Judge: John J. Kralik, Case: 23BBCV01940, Date: 2024-02-02 Tentative Ruling
Case Number: 23BBCV01940 Hearing Date: February 2, 2024 Dept: NCB
North Central District
|
bala palanisamy, Plaintiff, v. waste management solution,
llc, et al., Defendants. |
Case No.: 23BBCV01940 Hearing Date: February 2, 2024 [TENTATIVE] order
RE: motion to strike |
BACKGROUND
A.
Allegations
Plaintiff Bala Palanisamy (“Plaintiff”) alleges
that Plaintiff and Defendant Diana Glenn (“Glenn”) are both involved in the
business of importing and selling Personal Protective Equipment (“PPE”). Plaintiff alleges that in early 2022, Glenn
approached Plaintiff regarding making a loan to Defendant Waste Management
Solution, LLC (“WMS”), an entity where Glenn was a managing member, to fund the
purchase of PPE from a Mexican Company named Nano Cures De Mexico, S.A. De C.v.
(“Nano Cures”), in which Glenn was also a stakeholder. Plaintiff alleges that Glenn represented the
loan would be a short-term bridge loan until the PPE could be purchased and sold
and represented that Plaintiff would be repaid in 2 months. Plaintiff alleges she agreed to lend WMS $1,000,000
for 2 months to be repaid in the sum of $2,000,000, provided that WMS be able
to secure additional guarantors of the note, with at least one of the guarantors
providing real property collateral.
Plaintiff alleges that WMS purportedly secured the guaranties of Glenn,
Defendant Ronald Gabaldon (“Gabaldon”), and Defendant Rawiwan W. Klos (“Klos”). Plaintiff alleges that he agreed to proceed
with the documentation of the loan, WMS’s counsel drafted the documents, and
WMS gave Plaintiff a note dated June 15, 2022 in the amount of $2,000,000
signed by Glenn as managing member of WMS.
The notice included a personal guaranty among WMS (borrower) and
Plaintiff (holder), and Glenn, Gabaldon, and Klos (Guarantors) dated June 16,
2022 and was signed by the guarantors. Plaintiff
alleges that the loan was not repaid and Klos now argues that Klos never agreed
to guarantee the loan.
The first amended complaint (“FAC”), filed November
13, 2023, alleges causes of action for: (1) declaratory relief; (2) breach of note;
(3) breach of guaranty; (4) breach of guaranty; (5) fraud; (6) negligent
misrepresentation; and (7) foreclosure.
B.
Motion
on Calendar
On November 28, 2023, Defendant Rawiwan W. Klos (“Klos”) filed a motion
to strike portions of the FAC.
On January 19, 2024, Plaintiff filed an opposition brief.
On January 26, 2024, Klos
filed a reply brief.
DISCUSSION
Klos moves to strike paragraph 17 (page 3) in the general allegations,
paragraph 44 (page 6) in the 2nd cause of action, paragraph 52 (page
7) in the 3rd cause of action, and paragraph 5 (page 8) in the 4th
cause of action regarding the loan terms.
Klos moves to strike paragraph 52 (page 7) of the 3rd cause
of action regarding liquidated damages. Klos
also moves to strike paragraph 3 of the prayer for damages seeking damages and
daily interest.
Klos argues that the FAC includes
improper and irrelevant allegations that are no supported by legal authority
because it seeks interest at a usurious rate and the liquidated damages late
fees are also based on an illegal usury rate.
In opposition, Plaintiff concedes
that the loan is usurious to Klos, but Plaintiff argues that he may nonetheless
seek post-maturity interest such that there is no basis to strike allegations
seeking post-maturity interest. In the 3rd
cause of action, Plaintiff alleges: “As to Klos, Plaintiff does not seek to
charge interest which may be deemed usurious.”
(FAC, ¶51.) Plaintiff states that
he specified his damages against Klos as follows: “Plaintiff is entitled to
actual damages in the amount of $1,717,370, constituting $1,000,000 in principal,
post-maturity interest in the amount of $121,369.86, and $50,000 in late
charges. Daily interest of $273.97 continues to accrue." (Id., ¶52.)
In support of his position, Plaintiff relies
on Epstein
v. Frank (1981) 125 Cal.App.3d 111:
The attempt to exact the
usurious rate of interest renders the interest provisions of a note void. (Moore
v. Russell (1931) 114 Cal.App. 634 [300 P. 479]; Simmons v. Patrick
(1962) 211 Cal.App.2d 383 [27 Cal. Rptr. 347].) The usurious provisions,
however, do not affect the right of the payee to recover the principal amount
of the note when due. (Rochester Capital Leasing Corp. v. K & L Litho
Corp. (1970) 13 Cal.App.3d 697 [91 Cal.Rptr. 827].) The inclusion of a
usurious interest provision, therefore, results, in effect, in a note payable
at maturity without interest.
The payee of a
noninterest-bearing note is entitled to interest at the legal rate from the
date the note matures until the date of judgment. (Puppo v. Larosa
(1924) 194 Cal. 717 [230 P. 439].) In such instances interest is awarded in the
nature of damages for the retention of the principal amount of the note and not
by virtue of any provision in the note. By analogy, therefore, the payee of a
note with a usurious interest provision would be entitled to damages in the
nature of interest at the legal rate for that period of time which the obligor
on the note withheld the principal beyond the date of maturity.
The denial of interest up
until the maturity of the note is a sufficient deterrent against the exacting
of usurious interest. The payee, notwithstanding the usury, has the right to
recover the principal of the note in full on the date of its maturity. If the
obligor improperly withholds payment of this obligation it is neither unjust
nor contrary to policy that he be chargeable with interest at the legal rate
from the date he was obligated to pay the note until the date he discharges
that obligation, or to the date a judgment is rendered against him.
(Epstein v. Frank (1981) 125
Cal.App.3d 111, 122–123 [concluding that plaintiffs were entitled to receive
interest at the legal rate from the date of maturity to the date of
judgment].)
In reply, Klos argues that the Court should strike the 12% default interest
and the 5% late charge as usurious and therefore void. Klos concedes that Plaintiff may request
post-maturity interest at the legal rate of interest.
With respect to paragraph
17 in the general allegations, the Court declines to strike the allegations as
it provides background facts regarding the terms of the loan and note – whether
usurious or not.
With respect to paragraph
44 of the 2nd cause of action, the 2nd cause of action
for breach of the note is alleged against WMS only and not against Klos. Similarly, paragraph 5 in the 4th
cause of action for breach of guaranty is alleged against Glenn and Gabaldon
only. As these causes of action are not
alleged against Klos, the motion is moot as to these paragraphs and will be
denied.
Paragraph 52 is alleged in
the 3rd cause of action for breach of guaranty against Klos only,
which is summarized above. The Court declines
to strike paragraph 52 for the reasons stated in Epstein. In opposition, Plaintiff represents that the
post-maturity interest is not based on a usurious interest rate. Further, at this time, there is no showing
that the liquidated damages request was not reasonably calculable at the time
the parties entered the guaranty agreement.
As such, the motion to strike this paragraph is denied.
Finally, Klos moves to
strike paragraph 3 of the prayer for damages against Klos, which seeks actual
damages to be proven at trial, but no less than $1,717,370 with daily interest
at $273.97 accruing as of November 1, 2023.
For the same reasons discussed above and in reliance on Epstein,
the Court will allow this prayer for damage against Klos to remain.
While some allegations
regarding the background information of the parties’ initial contractual remain,
it appears that the parties are in agreement that Plaintiff cannot obtain
relief for usurious interest rates and Plaintiff will not be seeking such
relief from Klos; instead, Plaintiff specifically seeks post-maturity interest
at the legal rate only. The Court will
allow the allegations regarding the contract’s terms to remain as there are
more parties in this action than Klos only.
Further, even if the allegations regarding the note’s terms were
stricken, the note would still be admissible in evidence as it is the basis of
the parties’ relationship.
The motion to strike is denied.
CONCLUSION AND
ORDER
Defendant Rawiwan W. Klos’s motion to strike
portions of the First Amended Complaint is denied.
Defendant shall provide notice of this order.
Note: The Court will be
handling hearings remotely on February 2, 2024. If you wish to be heard in
person, please inform the clerk and your matter will be continued to allow you
to appear personally.
DATED:
February 2, 2024 ___________________________
John
J. Kralik
Judge
of the Superior Court