Judge Kenneth J. Medel, Case 37-2019-00010218-CU-FR-CTL 2024-01-12 Tentative Ruling

Judge: Kenneth J. Medel, Case: 37-2019-00010218-CU-FR-CTL, Date: 2024-01-12 Tentative Ruling

SUPERIOR COURT OF CALIFORNIA,

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HALL OF JUSTICE

TENTATIVE RULINGS - January 11, 2024

01/12/2024 09:30:00 AM C-66 COUNTY OF SAN DIEGO

JUDICIAL OFFICER:Kenneth J Medel

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Civil - Unlimited Fraud Summary Judgment / Summary Adjudication (Civil) 37-2019-00010218-CU-FR-CTL BEAR VALLEY 2005 LLC VS CAULEY [IMAGED] CAUSAL DOCUMENT/DATE FILED:

The Court declines to rule on the Evidentiary Objections filed by Bear Valley related to the declaration of Christopher Cullen. The Objections do not comply with CRC 3.1354(b) by quoting or setting forth the objectionable material.

The Court OVERRULES IFIC's Objections submitted with Reply.

Defendant INTERNATIONAL FIDELITY INSURANCE COMPANY'S Motion for Summary Judgment is GRANTED.

The Complaint against IFIC alleges four causes of action for (1) BREACH OF WRITTEN CONTRACT; (2) RESCISSION FOR FRAUD; (3) RESCISSION FOR DURESS; and (4) RESCISSION FOR LACK OF CONSIDERATION. This case was filed on January 14, 2020 and consolidated into the case of BEAR VALLEY 2005, LLC v. KEVIN T. CAULEY et al.Lead Case No.: 37-2019-00010218-CU-FR-CTL The Complaint alleges that IFIC agreed in writing to issue a bond to cover potential liability on the sole condition that Plaintiff provide to it sufficient security and a bond premium. That bond was delivered but, as set forth in the Complaint, was defective.

Bear Valley also alleges that IFIC agreed in writing on February 22, 2016 (which is Surety Associates' e-mail) that IFIC would 'release the IFIC Bond as soon as the Court entered its formal order releasing the Mechanic's Lien and Second Lis Pendens.' Complaint ¶25. Bear Valley alleges that IFIC agreed to not only release the bond but also 'return the cash collateral to Plaintiff upon the entry by the Court in the Second Action of its Order Expunging Lis Pendens and Releasing Mechanic's Lien.' Complaint ¶40.

Bear Valley alleges that IFIC breached the agreements by: (1) Issuing an improper bond that did not secure the mechanic's lien and lis pendens; (2) Refusing to 'release' the bond; (3) Refusing to return the cash collateral 'unless Plaintiff executed the Cash Collateral Escrow Agreement'; (4) Refusing to release the bond and return the collateral after entry of the orders of expungement of the lis pendens and release of the mechanic's lien. Complaint ¶42.

Bear Valley also alleges 'rescission' against IFIC: (1) Second Cause of Action: Rescission Due to 'Fraud' Bear Valley alleges rescission by 'fraud' on the basis that IFIC fraudulently induced it to sign the Cash Collateral Escrow Agreement. Complaint ¶¶39-40.

(2) Third Cause of Action: Rescission Due to 'Duress' Bear Valley seeks rescission of the Cash Collateral Escrow Agreement on the basis that it suffered 'duress' being forced to sign that document. Complaint ¶51.

(3) Fourth Cause of Action: Rescission for 'Lack of Consideration' Bear Valley also seeks to rescind the Cash Collateral Escrow Agreement on the basis that it was unenforceable from the onset for lack of consideration. Forgetting about the Indemnity Agreement provisions addressing collateral, or its performance, Bear Valley seeks rescission and damages.

Complaint ¶¶56-57.

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3058326 32 CASE NUMBER: CASE TITLE: BEAR VALLEY 2005 LLC VS CAULEY [IMAGED] 37-2019-00010218-CU-FR-CTL IFIC moves for summary judgment/adjudication.

Breach of Contract IFIC argues that there are two relevant agreements between IFIC and Bear Valley: an Indemnity Agreement (Exh. 2) and the Cash Collateral Agreement (Exh. 11). IFIC argues it performed those agreements and obtained the bond as a result. But for the bond, Bear Valley would not have cleared title and refinanced the loan. Second, the e-mails did not create any agreement between IFIC and Bear Valley.

On January 15, 2016, Bear Valley signed the application for the Bond, which included an Indemnity Agreement. The Indemnity Agreement included provisions committing Bear Valley to post collateral to secure IFIC's issuance of the Bond.

IFIC is a surety. Sureties have a statutory right to reimbursement against the principal for amounts disbursed. Civil Code Section 2847 states that the 'principal is bound to reimburse what he has disbursed. . . ' Civil Code §2847; see also, Cates, 230 Cal.App.3d at 257 (quoting Section 2847).

Sureties typically require that the bond principal execute an indemnity agreement. The agreement in this case contractually mirrors a surety's indemnity and subrogation rights arising under common law and statutory provisions.

Under the Indemnity Agreement at issue, Bear Valley agreed to pledge collateral on demand which would be used to offset losses and costs (including attorney's fees). IFIC Exh. 2 (Indemnity Agreement); Cullen Decl. 5:25-28 (quoting agreement). The indemnity obligation continued until the 'Surety is satisfactorily discharged from liability. . .' Cullen Decl. 6:2-5 (quoting Exh. 2, Indemnity Agreement).

Superior Paving dismissed IFIC on February 4, 2019 from the Imperial County Action. IFIC then remitted the balance of the collateral back to Bear Valley on February 29, 2019. Cullen Decl. 11:11-17 (¶¶52- 53).

After the Imperial County Court expunged the mechanics lien, plaintiff contends on or about February 22, 2016, Defendant Beilman represented and promised to Plaintiff, verbally and in emails that IFIC would release collateral posted by Plaintiff to secure the IFIC Bond as soon as the Court entered its formal order releasing the mechanic's lien. In her email to Plaintiff dated February 22, 2016, Defendant Beilman stated 'As soon as Kevin [Cauley] forwards the Court doc I'll get the released (sic) processed.' First, the email itself does not have the imprimatur of an agreement. There were no specific terms, and no evidence of an agreement. Beilman's February 22, 2016 email made no specific promises, and stated that she would 'provide you with an update with the timing you can expect for the release.' Exh. 16.

Further, there was also no consideration offered to IFIC to forfeit security rights given that Bear Valley was already obligated (through the two agreements) to provide it, and Bear Valley offered nothing in return.

Even assuming there is some sort of agreement in the email, there was no agreement with IFIC. Surety Associates is the broker and had no actual or ostensible authority to waive IFIC's security rights.

This would be consistent with the general law regarding brokers. While acting on an insurer's behalf for limited purposes, Surety Associates acted on Bear Valley's behalf in procuring the Bond. A broker is the agent of an insurer only for 'limited purposes, such as receiving the premium payment and providing a copy of the policy to the insured, but [is] not as a matter of law its general agent.' Rios v. Scottsdale Ins.

Co. (2004) 119 Cal.App.4th 1020, 1027.

Surety Associates had no authority to either 'cancel' the bond or to impair IFIC's security. An agency is created either by 'precedent authorization or a subsequent ratification.' Civil Code §2307. 'Actual agency typically arises by express agreement.' van't Rood v. County of Santa Clara, 113 Cal.App.4th 549, 571 (2003).Surety Associates had no such authority. It also lacked any right of control over the collateral or its disposition, and certainly over whether the bond would or would not be 'cancelled' (not even IFIC could 'cancel' the bond (Cullen Decl. 14:12-17)). 'In the absence of the essential characteristic of the right of control, there is no true agency. . .' Id. at 572. 'One who performs a gratuitous favor confers a benefit upon the recipient, yet no agency results. The essential element of an agency relationship is the right of control, not the dispensing of weal.' St. Paul Ins. Co. v. Underwriters Ins., 214 Cal.App.3d 117, 123 (1989).

Bear Valley also argues that IFIC is in breach because the bond provided was invalid because it had an incorrect document number reference. However, despite this apparent discrepancy on the paperwork, Stewart Title accepted the bond and released Rabobank's loan funds. Bear Valley's judicially admits that this was the only purpose for procuring the bond. Complaint ¶13.

In Opposition, Bear Valley's expert, Lisa Aranda, stated that she would never have written the title Calendar No.: Event ID: TENTATIVE RULINGS

3058326 32 CASE NUMBER: CASE TITLE: BEAR VALLEY 2005 LLC VS CAULEY [IMAGED] 37-2019-00010218-CU-FR-CTL insurance policy. However, the fact is that Stewart Title wrote it and shouldered the burden of any cloud on title. Bear Valley received the $26,000,000 loan, which is what it bargained for. Bear Valley's Joseph Michael's Opposition Declaration demonstrates that Bear Valley procured the $26,000,000 refinance as a direct result of the Bond.

Rescission Bear Valley's rescission causes of action are reliant upon the same theories as the breach of contract claim. The Second Cause of Action for rescission based on 'fraud' is based upon IFIC's representation that it would release its own bond and return the cash collateral after the March 1, 2016 Orders.

Complaint ¶45. However, this is contrary to the underlying agreements. IFIC had no dealings with Bear Valley. See, Civil Code §1689 (b)(1).

Bear Valley already provided the collateral and received the benefit. Rescission is unavailable when a party has already obtained the benefit of the contract. Neet v. Holmes, 25 Cal.2d 447, 458 (1944).

In the second cause of action, for rescission by duress, Bear Valley claims that it was forced to sign the Cash Collateral Agreement due to 'duress.' Complaint ¶51. Bear Valley was already obligated to post collateral through the Indemnity Agreement. The indemnity agreement required Bear Valley - 'To deposit with the Surety on demand an amount sufficient to discharge any claim made against the Surety on this bond or undertaking. This sum may be used by Surety to pay such claims or be held by Surety as collateral security against loss or cost on this bond or undertaking.' The fourth cause of action alleges the Cash Collateral Agreement is unenforceable because it lacked added consideration. However, no additional consideration was required. The Cash Collateral Agreement further defined the rights of the parties, and in any event the Bond and Indemnity Agreements were continuous in nature until IFIC was discharged. Bear Valley had a continuing obligation to indemnify IFIC.

PUNITIVE DAMAGES ARE UNAVAILABLE IN A CONTRACT ACTION Bear Valley seeks punitive damages against IFIC on this breach of contract action. Complaint at 10 (prayer, ¶19). Referring to a punitive damage claim, summary adjudication is proper to bar a 'claim for damages, as specified in Section 3294 of the Civil Code, or that one or more defendants either owed or did not owe a duty to the plaintiff or plaintiffs.' Code of Civil Proc. §437c(f)(1). Punitive damages are not available on a breach of contract claim. Ginsberg v. Gamson, 205 Cal.App.4th 873, 896 (2012).

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