Judge: Mark A. Young, Case: 23SMCV03456, Date: 2025-01-02 Tentative Ruling

Case Number: 23SMCV03456    Hearing Date: January 2, 2025    Dept: M

CASE NAME:           HAR-ECP, LLC v. Rosenfield

CASE NO.:                23SMCV03456

MOTION:                  Motion for Summary Judgment

HEARING DATE:   1/2/2025

Legal Standard

A party may move for summary judgment in any action or proceeding if it is contended the action has no merit or that there is no defense to the action or proceeding. (CCP, § 437c(a).) “The purpose of the law of summary judgment is to provide courts with a mechanism to cut through the parties' pleadings in order to determine whether, despite their allegations, trial is in fact necessary to resolve their dispute.” (Aguilar v. Atlantic Richfield Co. (2001) 25 Cal.4th 826, 843.)  

“A party may move for summary adjudication as to one or more causes of action within an action, one or more affirmative defenses, one or more claims for damages, or one or more issues of duty, if the party contends that the cause of action has no merit, that there is no affirmative defense to the cause of action, that there is no merit to an affirmative defense as to any cause of action, that there is no merit to 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.”¿(CCP,¿§ 437c(f)(1).)¿If a party seeks summary adjudication as an alternative to a request for summary judgment, the request must be clearly made in the notice of the motion. (Gonzales v. Superior Court¿(1987) 189 Cal.App.3d 1542, 1544.)¿ “[A] party may move for summary adjudication of a legal issue or a claim for damages other than punitive damages that does not completely dispose of a cause of action, affirmative defense, or issue of duty pursuant to” subdivision (t). (CCP,¿§ 437c(t).)¿ 

To prevail, the evidence submitted must show there is no triable issue as to any material fact and that the moving party is entitled to judgment as a matter of law.¿(CCP, §¿437c(c).)¿The motion cannot succeed unless the evidence leaves no room for conflicting inferences as to material facts; the court has no power to weigh one inference against another or against other evidence. (Murillo v. Rite Stuff Food Inc. (1998) 65 Cal.App.4th 833, 841.) In determining whether the facts give rise to a triable issue of material fact, “[a]ll doubts as to whether any material, triable, issues of fact exist are to be resolved in favor of the party opposing summary judgment…” (Gold v. Weissman (2004) 114 Cal.App.4th 1195, 1198-99.) “In other words, the facts alleged in the evidence of the party opposing summary judgment and the reasonable inferences there from must be accepted as true.” (Jackson v. County of Los Angeles (1997) 60 Cal.App.4th 171, 179.) However, if adjudication is otherwise proper the motion “may not be denied on grounds of credibility,” except when¿a material fact is the witness’s¿state of mind and “that fact is sought to be established solely by the [witness’s] affirmation thereof.” (CCP, § 437c(e).)¿ 

Once the moving party has met their burden, the burden shifts to the opposing party “to show that a triable issue of one or more material facts exists as to that cause of action or a defense thereto.” (CCP § 437c(p)(1).) “[T]here¿is no obligation on the opposing party... to establish anything by affidavit unless and until the moving party has by affidavit stated facts establishing every element... necessary to sustain a judgment in his favor.”¿(Consumer Cause, Inc. v.¿SmileCare¿(2001) 91 Cal.App.4th 454, 468.)¿ 

¿ 

“The pleadings play a key role in a summary judgment motion. The function of the pleadings in a motion for summary judgment is to delimit the scope of the issues and to¿frame¿the outer measure of materiality in a summary judgment proceeding.” (Hutton v. Fidelity National Title Co.¿(2013) 213 Cal.App.4th 486, 493, quotations and citations omitted.) “Accordingly, the burden of a defendant moving for summary judgment only requires that he or she negate plaintiff's theories of liability¿as alleged in the complaint; that is, a moving party need not refute liability on some theoretical possibility not included in the pleadings.” (Ibid.)¿ 

EVIDENTIARY ISSUES

Defendant’s evidentiary objections are OVERRULED.

Analysis

Plaintiff HAR-ECP LLC moves for summary judgment on its complaint against Defendant Michael Rosenfeld. The complaint alleges a single cause of action for breach of a written guarantee.

The general elements of a cause of action for breach of contract include the existence of a contract, plaintiff’s performance or excuse for non-performance, defendants’ breach, and resulting damages to plaintiff. (CDF Firefighters v. Maldonado (2008) 158 Cal.App.4th 1226, 1239.) “A lender is entitled to judgment on a breach of guaranty claim based upon undisputed

evidence that 1) there is a valid guaranty, 2) the borrower has defaulted, and 3) the guarantor failed to perform under the guaranty.” (Gray1 CPB, LLC v. Kolokotronis (2011) 202 Cal.App.4th 480, 486; see Civ. Code, § 2837 [the terms of a contract of suretyship are interpreted with the same rules as other contracts].)

The Complaint alleges a series of transactions and extensions regarding the subject guarantee. On August 28, 2012, Plaintiff made a $3,500,000 “capital contribution” to ECP Investors, LLC ("ECP"), by which Plaintiff acquired a membership interest in ECP ("Membership Interest"). (Compl., ¶ 6.) On March 25, 2014, Plaintiff increased its capital contribution by $5,500,000, for a total contribution of $9,000,000. (Id.) The terms of the Limited Liability Agreement of ECP Investors, LLC required ECP to provide Plaintiff with both a return on its Capital Contribution, and the return of its Capital Contribution, by virtue of Plaintiff's Membership Interest ("Company Obligations"). (Id.) On June 20, 2014, Plaintiff and ECP agreed to convert the Company Obligations into a promissory note, an assignment of distribution rights and related documents, and Plaintiff withdrew as a member of ECP without a return of its Capital Contribution. (¶7.) On June 20, 2014, ECP executed and delivered to Plaintiff a Promissory Note ("Note"), in the principal amount of $9,000,000 in favor of Plaintiff as payee to evidence the conversion of the Capital Contribution into a debt. (¶ 8.)

Also on June 20, 2014, ECP, as assignor, and Plaintiff, as assignee, entered into the Assignment of Distribution Rights ("Assignment"). (Compl., ¶ 9.) ECP assigned its right to receive distributions from Eastside Century Partners Century, LLC ("Eastside") until the principal amount of the Note plus other specified amounts were paid. (Id.) Concurrent with the execution of the Note, Rosenfeld executed and delivered the written Second Amended and Restated Guaranty ("Guaranty"), where Rosenfeld unconditionally and absolutely guaranteed to Plaintiff, among other things, the full payment and performance of each and all of ECP's Payment Obligations. (¶ 10.)

            The Complaint alleges a series of extensions and modifications to the agreements. On May 1, 2019, ECP and Plaintiff executed a modification of the Note, agreeing to extend the maturity date of the Note. (Compl., ¶¶ 11-12.) On July 1, 2019, ECP executed and delivered an Estoppel Certificate ("Estoppel Certificate"), and Plaintiff executed a "Lender Acknowledgement”. (¶ 13.) ECP acknowledged that Plaintiff agreed that ECP could make monthly interest payments under the Note, as amended, at the reduced rate of five percent (5%) per annum, through June 30, 2020. (Id.) In the Estoppel Certificate, ECP and Rosenfeld acknowledged that to the extent that ECP paid the reduced monthly interest rate, the unpaid interest at the rate of eighteen percent (18%) continued to accrue. (¶¶13-14.)

On July 15, 2019, ECP, as assignor, and Plaintiff, as assignee, entered into an Amended and Restated Assignment of Distribution Rights ("Amended Assignment"), with Rosenfeld again consenting in writing to the amendment. (Compl., ¶¶ 15-16.) On May 11, 2020, Plaintiff and ECP entered into an Agreement to Extend Reduced Loan Payments. Plaintiff and ECP agreed to extend the reduced interest payments provided for in the Estoppel Certificate through December 31, 2020. (¶ 17.) Rosenfeld consented in writing to the extension. (¶ 18.)

On November 30, 2020, Plaintiff and ECP entered into an Agreement to Second Extension of Reduced Loan Payments, extending the reduced interest payments provided for in the Estoppel Certificate through June 30, 2021. (Compl., ¶ 19.) Rosenfeld consented in writing to the extension. (¶ 20.) On May 24, 2021, Plaintiff and ECP entered into the Agreement to a Third Extension of Reduced Loan Payments by which Plaintiff and ECP agreed to extend the period of reduced interest payments provided for in the Estoppel Certificate through December 31, 2021. (¶ 21.) Rosenfeld consented to this third extension. (¶ 22.)

On June 1, 2021, ECP executed and delivered to Plaintiff an Agreement and Modification of Promissory Note (Modification No. 2), agreeing to extend the maturity date of the Note to June 30, 2022. (¶ 23.) Rosenfeld consented to this extension of the maturity date. (Compl., ¶ 24.) On December 15, 2021, Plaintiff and ECP entered into an Agreement to Fourth Extension of Reduced Loan Payments by which Plaintiff and ECP agreed to extend the period of reduced interest payments provided for in the Estoppel Certificate through June 30, 2022. (¶ 25.) Rosenfeld consented to this extension of the reduced interest payments. (¶ 26.)

On May 10, 2022, Plaintiff and ECP entered into an Agreement to Fifth Extension of Reduced Loan Payments by which Plaintiff and ECP agreed to extend the period of reduced interest payments provided for in the Estoppel Certificate through December 31, 2022. (¶ 27.) Rosenfeld executed a consent in writing to the Agreement to Fifth Extension of Reduced Loan Payments. (Compl., ¶ 28.) On May 10, 2022, ECP executed and delivered to Plaintiff an Agreement and Modification of Promissory Note (Modification No. 3), agreeing to extend the maturity date of the Note to December 31, 2022. (¶ 29.) Rosenfeld consented in writing to Modification No. 3. (¶ 30.)

On December 21, 2022, Plaintiff and ECP entered into an Agreement to a Sixth Extension of Reduced Loan Payments, extending the period of reduced interest payments provided for in the Estoppel Certificate through June 30, 2023. (¶ 31.) Rosenfeld executed a consent in writing to the Agreement to Sixth Extension of Reduced Loan Payments. (¶ 32.) On December 21, 2022, ECP executed and delivered to Plaintiff an Agreement and Modification of Promissory Note (Modification No. 4), agreeing to extend the maturity date of the Note to June 30, 2023. (¶ 33.) Rosenfeld consented in writing to Modification No. 4. (¶ 34.)

Following these extensions, ECP and Rosenfeld defaulted on the Note and Guarantee. In June 2023, ECP failed to make the required monthly loan payment under the Note. (Compl., ¶ 35.) On July 3, 2023, Plaintiff provided a written Notice of Default to ECP. (Id.) Despite its receipt of the Notice of Default, ECP failed and continues to fail to make the payments required of it under the Note. (Id.) The Note matured on June 30, 2023. (¶ 36.) Despite the passage of the maturity date and its receipt of the Notice of Default, ECP has failed to pay off the amounts due and owing, including the unpaid principal, interest, fees, and costs. (Id.) Rosenfeld failed to perform the Guaranteed Obligations, including failing to pay all unpaid principal, interest, fees, and costs. (¶ 39.) Rosenfeld thus breached his obligations under the Guaranty. (Id.)

In their motion, Plaintiff provides evidence supporting the Complaint. On August 28, 2012, Plaintiff made a capital contribution to ECP in the amount of $3,500,000, by which Plaintiff acquired a membership interest in ECP. (UMF 3.) Plaintiff held a 50% interest in ECP as the “Investor Member” and Rosenfeld held a 50% interest as the “Manager Member.” (UMF 4.) Under the Limited Liability Company Agreement of ECP Investors, Plaintiff had distribution rights defined as the “Investor Member Priority Return” of “18% per annum, payable monthly” on its Investor Member capital contribution of $3.5 million. (UMF 5.)  Rosenfeld was not entitled to Investor Member Priority Return on the $100 he invested to retain a 50% interest in ECP. (UMF 6.) On March 25, 2014, Plaintiff increased its capital contribution by $5,500,000 to a total of $9,000,000. (UMF 7.) Rosenfeld was supposed to make a $3,195,000 capital contribution as the Manager Member. (UMF 8.) Rosenfeld would still not be entitled to Priority Return, but this contribution increased his Membership Percentage Interest from fifty to ninety percent. (UMF 9.) Plaintiff’s Membership Percentage Interest was reduced to ten percent, but Plaintiff was still entitled to the Priority Return. (UMF 10.) Rosenfeld guaranteed Plaintiff’s Investor Member Priority Return for the $3.5 and $5.5 million capital contributions to ECP. (UMF 11.)

Plaintiff notes that the HAR-ECP $9.0 million Capital Contribution is one of over twenty ventures in the past fifteen years where Rosenfeld obtained funding for his development projects from a HAR entity, the vast majority of which provided an 18% return on the capital invested or loaned and were guaranteed by Rosenfeld. (UMF 12.) ECP requested that Plaintiff convert its $9.0 million capital contribution to a Promissory Note. (UMF 13.) Plaintiff contends that the conversion of the investment was “economically neutral” since Plaintiff would still receive 18% annually on its capital contribution, and Rosenfeld fully guaranteed the investment principal and 18% return. (UMF 14, 27.) Plaintiff agreed to the conversion and a two-year extension of the return of Plaintiff’s $9.0 million investment. (UMF 15.)

As of June 20, 2014, Plaintiff withdrew as a member of ECP without the return of its Capital Contribution. Plaintiff and ECP executed an agreement prepared by ECP’s counsel titled “AGREEMENT FOR MEMBER TO WITHDRAW FROM ECP INVESTORS, LLC AND TO CONVERT MEMBERSHIP INTEREST TO PROMISSORY NOTE”. (UMF 21.) Plaintiff’s interest in ECP was converted into a Promissory Note (“Promissory Note”) and an assignment of distribution rights (“Assignment”), both dated the Effective Date. (UMF 23.) Rosenfeld executed a Second Amended and Restated Guaranty (“Guaranty”), guaranteeing full payment and performance on the Promissory Note and Assignment. (UMF 24.) Under the Promissory Note, ECP promised to pay Plaintiff $9,000,000, plus the Preferred Return, as defined in the Assignment (at least $135,000.00 monthly). (UMF 25.) The Preferred Return was the amount to be distributed to Plaintiff under the Assignment. (UMF 26.)

The remaining undisputed material facts relay the same facts as the Complaint: the parties entered into a series of assignments, modifications and extensions regarding capital investments, the Note and the Guarantee. (UMF 34-60.) As of June 2023, ECP owed $4,680,000 for accrued but unpaid interest. (UMF 61, 69.) Since default, an additional $2,160,000 of interest has accrued through September 30, 2024, and continues at $4,438.36 per day since October 1, 2024. (Id.) ECP did not pay off these amounts after its final monthly payment in June 2023. (UMF 62.) Eastside also made no further distributions under the Assignment after its monthly June 2023 payment. (UMF 63.) ECP did not respond to the notice of default sent. (UMF 64-65.) Rosenfeld also did not respond to the Demand on Guaranty or made any payments as obligated under the Guaranty. (UMF 66-68.) Plaintiff also claims entitlement to attorneys’ fees and costs under the Guaranty. (UMF 70.)

Plaintiff makes a prima facie showing for recovery on the Guarantee against Rosenfeld. Rosenfeld guaranteed to pay the ECP Payment Obligations. The Guaranty required that Rosenfeld pay “the full payment and performance of each and all of the ECP Payment Obligations pursuant to the Note and the Assignment, and all modifications,

amendments, renewals and extensions of the Note and Assignment… immediately on demand… in the event of any default of ECP (beyond all applicable notice and/or cure periods) with respect to the Indebtedness or any part thereof. (Second Amended and Restated Guaranty dated

June 20, 2014, p. 1-2.) The guarantee was material to the overall transaction, as Plaintiff “would not have accepted the Note or Assignment without the Guaranty” and that Rosenfeld was “required to execute and deliver to [Plaintiff] this Guaranty” as a condition of [Plaintiff] accepting the Note and Assignment. (UMF 39.) It is further undisputed that ECP defaulted under the Note and Assignment by failing to pay the ECP Payment Obligations, and that Rosenfeld failed to make payment on his Guarantee despite a Notice of Default to ECP and a Demand on Guaranty to Rosenfeld. (UMF 64-67.)

Rosenfeld argues that the transaction was usurious, because it attempts to charge above the maximum interest rate limits set by Article XV, Section 1 of the California Constitution and Civil Code §§ 1916 et seq. “[U]surious provisions of a loan are void on the grounds of illegality or unlawfulness because they violate express provisions of law.” (WRI Opportunity Loans II, LLC v. Cooper (2007) 154 Cal.App.4th 525, 542; see Epstein v. Frank (1981) 125 Cal. App. 3d 111, 122-23 [“attempt to exact the usurious rate of interest renders the interest provisions of a note void....  The usurious provisions, however, do not affect the right of the payee to recover the principal amount of the note when due.”]; see also Jones v. Wells Fargo Bank (2003) 112 Cal.App.4th 1527, 1535 [“‘[T]he usury law … is riddled with so many exceptions that the law’s application itself seems to be the exception rather than the rule.’”].)

“The four essential elements of usury include a loan or forbearance, interest exceeding the statutory maximum, absolute repayability of loan and interest, and a lender with a ‘willful intent to enter into a usurious transaction.’” (Creative Ventures, LLC v. Jim Ward & Associates (2011) 195 Cal.App.4th 1430, 1449; see DCM Partners v. Smith (1991) 228 Cal.App.3d 729, 735 [“forbearance” within meaning of usury law is “an agreement to extend the time for payment of the obligation due either before or after the obligation's due date”].) “Without a loan or forbearance, usury cannot exist.” (321 Henderson Receivables Origination LLC v. Sioteco (2009) 173 Cal.App.4th 1059, 1076.) “A loan of money is a contract by which one delivers a sum of money to another, and the latter agrees to return at a future time a sum equivalent to that which he borrowed.” (Civ. Code § 1912.)

“In usury cases the trier of fact is vested with the power to resolve many issues attending and including the ultimate question of whether a particular transaction is usurious.” (Stickel v. Harris (1987) 196 Cal.App.3rd 575, 584.) For instance, whether a broker "arranged" a nonusurious loan within the meaning of section 1916.1 was committed to the trier of fact. (Id.) On the question whether a transaction constitutes a “loan” or “forbearance of money,” triers of fact must look beyond the form of the transaction to ascertain its substance. (Ghirardo v. Antonioli (1994) 8 Cal.4th 791, 798.) “In all such cases the issue is whether or not the bargain of the parties, assessed in light of all the circumstances and with a view to substance rather than form, has as its true object the hire of money at an excessive rate of interest.” (Boerner v. Colwell Co. (1978) 21 Cal.3d 37, 44.)

In their opposition, Rosenfeld presents evidence that the parties always intended the transactions as loans, albeit thinly disguised by equity-like documentation. (Rosenfeld Decl. ¶¶ 5-6; Frye Decl. ¶ 6 Exs. 18, 28.) The overall transaction in context could lead a reasonable fact finder to conclude that the transactions had the ultimate true object of hiring money at an 18% interest rate per annum. According to the complaint and submitted evidence, Plaintiff delivered $9 million to ECP as a supposed “contribution” which was subject to a fixed maturity date for the return of the contribution plus monthly accruing interest. This fits neatly within the above definitions of a loan for money. The record shows that the parties entered numerous agreements by delaying the maturity date to pay back the principal $9 million “contribution”—also fitting the definition of a forbearance of a debt. The parties entered numerous agreements allowing for reduced interest payments provided for in the Estoppel Certificate, further evidencing an intent to take interest on a loan. Making all reasonable inferences in favor of the non-moving Defendant, the UMFs and submitted evidence demonstrates a dispute of fact as to whether the transaction constituted a loan or forbearance.

Plaintiff also challenges the intent by citing its agent’s testimony and language within the Note disclaiming any usury. However, the Note evinces an intent to take the usurious amount of interest. This is willful intent for purposes of usury. (WRI Opportunity Loans II, LLC v. Cooper (2007) 154 Cal.App.4th 525, 533.) “ ‘[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.) Simply put, there is no dispute that Plaintiff charged (and collected) on the 18% interest rate. 

Plaintiff submits another factual issue—that Defendant is estopped from maintaining a defense of usury. Estoppel is a defense to a charge of usury. (Lakeview Meadows Ranch v. Bintliff (1973) 36 Cal.App.3d 418, 424 [defense of estoppel applied to usury in an action by a trustor under a deed of trust complaining that interest paid pursuant to a modification agreement affecting the deed of trust was usurious, where the evidence and allegations showed that the trustor's agent, a California attorney, agreed to draft the agreement to provide for 9 percent interest on the entire unpaid balance, that the trustor's agent knew that the trustee wanted a legal and valid agreement and was under a duty to advise the trustee if the agreement was considered to be usurious under California law, and that the trustor's agent at no time suggested to the trustee that the agreement was usurious].) Caselaw establishes that estoppel acts as a defense where a borrower and lender are not in pari delicto in a usurious transaction. (Teichner v. Klassman, (1966 2d Dist.) 240 Cal.App.2d 514, 523.) “ ‘[E]stoppel does not arise simply because the borrower knew of the usurious nature of the transaction, took the initiative in seeking the loan, and paid usurious interest without protest.’ ” (Id., quoting Janisse v. Winston Inv. Co., (1957) 154 Cal. App. 2d 580, 587.) Indeed, the equitable principles of estoppel generally require detrimental reliance and ignorance of the true facts. (See Wells Fargo Bank v. Bank of America (1995) 32 Cal.App.4th 424, 437-38 [the defense of estoppel includes (1) the party estopped must know the facts; (2) the party estopped must engage in conduct intended to be acted upon by the party asserting estoppel; (3) the party asserting estoppel must be ignorant of the true state of facts; and (4) injury must result from reliance on the other's conduct].)[1]

Here, a trier of fact could reasonably infer from the record that Plaintiff was aware of the true facts of the transaction, including the nature of the transaction as a loan of money for a fixed interest rate. This is especially true considering the nature of the transaction, as well as the parties express negotiations surrounding the application of usury. As such, it would be reasonable to conclude on this record that the parties were equally at-fault for the usurious interest. Thus, there would be a dispute of fact as to the application of estoppel to the usury defense.

            Here, there are multiple disputes of fact preventing the granting of Plaintiff’s summary judgment motion. For instance, was the original agreement (the capital contribution) a loan? Were the several extensions of the maturity date forbearances? Did Plaintiff intend to charge a usurious interest rate? Was Plaintiff ignorant of the true state of facts such that estoppel may apply to the usury defense? These remaining questions of fact preclude summary judgment on this action. Accordingly, the motion is DENIED.