Judge: Daniel S. Murphy, Case: 20STCV04549, Date: 2023-08-11 Tentative Ruling

Case Number: 20STCV04549    Hearing Date: August 11, 2023    Dept: 32

BACKGROUND

            On March 27, 2020, Plaintiffs Craig Sallin, Croesus Investments, LLC, Linda Snyder-Kelbaugh, Sun Coast Distributing, Inc., Sun Pacific Group, Inc., and Jerry James filed this action for breach of contract against Defendants Joe Samuel Bailey and Renew Spinal Care, Inc. The operative First Amended Complaint was filed on March 27, 2020. The purported Second Amended Complaint on July 31, 2023 is not properly filed because a party may only amend a complaint once without leave of court. (See Code Civ. Proc., § 472(a).)   

            The FAC asserts a single cause of action for breach of written settlement agreement. The FAC alleges that Plaintiffs loaned money to Defendants and that the parties reached a settlement resolving disputes over the amount owed. This action stems from Defendants’ alleged failure to pay the amounts required by the settlement agreement.  

            On July 17, 2023, Defendants filed the instant motion for judgment on the pleadings. Plaintiffs filed their opposition on July 31, 2023. Defendants replied on August 4, 2023.

 LEGAL STANDARD

A motion for judgment on the pleadings may be made on the same grounds as those supporting a general demurrer, i.e., that the pleading fails to state facts sufficient to constitute a legally cognizable claim or defense. (Stoops v. Abbassi (2002) 100 Cal.App.4th 644, 650.) A motion for judgment on the pleadings performs the same function as a general demurrer, and hence attacks only defects disclosed on the face of the pleadings or by matters that can be judicially noticed. (Cloud v. Northrop Grumman Corp. (1999) 67 Cal.App.4th 995, 999.) Judgment on the pleadings must be denied where there are material factual issues that require evidentiary resolution. (Schabarum v. Calif. Legislature (1998) 60 Cal.App.4th 1205, 1216.)

MEET AND CONFER

            At least five days before a motion for judgment on the pleadings is filed, the parties must meet and confer to informally resolve the claims. (Code Civ. Proc., § 439(a).) A motion for judgment on the pleadings must be accompanied by a declaration stating: (1) the means by which the parties met and conferred and that the parties could not reach an agreement; or (2) that the opposing party failed to respond to the meet and confer request or otherwise failed to meet and confer in good faith. (Id., subd. (a)(3).) The Court finds that Defendants have satisfied the meet and confer requirement. (See Schafer Decl. ¶ 8, Ex. A.) In any case, inadequate meet and confer is not a reason for denying the motion. (Code Civ. Proc., § 439(a)(4).)   

DISCUSSION

The California Constitution limits the interest rate on a loan or forbearance to the higher of 10% per annum or 5% per annum plus a certain prevailing rate. (Cal. Const., Art. XV § 1.) “The essential elements of usury are: (1) The transaction must be a loan or forbearance; (2) the interest to be paid must exceed the statutory maximum; (3) the loan and interest must be absolutely repayable by the borrower; and (4) the lender must have a willful intent to enter into a usurious transaction.” (Ghirardo v. Antonioli (1994) 8 Cal.4th 791, 798.)

Defendants argue that the breach of contract claim fails because it is based on usurious loans. Defendants point out that the total principal amount loaned by the Plaintiffs in 2014 and 2015 was $930,000, which turned into $4.7 million owed by July 2019, the date of the settlement agreement. (Mtn. 2:11-17.) Defendants contend that “the sole purpose of the [Settlement] Agreement was to extend the due dates for the loan—illegally—in exchange for fixing $3,810,000 in usurious interest.” (Id. at 2:18-21.) Based on the amounts stated in the complaint and attached settlement agreement, Defendants calculate that each Plaintiff is seeking to recover an interest rate between 16.57% and 197.29% for the various loans that they made to Defendants. (Id. at 9:7-10:22.) Defendants argue that the settlement agreement is illegal because of its unlawful object and consideration.

            The contract at issue is ostensibly a settlement agreement, not a loan. Nonetheless, Defendants argue that the form of a forbearance or agreement cannot be used to obscure a lender’s true intent in extracting a usurious interest. (See Thomas v. Hunt Mfg. Corp. (1954) 42 Cal.2d 734, 740 [“Substance is more important than form and the name with which excessive payments be labeled or the guise under which they be exacted is quite immaterial if in truth they be for the forbearance of money”].) Relying on Thomas, Defendants further contend that the only intent required under usury is the intent to take an interest rate higher than the legal maximum, regardless of the lender’s intent to violate the law. (See ibid. [“The conscious and voluntary taking of more than the legal rate of interest constitutes usury and the only intent necessary on the part of the lender is to take the amount of interest which he receives”].)

            However, Thomas also acknowledged that “[t]he existence of the requisite intent is always a question of fact and in ascertaining the fact the court may look to all the circumstances surrounding the transaction.” (Thomas, supra, 42 Cal.2d at p. 740; see also Boerner v. Colwell Co. (1978) 21 Cal.3d 37, 44 [“The existence of the requisite intent is always a question of fact”].) “It is for the trier of the fact to determine whether the intent of the contracting parties was that disclosed by the form adopted, or whether such form was a mere sham and subterfuge to cover up a usurious transaction.” (Ghirardo, supra, 8 Cal.4th at p. 798, internal citations omitted.) This cannot be resolved on a motion for judgment on the pleadings.

            Defendants also rely on Hardwick v. Wilcox (2017) 11 Cal.App.5th 975, 989 for the proposition that a subsequent agreement cannot be used to avoid the consequences of usury if the subsequent agreement is merely an extension of the usurious transaction. However, the trial court in Hardwick reached this conclusion “following a court trial,” not on the pleadings. (Id. at p. 988.) There was “evidence regarding the interconnection between the series of 15 notes and amendments to the notes substantially support[ing] the trial court's finding that the Forbearance Agreement was an extension of the underlying usurious loan transaction.” (Id. at p. 989.) “[T]he factual evidence showed that the release was not part of a settlement of a usury claim or of any other dispute. Rather, the sole purpose of the Forbearance Agreement was to extend the due dates for the loans.” (Ibid.) This is what Defendants contend Plaintiffs are attempting to do with the settlement agreement in this case. However, Defendants cannot prove it at the pleading stage. Ultimately, it remains a factual issue whether the contract is a bona fide settlement agreement or a pretext for recovering usurious interest rates.

            For pleading purposes, Plaintiffs have alleged that they entered into a settlement agreement with Defendants imposing a valid interest rate of 10%. This allegation must be taken as true. Therefore, the complaint does not reveal usury on its face. The analysis that Defendants conduct on this motion is better left for the trier of fact.

CONCLUSION

            Defendants’ motion for judgment on the pleadings is DENIED.