30-14-702858

Application for Attachment ($722,091.24)

Evidence proffered in support of, or in opposition to, an application for a right to attach order (RTAO) must be set forth with particularity, admissible, competent and under oath by declarants with personal knowledge of the facts proffered. CCP §§ 482.040, 484.020, 484.030; see Generale Bank Nederland, N.V. v. Eyes of the Beholder Ltd. (1998) 61 Cal.App.4th 1384, 1390. Attachment is a harsh remedy because it causes the defendant to lose control of his property before the plaintiff’s claim is adjudicated. As such, compliance with the statutory requirements must be strictly construed. Kemp Bros. Constr., Inc. v. Titan Elec. Corp. (2007) 146 Cal.App.4th 1474, 1476; Pacific Decision Sciences Corp. v. Superior Court (2004) 121 Cal.App.4th 1100, 1106.

Here, defendant contends that plaintiff cannot establish “probable validity” of his single breach of contract claim because (1) his right to return on his investment was expressly contingent upon events which never occurred; and (2) the statute of limitations has already run on any such claim. Plaintiff bears the burden of demonstrating the “probable validity” by providing sufficient evidence from which a trial court may reasonably conclude that “it is more likely than not that [plaintiff] will obtain a judgment against the defendant on that claim.” CCP §481.190; Loeb & Loeb v. Beverly Glen Music, Inc. (1985) 166 Cal.App.3d 1110, 1115-1116. This involves consideration of the relative merits of the positions of the parties and an assessment of the probable outcome of the litigation. Goldstein v. Barak Construction (2008) 164 Cal.App.4th 845, 852.

Return Contingency

Both sides seem to be in agreement that the company’s (Fairview Realty Fund, LP) obligation to reimburse limited partner like Fuller was contingent upon there being adequate available cash remaining after repayment of the construction loan, and that said conditions never materialized. See Limited Partnership Agreement ¶ 4.2, 4.12, 5.5. Plaintiff, instead, suggests that defendant’s obligation under the guaranty was broader than that of the company’s – obligating defendant to “unconditionally” pay plaintiff $300,000 plus 32% interest regardless of the company’s cash flow. There are a number of shortcomings with this interpretation.

First, “the obligation of a surety must be neither larger in amount nor in other respects more burdensome than that of the principal.” Civil Code §2809. Clearly here plaintiff’s interpretation imposes on defendant as guarantor a far greater burden than the limited partnership itself was exposed to. In order to do so, some evidence of an intentional relinquishment must be provided. See River Bank America v. Diller (1995) 38 Cal.App.4th 1400, 1411-1412.

Second, the guaranty contains a full integration clause (see 5.d.) and therefore any intention to impose a heavier burden than that presumptively allowed would have to have been spelled out clearly. Plaintiff contends that the “unconditional” language in the guaranty does just that. However, the complete provision in the guaranty is slightly more telling: “guarantor hereby unconditionally and absolutely guarantees to Fuller the return of Fuller’s capital contribution and payment of the preferred return pursuant to the terms of the partnership agreement” (emphasis added, see para 1). The partnership agreement, as noted, conditions return on investment on available cash after paying back the Bank – which never occurred.

Third, the trigger in the guaranty is somewhat ambiguous: “upon the occurrence of a default in the payment or performance of the guaranteed obligation by the seller, Fuller may [demand payment].” The phrase guaranteed obligation is defined as the obligation set forth in the Limited Partnership Agreement (see para 1). The term seller is itself not defined, which in this instance leads to only one reasonable conclusion: the seller is Fairview Realty Fund, LP. So, Fuller’s right to demand payment under the guaranty was made contingent upon a default by the seller (partnership) under the partnership agreement, and – as noted – the partnership did not default on its repayment obligation under ¶4.12 because the prerequisites thereto never occurred.

Statute of Limitations

Both sides are in agreement that the applicable statute of limitations for plaintiff’s breach of contract action is four years, and that it effectively ran by 08/16/13 (six months before this case was filed) based on the repayment deadline of 08/16/09 contained in the partnership agreement (at ¶4.12). Plaintiff, instead, contends that defendant expressly waived any right to assert the statute of limitations based upon the following provision in the guaranty: “guarantor waives any defense to enforcement of this guaranty by reason of any disability, and waives any other defense to the extent allowed by law” (see para 3). This is a most curious way of phrasing a waiver of defenses: only the defense of disability is expressly stated (which seems least applicable given the parties and the nature of this transaction), and all others are relegated to a general statement “to the extent allowed by law.” So, to what extent does the law favor a passive waiver of the statute of limitations defense? There are two sources available for consideration: the general rule on waivers, and CCP §360.5.

The general rule on waivers can be summarized thusly: waiver is the intentional relinquishment of a known right with knowledge of the facts; waiver of an important right must be a voluntary and knowing act done with sufficient awareness of the relevant circumstances and likely consequences. In other words, there must be both actual knowledge of pertinent information and the present intention to relinquish the right or privilege in question. See Waller v. Truck Ins. Exchange, Inc. (1995) 11 Cal.4th 1, 31; Ringler Associates Inc. v. Maryland Casualty Co. (2000) 80 Cal.App.4th 1165, 1188-1190; Cathay Bank v. Lee (1993) 14 Cal.App.4th 1533, 1539-1540; Earl of Loveless, Inc. v. Gabele (1991) 2 Cal.App.4th 27, 35; Jones v. Brown (1970) 13 Cal.App.3d 513, 519.

Here, plaintiff provides no evidence that defendant intended to waive a statute of limitations defense. In fact, plaintiff’s declaration is silent regarding this very critical piece of the puzzle. So too is defendant’s. Who drafted the guaranty? What was intended by the waiver proviso? Was statute of limitations on anyone’s mind?

Moreover, CCP §360.5 requires that any waiver of a statute of limitations defense be in writing and signed by the party obligated thereon. Although the phrase “in writing” leaves something to be desired, case law interprets waivers narrowly given the debilitating impact waivers typically have in litigation. Both sides rely on a number of cases interpreting similar phrases, but nothing exactly like the phrase used in the subject guaranty. Plaintiff relies on such cases as Cal. First Bank v. Braden (1989) 216 Cal.App.3d 672, and County of Santa Clara v. Vargas (1977) 71 Cal.App.3d 510 – both of which contained waivers expressly referencing limitations as a defense. Defendant relies primarily on Union v. Gradsky (1968) 265 Cal.App.2d 40 – which used similar broad language as that here, but involved an election of remedies defense rather than one based on limitations. None of the cases cited by the parties effectively dispose of the waiver issue, but on this application for provisional relief it is enough to conclude that plaintiff has not established a probability of prevailing at this juncture.

Advanced Transformer

Though barely touched upon in the papers, when the claim is made against an individual guaranteeing a liability for an entity (such as the case here), the applicant must show that the claim arose out of that person’s trade, business or profession and that the individual is so involved in the primary obligor’s business that the guaranty is made to further the guarantor’s livelihood or profit on a continuing basis. . CCP §483.010(c); Advance Transformer Co. v. Superior Court (1974) 44 Cal.App.3d 127, 144. The factors to consider include:
(a) Was guarantor actively involved with the debtor on a continuing basis;
(b) Was there any consideration given for the personal guaranty;
(c) The degree to which the plaintiff actually relied on the guarantor in extending credit to the obligor.

In short, “if the sum total of the circumstances justifies the conclusion that the guarantor occupied himself to a substantial degree and on a continuing basis in promoting his own profit through provision of credit or management to the primary obligor, a guarantee executed in the course of such activity may properly be considered an obligation arising out of the conduct of the guarantor’s business.” Advance Transformer, supra. The initial burden of proof rests with the applicant/plaintiff to state “with particularity” the evidentiary facts supporting issuance of the writ, including “substantial evidence” of the business purpose requirement. See CCP §482.040; Nakasone v. Randall (1982) 129 Cal.App.3d 757, 764. Nothing is shown in the application.

In Conclusion

Applicant has failed to set forth sufficient evidence to meet the Advanced Transformer requirements, and furthermore failed to establish probable validity of his single breach of contract claim because (1) his right to return on his investment was expressly contingent upon events which never occurred; and (2) the statute of limitations likely ran on any such claim.

Application denied, without prejudice.

Demurrer

A demurrer on the ground of the bar of statute of limitations will not lie where the action may be, but is not necessarily, barred. It must appear clearly and affirmatively that, upon the face of the complaint, the right of action is necessarily barred. This will not be the case unless the complaint alleges every fact which the defendant would be required to prove if he were to plead the bar of the applicable statute of limitation as an affirmative defense. Committee for Green Foothills v. Santa Clara County Board of Supervisors (2010) 48 Cal.4th 32, 42; Lockley v. Law Office of Cantrell, Green, Pekich, Cruz & McCort (2001) 91 Cal.App.4th 875, 881.

Here, the demurrer is based on the same statute of limitations and waiver arguments pertinent to the RTAO, but the burden is different. (Defendant did not demur on any other ground, such as lack of breach.) In the RTAO, plaintiff had to show a probability of prevailing on the question is the vague waiver good enough to cover a statute of limitations defense? On demurrer, defendant has to show that there is no way, as a matter of law, that the vague waiver language could be good enough to cover a statute of limitations defense. Defendant must also show that there is no other way the statute of limitations might have been tolled or otherwise extended. There are question left to answer regarding the waiver proviso and any representations made regarding repayment. These are fact-dependent considerations not amenable to resolution at the pleading stage.

Therefore, even though plaintiff was unable to carry his burden on the SOL/waiver issue for the RTAO, defendant too has not yet met its burden for purposes of prevailing outright.

Demurrer overruled. Defendant to answer within 10 days.