Judge Bruce G. Iwasaki, Case Number: BC711642, Date: 2023-08-08 Tentative Ruling

Case Name: Dean Delis v. Montecito Financial Services, Inc. dba Robert Hall & Associates, et al.

Moving Party: Plaintiff Dean Delis, Margaret (Meg) Delis, Delakis LP and DMD Investments LLC

On November 5, 2021, Plaintiffs Dean Delis, Margert Delis (Meg), Drew Delis, Delakis LP, and DMD Investments LLC (collectively, Plaintiffs) filed the Third Amended Complaint (TAC) against twenty-four defendants, composed of three individuals and twenty-one entities. The TAC asserts twenty-three claims for conspiracy to defraud, fraud, securities, civil theft, conversion, fraudulent conveyance, aiding and abetting, breach of fiduciary duty, constructive fraud, breach of written contract, elder financial abuse, professional negligence, and accounting. The allegations relate to numerous fraudulent real estate investment schemes. Plaintiffs invested and loaned money to certain entity Defendants to renovate and re-sell distressed properties (Properties). However, many of the loans fell into default and the Properties were sold at loss at foreclosure sales.

Plaintiffs alleged that over several years, Defendant Stephen Hall (Hall) made numerous misrepresentations to them regarding the investments. For example, Hall allegedly failed to inform Plaintiffs of any of the risks associated with any of the investments, failed to disclose their numerous properties were over-collateralized, and failed to follow through on numerous promises such as signing a personal guarantee to return the money after the fraud was discovered.

In October 2017, Plaintiffs ordered title reports on the Properties and discovered that all were over-encumbered, in default, and were delinquent on property taxes. A month later Defendant Hall deflected the blame onto Defendant Brad Wiedmann (Wiedmann), stating that Wiedmann misled him and his family as well. At the time, Plaintiffs met with Defendants Robert Hall and Stephan Hall, who, Plaintiffs allege, initially offered to sign written personal guarantees to pay back Plaintiffs principal and interest, and now declined to sign the guarantees because it would supposedly hinder their ability to obtain new loans to further remodel the Properties. In February 2018, Plaintiffs discovered that their real estate loans were being diverted into other business, such as ORock Technologies, an internet company dealing with cloud-based services.

Plaintiffs invested their funds into numerous entities to remodel distressed Properties and re-sell them for profit. These "Borrower Defendants" include ABS LA Group, LLC; ATB2 Group, LLC; BVS Partners Realty, LLC; GOBI, LLC; MTB l Group, LLC; Nashville West, LLC; and 1 Valley View Group, LLC. Stephen Hall and/or Brad Wiedmann was or is the managing agent for all the Borrower Defendants. Except for ORock Technologies, the following are allegations about the transactions with the entities in which Plaintiffs invested.

A total of $1.4 million was invested into the Bellevue Property. This consisted of

$900,000 by Drew Delis through his corporation, Delakis LP, and $500,000 from Dean and Meg Delis through the Entrust Group, Inc. FBO Dean C. Delis. The funds were sent to Defendant MTB l Group to remodel the Bellevue Property. Dean and Meg subsequently transferred their loan from the Bellevue Property and onto the Alegria Property as described below, based on the advice of Stephen Hall. The total amount transferred with interest was $743,000 as a lien on the Alegria Property.

This Property was sold in July 2017. Drew Delis received his principal and interest on the Bellevue Property.

A total of $500,000 was invested to purchase and remodel the Madre Property. Dean and Meg Delis provided the funds to Defendant ABS LA Group, LLC. Their lien was then transferred to the Bellevue Property; upon the sale of the Bellevue Property, Dean and Meg received $120,000 and $380,000 remains outstanding. The Madre Property was sold in a foreclosure sale.

A total of $732,500 was invested into the Evergreen Property, which was supposed to be used to convert the Property into a sober living facility. Dean and Meg Delis, through the

Delis Solo 401K Trust FBO Dean C. Delis/Margaret A. Delis invested a total of $200,000, while DMD Investments, LLC invested $532,500. DMD Investments is a limited liability company formed by Drew Delis and whose members are Delakis LP and Miles Delis (Drew's brother).

The funds were sent to Defendant ATB2 Group, LLC. Stephen Hall and Wiedmann reportedly provided Dean and Meg Delis a 30% ownership interest. In March 2018, the Property sold, and the principal was paid back. However, Plaintiffs never received the 30% net profit based on the ownership interest.

A total of $260,000 was invested into the Alegria Property for remodeling. Dean and Meg Delis, through the Delis Solo 401K Trust FBO Dean C. Delis/Margaret A. Delis invested a total of $100,000, while Dean and Meg Delis personally invested $160,000. The funds were sent to Defendant BYS Realty Partners, LLC. Both the $260,000 and the transferred $743,000 (from the Bellevue Property) were not repaid.

Plaintiffs received a Notice of Default on the Property in November 2015; however, after informing Stephen Hall and Brad Wiedmann, Plaintiffs were told the notice was likely a mistake relating to identity theft. This Property was sold in foreclosure in February 2018.

ORock is an internet and cloud-based company that provides IT infrastructure and solutions for enterprise customers. $450,000 was invested in this company, resulting in Plaintiffs purchasing a total of 99,999 shares. Drew Delis personally invested $100,000, Drew Delis through Delakis LP invested $250,000, and Dean and Meg Delis, through the Delis Solo 40 l K Trust FBO Dean C. Delis invested $100,000.

Drew Delis through Delakis LP invested $425,000 to remodel the Irvington Property.

Drew Delis through Delakis LP invested $500,000 to remodel the Portola Property.

Drew Delis through Delakis LP made two separate investments of $85,000 each to remodel two different units of the Hunter Property. The funds were sent to Defendant Nashville West, LLC. This Property was also sold in a foreclosure sale.

Drew Delis through Delakis LP made two separate investments of $115,000 each to remodel two different units of the Ashe Property. The funds were sent to 3600 Ashe LLC. This entity filed for Chapter 11 bankruptcy in 2018 and Plaintiffs dismissed it from the case.

The Complaint also names "Other Entity Defendants," which include BD View Consulting, LLC; Blue Syrah, LLC; Coral Keswick, LLC; Cordova Investments California, Inc.; Cordova Investments Nevada, Inc.; Keswick Consulting, LLC; Legacy Village; 1001 McDonald Way, LLC; ORock Technologies, Inc.; Pacific: Auto Recycling Center; Padaro Holdings, LLC; and 300 W. Glenoaks, LLC. These Other Entity Defendants reportedly received funds which were diverted away from the Borrower Defendants and comingled.

On October 15, 2019, Plaintiffs filed an amendment to the complaint, substituting in Robert Hall for the "Doe l" defendant.

In June 2020, Defendants Robert Hall, RHA, the Cordova entities, Coral Keswick, and 300 W. Glenoaks demurred to the Second Amended Complaint on the first (conspiracy), second (fraud), third (securities fraud), fourth (securities fraud), fifth (civil theft), sixth (conversion), seventh (fraudulent conveyance), eighth (breach of fiduciary duty), ninth (aiding and abetting breach of fiduciary duty), tenth (constructive fraud), twenty-six (financial elder abuse), twenty-seventh (professional negligence), and twenty-eighty (accounting) causes of action. In December 2020, this Court overruled the entire demurrer.

In December 2021, the same moving Defendants again demurred as to the Third Amended Complaint on the sixth (conversion), seventh (aiding and abetting fraudulent transfers), ninth (aiding and abetting fraudulent transfers), eleventh (aiding and abetting breach of fiduciary duty), and twelfth (constructive fraud) causes of action. They further argued that Plaintiff Drew Delis lacked standing and sought to strike the alter ego allegations. On February 22, 2022, this Court sustained the demurrer as to Drew's standing, but overruled the rest of the demurrer and denied the motion to strike.

On April 6, 2023, the Court granted Stephen Hall Defendants’ motion to file a First Amended Answer to the TAC. Shortly thereafter, the Court permitted the parties to file additional motions for summary adjudication limited to the new affirmative defenses raised in the Amended Answer.

Another set of motions for summary adjudication were filed, which were grouped into three clusters for three hearings: (l.) Robert Hall, and Montecito Financial Services dba Robert Hall & Associates, PARC, Cordova NV, Cordova CA, W. Glenoaks, Coral Keswick, LLC; and (2.) Stephen E. Hall, 1 Valley View Group, LLC; ABS LA Group, LLC; ATB2 Group, LLC; BVS Realty Partners, LLC; GOBI, LLC; MTB1 Group, LLC; Nashville West, LLC; 1001 McDonald Way, LLC; Blue Syrah, LLC; Keswick Consulting, LLC; Padaro Holdings, LLC and Padaro Trails, LLC (collectively Stephen Hall Defendants); and (3.) Plaintiffs Dean Delis, individually and as trustee of the Delis Solo 401K Trust and the DC Delis, Clinical Psychologist, Inc. Defined Benefit Pension Plan, Margaret (Meg) Delis, Delakis, LP and DMD Investments, LLC.

On July 27, 2023, the Court denied the motion for summary adjudication filed by Stephen Hall Defendants. On August 8, 2023, the Court denied the motion for summary adjudication filed by RHA Defendants.

This ruling is on the motion for summary adjudication filed by Plaintiffs. The Court grants in part and denies in part the motion for summary adjudication of Fortieth through Forty-Eighth Affirmative Defenses.

Stephen Hall Defendants objected to Plaintiffs’ evidence by objecting to the material facts in the separate statement. Such objections are improper. First, the objections are procedurally improper as Stephen Hall Defendants objected to the factual statements in the separate statement and not to the “specific evidence,” as required by California Rule of Court 3.1354, subdivision (b). Additionally, these objections do not satisfy the format requirements for summary judgment motion objections. (Cal. Rule of Court, 3.1354, subd. (b) [Objections must “be served and filed separately from the other papers in support of or in opposition to the motion.”].) Thus, these objections are overruled.

The Court rules on Plaintiffs’ objections to Stephen Hall Defendants’ evidence as follows: Nos. 1-4, 6-43, 45-47, 49-61, 64-66, 70-76 are overruled, and No. 5, 44, 48, 62-63, 67-69 are sustained.

“The party moving for summary judgment bears the burden of persuasion that there is no triable issue of material fact and that he is entitled to judgment as a matter of law.” (Aguilar v. Atlantic Richfield Co. (2001) 25 Cal.4th 826, 850.) A triable issue of material fact exists if the evidence would allow a reasonable trier of fact to find the underlying fact in favor of the party opposing the motion in accordance with the applicable standard of proof. (Ibid.)

“When deciding whether to grant summary judgment, the court must consider all of the evidence set forth in the papers (except evidence to which the court has sustained an objection), as well as all reasonable inferences that may be drawn from that evidence, in the light most favorable to the party opposing summary judgment.” (Avivi v. Centro Medico Urgente Medical Center (2008) 159 Cal. App. 4th 463, 467; Code Civ. Proc. § 437c, subd. (c).)

Plaintiffs move for summary adjudication on the grounds that the fortieth through forty-eighth affirmative defenses are inapplicable to Plaintiffs’ non-contract claims, and there are no triable issues of material fact as to these affirmative defenses.

The First Amended Answer alleges that Defendants’ “contractual obligations, if any, have been excused and discharged by Plaintiffs’ own breaches on the Bellevue Note, First, Second, and Third Madre Notes, First, Second, Third, and Fourth Alegria Notes, Irvington Note, Portola Note, First and Second Hunter Notes, First and Second Ashe Notes, and Evergreen Note.” (PSS 4.)

Plaintiffs first argue that this affirmative defense is only applicable, if at all, to Plaintiffs’ contract claims (thirteenth through twentieth causes of action, alleging breaches of various promissory notes). Thus, at a minimum, Plaintiffs argue they are entitled to summary adjudication of this defense with respect to all of the remaining claims.[1]

Plaintiffs also argue there are no triable issue of material fact in dispute with respect to this affirmative defense. The declarations of Dean and Drew Delis assert that Plaintiffs paid Defendants all sums due under the Notes and timely executed all required documentation. (PSS 9, 11-17, 19-20, 22-31, 33-38, 40-45, 47-58, 60-61, 63-71, 73-85, 87-92, 94-105, 107-112, 114-126, 128-134, 136- 139, 141-147, 149-150, 152-154, 156-168.)

Plaintiffs also point to Wiedmann’s testimony that there was nothing more required by the Plaintiffs to do under the terms of the note aside from funding the loan, signing off on the paperwork at the time of the loan transaction, and signing off at or about the time of the property sale. (PSS 16, 28, 55, 68, 80, 100, 120, 131, 144, 166.)

Finally, in response to discovery served, each Stephen Hall Defendant was asked to “state each and every fact” supporting the allegation that Plaintiffs breached each of the Notes. (PSS 169.) In response, they each provided a virtually identical narrative that did not contain a single fact suggesting that Plaintiffs failed in any respect to meet their obligations under the Notes. (PSS 170.)

Plaintiffs’ evidence demonstrates that they performed all of their contractual obligations under the Notes. This evidence is sufficient to shift Plaintiffs’ burden as to this affirmative defense.

In opposition to the motion for summary adjudication, Stephen Hall Defendants argue Plaintiffs breached their obligations under the promissory notes by breaching their duty to mitigate. Specifically, Moving Defendants argue Plaintiffs failed to foreclose on any of the notes or otherwise mitigate any of their losses. (DSS 16, 28, 55, 68, 80, 100, 120, 131, 164, 166.)

In support of their argument on this affirmative defense, Defendants explain that each Note was secured by (and incorporates) a deed of trust granting Plaintiffs the right to foreclose on their notes. (DSS 10, 11, 21, 22, 32, 33, 39, 40, 46, 47, 62, 63, 72, 73, 86, 87, 93, 94, 106, 107, 113, 114, 127, 128, 135, 136, 140, 141.) Despite the existence of this remedy and Borrower Defendants’ failure to pay the Notes, Plaintiffs have never foreclosed on any of the Notes. (DSS 16, 28, 55, 68, 80, 100, 120, 131, 164, 166.)

Here, there is no dispute of any triable issues of material fact. Plaintiff has submitted evidence that it performed all its duties under the Notes with admissible evidence – shifting its initial burden.

In opposition, Defendants do not submit evidence that Plaintiff failed to perform on its obligations under the Note such that Defendants were not required to perform. Defendants’ evidence fails to demonstrate that Plaintiffs’ right to foreclosure imposed an affirmative duty on the Plaintiffs to foreclose. Said another way, Defendants do not demonstrate that under the terms of the Notes, Plaintiffs were required to foreclose.

Instead, Defendants proffer a legal theory that presupposes a breach of contract, and the duty that results after such a breach.

“A plaintiff who suffers damage as a result of either a breach of contract or a tort has a duty to take reasonable steps to mitigate those damages and will not be able to recover for any losses which could have been thus avoided.” (Valle de Oro Bank v. Gamboa (1994) 26 Cal.App.4th 1686, 1691 [citing Shaffer v. Debbas (1993) 17 Cal.App.4th 33, 41.)

Whether Plaintiff’s had some duty that arose after Defendants’ breach – such as a duty to mitigate through foreclosure – does not address the affirmative defense raised here, Defendants’ duty to discharge it obligations under the Notes.

Plaintiffs’ legal theory for breach of contract was that Defendants failed to perform on the Note. Defendants cannot raise a triable issue of material fact by arguing a duty to mitigate where the duty to mitigate assumes a breach of contract. The duty to mitigate may have a bearing on the amount of damages, but does not demonstrate that Defendants were discharged in performing their duties under the Notes. Moreover, as noted in the Reply, neither foreclosure nor mitigation is a term of the Notes, and thus neither failure to foreclose nor failure to mitigate can be a breach of the Notes. (PSS 9-14, 20-26, 31-51, 61-66, 71-78, 85-98, 105- 118, 125-130, 133-143, 150-162.)

The motion for summary adjudication of the Fortieth Affirmative Defense for Discharge of Performance is granted.

Defendants’ Forty-First Affirmative Defense for “Substantial Performance,” alleges that, “Plaintiffs’ TAC, and each and every cause of action alleged therein against Defendant, is barred by the doctrine of substantial compliance, in that Defendant substantially complied with his respective contract(s) with Plaintiffs.” (PSS 174.)

Plaintiffs again argue that this affirmative defense only applies to their contract claims such that they are entitled to summary adjudication of this Defense with respect to all of their Tort Claims.

Plaintiffs argue this affirmative defense fails because Defendants did not substantially comply with the terms of the Notes: they never timely repaid Plaintiffs the sums they were due pursuant to the Notes. In support, Plaintiffs submit declarations showing that Defendants breached their obligations under the Notes by not timely repaying Plaintiffs their principal, promised return, or funding fee. (PSS 179, 181-187, 189-191, 193-203, 205-210, 212-217, 219-230, 232-234, 236-245, 247-260, 262-267, 269-279, 281-282, 284-289, 291-304, 306-313, 315-318, 320-330, 332-334, 336-349.)

Plaintiffs also submit the deposition testimony of Wiedmann who confirmed that the Stephen Hall Defendants failed to substantially comply with their obligations under the Notes. (PSS 190, 202, 233, 244, 259, 281, 302, 311, 329, 349.)

Finally, Plaintiff submit Stephen Hall’s discovery response wherein they were asked to “state each and every fact” supporting their allegation that they “substantially complied with [their] respective contracts with Plaintiffs.” (PSS 350.) In their verified responses, Defendants could not state a single fact evidencing Defendants’ substantial compliance with their “respective contract(s)” with Plaintiffs. (PSS 351.)

This absence of evidence submitted in response to discovery is sufficient to shift Plaintiffs’ initial burden. (Chavez v. Glock, Inc. (2012) 207 Cal.App.4th 1283, 1302 [“A defendant can satisfy its initial burden to show an absence of evidence through ‘admissions by the plaintiff following extensive discovery to the effect that he has discovered nothing’”].)

In Opposition, Stephen Hall Defendants argue that their discovery responses demonstrate that Defendants substantially complied with the Notes. Specifically, the responses indicate that Plaintiffs knew of and assumed the risks associated with their loans to Borrower Defendants and were driven by their desire for high returns (DSS 190, 202, 233, 244, 259, 281, 302, 311, 329, 349.)

Defendants’ argument that Plaintiffs assumed the risk under the Notes such that Defendants substantially complied with their duties is a legal theory with dubious logic unsupported by any legal authority. Instead, as Plaintiffs argue in Reply, this opposition argument and its evidence are irrelevant to this affirmative defense.

Further, Defendants submit evidence that after Wiedmann’s departure, Hall successfully sold the Evergreen and Portola properties, returning all of DMD’s demanded funds under the Evergreen Note and $606,956 to Delakis under the Portola Note. (DSS 83, 84, 168.) Again, as argued in the Reply, this evidence does not demonstrate compliance with the terms of the Note, but rather goes to the issue of the amount of damages recoverable for certain breaches of certain Notes.

The motion for summary adjudication of the Forty-First Affirmative Defense for Substantial Performance is granted.

Defendants’ Forty-Second Affirmative Defense for “Prevention of Performance,” alleges that “Plaintiffs’ TAC, and each and every cause of action alleged therein against Defendant, is barred because Plaintiffs prevented Defendant from performing his respective contract(s) with Plaintiff.” (PSS 355.)

Where one party to a contract prevents the performance of another, the other party's nonperformance does not constitute breach. (See, e.g., Hines v. Kukes (2008) 167 Cal.App.4th 1174, 1184-1185.)

Here, Plaintiffs move for summary adjudication of this affirmative defense largely on the same evidence as the discharge of performance affirmative defense. (PSS 360, 362-368, 370-372, 374-384, 386-391, 393-398, 400-411, 413-415, 417-426, 428-441, 443-448, 450-457, 459-460, 462-463, 465-470, 472-485, 487-494, 496-499, 501-507, 509-511, 513-515, 517-530.) Additionally, Plaintiffs rely on the deposition testimony of Weidman who asserted that Plaintiffs paid all sums due under the Notes, executed all required documents, and did nothing to prevent Defendants’ performance of their obligations. (PSS 371, 383, 414, 425, 440, 462, 483, 492, 510, 530.)

In opposition, Stephen Hall Defendants raise the same arguments as the affirmative defense: Weideman’s testimony is inadmissible legal conclusion and that Plaintiffs assumed the risk of these investment schemes. (DSS 371, 383, 414, 425, 440, 462, 483, 492, 510, 530.)

Stephen Hall Defendants’ opposition evidence fails to raise a triable material fact in dispute. Plaintiffs’ decision to trust Defendants’ inducing them to invest in a high-risk investment scheme does not demonstrate that Stephen Hall Defendants were prevented from performing on the Notes.

The motion for summary adjudication of the Forty-Second Affirmative Defense for Prevention of Performance is granted.

Defendants’ Forty-Third Affirmative Defense for “Mistake,” alleges that “Plaintiffs’ TAC, and each and every cause of action alleged therein against Defendant, [is] barred by the doctrine of mutual and/or unilateral mistake as to the terms of the respective contract(s) with Defendant.” (PSS 536.)

First, at a minimum, Plaintiffs argue they are entitled to summary adjudication of this Defense with respect to all of their Tort Claims because Civil Code recognizes that “mistake” is a contract defense. (Civ. Code §§ 1566-1567.)

Additionally, Plaintiffs argue that Defendants have neither alleged nor offered any evidence that they promptly sought to rescind the Notes once they discovered the alleged mistake, or that they then restored to Plaintiffs their consideration, all of which are essential elements of a mistake defense. (Civ. Code § 1566, 1691.)

Wiedmann also testified that he never believed that there was any mistake made relating to the terms of the Notes, and that he never informed Plaintiffs that Defendants’ obligations under the Notes were excused by virtue of any mistake. (PSS 552, 564, 595, 621, 643, 664, 691, 711.) Finally, Defendants’ discovery responses fail to demonstrate the facts supporting a mistake. (DSS 712.)

“A contract may ... be rescinded if the consent of the rescinding party was given by mistake. [Citation.] The party attempting to void the contract as a result of mistake must also show that it would suffer material harm if the agreement were enforced, though that need not be a pecuniary loss. [Citation.]” (Habitat Trust for Wildlife, Inc. v. City of Rancho Cucamonga (2009) 175 Cal.App.4th 1306, 1332–1333, 96 Cal.Rptr.3d 813.) “Mistake of fact is a mistake, not caused by the neglect of a legal duty on the part of the person making the mistake, and consisting in: [¶] 1. An unconscious ignorance or forgetfulness of a fact past or present, material to the contract; or, [¶] 2. Belief in the present existence of a thing material to the contract, which does not exist, or in the past existence of such a thing, which has not existed.” (Civ. Code § 1577.)

Civil Code section 1577 speaks in terms of mistakes as to present or past facts; there is no authority for rescission based on a mistake regarding future events. (Mosher v. Mayacamas Corp. (1989) 215 Cal.App.3d 1, 5 (Mosher).) In determining whether a mistake is a mistake of fact or an error in judgment, “[i]t is the facts surrounding the mistake, not the label, i.e., ‘mistake of fact’ or ‘mistake of judgment,’ which should control.” (White v. Berrenda Mesa Water Dist. (1970) 7 Cal.App.3d 894, 907.)

In opposition, Stephen Hall Defendants argue there was a mistake in Plaintiff’s assumption that these investment loans were “safe loans” which would solely be used for remodeling the properties, while also alleging that the loans were intended to raise funds for “general use” in the real estate ventures. (DSS 552, 564, 595, 606, 621, 643, 664, 673, 691, 711.) Further, Stephen Hall Defendants argue that they spent months negotiating with Plaintiffs and discussing Mr. Wiedmann’s errors, and ultimately offered to pay back all of Plaintiffs’ principal in May of 2018. (DSS 1332-1356.)

Again, Stephen Hall Defendants’ arguments fail as matter of law. As argued in the reply, Plaintiffs’ purported mistaken belief as to the riskiness of the investment does not address the parties obligations under the terms of the Note –which is the basis of the breach. Whether or not Plaintiffs had knowledge of the risks involved, the terms of the loan are not affected by Plaintiff’s mistaken belief.

Stephen Hall Defendants’ opposition evidence fails to raise a triable issue of material fact; their opposition argument relies on a legal theory that fails as a matter of law.

Moreover, even assuming that that the Plaintiffs’ purported mistaken belief was adequate to show a “mistake of fact,” the mistake of fact must be shown to be held by the party seeking to defeat and rescind the contract – in this case, Stephan Hall Defendants. Notwithstanding, Plaintiffs’ allegedly mistaken belief, Plaintiffs seek to enforce the terms of the Note agreed to by Stephan Hall Defendants; Stephan Hall Defendants cannot excuse their nonperformance based on Plaintiffs’ belief that does not alter the parties’ duties under the terms of the Note.

The motion for summary adjudication of the Forty-Third Affirmative Defense for Mistake is granted.

Stephen Hall Defendants’ Forty-Fourth Affirmative Defense for “impossibility” alleges that, “Defendant’s contractual obligations, if any, have been excused because they were impossible to perform.” (PSS 717.)

The defense of impossibility requires a showing that “performance was ‘prevented or delayed by an irresistible, superhuman cause, or by the act of public enemies of this state or of the United States. . . .’” (Glendale Fed. Sav. & Loan Assn. v. Marina View Heights Dev. Co. (1977) 66 Cal. App. 3d 101, 154; see also Oosten v. Hay Haulers Dairy Emp. & Helpers Union (1955) 45 Cal. 2d 784, 788 [“‘Impossibility’ is defined in section 454 of the Restatement of Contracts, as not only strict impossibility but as impracticability because of extreme and unreasonable difficulty, expense, injury, or loss involved.”].)

In moving for summary adjudication of this defense, Plaintiffs argue there are no facts or evidence to support an impossibility defense. Plaintiffs rely on Wiedmann’s testimony that Defendants’ obligations under the Notes were not impossible to perform. (PSS 733, 745, 776, 787, 802, 824, 845, 854, 872, 892, 894.)

In opposition, relying on caselaw definitions of “impossibility,” Stephen Hall Defendants argue that due to Mr. Wiedmann’s actions or inactions, after his resignation, performance became “impractical due to excessive and unreasonable expense,” beyond a mere financial inability to perform. (DSS 733, 745, 776, 787, 802, 824, 845, 854, 872, 892.)

Stephen Hall Defendants’ opposition evidence does not raise a triable issue of material fact because they fail to present facts demonstrating impossibility before the breach of the Notes. In fact, Defendants’ separate statements attempt to blame Wiedmann for the breach but are entirely speculative as to Weidman’s purported misconduct.

The motion for summary adjudication of the Forty-Fourth Affirmative Defense for Impossibility is granted.

Stephen Hall Defendants’ Forty-Fifth Affirmative Defense for “discharge of duty” “Defendant’s fiduciary obligations to Plaintiff, if any, have been excused and discharged by Defendant’s timely and proper disclosure to Plaintiff.” (PSS 898.)

Plaintiffs argue that this defense is inapplicable to any cause of action, except to Plaintiffs’ Seventh Cause of Action for Breach of Fiduciary Duty. Thus, at a minimum, Plaintiffs are entitled to summary adjudication of this Defense with regard to their Contract, Intentional Tort, Securities, Negligence and Accounting Claims.

Further, in moving for summary adjudication, Plaintiffs submit declarations that establish that neither Hall nor Wiedmann made any material disclosures that would support this defense. In particular, Plaintiffs submit evidence that Defendants did not disclose to Plaintiffs, among other things, that: (a) they were not paying the property taxes on the properties; (b) they were not making loan payments to other lenders and investors involved with the properties; (c) they had over-collateralized the properties; (d) Plaintiffs’ investments were not secured in the lien positions they had been promised; and (e) Plaintiffs’ funds had not been used for the benefit of the properties for which the investments had been made. (PSS 903; see also PSS 904-905 [Weidmann’s testimony], 906-907.)

In opposition, Stephen Hall Defendants argue that Plaintiffs “ratified” Defendants and/or Mr. Wiedmann’s conduct and recommendations every step of the way, they argue creates a dispute of fact. (DSS 903-905.)

However, this evidence does not create a dispute over the disclosures made – or as Plaintiffs argue, the absence of disclosure made. Nor do Defendants raise any legal argument suggesting that these disclosures did not need to be made to satisfy their fiduciary duties.

Based on the foregoing, the Court finds that Stephen Hall Defendants failed to raise a triable issue of material fact with respect to this affirmative defense. The motion for summary adjudication of the Forty-Fifth Affirmative Defense for Discharge of Duty is granted.

Defendants’ Forty-Sixth Affirmative Defense for “Assumption of Risk,” alleges that “Plaintiffs assumed the risk of making loans to real estate projects, from which Plaintiffs now allege harm resulted.” (PSS 911.)

Plaintiffs argue that this defense fails as matter of law. As cited by Plaintiffs, “[a]ssumption of risk that is based upon the absence of a defendant's duty of care is called primary assumption of risk and is a defense to negligence.” (Mot., 20:4-5 [citing Jur. 3d Negligence § 146].) Plaintiffs also cite Jimenez v. Roseville City Sch. Dist. (2006) 247 Cal. App. 4th 594 for the proposition that this “doctrine applies to activity ‘done for enjoyment or thrill, requires physical exertion as well as elements of skill, and involves a challenge containing a potential risk of injury’. . . or involves ‘an inherent risk of injury to voluntary participants . . . where the risk cannot be eliminated without altering the fundamental nature of the activity.’” (Id. at 601.) Because no such activities were involved here, this affirmative defense does not apply.

The Opposition argues that Plaintiffs rely on the primary assumption of risk definition but ignore the secondary assumption, which applies when the defendant does owe a duty, but the plaintiff has knowingly encountered a risk of injury caused by the defendant’s breach. Liability in such cases is adjudicated under the rules of comparative negligence.” (Jimenez, supra, 247 Cal.App.4th at p. 600 [citing Gregory v. Cott (2014) 59 Cal.4th 996, 1001].) Stephen Hall Defendants’ opposition evidence raise a triable issue of material fact as to whether Plaintiffs were aware of the risks that the loans would either default or not be paid on time, and that profits from the sale of the properties may not cover all liens. (DSS 922, 935, 961, 977, 990, 1101, 1033, 1046, 1060, 1075, 1081.)

The Court grants summary adjudication in part to Plaintiffs’ Contract, Intentional Tort, Securities and Accounting Claims because this defense does not apply to these claims. (Reply 12:3-17.) The motion for summary adjudication of this affirmative is denied as to Plaintiffs’ claims for professional negligence and breach of fiduciary duty.

In moving for adjudication of this claim, Plaintiffs argue that usury is not a defense to the enforceability of the Notes underlying Plaintiffs’ Contract Claims. It is well-established that the usury laws only limit the interest rate of a loan, but does not invalidate the loan itself. (See e.g., Epstein v. Frank (1981) 125 Cal. App. 3d 111, 123.)

In opposition, Stephen Hall Defendants concede that this defense is intended to offset damages and not intended as complete defense to the enforceability of the notes. Defendants are permitted to raise a defense that limits damages.

As long as any part of a usurious debt remains unpaid, the usurious payments made or agreed to be made may be set off against the whole amount contracted to be paid. (Westman v. Dye (1931) 214 Cal. 28, 34; Shirley v. Britt (1957) 152 Cal.App.2d 666, 669 [payments of usurious interest may be set off against principal debt in actions brought to collect the latter]; see also, Interstate Group Administrators, Inc. v. Cravens, Dargan & Co. (1985) 174 Cal.App.3d 700, 706 [set off can be raised as an affirmative defense].)

Plaintiffs have not carried their burden demonstrating that they are entitled to summary adjudication of this affirmative defense. In fact, in Reply, “Plaintiffs agree that the issue of how much interest Plaintiffs are entitled to receive on their Contract Claims is an issue for trial.” (Reply, 13:6-7.)

The motion for summary adjudication of the Forty-Seventh Affirmative for Usurious Transactions is denied.

Defendants’ Forty-Eighth Affirmative Defense for “Statute of Frauds – Civil Code § 1624,” alleges that, “[t]he statute of frauds bars any claim by Plaintiffs that Defendant Stephen Hall allegedly breached a promise to personally guarantee sums allegedly due Plaintiffs. Civil Code § 1624 requires that a promise to answer for the debt of another be in writing signed by the party to be charged, and no such writing exists.” (PSS 1291.)

The Court has now held two hearings on motions for summary adjudication regarding the statute of frauds and the triable issue of material fact surrounding this defense. As such, the Court will address this defense somewhat briefly given the reliance on overlapping evidence between the motions.[2]

“The statute of frauds requires any contract subject to its provisions to be memorialized in a writing subscribed by the party to be charged or by the party’s agent. (Civ. Code § 1624; Secrest v. Security National Mortgage Loan Trust 2002–2 (2008) 167 Cal.App.4th 544, 552.) Civil Code section 1624, subdivision (a)(2) provides, in relevant part: “The following contracts are invalid, unless they, or some note or memorandum thereof, are in writing and subscribed by the party to be charged or by the party’s agent: . . . (2) A special promise to answer for the debt, default, or miscarriage of another, except in the cases provided for in Section 2794.”

Plaintiffs argue an exception to the statute of fraud applies, pursuant to Civil Code section 2794.

Civil Code section 2794 provides, in relevant part: “A promise to answer for the obligation of another, in any of the following cases, is deemed an original obligation of the promisor, and need not be in writing: [¶] . . . [¶] (4) Where the promise is upon a consideration beneficial to the promisor, whether moving from either party to the antecedent obligation, or from another person.”

Here, Plaintiffs assert, at the time of the oral promise, they refrained from retaining counsel and filing legal action; they argue that their action (or inaction) was valuable consideration[3] for Stephen and Robert Hall’s promises to personally assume responsibility for payment the Borrower Defendants’ debts to Plaintiffs. (PSS 1296-1298.)

Plaintiffs submit evidence that Robert Hall stated that “There’s no reason to get attorneys involved, because no one wins except for the attorneys.” (PSS 1296-1298; DSS 1365.) Robert Hall then stated, “Besides, Steve and I are going to personally guarantee in writing to pay back your principal and interest.” (PSS 1296-1298; DSS 1365.)

Citing Regus v. Schartkoff (1957) 156 Cal. App. 2d 382, Plaintiffs argue that Defendants’ promise to ensure payment of a debt in exchange for a promise to refrain from hiring lawyers and initiating legal action is exactly the type of agreement that falls within this exception.

In Regus, the Court of Appeal applied this exception to find that no writing was required to enforce an insurance adjuster’s promise that the insurance company would pay plaintiff’s damages if plaintiff did not retain counsel. Specifically, an Allstate agent orally promised that plaintiff's damages would be paid by Allstate if plaintiff did not retain legal counsel and file a lawsuit (Id. at 390.) By promising not to sue, plaintiff provided new consideration, creating a separate enforceable contract.

In reaching this decision, the Regus court held that: “Whenever a promise to answer an antecedent obligation of another is made upon a fresh consideration beneficial to the promisor, no matter from what source it may move, the promise is an original one and valid though oral; or, as was said in an early case, whenever the leading and main object of the promisor is not to become surety or guarantor of another, but to subserve some purpose or interest of his own, his promise is not within the statute, although the effect of the promise may be to pay the debt or discharge the obligation of another.” (Id. at 391.)

In opposition, Stephen Hall Defendants argue that any alleged statement made was made in context of settlement negotiations. (DSS 1331.)

Plaintiffs also assert that there are adequate writings to satisfy the writing requirement of the statute of frauds.

The statute of frauds provides that a contract “to answer for the debt, default, or miscarriage of another” (Civ. Code § 1624, subd. (a)(2)) must be “in writing and subscribed by the party to be charged or by the party’s agent.” (Civ. Code § 1624, subd. (a)(2).)

The “ ‘primary purpose’ ” of the statute of frauds “ ‘is evidentiary, to require reliable evidence of the existence and terms of the contract and to prevent enforcement through fraud or perjury of contracts never in fact made....’ ([Citation.]” (Sterling v. Taylor (2007) 40 Cal.4th 757, 766–767.) Thus, consistent with this purpose, a writing satisfies the statute of frauds “if it identifies the subject of the parties’ agreement, shows that they made a contract, and states the essential contract terms with reasonable certainty. [Citation.] ‘Only the essential terms must be stated, “ ‘details or particulars’ need not [be]. What is essential depends on the agreement and its context and also on the subsequent conduct of the parties....” ’ ” (Sterling, supra, 40 Cal.4th at p. 766 [emphasis added].)

Multiple emails stating the essential terms of an agreement can be read together to satisfy the writing requirement statute of frauds. (Goodman v. Cmty. Sav. & Loan Ass'n (1966) 246 Cal. App. 2d 13, 22 [“A memorandum of agreement sufficient to meet the requirements of the Statute of Frauds may be evidenced by several writings such as an exchange of letters or telegrams, or in a writing from one party to the other acted upon by the other.”].)

Plaintiffs specifically point to email exchanges between Stephen Hall and Plaintiffs with respect to his promise to apply the net proceeds from the sale of the Evergreen Property. (PSS 1299.) Plaintiffs rely on the same emails January 16, 2018 (PSS 1299); February 17, 2018 (PSS 1302); March 19, 2018 (PSS 1303); and March 29, 2018 (PSS 1304) as cited in Plaintiffs’ opposition to Defendant Stephen Halls’ motion for summary adjudication. As the Court previously found, these emails are adequate on this motion to create a factual issue regarding the existence of a writing satisfying the statute of frauds as to the promise to repay Plaintiffs with the Evergreen sale funds. Thus, on Plaintiffs’ motion, this evidence is sufficient to shift Plaintiff’s initial burden.

Similarly, in opposition, Defendants submit evidence that these email statements were made as part of settlement negotiations; that is, these discussions were merely one possible option to resolve the parties’ disputes. (DSS 1296-1304, 1326-1356.) Defendants’ evidence demonstrates the existence of triable issue of material fact with respect to these writings.

The motion for summary adjudication of the Forty-Eighth Affirmative Defense for Statute of Frauds is denied.

Plaintiffs’ motion for summary adjudication is granted as to the Fortieth through Forty-Fifth Affirmative Defenses, granted in part as to the Forty-Sixth Affirmative Defense, and denied as to the Forty-Seventh to Forty-Eighth Affirmative Defenses.

[1] Plaintiff refers to these remaining claims as the “Tort Claims” although these claims include (1.) Intentional Tort Claims: Conspiracy to Defraud (First Cause of Action); Fraud and Deceit (Second Cause of Action); Civil Theft (Fifth Cause of Action); Fraudulent Conveyance and Aiding and Abetting Fraudulent Conveyance (Seventh through Ninth Causes of Action); Constructive Fraud (Twelfth Cause of Action); and Elder Financial Abuse (Twenty-Second Cause of Action); (2) Securities Claims: Third and Fourth Causes of Action, (3.) a Fiduciary Duty Claim: Tenth Cause of Action; (4.) a Negligence Claim: Twenty-Second Cause of Action, and (5.) an Accounting Claim: Twenty-Third Cause of Action.

[2] Plaintiffs argue that this defense only applies to Stephen Hall, and is inapplicable to the other twelve Stephen Hall Defendants, as it concerns a promise by Stephen Hall. Further, the Defense only applies to the Contract Claims against Stephen Hall, not any of the Tort Claims. As the opposition notes, Plaintiffs appear to hold Borrower Defendants and Non-Borrower Defendants vicariously liable for Mr. Hall’s alleged breach of promise through allegations of conspiracy, aiding and abetting, alter ego, respondeat superior, and ratification. (UF1289.) Thus, unless Plaintiffs intend to stipulate that they intended to create contractual oral guarantee only with Stephen Hall, other Stephen Hall Defendants are entitled to assert this defense.

[3] Civil Code section 1605 defines “good consideration,” providing: “Any benefit conferred, or agreed to be conferred, upon the promisor, by any other person, to which the promisor is not lawfully entitled, or any prejudice suffered, or agreed to be suffered, by such person, other than such as he is at the time of consent lawfully bound to suffer, as an inducement to the promisor, is a good consideration for a promise.” “[T]he adequacy of consideration to support a contract must be determined as of the date the contract was entered into, and not in the light of subsequent events. [Citations.]” (Crail v. Blakely (1973) 8 Cal.3d 744, 753.)