Case Number: VC063314 Hearing Date: April 17, 2014 Dept: SEC

GOLDENPARK, LLC v. WILSHIRE STATE BANK
CASE NO.: VC063314
HEARING: 04/08/14

#8
TENTATIVE ORDER

Defendants URBAN COMMONS, LLC and URBAN COMMONS SYCAMORE, LLC’s demurrer to the Second Amended Complaint is SUSTAINED WITHOUT LEAVE TO AMEND. C.C.P. § 430.10(e).

The motion to strike is DEEMED MOOT. C.C.P. §§ 435, 436.

On January 17, 2014, this Court ruled on defendants’ demurrer to the First Amended Complaint. Pursuant to that order, plaintiff GOLDEN PARK, LLC filed a Second Amended Complaint, re-alleging the causes of action for (1) breach of the implied covenant of good faith and fair dealing and (2) unfair business practices.

As alleged, in 2008, plaintiff obtained two loans from defendant Wilshire Bank (“WSB”) which were secured by a deed of trust on the subject commercial property. SAC, ¶¶14, 16, Exh. A, B. In September 2010, the parties entered into “Change in Terms Agreements” which allowed plaintiff to make 3 modified monthly payments, beginning in August 2010. Exh. C, D. While plaintiff argues that the agreements could not have been retroactive, it admits that it made 4, rather than 3, lower monthly payments. SAC, ¶20. It alleges that it requested defendant’s consent for the additional lower payment but did not hear back. ¶28. Additionally, defendant argues that plaintiff omitted the fact that it failed to make its March 2009 payment, rendering every other subsequent payment applicable to the preceding month. FAC, ¶24 (Attached to the Request for Judicial Notice). The allegations show that plaintiff was in default.

In December 2010, the Urban Common defendants (“UCS”) purchased the loans from WSB. Exh. F. In January 2011, it accelerated the loans and recorded their default. ¶37, Exh. G. Plaintiff alleges that the amounts were “egregiously overstated.” ¶40. In any event, after plaintiff filed bankruptcy and brought a separate (unsuccessful) action to stop the foreclosure, the property was sold to defendants at a July 13, 2012 foreclosure sale.

1st—breach of implied covenant of good faith and fair dealing
Plaintiff alleges that defendants breached the implied covenant by improperly calculating the default rate of interest, and by failing allow plaintiff to cure.

To the extent that plaintiff alleges, in a conclusory fashion, that it attempted to reinstate the loan under Civil Code section 2924c(e), the Court notes that it sustained the prior demurrer with respect to that allegation. ¶¶66, 67. The contention is again set forth with no factual support, or statement that it was able to tender the amount owed.

Plaintiff does not contend that the acceleration clause itself was unlawful. The loan agreements allowed defendants to pursue default. No covenant of good faith and fair dealing can be implied in a contract which expressly authorizes such conduct. Jenkins v. JP Morgan Chase Bank, NA (2013) 216 Cal.App.4th 497. Plaintiff’s wrongful foreclosure claims failed for that reason. See Order, 01/17/14 (sustaining the demurrer without leave to amend), Exh. 2 to the RJN.

Plaintiff contends that the repayment amounts were overstated because defendants charged interest on the entire amount of the loans, rather than interest only on the unpaid balance. Defendants were entitled to accelerate the debt, so that the entire amount was due. However, when interest is charged on the entire amount it may constitute a penalty, rather than a valid liquidated damages provision. See Garrett v. Coast & Southern Fed. Sav. & Loan Ass’n (1973) 9 Cal.3d 731.

Defendant argues that even if those charges constitute liquidated damages, plaintiff has not alleged any facts showing they were unreasonable. C.C. § 1671; El Centro Mall, LLC v. Payless ShoeSource, Inc. (2009) 174 Cal.App.4th 58 (finding plaintiff failed to produce sufficient evidence of unenforceability). The problem is that plaintiff has not established that defendants’ charging of interest on the entire amount, even if such charge can be deemed an unreasonable penalty, caused plaintiff damage. There is no allegation that it would have otherwise been able to reinstate the loan. Plaintiff was given the opportunity to amend the pleading specifically for that purpose, and was unable to assert those facts. Accordingly, the demurrer is sustained without leave to amend.

2nd—unfair business practices
Based on the above analysis, the Court finds that plaintiff has also failed to articulate a 17200 claim based on unfair or unlawful conduct. The demurrer to the 2nd cause of action is sustained without leave to amend.