Case Number: BC476546 Hearing Date: April 11, 2014 Dept: NCE

2. Doran Lofts, LLC v. Dove Street Capital Lenders
BC476546

Unopposed Request for Judicial Notice is granted.

Motion of defendants Dove Street Capital Lenders, LLC, Keith B. Smith, individually and as trustee for the Smith Family Trust and Lawrence Goelman, individually and as trustee of the Lawrence Goelman Trust for summary judgment against Doran Lofts, or in the alternative for summary adjudication:

Motion for summary judgment is granted.

The moving papers are premised upon the argument that this action is barred by res judicata or that each cause of action is barred by collateral estoppel. To establish such claim preclusion a party must demonstrate five factors:

First, the issue sought to be precluded from relitigation must be identical to that decided in the former proceeding. Second, this issue must have been actually litigated in the former proceeding. Third, it must have been necessarily decided in the former proceeding. Fourth, the decision in the former proceeding must be final and on the merits. Finally, the party against whom preclusion is sought must be the same as, or in privity with, the party to the former proceeding.

Lucido v. Superior Court (1990) 51 Cal.3d 335, 341.

Here, documents in the court’s files in three cases between the parties, documents of which the court may take judicial notice, establish that plaintiffs Doran Lofts and SF Properties commenced a previous action (Case No. EC051716) against defendant Dove Street, asserting causes of action for Declaratory Relief, Money Had and Received. Unjust Enrichment, Accounting, Quiet Title and Injunction in connection with each of two loans, one made to SF Properties and one made to Doran Lofts. [UMF No. 17, and evidence cited; RFJN, Ex. O.] In the fifth through the ninth causes of action concerning the loan to Doran Lofts, it is alleged that the interest rates were usurious [Ex. O, para. 29A-C], that Doran Lofts was entitled to recover the usurious interest as an offset against the principal balance of the loan [Ex. O, para. 29E], that $498,520.00 of the Doran Lofts loan was intended to be for SF Properties’ use and was to be removed from the Doran Lofts loan by a sub escrow and transferred into the balance due under SF Properties’ loan 1 [Ex. O, para. 29G], that the $498,520.00 loan was included by Dove Street in determining the balance due from SF Properties on loan 1 at the time of the foreclosure on the deed of trust securing loan 1 [Ex. O, para. 29H], that Doran Lofts therefore is entitled to a credit of $498,520.00 against its loan balance [Ex. O, para. 29I], and further that Doran Lofts paid $200,000 in usurious interest to Dove Street and is entitled to recover that interest [Ex. O, para. 34] and three times that interest [Ex. O, para. 29F], as well as a determination that the Doran Lofts loan of $498,520.00 was paid in full by virtue of its transfer into SF Properties loan 1 and the full credit bid made by Dove Street at the subsequent foreclosure on the deed of trust securing that loan 1 [Ex. O, para. 41].

In this case, BC476546, plaintiff Doran Lofts alleges that it executed a promissory note in favor of Dove Street which is secured by a deed of trust on property owned by plaintiff; that this transaction was part of a larger transaction involving a loan to SF Properties and a deed of trust as to its property; that Dove Street added the net loan proceeds from the Doran Lofts loan to the balance due from SF Properties which was secured by the deed of trust to SF Properties’ property; that Dove Street foreclosed on the SF Properties deed of trust and acquired the property at the sale through a full credit bid which included the Doran Lofts loan; that the Doran Lofts loan was paid in full by virtue of the full credit bid at the foreclosure sale; that the interest rate on the loan was usurious and that Doran Lofts is entitled to the usurious interest it paid and treble the interest it paid, as well as a reconveyance of the deed of trust encumbering the Doran Lofts property. In the fourth cause of action, the complaint also alleges that Dove Street agents defrauded Doran Lofts into borrowing money by representing that “the security for the loan would be flipped, moved to the property owned by SF Properties, LLC, in return the loan of Neuman Properties and Development, LLC and Delovely Properties, LLC, that was currently secured by the property owned by SF Properties, LLC, would be flipped, moved so it was secured by the Doran Property.” [RFJN, Ex. W, passim; quoted language from para. 24.]

It is also established by the moving party’s evidence and the court’s files that the previous case, No. EC051716, went to court trial, beginning on January 24, 2011 [UMF No. 20]. After plaintiffs’ rested their case in chief, counsel for Dove Street moved to dismiss the fifth through the ninth causes of action relating to the Doran Lofts loan. [UMF No. 21; Storm Decl., Ex. 1, Trial Transcript.] Counsel for Doran Lofts stated he had no objection to the dismissal of the causes of action related to the Doran Lofts loan and the court dismissed them. [Id.] The trial continued as to the claims regarding the loan to SF Properties and at its conclusion, the court granted judgment to defendant Dove Street, ordering that plaintiffs SF Properties and Doran Lofts take nothing from defendant Dove Street. [UMF No. 32, RFJN Ex. R (Judgment of April 13, 2011).]

There is no question that Doran Lofts was the plaintiff, and therefore a party, to the previous action and is the plaintiff here, the party against whom res judicata is now asserted. This satisfies the last factor in the list established in the Lucido case set forth above.

There is no factual dispute concerning whether the matters alleged against Dove Street in the previous complaint were determined on their merits. There is only a dispute as to the legal effect of those facts. The trial transcript demonstrates that at the close of plaintiff’s case in chief, counsel for Dove Street moved to dismiss the causes of action relating to the Doran Lofts loan and counsel for plaintiffs Doran Lofts and SF Properties indicated he had no objection to their dismissal. The court is not persuaded that the resulting dismissal of the fifth through the ninth causes of action was not a judgment on the merits, but rather a voluntary dismissal without prejudice with defendants’ consent under CCP section 581(e) because it purportedly was by “stipulation.” Although a Minute Order drafted by a clerk indicates it was a stipulation, the trial transcript which controls indicates it was not a stipulation. The dismissal resulted from a motion made by defendant Dove Street and acquiesced in by counsel for plaintiffs. The motion was made long after the trial had begun and after plaintiff had presented its case in chief and was based on a lack of evidence. There is nothing in the record submitted in connection with this motion suggesting that counsel for Dove Street consented with plaintiffs’ counsel to a dismissal, or that counsel for plaintiffs SF Properties and Doran Lofts indicated his concession was limited to a dismissal without prejudice. In fact, it appears from the transcript that counsel was abandoning those causes of action for lack of evidence, under CCP section 581(d). The court finds that pursuant to CCP section 581(d) and (e) upon undisputed facts, that the causes of action related to the Doran Lofts loan were determined on their merits.

Doran Lofts argues the claims in this case are not the same as the claims finally resolved in the previous action such that the first Lucido factor is not met. It contends the previous case litigated whether the Doran Lofts loan was usurious because Dove Street was not a licensed lender exempt from the interest limitations set forth in California’s usury laws while the present case seeks to litigate whether the loan was usurious because it purportedly was arranged by Dove Street for the unlicenced individual defendants who similarly were not exempt from the interest limitations set forth in California’s usury laws. The two proceedings are the same cause of action if they arise out of the same primary right. Federation of Hillside and Canyon Associations v. City of Los Angeles (2004) 126 Cal.App.4th 1180, 1202-1203 (“The plaintiff’s primary right is the right to be free from a particular injury, regardless of the legal theory on which liability for the injury is based.”) It is clear to the court that the primary right concerning the interest allegations of both complaints is the right to be free of usurious interest, whether because Dove Street was not a licensed lender or the individual defendants were not licensed lenders are just two different legal theories on which the allegation of usury is based and not two different primary rights. Even though this theory was not raised in the previous action, it was within the scope of the prior action, it was related to the subject matter of the prior action and was relevant to the issue of usury so that it could have been raised. In fact, there is a judicial admission in the complaint in a third action between these parties that plaintiffs knew of the facts which led counsel to believe the loan funds were provided by the two unlicenced individual defendants at least 45 days before the trial in the previous case and could have raised it then. [Storm Decl., Ex. 2 (Complaint in Case No. BC465314), para. 11.] Whether Doran Lofts primary right to have its loan declared paid in full and its property reconveyed free of the deed of trust was raised in the previous action, as well as in this action. In the previous action, Doran Lofts simply argued Dove Street agreed to consolidate the loans into the SF Property loan secured by the deed of trust to SF Property’s property and in this case, plaintiff alleges Dove Street defrauded Doran Lofts by so agreeing without any intention to perform. Again, these are simply two different theories to avoid responsibility for or collect damages for the same loan and the same primary right.

In addition, the court claims based upon usurious interest are barred by the statute of limitations. Pursuant to Civil Code section 1916-3(a), a borrower who pays interest at a usurious rate may recover treble the amount paid “providing such action shall be brought within one years after such payment delivery.” Any common law claim for the interest must be brought within two years. Creative Ventures, LLC v. Jim Ward & Associates (2011) 195 Cal.App.4th 1430, 1441 (“The borrower also retains the common law right as a party to an illegal contract to bring an action for money had and received to recover usurious interest paid within two years.”) Defendants present evidence that plaintiff has made a judicial admission that the alleged usurious interest was paid when Dove Street included the Doran Lofts loan in its full credit bid at the October 27, 2009 foreclosure sale of the SF Properties deed of trust. [RFJN, Ex. W, paras. 7, 10G.] This action was filed January 9, 2012 [RFJN, Ex. V], more than the two years provided in the longest limitations period. Although Doran Lofts argues there is no direct evidence as to when the last interest payment was made, the only reasonable inference that can be drawn from the evidence presented is that Doran Lofts did not make any payments of principal or interest after the date it contends the loan was paid off through foreclosure.

The Notice of Default on the loan did not constitute a waiver of the statute of limitations. See the passage from Miller & Starr, California Real Estate (3d Ed. 2001), 21:37, p. 161, relied upon by the court in Gibbo v. Berger (2004) 123 Cal.App.4th 396 (“The two-year statute of limitations only applies when the borrower commences the action against the lender. If the lender brings an action to collect the debt or to enforce security, the borrower may raise the defense of usury, and can file a counterclaim to recover all interest paid off the debt from the commencement of the loan regardless of when it was paid. In other words, as long as any part of the debt remains unpaid, there is no statute of limitations on the application of past interest paid against the unpaid principal when the issue is raised in a cross-complaint by the borrower in the lender’s action to enforce the debt.”) This action was commenced by the borrower, not by the lender to enforce the debt.

Defendant’s Objections to Evidence Submitted by Plaintiff:
Objection No. 6 is sustained; all other objections are overruled.

Moving party shall prepare and file a proposed Order on Summary Judgment and a separate proposed Judgment, consistent with the this ruling by 4:00 p.m. on April 21, 2014.