Judge Jill Feeney, Case Number: 23STCV05062, Date: 2023-11-27 Tentative Ruling

The Court sets an OSC Re: Imposition of Sanctions in the Amount of $500 for Failure to Timely File Proof of Service/Enter Default with Respect to the Second Amended Complaint as to Defendants Palmdale Center, LLC, 26 Palms, LLC, Royal Western Properties, LLC. And Jamshid Goltche for April 26, 2024 at 8:30 a.m.

On November 27, 2023, the Court sustained Defendant Ebby Shakib’s first demurrer to Plaintiff’s second cause of action. Plaintiff filed a Second Amended Complaint (SAC) on December 20, 2023. On January 25, 2024, Shakib filed his second demurrer.

Plaintiff now attaches a March 29, 2019 agreement modifying the promissory and deed of trust. (SAC, Exhibit D.) The modification changed the maturity date of the loan to December 31, 2019 and released the Shakib Trust from further obligation under the note in exchange for consideration of $1,000,000. (Id.) Plaintiff was also required to reconvey the Chadbourne Property, part of the collateral under the original note, to the trust. (Id.) The agreement did not make any other modifications to the loan. (Id.)

Defendant Ebby Shakib again contends that the second cause of action for breach of written guarantee must fail as a matter of law because he is also a primary obligor on the underlying promissory note which is the subject of the first cause of action for breach of written contract.

The Court previously sustained Shakib’s first demurrer under Cadle Co. II v. Harvey (2000) 83 Cal.App.4th 927. The ruling there was based on the premise that the defendant had no liability on the guaranty that was separate and apart from the defendant’s liability with respect to the secured note. The Court of Appeal in Cadle concluded that “when an intervivos revocable trust is the principal obligor on a debt subject to the antideficiency laws, a guaranty of that debt by the individual who . . . is the trustee and settlor of the trust, is ineffective because the individual and the trust are essentially the same.” The policy concern behind the ruling is preventing an end-run around the antideficiency laws’ protection of debtors. (Id. at 932.)

Here, the 2019 modification states that the Shakib Trust was released from further obligation under the note. To be subject to a deficiency judgment, a guarantor must be a true guarantor, not merely the principal under a different name. (California Bank & Trust v. Lawlor (2013) 222 Cal.App.4th 625, 632.) Because Shakib is no longer guaranteeing debt which belongs to the Shakib Trust, he is not an obligor through the Trust. The demurrer is overruled in on this ground.

Shakib cites Riddle v. Lushing (1962) 203 Cal.App.2d 831, 836 in support of this argument. Riddle involved copartners who took out a loan secured by the property purchased in part using the loan. (Riddle at p. 833.) Each co-partner personally guaranteed the note. (Id.) The court there ruled that a partnership is not a legal entity, even if it may be sued as one. (Id at p.835.) Because partners are jointly liable for the partnership’s debts, the partners could not also be guarantors on the partnership’s note and the guarantee did not increase their liability. (Id at p. 834, 836.) A deficiency judgment against the partners was barred under Code Civ. Proc., section 580b. (Id at p.836.)

Here, the SAC alleges that Shakib and Defendant Goltche are owners of 26 Palms, LLC, Palmdale, LLC, and Royal Western Properties, LLC. (SAC ¶¶2-4.) These entities are corporations, separate legal entities, owned by Shakib and Goltche. Courts have ruled that where separate legal entities, such as limited liability companies, enter into loan agreements, the entities’ owners are true guarantors because the entities are legally separated from the individuals. (California Bank & Trust v. Lawlor (2013) 222 Cal.App.4th 625, 638.)

Here, the SAC does not show that the loan was made to a partnership. The original note, guarantees, and modification do not state that the loan was made to a partnership. (SAC ¶9.) Each entity owned separate interests in the Durham Property which was used as collateral to secure the note. (SAC ¶37.) Additionally, the purpose of the loan was to pay down debts owed by the business entities, not debts owed by any partnership. (SAC ¶12.) The facts do not show that Shakib was a member of a partnership with these entities. Rather, like California Bank & Trust, the entities’ status as limited liability companies provides legal separation between the entities and the individual guarantors, Shakib and Goltche. Because the SAC does not allege that the loan was a debt of a partnership which Shakib was a member of, the facts do not show that Shakib is subject to the protections of Code Civ. Proc., section 580b. The facts are sufficient to state that Shakib is a true guarantor under the parties’ agreement as modified in 2019.

The Court notes that the SAC contains inconsistencies with its attached exhibits, including boiler plate allegations that Defendants were partners of each other, and that Plaintiff loaned money to all Defendants. Allegations inconsistent with annexed documentary exhibits or facts judicially noticed may be disregarded. (Hoffman v. Smithwoods RV Park, LLC (2009) 179 Cal.App.4th 390, 400.) Here, the exhibits containing the original note, guarantee, and modification state the money was loaned to the Shakib Trust and the business entities, not the individual guarantors. Additionally, the exhibits contain no mention of a partnership. The Court will disregard the inconsistent facts alleged in the FAC.