the claims in his pleadings.

In the Complaint, the Plaintiff alleges in paragraph 17 that he borrowed $916,000 from his brother, Mohammed Rustam, and then paid the Defendants the amount to stop the foreclosure. The Plaintiff also alleges that he gave his brother an unsecured promissory note in exchange for the loan. These allegations indicate that the Plaintiff is the real party in interest to recover the $916,000 that was paid to the Defendants to halt the foreclosure because he is liable for the full amount and must repay his brother.

Further, the opposition papers include a copy of the promissory note under which the Plaintiff agreed to repay $916,000 to his brother. This evidence indicates that the Plaintiff is the real party in interest because he is liable for the $916,000 paid to the Defendants to prevent the foreclosure sale of the Plaintiff’s property.

Therefore, there are no grounds to find that it was objectively unreasonable for the Plaintiff to claim he has standing to bring the claims in his Complaint.

Accordingly, the Court denies the Defendants’ motion for sanctions.

In his opposition, the Plaintiff requests that the Court sanction the Defendants for filing their motion. However, there is no authority for imposing monetary sanctions in opposition papers to a motion for sanctions under CCP section 128.7. CCP section 128.7(h) states that a motion for sanctions shall be subject to a motion for sanctions if the motion was brought by a party or a party’s attorney primarily for an improper purpose. It does not authorize an award of sanctions in an opposition. Accordingly, the Court denies the Plaintiff’s request for monetary sanctions because it was made in an opposition.