Judge Margaret L. Oldendorf, Case Number: 21BBCV00679, Date: 2024-01-19 Tentative Ruling

Judge: Margaret L. Oldendorf, Case: 21BBCV00679, Date: 2024-01-19 Tentative Ruling

This action stems from a loan agreement between Plaintiffs and Defendants. The loan was for the purpose of financing the purchase of lighting equipment. The loan gives Plaintiffs a security interest in the equipment purchased. Defendants defaulted. Plaintiffs repossessed the equipment, sold it for $1,000, and sued for the $105,865.13 deficiency.

Plaintiffs Cit Bank and Direct Capital Corporation (collectively Plaintiffs) filed a motion for summary judgment or, in the alternative, summary adjudication, on October 27, 2023. Defendants filed an opposition on December 28, 2023. Plaintiffs filed a reply on January 5, 2024.

For the reasons set forth below, the motion for summary judgment/summary adjudication must be denied.

The declaration of Barry W. Ferns purports to contain a request for judicial notice. However, it is unclear specifically what the Court is being asked to take judicial notice of, and under what section of the Evidence Code judicial notice is authorized.

Accordingly, the Court declines to grant Plaintiff’s request for judicial notice.

The following objections are overruled: 1, 2, 3 (not hearsay), 4 (has foundation), 5, 6 (not hearsay), 7 (not hearsay), 8 (not hearsay), 9 (not hearsay), 10 (not hearsay), 11 (has foundation), 12 (not hearsay), 13 (not hearsay), 14 (has foundation), 15 (has foundation), 16 (not hearsay), 17 (has foundation), 18 (has foundation), 19 (has foundation), 20 (not hearsay), 21 (has foundation), 22 (has foundation), 23 (has foundation), 24 (has foundation), 25 (has foundation), 26 (has foundation), 27 (has foundation), 28 (has foundation), 29 (has foundation), 30 (has foundation), 31 (has foundation).

Summary judgment may be granted where it is shown that an action has no merit or that there is no defense to the action. (Code Civ. Proc. §437c(a).) A cause of action has no merit if one of the following exists: (1) one or more necessary elements cannot be established; (2) a defendant establishes an affirmative defense. (CCP § 437c(o).)

A motion for summary judgment shall be granted where all the papers submitted show that there is no triable issue of material fact and that the moving party is entitled to judgment as a matter of law. (CCP § 437c(c).)

Summary adjudication may be granted where it completely disposes of a cause of action, an affirmative defense, a claim of damages, or an issue of duty. (CCP § 437c(f).)

A plaintiff has met “his or her burden of showing that a cause of action has no merit if the party has shown that one or more elements of the cause of action, even if not separately pleaded, cannot be established, or that there is a complete defense to the cause of action.” (Code Civ. Proc., § 437c(p)(2).) “[T]he burden [then] shifts to the defendant . . . to show that a triable issue of one or more material facts exists as to that cause of action or a defense thereto.” (Id.) To establish a triable issue of material fact, the party opposing the motion must produce substantial responsive evidence. (Sangster v. Paetkau (1998) 68 Cal.App.4th 151, 166.)

Unopposed declarations must be accepted as true. (CCP § 437c(e).) However, affidavits must be liberally construed in favor of the opposition and strictly construed against the moving party in determining the existence of a "triable issue" of fact. (D'Amico v. Board of Medical Examiners (1974) 11 Cal.3d 1, 21.)

In their motion, Plaintiffs urge that each breach of contract cause of action should be adjudicated in their favor, as they purportedly sustained $105,865.13 in damages and continue to accrue damages and costs. Additionally, they urge that all of Defendants’ affirmative defenses lack merit. (Notice of Motion p. 3:4-12.)

As to the cross-complaint, Plaintiffs/Cross-Defendants urge that as to each of the three causes of action raised therein, “Cinemills can not prevail in this cause of action as a matter of law, and that Judgment shall be entered in favor of CIT DIRECT, and for attorneys fees, costs of suit incurred herein.” (Notice of Motion, p. 3: 18-20.) These arguments are addressed below.[3]

The complaint contains four causes of action, (1) breach of contract, (2) account stated, (3) breach of guaranty and (4) breach of guaranty. The first, third and fourth causes of action are essentially the same, but are alleged against different defendants. The first is against the corporate defendant, while the third and fourth are against the individual defendants. The elements of breach of contract are “(1) the existence of the contract, (2) plaintiff's performance or excuse for nonperformance, (3) defendant's breach, and (4) the resulting damages to the plaintiff." (Oasis West Realty, LLC v. Goldman (2011) 51 Cal.4th 811, 821.)

Here, the fact that there was a contract between Plaintiffs and Defendants is undisputed. (Defendants’ Statement of Disputed Facts Nos. 1-5, see also Decl. of Laurel Adams Exh. 1.) What is in dispute, however, is whether Plaintiffs performed their obligations, and whether the Defendants committed a breach. (See Defendants’ Statement of Disputed Facts Nos. 6, 7, 8, 9, 10.) What is also in dispute is the amount of damages Plaintiffs incurred, if in fact there was a breach (Id. at Nos. 9, 10).

Plaintiffs also argue in their motion that Defendants’ affirmative defenses are not valid. Defendants alleged throughout their answer that a “Notice of Return of Equipment” document constituted a release of Plaintiffs’ claims against them. Plaintiffs urge this fails as a matter of law. (Motion Memorandum of Points and Authorities p. 14: 7-8.) In support, Plaintiffs cite several errors on the Notice of Return, namely: lack of signature by Plaintiff CIT Bank, misspelled names, incorrect identification numbers, and an incorrect contract start date. (Motion Memorandum of Points and Authorities p. 14: 10-21.) Plaintiffs urge that the contract provided that modifications to the agreement were only valid if in writing and approved by Plaintiffs. (See Equipment Finance Agreement ¶ 18.) The Equipment Finance Agreement, the undisputed contract between the parties, and the obligations therein are “irrevocable and uncancellable.” (See Equipment Finance Agreement ¶ 4.)

Plaintiffs also urge that the presentation of the Notice of Return of Equipment was a “fraud” on Defendants’ other creditors. (Motion Memorandum of Points and Authorities p. 14: 23.) Plaintiffs fail to establish the elements of fraud or otherwise back up this assertion. Moreover, this contention has no bearing on whether the document is pertinent as to these creditors, e.g., Plaintiffs.

In opposition, Defendants urge that they did not breach the agreement, but instead signed over the equipment to Plaintiffs in satisfaction of the loan. Defendants assert “CIT [Cinemills] contacted all its lenders and offered to would [sic] voluntarily return the equipment securing its loans from the lenders, in excellent condition, in exchange for a release of the remaining balance due on the loans.” (Opposition p. 4.) In exchange for the equipment, a “Notice: Return of Equipment” was signed, acknowledging that Plaintiffs received the equipment and that Defendants were released from the loan. (Opposition p. 8: 1-9.) In support, Defendants offer the declaration of Marcos M. DeMattos, the CEO of Cinemills. DeMattos declares that due to the pandemic shutting down the entertainment industry, as well as the SAG-AFTRA strike, Cinemills was not making a profit. (DeMattos Decl. ¶¶ 14-21.) He declares as a result of those events, Cinemills offered to give back the equipment lenders had financed in order to satisfy the loans. (DeMattos Decl. ¶ 31.) He declares that the representative of the moving company Plaintiff hired to take the equipment, Michael Gabris, signed the Notice in his presence. (DeMattos Decl. ¶ 32.) He declares that Gabris picked up all of the equipment. (DeMattos Decl. ¶ 33.) He declares that the amount of equipment picked up and signed for on Plaintiffs’ behalf was worth $127,000. (DeMattos Decl. ¶ 48.)

Indeed, Defendants argue that the amount Plaintiffs assert is owing is due in large part to the way Plaintiffs’ agent sold the lighting equipment, as the equipment was sold far below market value. Defendants urge that this was a failing on the part of Plaintiffs; for the equipment at issue was highly specialized. Specifically, Defendants assert that “RTR’s advertising of some of Cinemills’ equipment on (1) its own website; and (2) the Phoenix, Arizona Craigslist website was not commercially reasonable.” (Declaration of Marcos M. DeMattos ¶ 56.) Also attached to the DeMattos Declaration are: emails evidencing a history of incorrect/mistaken accounting by plaintiff; emails as to the history of the business relationship between the parties; the Notice: Return of Equipment; and purchase invoices for the equipment picked up. (DeMattos Decl. Exhs. A-H.)

In reply, Plaintiffs urge that the Notice: Return of Equipment does not constitute a release of their claims against Defendants because no agent of the bank signed it. (Reply, p. 6: 11-24.) Citing Bustamante v. Intuit, Inc., plaintiffs urge that releases, as contracts, require mutual consent, shown by the words and acts of the parties. (Bustamante v. Intuit, Inc. (2006) 141 Cal. App. 4th 199.) Defendants have provided evidence, through the DeMattos Declaration, that Plaintiffs sent its agent (RTR/Gabris) to collect the equipment in order to release the debt. Although Plaintiffs urge that there is no evidence that Mr. Gabris was authorized to execute the Return of Equipment, the Court notes that there is also no evidence presented by Plaintiffs that he was not so authorized. (See Reply, p. 8: 12-17.) Indeed, Plaintiffs acknowledge their intent to repossess the equipment and pursue remedies if the equipment sold for less than the amount owed. (Reply, p. 8: 18-22.)

To the extent that the Court considers Plaintiffs’ argument that the affirmative defense of commercial reasonableness was waived, the Court notes that the answer contains an affirmative defense of comparative fault (e.g., Defendants urged that Plaintiffs’ injuries were in part caused by Plaintiffs’ own conduct). (See Reply p. 11.) The commercial reasonableness of selling movie industry-specific lighting equipment on RTR’s website and Craigslist could fall under the comparative fault affirmative defense pled in the answer. Essentially, Defendants are urging that the harm ($105,865.13) is in part due to Plaintiffs’ conduct in re-selling the equipment.

As to the breach of contract causes of action asserted against the individual defendants, Defendants present case law that stands for the proposition that the execution of the personal guarantees does not constitute a waiver of applicable defenses. (California Bank & Trust v. DelPonti (2014) 232 Cal.App.4th 162, 166-167.) Further, guarantors cannot waive the right to a commercially reasonable sale of collateral -- an issue Defendants urge is at the heart of Plaintiffs’ damages. (C.I.T. Corp. v. Anwright Corp. (1987) 191 Cal.App.3d 1420, 1426-1427.) Further, the Notice: Return of Equipment specifies that the release of debts includes the two individual guarantors. (Opposition p. 12: 24-26, see DeMattos Declaration.)

Plaintiffs also urge that the cause of action for open book account is established, and that Defendants have no contrary evidence or affirmative defense to that claim. In support, Plaintiffs attach the declaration of Michael O’Connell, an employee of Plaintiffs who is responsible for ensuring the loan is repaid. (O’Connell Declaration.) O’Connell attaches as Exh. 8 a record of the equipment sale for $1,000.00. Exh. 8 purportedly establishes that the sum of $105,865.13 is still owed on the loan. (O’Connell Decl., Exh. D, p. 41.)

In opposition, Defendants urge that the triable issues of material fact that exist with respect to the breach of contract cause of action apply equally to the open book account cause of action. (Opposition, p. 11: 14-17.) The Court agrees: the breach of contract and open book account claims arise from the same nucleus of common facts; and questions about the amount of damages/whether the amount is owed/did a breach occur exist with respect to the claim for open book account. (See Defendants’ Statement of Disputed Facts Nos. 12, 13.)

Plaintiffs urge that this cause of action fails as a matter of law due to lack of evidentiary support. However, Defendants provide evidentiary support as to this cause of action primarily through the Declaration of Marcos DeMattos, the former CEO of Cinemills. He declares that 20 pieces of specialized lighting equipment were picked up by Plaintiffs’ agent Gabris, but somehow 14 pieces went missing or were not accounted for or sold in satisfaction of the debt. (DeMattos Decl. ¶ 43.) Defendants cite Commercial Code Section 9207(a) for the proposition that reasonable care must be exercised with respect to collateral in a secured party’s possession. (CC § 9207(a).) Commercial Code Section 9625 states that a party in possession of secured property that is lost or destroyed is potentially liable for damages. (CC §§ 9265(b)-(d).)

Defendants provide the declaration of DeMattos and excerpts of Plaintiffs’ discovery responses in support. DeMattos declares that he observed that all 20 pieces of equipment were loaded up by Plaintiffs’ agent, and signed for. DeMattos was later made aware that the representative was claiming he only received six pieces of equipment. (DeMattos Decl. ¶¶ 35, 42, 43.)

Defendants have provided admissible evidence that triable issues of material fact exist as to the first cause of action on the cross-compliant.

Fraud based on misrepresentation is established by: (1) misrepresentation of a material fact (consisting of false representation, concealment or nondisclosure); (2) knowledge of falsity; (3) intent to deceive and 27 induce reliance; (4) justifiable reliance on the misrepresentation; and (5) resulting damage." (City of Atascadero v. Merrill Lynch, Pierce, Fenner & Smith, Inc. (1998) 68 Cal.App.4th 445, 481.)

As with their arguments concerning the first cause of action of the cross-complaint, Plaintiffs urge that this cause of action fails due to a lack of evidentiary support. (Motion Memorandum of Points and Authorities, p. 17:1-2.) However, Defendants do provide admissible evidentiary support as to this cause of action; namely, the declaration of Marcos DeMattos. (DeMattos Decl.¶ 42-43.) Defendants/cross-complainants urge that Plaintiffs aided and abetted its agent’s fraud in losing/not selling 14 pieces of lighting equipment based upon a respondeat superior theory. (Garton v. Title Ins. & Trust Co. (1980) 106 Cal.App.3d 365, 375 [defining respondeat superior in the employment context, citations omitted].)

As the only argument advanced by Plaintiffs is that there was no evidentiary support for this cause of action and Defendants/cross-complainants did present admissible evidence, the motion for summary adjudication is denied with respect to the third cause of action for fraud.

The elements of a negligence claim are: duty, breach of duty, causation, and damages. (Salinas v. Martin (2008) 166 Cal.App.4th 404, 411.)

Plaintiffs urge that the cause of action for negligence fails as a matter of law because: (1) there is no evidence as to damages, (2) that Defendants/cross-complainants have waived their rights to claim incidental damages. In support, Plaintiffs cite ¶ 15 of the Equipment Finance Agreement, which provides “"You agree that we will not be responsible to pay You any consequential or incidental damages you claim under the EFA".

As noted above, Defendants/cross-complainants have presented evidence of damages. Defendants cite Commercial Code Section 9207(a) for the proposition that reasonable care must be exercised with respect to collateral in a secured party’s possession. (CC § 9207(a).) Commercial Code Section 9625 states that a party in possession of secured property that is lost or destroyed is potentially liable for damages. (CC §§ 9265(b)-(d).)

Further, Defendants provided the declaration of DeMattos and excerpts of Plaintiffs’ discovery responses. DeMattos declares that all 20 pieces of equipment were loaded up by Plaintiffs’ agent in front of him, and signed for; and then he was made aware that the agent was claiming they only took six pieces of equipment. (DeMattos Decl. ¶¶ 35, 42, 43.)

In their reply Plaintiffs argue: “[t]he Cross Action is reliant upon findings and conclusions arising from the Complaint, if the Defendant has failed to rebut the Plaintiff's causes of action, ipso facto and logically they have not sustained their burden on the Cross Action.” (Reply, p. 4: 9-11.)

By Plaintiffs’ own logic, the Defendants have met their burden on the cross-action, because Defendants have presented triable issues of material fact.

[1] The Court follows the numbering of the evidentiary objections, which starts at number 5.

[2] The Court follows the numbering of the evidentiary objections, which starts at number 15.

[3] In their reply, Plaintiffs urge that Defendants’ opposition was late, as they could access it until January 2, 2024. Specifically, they urge that they could not access the Dropbox files. (Reply, p. 3: 23-25.) However, Plaintiffs have not shown how their access problems are attributable to Defendants. In addition, Plaintiffs did manage to consider the opposition and write a reply (and the hearing was also continued due to the Court’s workload). This, the Court considers the merits of Defendants’ opposition.