Judge: Lynette Gridiron Winston, Case: 24PSCV00137, Date: 2024-02-07 Tentative Ruling
Case Number: 24PSCV00137 Hearing Date: February 7, 2024 Dept: 6
CASE NAME: Manuel Fernandez, trustee of the Pena Family Revocable Trust dated November 9, 2022 v. Shmuel Y. Mahgerefteh, et al.
Order to Show Cause re Preliminary Injunction
TENTATIVE RULING
The Court GRANTS Plaintiff’s request for preliminary injunction. The Court will hear further argument from the parties at the hearing on the amount required for the bond.
Plaintiff is ordered to give notice of the Court’s ruling within five calendar days of this order.
BACKGROUND
This is a real property loan dispute. On January 12, 2024, plaintiff Manuel Fernandez, trustee of the Pena Family Revocable Trust dated November 9, 2022 (Plaintiff) filed this action against defendants Shmuel Y. Mahgerefteh, Law Offices of Richard G. Witkin APC (collectively, Defendants) and Does 1 through, alleging causes of action for declaratory relief, unfair and unlawful business practice, injunctive relief, cancellation of instruments, rescission based on unconscionability, and accounting.
On January 16, 2024, Plaintiff filed an ex parte application for temporary restraining order re pending sale of real property at noticed foreclosure sale and order to show cause re preliminary injunction. On January 17, 2024, the Court granted the temporary restraining order and set a hearing for an order to show cause re preliminary injunction for February 7, 2024. On January 24, 2024, Defendants filed an opposition. On January 31, 2024, Plaintiff replied.
LEGAL STANDARD
(a) An injunction may be granted in the following cases:
(1) When it appears by the complaint that the plaintiff is entitled to the relief demanded, and the relief, or any part thereof, consists in restraining the commission or continuance of the act complained of, either for a limited period or perpetually.
(2) When it appears by the complaint or affidavits that the commission or continuance of some act during the litigation would produce waste, or great or irreparable injury, to a party to the action.
(3) When it appears, during the litigation, that a party to the action is doing, or threatens, or is about to do, or is procuring or suffering to be done, some act in violation of the rights of another party to the action respecting the subject of the action, and tending to render the judgment ineffectual.
(4) When pecuniary compensation would not afford adequate relief.
(5) Where it would be extremely difficult to ascertain the amount of compensation which would afford adequate relief.
(6) Where the restraint is necessary to prevent a multiplicity of judicial proceedings.
(7) Where the obligation arises from a trust.
(Code Civ. Proc., § 526, subd. (a).)
“A superior court must evaluate two interrelated factors when ruling on a request for a preliminary injunction: (1) the likelihood that the plaintiff will prevail on the merits at trial and (2) the interim harm that the plaintiff would be likely to sustain if the injunction were denied as compared to the harm the defendant would be likely to suffer if the preliminary injunction were issued.” (Smith v. Adventist Health Sys./W. (2010) 182 Cal.App.4th 729, 749.)
OBJECTIONS
The Court OVERRULES each of Plaintiff’s evidentiary objections.
DISCUSSION
Plaintiff seeks a preliminary injunction to enjoin Defendants from proceeding with a foreclosure sale of the real property that is the subject of this action, which is located at 505 Lidford Avenue, La Puente, CA 91744 (the Property). Plaintiff contends he has a likelihood of prevailing on the merits and that Plaintiff will suffer irreparable harm.
Likelihood of Prevailing on the Merits – Unconscionability
“[P]rocedural and substantive unconscionability must both be present in order for a court to exercise its discretion to refuse to enforce a contract or clause under the doctrine of unconscionability.” (Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83, 102.) The courts invoke a sliding scale which disregards the regularity of the procedural process of the contract formation, that creates the terms, in proportion to the greater harshness or unreasonableness of the substantive terms themselves, i.e., the more substantively oppressive the contract term, the less evidence of procedural unconscionability is required to conclude that the term is unenforceable, and vice versa. (Id. at p. 114.)
“Procedural unconscionability focuses on the elements of oppression and surprise. [Citations.] Oppression arises from an inequality of bargaining power which results in no real negotiation and an absence of meaningful choice … Surprise involves the extent to which the terms of the bargain are hidden in a prolix printed form drafted by a party in a superior bargaining position. [Citations.]” (Roman v. Superior Court (2009) 172 Cal.App.4th 1462, 1469.) “Substantive unconscionability focuses on the actual terms of the agreement and evaluates whether they create overly harsh or one-sided results [citations], that is, whether contractual provisions reallocate risks in an objectively unreasonable or unexpected manner. [Citation.]” (Id. at pp. 1469-1470.)
Plaintiff contends he has a likelihood of prevailing on the merits based on the grounds that the loan agreement and deed of trust encumbering the Property are unconscionable. More specifically, Plaintiff contends the loan agreement was presented to him on a take-it-or-leave-it basis as evidence of procedural unconscionability. (Fernandez Decl., ¶ 4.) Plaintiff further contends that certain provisions of the loan agreement are unconscionable, including but not necessarily limited to:
· a 10% late charge if payment is not received within 10 days, citing the cases of Garrett v. Coast & S. Fed. Sav. & Loan Ass’n (1973) 9 Cal.3d 731 and Ridgley v. Topa Thrift & Loan Ass’n (1998) 17 Cal.4th 970;
· a default interest of 5% in addition to the regular 10.99% interest rate;
· a penalty for prepayments made within six months of executing the loan equal to six months’ advance interest on the amount prepaid;
· the lender reserving the right to keep monthly payments consistent with what is showing as the regular monthly payment of $3,480.17 if any portion of the principal is paid before the maturity date;
· if Plaintiff uses a personal check to pay off any amount of the principal over $50,000, an additional ten days of interest may be charged; and
· the negotiated interest rate being 5% in addition to the regular interest rate.
Plaintiff further contends he will prevail on his unfair competition law claims, citing Orcilla v. Big Sur, Inc. (2016) 244 Cal.App.4th 982, and that there is a dispute as to what amounts, if any, Plaintiff owes. Plaintiff also argues that tender is not required here where he is challenging the validity of the underlying debt or when the parties dispute the amount owed.
In opposition, Defendants contend Plaintiff fails to establish a probability of prevailing on the merits of his claim. Defendants contend Plaintiff fails to present any factual allegations, law, or evidence to suggest that the interest rate of 10.99% is so one-sided as to shock the conscience, and that few courts have ever declared contracts unconscionable, citing the case of De La Torre v. CashCall, Inc. (2018) 5 Cal.5th 966. Defendants argue that Plaintiff’s reliance on Orcilla is misplaced, as whether Plaintiff can bring a claim for unfair business practices based on unconscionability has no bearing on Plaintiff’s likelihood of prevailing on the merits there.
Defendants contend Plaintiff has failed to show the default interest provision warrants an injunction because, among other things, Defendants did not charge default interest. (Myers Decl., ¶ 13.) Defendants also argue the default provision at issue has language that limits it to the extent permitted by law, and there is also a severability clause. (Myers Decl., Ex. A.)
Defendants also contend Plaintiff has failed to show the late charge provision warrants an injunction, and argues that the cases of Garrett and Ridgley are inapplicable. Defendants contend the penalties in Garrett were assessed against the unpaid principal balance of the loan obligation, which is purportedly not the case here, as the late penalties were applied only against the delinquent payments and not the entire balance.
As for Ridgley, Defendants contend it does not support Plaintiff’s position either because the issue in that case was whether the disputed provision should be viewed as prepayment charge or a penalty for delinquency in a monthly interest payment. Defendants contend that is not an issue here because Plaintiff did not timely make his loan payments, much less pay them early. Defendants also argue that Plaintiff’s focus on the prepayment penalty is a non-issue because Plaintiff did not prepay the loan, plus there is a severability clause if it is for some reason found to be unconscionable.
Defendants further contend that Plaintiff has failed to meet his burden to show that he was not in default. Defendants argue Plaintiff did not provide evidence that he has been making monthly payments as he claims. Defendants contend that the evidence shows Plaintiff only tendered three monthly payments and is more than six months in arrears. (Myers Decl., ¶¶ 6-7.) Defendants argue the default amount was accurate when recorded in the Notice of Default on July 18, 2023. (Myers Decl., ¶¶ 9-10; Witkin Decl., ¶¶ 7-8.)
The Court agrees with Defendants that some of the cases Plaintiff cited are not necessarily dispositive, such as Orcilla, which merely upheld an unfair competition law claim against a bank for enforcing an allegedly unconscionable agreement. (Orcilla, supra, 244 Cal.App.4th at p. 1013.) The fact that such a claim may be alleged in this case does not necessarily mean Plaintiff is likely to prevail on it. As for Garrett, the Court agrees that its holding was derived from late charges improperly based on the unpaid principal rather than the late payments themselves. (Garrett, supra, 9 Cal.3d at pp. 734-735.) The Court further agrees that the focus of Ridgley was the characterization of a provision in a loan agreement as a prepayment charge versus a penalty for delinquency in a monthly interest payment. (Ridgley, supra, 17 Cal.4th at p. 976.)
However, the Court finds these distinctions do not change the result here. The Court notes that Defendants did not address a number of Plaintiff’s arguments in the moving papers, such as the loan agreement having been presented on a take-it-or-leave-it basis. (Fernandez Decl., ¶ 4.) The Court construes Defendants’ failure to respond to this issue as a tacit admission that the argument is meritorious. (Holden v. City of San Diego (2019) 43 Cal.App.5th 404, 418; C. Opposing the Motion—and Rebutting the Opposition, Cal. Prac. Guide Civ. Pro. Before Trial Ch. 9(I)-C, ¶ 9:105.10.) Also, the loan is a preprinted form agreement, which is further evidence of procedural unconscionability. (Fernandez Decl., ¶ 4, Ex. 1; see Ali v. Daylight Transport, LLC (2020) 59 Cal.App.5th 462, 474.) Given there does not appear to be any dispute as to the issue of procedural unconscionability, Plaintiff’s burden of proving substantive unconscionability is correspondingly lessened. (Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83, 102.)
The Court also finds Defendants’ arguments that it did not enforce some problematic provisions of the loan agreement, such as default interest or prepayment charges, to be unavailing. Defendants cite no legal authority to support the contention that not enforcing an unconscionable contract provision avoids a finding of unconscionability. Moreover, just because it is not common for courts to find contracts unconscionable does not necessarily mean that the loan agreement at issue in this case cannot be found unconscionable. (See De La Torre v. CashCall, Inc. (2018) 5 Cal.5th 966, 1021).
Furthermore, beyond the issue of unconscionability, the Court finds that there is a dispute as to the amounts owed. Plaintiff stated in his declaration that he was making his monthly payments. (Fernandez Decl., ¶ 7.) Defendants acknowledged three of those payments in their declaration. (Myers Decl., Ex. D.) Plaintiff also provided photocopies of checks he claims were mailed to the lender during other months purportedly at issue. (Fernandez Reply Decl., Ex. 1.) Based on this evidence, Plaintiff has shown that there is a reasonable likelihood of prevailing on the merits as to his claim that Defendants incorrectly calculated the amount owed and that the amount plaintiff owes Defendants is different than the amount claimed in the notice of default and election to sell.
Irreparable Harm
Plaintiff also contends that irreparable harm will occur if the Court does not issue this preliminary injunction because it is Plaintiff’s house. (Fernandez Decl., ¶ 10.) Plaintiff contends the loss of his house is a much greater harm to him than the harm that may befall Defendants if the sale is enjoined, wherein they would at most suffer monetary harm. Defendants did not respond to this issue in their opposition.
The Court agrees with Plaintiff. The Court has weighed the potential injury to Plaintiff were the foreclosure to occur with the potential harm to Defendants if the injunction is granted. "It is fundamental to this state's laws that real property is unique and not replaceable by money or other real property." (See C. Robert Mattress & Associates v. CIDCO (1986) 184 Cal.App.3d 55, 63.) The loss of Plaintiff’s house would be a greater harm to him than the Defendants’ delayed recovery of money. Additionally, the Court construes Defendants’ lack of argument here as a tacit admission that Plaintiff’s argument is meritorious. (See Holden, supra, 43 Cal.App.5th at p. 418; C. Opposing the Motion—and Rebutting the Opposition, Cal. Prac. Guide Civ. Pro. Before Trial Ch. 9(I)-C, ¶ 9:105.10.)
Based on the foregoing, the Court GRANTS Plaintiff’s request for preliminary injunction.
CONCLUSION
The Court GRANTS Plaintiff’s request for preliminary injunction. The Court will hear further argument from the parties at the hearing on the amount required for the bond.
Plaintiff is ordered to give notice of the Court’s ruling within five calendar days of this order.