Case Number: BC504114    Hearing Date: July 15, 2014    Dept: 34

SUBJECT: Motion for leave to file a first amended answer

Moving Party: Defendant Michael S. Yu (“defendant”)

Resp. Party: None

Defendant’s motion for leave to file a first amended answer is GRANTED.

BACKGROUND:

Plaintiff commenced this action on 3/29/13 against defendant for breach of guaranty. On 9/21/07, Michael S. Yu, A Law Corporation executed a promissory note for a commercial loan of $1,196,500.00 from Bank of the West. (Compl., ¶ 2, Exh. A.) Defendant Yu, as an individual, executed a commercial guaranty which guaranteed full payment on the loan. (Id., ¶ 4, Exh. C.) On 5/8/12, the lender sold the loan and all guaranty agreements to plaintiff. (Id., ¶ 8.) According to a trustee’s deed upon sale dated 11/1/13, the amount of unpaid debt was $1,220,991.14 and the amount paid at the trustee’s sale was $880,000.00. (Id., ¶ 9, Exh. D.) Therefore, the remaining principal balance is $328,988.14 plus interest and late charges. (Id., ¶ 10.)

Defendant filed an answer on 6/3/13.

ANALYSIS:

Defendant moves for leave to file an amended answer to add affirmative defenses.

Procedural analysis

Under California Rules of Court rule 3.1324(a):

(a) A motion to amend a pleading before trial must: [¶] (1) Include a copy of the proposed amendment or amended pleading, which must be serially numbered to differentiate it from previous pleadings or amendments; [¶] (2) State what allegations in the previous pleading are proposed to be deleted, if any, and where, by page, paragraph, and line number, the deleted allegations are located; and [¶] (3) State what allegations are proposed to be added to the previous pleading, if any, and where, by page, paragraph, and line number, the additional allegations are located.

Subdivision (b) of rule 3.1324 requires the motion be accompanied by a separate declaration, specifying: (1) the amendment’s effect, (2) why the amendment is necessary and proper, (3) when the facts giving rise to the amended allegations were discovered, and (4) the reasons why the request for amendment was not made earlier.

Defendant provides a copy of the proposed amended answer and indicates which affirmative defenses are to be added.

Defendant provides a declaration, but it is not separate. The declaration merely states that defendant’s current counsel believes that the previous counsel did not assert all applicable defenses. (Risley Decl., ¶ 3.) The declaration fails to indicate the amendment’s effect, why the amendment is necessary or proper, or when the facts giving rise to the amended allegations were discovered.

Thus the motion is procedurally defective.

Substantive analysis

California Code of Civil Procedure section 473, subd. (a)(1) states: “The court may . . . , in its discretion, . . . allow, upon any terms as may be just, an amendment to any pleading or proceeding.” Although granting the motion is entirely within the Court’s discretion, denial is rarely justified:

If the motion to amend is timely made and the granting of the motion will not prejudice the opposing party, it is error to refuse permission to amend and where the refusal also results in a party being deprived of the right to assert a meritorious cause of action or a meritorious defense, it is not only error, but an abuse of discretion.

(Morgan v. Sup. Ct. (1959) 172 Cal.App.2d 527, 530.)

Because defendant fails to provide a proper declaration under rule 3.1324, it cannot be determined whether the delay in asserting the affirmative defenses was excusable. Defendant fails to show that plaintiff will not be prejudiced. Trial in this action is just over two months away.

Nonetheless, the motion is unopposed. The Court can only assume that plaintiff does not feel that it will be prejudiced if the court grants this motion.

Therefore, the motion is GRANTED.

SUBJECT: Motion to appoint a probate referee

Moving Party: Defendant Michael S. Yu (“defendant”)

Resp. Party: Plaintiff Commercial Loan Solutions III, LLC (“plaintiff”)

Defendant’s motion is DENIED.

BACKGROUND:

Plaintiff commenced this action on 3/29/13 against defendant for breach of guaranty. On 9/21/07, Michael S. Yu, A Law Corporation executed a promissory note for a commercial loan of $1,196,500.00 from Bank of the West. (Compl., ¶ 2, Exh. A.) Defendant Yu, as an individual, executed a commercial guaranty which guaranteed full payment on the loan. (Id., ¶ 4, Exh. C.) On 5/8/12, the lender sold the loan and all guaranty agreements to plaintiff. (Id., ¶ 8.) According to a trustee’s deed upon sale dated 11/1/13, the amount of unpaid debt was $1,220,991.14 and the amount paid at the trustee’s sale was $880,000.00. (Id., ¶ 9, Exh. D.) Therefore, the remaining principal balance is $328,988.14 plus interest and late charges. (Id., ¶ 10.)

ANALYSIS:

Defendant requests an order appointing a probate referee to appraise the subject property at the time of the trustee’s sale. Defendant argues that the amount paid by the grantee at the sale was not the fair value of the property, and that he is entitled to an offset for the fair value of the property. Defendant cites to Code of Civil Procedure section 580a, which states:

Whenever a money judgment is sought for the balance due upon an obligation for the payment of which a deed of trust or mortgage with power of sale upon real property or any interest therein was given as security, following the exercise of the power of sale in such deed of trust or mortgage, the plaintiff shall set forth in his or her complaint the entire amount of the indebtedness which was secured by the deed of trust or mortgage at the time of sale, the amount for which the real property or interest therein was sold and the fair market value thereof at the date of sale and the date of that sale. Upon the application of either party made at least 10 days before the time of trial the court shall, and upon its own motion the court at any time may, appoint one of the probate referees provided for by law to appraise the property or the interest therein sold as of the time of sale. The referee shall file his or her appraisal with the clerk and that appraisal shall be admissible in evidence. The referee shall take and subscribe an oath to be attached to the appraisal that he or she has truly, honestly and impartially appraised the property to the best of his or her knowledge and ability. Any referee so appointed may be called and examined as a witness by any party or by the court itself. The court must fix the compensation of the referee in an amount as determined by the court to be reasonable, but those fees shall not exceed similar fees for similar services in the community where the services are rendered, which may be taxed and allowed in like manner as other costs. Before rendering any judgment the court shall find the fair market value of the real property, or interest therein sold, at the time of sale. The court may render judgment for not more than the amount by which the entire amount of the indebtedness due at the time of sale exceeded the fair market value of the real property or interest therein sold at the time of sale with interest thereon from the date of the sale; provided, however, that in no event shall the amount of the judgment, exclusive of interest after the date of sale, exceed the difference between the amount for which the property was sold and the entire amount of the indebtedness secured by the deed of trust or mortgage. Any such action must be brought within three months of the time of sale under the deed of trust or mortgage. No judgment shall be rendered in any such action until the real property or interest therein has first been sold pursuant to the terms of the deed of trust or mortgage, unless the real property or interest therein has become valueless.

(Code Civ. Proc., § 580a.) The instant motion is timely because the trial in this action is more than two months away.

In the opposition, plaintiff argues that defendant has waived its right to seek a probate referee because the guaranty specifically provides for a waiver of CCP section 580a. The guaranty provides, in relevant part:

Guarantor waives all rights and defenses that Guarantor may have because Borrower’s obligation is secured by real property. This means among other things: (N) Lender may collect from Guarantor without first foreclosing on any real or personal property collateral pledged by Borrower. (O) If Lender forecloses on any real property collateral pledged by Borrower: (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. (2) Lender may collect from Guarantor even if Lender, by foreclosing on the real property collateral, has destroyed any right Guarantor may have to collect from Borrower. This is an unconditional and irrevocable waiver of any rights and defenses Guarantor may have because Borrower’s obligation is secured by real property. These rights and defenses include, but are not limited to, any right. and defenses based upon Section 580a, 580b, 580d, or 726 of the Code of Civil Procedure.

(Pl. Exh. A, p. 2.)

In Gramercy Inv. Trust v. Lakemont Homes Nevada, Inc. (2011) 198 Cal.App.4th 903, the plaintiff (Gramercy) sued to recover the unpaid balance of a mortgage loan against the guarantors of the loan following a foreclosure proceeding that resulted in a deficiency. (Id. at p. 906.) The trial court granted Gramercy’s motion for summary judgment which requested the full amount without adjusting for the fair market value of the property. (Ibid.) The guarantors appealed and argued that the trial court failed to adhere to a choice of law provision in the guaranty in applying California law. (Ibid.) The guaranty included a choice of law provision stating that it would be governed by New York law; however, it also included waivers to rights the guarantors may have under Code of Civil Procedure sections 580a and 726(b), and Civil Code section 2856. (Id. at p. 907.) The guaranty also provided that the amount of the obligation would only be reduced by the sale price, even if the collateral was worth more than the sale price. (Ibid.) The appellate court first found that the choice of law provision did not compel application of New York anti-deficiency laws. (Id. at pp. 908-910.) The court then found that the guarantors’ express waiver of the anti-deficiency protections resulted in an estoppel to assert such protections.

A guarantor is one who promises to answer for the debt or perform the obligation of another when the person fails to pay or perform. [Citation.] Although certain antideficiency protections [citation] are applicable to guarantors, a guarantor may waive such defenses [citations], whereas a debtor may not. [Citation.] Where a contracting party is sufficiently aware of the circumstances and consequences of a waiver, contractual waiver/estoppel will be found: “[P]arties who have expressed their mutual assent are bound by the contents of the instrument they have signed, and may not thereafter claim that its provisions do not express their intentions or understanding.” [Citations.] Particularly where the parties making the guaranties are sophisticated business persons with expertise in real estate development, a finding of waiver is appropriate where the language of the waiver evinces such an intention. [Citations.]

(Id. at p. 911.) The court found that the language of the guaranty in that action was “clear, unequivocal, and in language expressing an intention to waive any rights and defenses including any rights or defenses based on Code of Civil Procedure sections 580a, 580b, 580d, and 726.” (Id. at p. 912.) “The waiver went further to waive all rights and defenses arising out of an election of remedies by the creditor, even though that election of remedies, such as nonjudicial foreclosure respecting security for a guaranteed obligation, has destroyed the guarantor’s rights of subrogation and reimbursement against the principal by operation of section 580d of the Code of Civil Procedure. The waiver was expressed in language recommended by the provisions of Civil Code section 2856, and is enforceable as against the guarantors.” (Ibid.)

Here, the language of the waiver is clear and the waiver uses language similar to that in Civil Code section 2856, subd. (a)(3). Defendant does not dispute that he was a sophisticated business person or that he signed the guaranty. Instead, defendant argues that he is the alter ego of the principal debtor, and therefore he could not waive the anti-deficiency statutes.

However, defendant provides absolutely no evidence to support this contention. Instead, he states at least four times in his reply that he “will” present such evidence at trial. (See Reply, p. 2:12-13 [“Defendant Yu will present evidence at trial to prove that he is the principal debtor, and is the alter-ego of the debtor.”]; p. 3:10-11 [“Defendant Yu will show that he is the alter ego of the corporate borrower and reality the principal debtor.”]; p. 3:17-18 [“Defendant Yu will present evidence at trial to prove that he is the alter ego of the debtor, and is essentially the borrower.”]; p. 3:25-26 [“At the time of trial, Defendant Yu will prove that he is the alter ego of the Corporation, the borrower. . .”]

These unsupported assertions are insufficient. Because defendant fails to present such evidence at this time, he has not et his burden to show that he is the alter ego of the borrower such that he could not waive the fair value determination. Defendant provides no authority to support his argument that equity requires a fair value determination despite the waiver of the guaranty.

Defendant’s motion is DENIED.