Judge John J. Kralik, Case Number: 24NNCV01213, Date: 2024-05-31 Tentative Ruling

Plaintiffs Michelle Hu (“Hu”), Los Angeles City Plaza, LP (“LACP”), and LA Valley Garden Plaza LP (“LAVGP”) (collectively, “Plaintiffs”) allege that they are the current or prior owners of the properties located at 1598 Long Beach Boulevard, Long Beach, CA 90813 (“Long Beach Property”), 9933 Valley Boulevard, El Monte, California 91731 (“El Monte Property”), and 1125 S. 1^st Avenue, Arcadia, California 91006 (“Arcadia Property”). Plaintiffs allege that the Arcadia Property is Hu’s principal residence.

Plaintiffs allege that on November 11, 2021, Plaintiffs and Defendant The Evergreen Advantage, LLC (“Evergreen”) entered into a secured mortgage transaction (construction loan) for $17,500,000, which carried a 9% per annum interest rate and contained a maturity date of December 1, 2022, secured by the 3 properties. Plaintiffs allege that Evergreen is the lender under the Promissory Note Secured by Deed of Trust dated November 11, 2021 (“Note”), secured by the certain Deed of Trust, Assignment of Rents, Security Agreement and Fixture Filing dated November 11, 2021 and recorded on November 29, 2021; and that Evergreen is the beneficiary under the DOT. On November 8, 2022, Plaintiffs and Evergreen entered into a Modification and Extension Agreement (“Extension Agreement”), which had a principal balance of $11,080,000, 10.5% per annum interest rate, required interest payments of $96,950 per month beginning January 1, 2023, and extended the maturity date to June 1, 2023.

Plaintiffs allege they were ultimately unable to make the payment beginning June 2023. On July 3, 2023, Evergreen caused a Notice of Default (“NOD”) to be recorded against each property, for an estimated default of $11,359,476.46. On March 1, 2024, Evergreen caused a Notice of Trustee’s Sale (“NOTS”) to be recorded for the properties, pursuant to which it sought $13,949,223.81 (estimated) through the foreclosure of the properties. Plaintiffs allege that Evergreen caused the properties to be sold at foreclosure sale.

The complaint, filed April 24, 2024, alleges causes of action for: (1) violation of California Usury Law; (2) recovery of usury interest; (3) declaratory relief; (4) violation of Civil Code, § 2924(c)-(d); and (5) unfair business practices – violation of Business & Professions Code, § 17200 et seq.

On May 7, 2024, Plaintiffs filed an ex parte application for temporary restraining order (“TRO”) to restrain the recording of a Trustee’s Deed Upon Sale for the property located at 1125 S. 1^st Avenue, Arcadia, CA 91006.

On May 7, 2024, Defendant Evergreen filed an opposition to the application for TRO.

On May 8, 2024, the ex parte application came for hearing. The Court granted the ex parte application, and entered the following TRO: “Pending hearing on the below Order to Show Cause, Defendants, their employees, agents and/or any other person or entity acting with them or on their behalf are restrained and enjoined from recording of a Trustee’s Deed Upon Sale for the property located at 1125 S. 1st Avenue, Arcadia, California 91006.” (5/8/24 Order at p.1.) The Court set an OSC re why a preliminary injunction should not be issued for May 31, 2024 and ordered Plaintiffs to serve the ex parte papers as the moving papers by May 10, 2024, Defendants to serve the opposition papers by May 24, 2024, and ordered Plaintiffs to file the reply papers by May 29, 2024.

On May 23, 2024, Evergreen filed an opposition brief. The Court will consider the May 23, 2024 as Evergreen’s operative opposition papers.

With the ex parte papers, Plaintiffs request judicial notice of Exhibits: (A) a copy of the Note; (B) copy of the ed of Trust, Assignment of Rents, Security Agreement and Fixture Filing securing the Note; (C) a copy of the Extension Agreement which modified the Note; (D) a copy of the NOD recorded on July 3, 2023; (E) a copy of the NOTS recorded on March 1, 2024. Plaintiffs also seek judicial notice of Fact 1: “On October 25, 2022, the primary discount rate established by the Federal Reserve Bank of San Francisco on Reserve Balances was 3.25%,” which is based on the Federal Reserve’s official website. The request is granted as to Exhibits A-E. (Fontenot v. Wells Fargo Bank, N.A. (2011) 198 Cal.App.4th 256, 264-267, disapproved on other grounds.) The request is granted as to Fact 1. (Evid. Code, § 452(h).)

With the opposition papers, Evergreen requests judicial notice of Exhibit A, the license information of Secured Capital Lending, Inc. taken from records of the Department of Real estate. The request is granted. (Evid. Code § 452(c); Rodas v. Spiegel (2001) 87 Cal.App.4th 513, 518.)

Plaintiffs move for a preliminary injunction against Evergreen, arguing that Evergreen wrongfully foreclose on Plaintiffs’ property pursuant to a usurious loan. Plaintiffs move to invalidate the foreclosure sale and seek to restrain Evergreen from completing the foreclosure sale of Hu’s home, the Arcadia Property.

Plaintiffs argue that they are able to establish the probability of success on the merits of each of their causes of action in the complaint.

“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.” (Korchemny v. Piterman (2021) 68 Cal.App.5th 1032, 1043.) “The element of intent is narrow. ‘[T]he intent sufficient to support the judgment [of usury] does not require a conscious attempt, with knowledge of the law, to evade it. 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; if that amount is more than the law allows, the offense is complete.’” (Id.)

“California Constitution, article XV, section 1 limits the interest rate for a ‘loan or forbearance’ of money not primarily for personal, family or household purposes, to the higher of: (1) 10 percent per annum or (2) 5 percent plus the rate of interest prevailing on the 25th day of the month preceding the earlier of the date of the extension of the contract to make the loan or forbearance or the date of making the loan or forbearance, established by the Federal Reserve Bank of San Francisco on advances to member banks under sections 13 and 13(1) of the Federal Reserve Act. [Citation.]” (Id. at 1042.) Civil Code, § 1916.1 states:

The restrictions upon rates of interest contained in Section 1 of Article XV of the California Constitution shall not apply to any loan or forbearance made or arranged by any person licensed as a real estate broker by the State of California, and secured, directly or collaterally, in whole or in part by liens on real property. For purposes of this section, a loan or forbearance is arranged by a person licensed as a real estate broker when the broker (1) acts for compensation or in expectation of compensation for soliciting, negotiating, or arranging the loan for another, (2) acts for compensation or in expectation of compensation for selling, buying, leasing, exchanging, or negotiating the sale, purchase, lease, or exchange of real property or a business for another and (A) arranges a loan to pay all or any portion of the purchase price of, or of an improvement to, that property or business or (B) arranges a forbearance, extension, or refinancing of any loan in connection with that sale, purchase, lease, exchange of, or an improvement to, real property or a business, or (3) arranges or negotiates for another a forbearance, extension, or refinancing of any loan secured by real property in connection with a past transaction in which the broker had acted for compensation or in expectation of compensation for selling, buying, leasing, exchanging, or negotiating the sale, purchase, lease, or exchange of real property or a business. The term “made or arranged” includes any loan made by a person licensed as a real estate broker as a principal or as an agent for others, and whether or not the person is acting within the course and scope of such license.

(Civ. Code, § 1916.1.) “A forbearance is an agreement not to insist upon payment at the date of maturity of a debt, or the giving of further time to pay.” (Buck v. Dahlgren (1972) 23 Cal.App.3d 779, 785.)

Plaintiffs argue that the parties entered into a loan extension that, unbeknownst to Plaintiffs, contained a usurious interest rate. They argue that the maximum interest rate that could be applied was 10%, but the Extension Agreement adjusted the interest rate to 10.5%. (See Pl.’s RJN, Ex. C [Extension Agreement, § 4.2].) Plaintiffs argue that no broker was involved in the negotiation, procurement, or drafting of the Extension Agreement and that all negotiations were between Plaintiffs and Evergreen, such that no broker exemption applies. (Mot. at p.5.) Ms. Hu states in her declaration that the Extension Agreement was not arranged through a broker. (Hu Decl., ¶7.) Plaintiffs argue that due to the usurious rate, Evergreen had no right to foreclose on the three properties.

In opposition, Evergreen argues that the Extension Agreement amounted to a forbearance and that this forbearance was arranged by Plaintiffs and Evergreen through Secured Capital Lending, Inc. (“SCL”), who was and is still licensed by the Department of Real Estate. (Def.’s RJN, Ex. A.)

Evergreen provides the declaration of Dan Zuckerman, President for Evergreen and The Evergreen Advantage Management, Inc. (“TEAM”). Mr. Zuckerman states that Evergreen’s business records reflect that on November 11, 2021, Evergreen originated a $17,500,000 loan (“Subject Loan Transaction”) in favor of Plaintiffs as evidenced by the Note. (Zuckerman Decl., ¶4, Ex. 1 [Note].) He states that licensed broker, SCL (Department of Real Estate License No. 0215649) arranged the Subject Loan Transaction for Plaintiffs and Evergreen in exchange for a commission. (Id., ¶5, Ex. 2 [Borrower Statement].)[1] He states that Evergreen’s documents reflect that Plaintiffs executed a DOT recorded against each of the properties. (Id., ¶6, Ex. 3 [DOT].) He states that in November 2022, the parties entered the Extension Agreement, which modified the terms of the loan; his records reflect that the Extension Agreement was arranged by both TEAM and the broker of the original Subject Loan Transaction, SCL. (Id., ¶¶7-8, Ex. 4 [Extension Agreement].) His TEAM records reflect that SCL received additional compensation for arranging the Extension Agreement. (Id., ¶9, Ex. 5 [November 2022 emails], Ex. 6 [check].) Mr. Zuckerman states that TEAM and Evergreen each held a California Finance Lender license no. 60DBO-45545. (Id., ¶¶10-11.)

Evergreen also provides the declaration of Sarkis “Sam” Chivitchian, who is the CEO and Fund Manager for SCL. He states that in November 2022, SCL arranged the Extension Agreement. (Chivitchian Decl., ¶12.) He states that in the course of arranging the Extension Agreement, SCL communicated directly with Ms. Hu, her referring broker, and her assistant/employee. (Id., ¶¶13-14.) He states that in consideration for SCL’s role in arranging the Extension Agreement, SCL received compensation in the amount of $27,700. (Id., ¶15.)

In November 2022, Jesse Brunner of TEAM and Mr. Chivitchian exchanged emails regarding the extension agreement and Mr. Brunner stated that he would send out Mr. Chivitchian’s money soon. (Zuckerman Decl., Ex. 5.) Exhibit 6 of Mr. Zuckerman’s declaration includes a check for the amount of $27,700 with a posted date of December 1, 2022 made out by TEAM to SCL. (Zuckerman Decl., Ex. 6.)

Here, based on the parties’ arguments presented in their respective papers, the probability of success on the merits of the usury causes of action depend on whether the broker exemption applies. Plaintiffs argue that the 10.5% interest rate in the Extension Agreement was usurious and no broker was involved in the Extension Agreement’s creation, whereas Evergreen argues that a broker was used such that the broker exemption applies. At most, the only evidence Plaintiffs have provided is Ms. Hu’s declaration that no broker was used for the Extension Agreement. However, in opposition, Evergreen has presented Mr. Zuckerman and Mr. Chivitchian’s declarations that show that SCL was used as a broker not only in the underlying initial loan agreement, but in the Extension Agreement as well. According to the judicially noticeable documents, SCL is licensed by the Department of Real Estate in the State of California. (Def.’s RJN, Ex. A.) Mr. Chivitchian states that he communicated directly with Ms. Hu and that SCL was paid for its work on the Extension Agreement. (Chivitchian Decl., ¶15; Zuckerman Decl., Ex. 6.) Plaintiff has not provided contrary evidence showing that SCL was not involved in the Extension Agreement transaction as the Court is not in receipt of a reply brief.

With respect to the other causes of action in the complaint, the remaining causes of action do not provide sufficient grounds to enter a preliminary injunction. In addition, as the remaining causes of action rely on the same argument regarding the purported usurious interest rate in the Extension Agreement, Plaintiffs have not established the probability of success on the merits of these causes of action. For example, the 3^rd cause of action declaratory relief seeks a judicial determination regarding whether the payments made by Plaintiffs should be properly credited as principal in the event the Extension Agreement’s terms are usurious. (Compl., ¶¶36-38.) In the 4^th cause of action for violation of Civil Code, § 2924(c)-(d), Plaintiffs allege that the loan should be reinstated because Evergreen violated the statute by demanding a total of $11,359,476 based on a usurious interest rate. (Id., ¶¶42-46.) The 5^th cause of action for unfair competition is reliant on the prior causes of action and usury laws. (Id., ¶¶50-52.)

Based on the papers presented, the Court finds that Plaintiffs have not established the probability of success on the merits of their claims at this stage of the proceedings. As such, the motion for preliminary injunction is denied.

[1] The Borrower Statement has a print date of November 30, 2021. It states on the first page under the heading “LENDER CHARGES” the following lines:

Broker Fee: Secured Capital Lending $262,500.00 [Debits]

Broker Credit: Secured Capital Lending $10,000.00 [Credits]

Superior Court of California

County of Los Angeles

Department B