Arica, LLC v. Yukmi, Inc.

MOTION FOR SUMMARY JUDGMENT, OR IN THE ALTERNATIVE, SUMMARY ADJUDICATION

 

MOVING PARTY: Plaintiff Arica, LLC

RESPONDING PARTY(S): Defendant Yukmi, Inc.

STATEMENT OF MATERIAL FACTS AND/OR PROCEEDINGS

Plaintiff Arica, LLC alleges that in October of 2017, third party Viltar, LLC issued Plaintiff a secured promissory note in the principal amount of $800,000.  The note was secured by a deed of trust on the real property at 12509 W. Sunset Boulevard, Los Angeles, CA.  Plaintiff alleges that note was never paid and is still owing in full.

Plaintiff further alleges that in February of 2019, Plaintiff issued back to Viltar, LLC a secured promissory note to pay Viltar the principal amount of $90,000.00.  At some point after, Viltar, LLC assigned the $90,000 note and accompanying deed of trust to Defendant in this case, Yukmi, Inc.  Defendant now seeks to foreclose on the $90,000 note.  However, Plaintiff alleges that it is entitled to an offset based on the $800,000 note Viltar, LLC owes under the first promissory note.  Thus, Plaintiff brought an action against Yukmi, Inc. for Declaratory Relief. 

On December 17, 2021, Plaintiff filed a First Amended Complaint, adding a second cause of action for breach of contract.  Plaintiff alleges the parties had a binding agreement to settle this matter but Defendant reneged on the agreement.  

Plaintiff now moves for summary judgment, or in the alternative, summary adjudication.  Defendant opposed.  Defendant has also filed a motion for summary adjudication, which this Court will hear concurrently with this motion.

TENTATIVE RULING:

Plaintiff’s Motion for Summary Judgment is GRANTED since it has proven it’s claims on both existing causes of action, as discussed below.

Moving party to serve and file a proposed Judgment consistent with this ruling.

DISCUSSION:

Motion for Summary Judgment, or in the alternative, Summary Adjudication

I. Judicial Notice

Pursuant to Defendant’s request, the court takes judicial notice of Defendant’s Exhibits 1 and 2 as records of a court of California or the United States.   (Evidence Code § 452(d).)  

Judicial notice is taken of the existence of the court records, but not of the disputed facts therein.  (Heritage Pac. Fin., LLC v. Monroy (2013) 215 Cal. App. 4th 972, 988.)

II. Evidentiary Objections

The parties have not filed objections to any evidence submitted.

III. Legal Standard

The function of a motion for summary judgment or adjudication is to allow a determination as to whether an opposing party cannot show evidentiary support for a pleading or claim and to enable an order of summary dismissal without the need for trial. Aguilar v. Atlantic Richfield Co. (2001) 25 Cal.4th 826, 843. In analyzing motions for summary judgment, courts must apply a three-step analysis: “(1) identify the issues framed by the pleadings; (2) determine whether the moving party has negated the opponent's claims; and (3) determine whether the opposition has demonstrated the existence of a triable, material factual issue.” Hinesley v. Oakshade Town Center (2005) 135 Cal.App.4th 289, 294.  Thus, summary judgment is granted when, after the Court’s consideration of the evidence set forth in the papers and all reasonable inferences accordingly, no triable issues of fact exist and the moving party is entitled to judgment as a matter of law.  Code Civ. Proc. § 437c(c); Villa v. McFarren (1995) 35 Cal.App.4th 733, 741. 

When a plaintiff moves for summary judgment, it meets his or her burden of showing that there is no defense to a cause of action if that party has proved each element of the cause of action entitling the party to judgment on the cause of action. Once the plaintiff or cross-complainant has met that burden, the burden shifts to the defendant or cross-defendant to show that a triable issue of one or more material facts exists as to the cause of action or a defense thereto.  (J.B.B. Inv. Partners Ltd. v. Fair (2019) 37 Cal. App. 5th 1, 8.)

IV. Analysis

A. Background

The material facts underlying the first cause of action for declaratory relief are essentially undisputed.  Plaintiff Arica, LLC alleges that in October of 2017, it obtained a secured promissory note in the principal amount of $800,000 from a third party, Viltar LLC.  The note was secured by a deed of trust on the real property at 12509 W. Sunset Boulevard, Los Angeles, CA.  Plaintiff alleges that Viltar LLC has not made any payments on the note and is still owing in full.

Plaintiff further alleges that in February of 2019, Plaintiff issued back to Viltar, LLC a secured promissory note to pay Viltar the principal amount of $90,000.  At some point after, Viltar, LLC assigned the $90,000 note and accompanying deed of trust to Defendant in this case, Yukmi, Inc.  That assignment was recorded on December 23, 2019.

Defendant Yukmi now seeks to foreclose on the $90,000 note.  However, Plaintiff alleges that it is entitled to an offset based on the $800,000 note Viltar, LLC owes it under the first promissory note.  Thus, Plaintiff brought an action against Yukmi, Inc. for Declaratory Relief. 

On December 17, 2021, Plaintiff filed a First Amended Complaint, adding a second cause of action for breach of contract.  Plaintiff alleges the parties had a binding agreement to settle this matter, but Defendant reneged on the agreement after it obtained new counsel.  Defendant denies that any binding agreement existed.

B. First Cause of Action for Declaratory Relief

There are concurrent motions for summary judgment or adjudication.  The court’s ruling on Defendant’s motion for summary adjudication is incorporated herein, as though set out in full.

Plaintiff’s main authority, both in support of its own MSJ and in opposition to Defendant’s MSJ, is CCP section 368.  Defendant’s main authority, both in support of its MSJ and in opposition to Plaintiff’s MSJ, is Commercial Code section 3305.  Interestingly, Defendant does not address CCP section 368 in its opposition to Plaintiff’s motion, or in its own MSJ.  Further complicating matters, Plaintiff does not address Com. Code section 3305 in its MSJ, though it does briefly address the issue in its Opposition to Defendant’s MSJ.  Thus, each party has put forth their own interpretation of which statute applies but have failed to address why the other parties’ does not.  This court also notes that neither party has filed a reply to the opposition in either party’s MSJ.  Be that as it may, this court will attempt to fill in the gaps where it is appropriate to do so, and as necessary.

Plaintiff argues it is entitled to summary judgment because “(1) Yukmi purchased the note from Viltar, LLC, which still owes Arica $800,000 on a promissory note Viltar issued to Arica (the “$800,000 Viltar Note”), (2) both the $90,000 note and the $800,000 Viltar Note arise out of the same real estate development project, and (3) as a matter of law, Arica is therefore entitled to offset that $800,000 Viltar still owes Arica against the $90,000 Note.”  (MSJ 2: 7-12.)

Plaintiff’s authority for an “offset” on the promissory notes is Code of Civil Procedure section 368.   That section provides that “[i]n the case of an assignment of a thing in action, the action by the assignee is without prejudice to any set-off, or other defense existing at the time of, or before, notice of the assignment; but this section does not apply to a negotiable promissory note or bill of exchange, transferred in good faith, and upon good consideration, before maturity.”  (CCP § 368 [emphasis added].)  This section codifies the general proposition that an “assignee ‘stands in the shoes’ of the assignor, taking his rights and remedies, subject to any defenses which the obligor has against the assignor prior to notice of the assignment.” (Casiopea Bovet, LLC v. Chiang (2017) 12 Cal. App. 5th 656, 663.) This court has found no authority applying CCP section 368 to a case with facts similar to this, and neither party has presented any.  

In opposition, Defendant argues that the controlling law on the offset issue is the California Commercial Code section 3305(a)(3).  Because a promissory note is a form of negotiable instrument, it is subject to “the established rules governing negotiable instruments contained in [division] 3 of the California Uniform Commercial Code.” (Saks v. Charity Mission Baptist Church (2001) 90 Cal.App.4th 1116, 1132; Cal. U. Com. Code, § 3104.)  

Section 3305(a) provides that “the right to enforce the obligation of a party to pay an instrument is subject to… (3) A claim in recoupment of the obligor against the original payee of the instrument if the claim arose from the transaction that gave rise to the instrument; but the claim of the obligor may be asserted against a transferee of the instrument only to reduce the amount owing on the instrument at the time the action is brought.”  (Cal. Com. Code § 3305(a)(3) [italics added].).  The official comment to this section provides that this section “is based on the belief that it is not reasonable to require the transferee to bear the risk that wholly unrelated claims may also be asserted.” (Cal. U. Com. Code com., 23A pt. 2 West's Ann. Cal. U. Com. Code (2002 ed.) foll. § 3305, com. 3, p. 329.)

Relying on this section of the Commercial Code, Defendant argues that since “Yukmi purchased its promissory note…in a completely separate transaction than the one that gave rise to the Plaintiff’s instrument… there is no right to assert an offset.”  (Opp. 2: 3-6.)  To put it simply, if the claim does not arise “from the transaction that gave rise to the instrument,” then Plaintiff would not be entitled to an offset.  

The UCC does not address what it means for a claim to arise “from the transaction that gave rise to the instrument,” and it appears that few, if any, published California decisions have interpreted the requirement.  The only case cited by the parties in either of the MSJ’s is one from the United States District Court for the Southern District of New York.  In Hauser v. W. Grp. Nurseries, Inc., 767 F. Supp. 475, 490 (S.D.N.Y. 1991), that court addressed whether two separate instruments constituted the “same transaction,” albeit under a different section of the UCC. The court found that although the two instruments “reflect[ed] two distinct purchases and sales,” they also demonstrated “by way of numerous references and cross-references to the various agreements []… that the two transactions were inextricably linked as components of an overall transaction.”  (Id.) That court also noted that the two transactions were executed “virtually simultaneously.”  (Id.)

In our case, both of the promissory notes here were executed between the same parties (Arica and Viltar) and were based on the same development project.  Only the parties’ roles were reversed: In the $800,0000 Note, Plaintiff was a lender, and in the $90,000 Note, Plaintiff was a borrower.  It is also true that there was a fifteen-month period between the notes.  Plaintiff notes in its opposition to Defendant’s MSJ that the subordination agreement accompanying the second Note did reference the first Note.  That subordination agreement provided:

[Viltar] did execute a deed of trust, dated October 2017 and signed November 3, 2017, covering the real property described as having APN 4405-007-017 and commonly described as 12509 W. Sunset Blvd., Los Angeles, CA 90049 (to secure a promissory note in the sum of $800,000, dated October 27, 2017 in favor of [Arica]. [UMF 42.]

This court concludes that Plaintiff’s offset claim does, in fact, “arises from the same transaction.”  This is not the situation contemplated in the comment to the UCC to prevent an assignee from defending against “wholly unrelated claims.”  (Cal. U. Com. Code com., 23A pt. 2 West's Ann. Cal. U. Com. Code (2002 ed.) foll. § 3305, com. 3, p. 329.)  Rather, both the first and second notes were executed between the same parties, for the same development project, and the second note references the first.  Defendant has presented no authority stating that because one note was a loan on the Property and the other note was for the purchase of the Property, that this would constitute different transactions.  For purposes of judging the same transaction, this appears to be a distinction without a difference.  Thus, they were executed as components of the same transaction.

This conclusion is also consistent with CCP section 368—which Defendant does not address—which provides generally that an “assignee ‘stands in the shoes’ of the assignor, taking his rights and remedies, subject to any defenses which the obligor has against the assignor.” (Casiopea Bovet, LLC, 12 Cal. App. 5th at 663.)

Based on the above, it appears that Defendant purchased the matured note subject to any defenses Plaintiff would have against Viltar.  Thus, Plaintiff is entitled to a set-off for the difference between the competing notes.

Accordingly, Plaintiff’s motion for summary adjudication is GRANTED as to the First Cause of Action for Declaratory Relief.

C. Second Cause of Action for Breach of Contract

Plaintiff also moves for summary adjudication of the breach of contract cause of action.  Plaintiff argues that a valid and enforceable settlement agreement existed between the parties.  This court begins with an analysis of the communications at issue, and then turns to whether the parties formed an enforceable settlement agreement.

1. Email Communications

Plaintiff represents that after Defendant obtained the note assignment from Viltar, counsel for Plaintiff communicated with former counsel for Defendant by phone on January 13, 2021, during which Plaintiff offered $5,000 in exchange for reconveyance of the deed of trust.  (Powell Decl. 7.)  Plaintiff then followed up with Defendant’s former counsel in a January 25, 2021 email, with the subject line, “Arica v. Yukmi – Settlement Offer,” which stated:

“We have not received a response from your client regarding our client's January 13 offer to pay $5,000 in exchange for a reconveyance of the deed of trust Yukmi holds on Arica's property. Our client intends to soon move forward with its MSJ, so please be advised the January 13 settlement offer expires on Friday, January 29.”

(Powell Decl. 8, Exh. 6.)  

On February 3, 2021, having received no response, Plaintiff’s counsel followed up once more, stating “[w]e did not receive a response from you. We’re simply letting you know in case you intended to respond.” (Powell Decl. 10, Exh. 6.)  Defendant’s former counsel then responded to this email, stating “[k]indly give me by tomorrow morning to respond. I need to have my client understand the legal remification [sic] of this whole thing.”  (Powell Decl. 11, Exh. 6.)  

On February 8, 2021, counsel for Plaintiff followed up with Defendant’s former counsel, stating in email “Hi Jamie, I’m shooting you a reminder because we did not receive a response from you.”  (Powell Decl. 12, Exh. 6.)  

On February 11, 2021, Defendant’s former counsel responded to the email, stating “My client accepts the $5000 in settlement to settle the case in its entirety.  Kindly forward over the settlement agreement draft for my review.”  (Powell Decl. 13, Exh. 6.)  The next day Plaintiff’s counsel responded that they would “circulate settlement documents early next week.”  (Id.)  It appears that at some point after this exchange, Defendant brought on new counsel, and no settlement documents were ever executed.  

2. Analysis

“ ‘A settlement agreement is a contract, and the legal principles [that] apply to contracts generally apply to settlement contracts.’ [Citation.] Its validity is thus ‘judged by the same legal principles applicable to contracts generally.’ [Citations.]”  (J.B.B. Inv. Partners Ltd.,37 Cal. App. 5th at 9.)  “[W]hether the parties had a meeting of the minds regarding settlement [] is a factual question.” (J.B.B. Inv. Partners, Ltd. v. Fair (2014) 232 Cal. App. 4th 974, 984.) The elements of a cause of action for 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 W. Realty, LLC v. Goldman (2011) 51 Cal. 4th 811.)  The first element—the existence of a contract—requires parties capable of contracting, their consent, a lawful object, and a sufficient cause or consideration. (Civ. Code, § 1550.)

Defendant argues the settlement agreement is unenforceable because it was never “signed” by Yukmi or its counsel, as is required under CCP Section 664.6. This section provides: “If parties to pending litigation stipulate, in a writing signed by the parties outside of the presence of the court or orally before the court, for settlement of the case, or part thereof, the court, upon motion, may enter judgment pursuant to the terms of the settlement.” (CCP 664.6.)

However, Defendant is not moving to enforce the settlement under a 664.6 motion.  As courts have explained, “[t]he statutory procedure for enforcing settlement agreements under section 664.6 is not exclusive. It is merely an expeditious, valid alternative statutorily created.” (Nicholson v. Barab (1991) 233 Cal.App.3d 1671, 1681, citing Kilpatrick v. Beebe (1990) 219 Cal.App.3d 1527, 1529.) Instead, a party may enforce a settlement agreement by suing for breach of contract. (Robertson v. Chen (1996) 44 Cal.App.4th 1290, 1293[“[A] settlement agreement might be enforceable by summary judgment, a suit for breach of contract (perhaps prosecuted by means of a supplemental pleading), or a suit in equity.”].)

This case presents an unusual situation in which there actually is an existing cause of action for breach of a settlement agreement/contract, in which that settlement agreement was made during the pendency of the lawsuit.  In a more typical case, the parties enter into a valid settlement agreement during the pendency of the case, but that settlement agreement is somehow not enforceable under CCP 664.6 in that action.  As such, the party asserting the breach must file a new action to enforce that agreement.  The fact that the Plaintiff has successfully amended its Complaint in this case, to include the breach of the settlement agreement allows them to avoid a new action, and instead, move for a summary adjudication of its new claim.

Indeed, Defendant’s only authority in opposition, J.B.B. Inv. Partners Ltd (2014), was addressing a settlement in the context of a 664.6 motion – not a viable cause of action for breach of that settlement.  (J.B.B. Inv. Partners, Ltd. v. Fair (2014) 232 Cal. App. 4th 974, 991.) Because the court found the proposed settlement was not signed by all parties and that the printed signature did not satisfy the Uniform Electronic Transaction Act, it held the settlement unenforceable under section 664.6.  But the Court explicitly “express[ed] no opinion as to whether plaintiffs can enforce the July 4 offer by another method, such as a motion for summary judgment for breach of contract.”  Thus, it appears that when a party attempts to enforce a settlement via a traditional breach of contract action, the normal rules of contract formation apply.

Hence, in a subsequent appeal in J.B.B. Inv. Partners Ltd. (2019) , the issue was then whether the parties’ exchange of emails created a claim for breach of contract. The plaintiffs emailed defendants a “last and final” settlement offer with all of the terms expressly detailed in the offer letter. (J.B.B., supra, 37 Cal.App.5th at 10-11.) The defendant responded with multiple emails accepting the offer, and included a statement that said, “This confirms full agreement, and I will work on the formal settlement paperwork which will conform to the settlement agreement made today based on the 10 numbered paragraphs....” (Id. at 11.) The defendants later refused to sign a final draft of the settlement agreement.

The plaintiffs ultimately obtained summary adjudication on their claim for breach of contract. The Court of Appeal affirmed, holding that although the parties still needed to execute a more formal written agreement, and although there were additional terms included in the more formal written agreement sent by plaintiffs’ attorney that had not been included in the offer letter, those facts did not alter the validity of the preliminary settlement agreement. (Id. at 12.) The settlement email “included specific terms (settlement amount, payment deadline, release of claims, etc.) delineated in 10 separately numbered paragraphs, which expressly invited defendants' acceptance.” These material terms were unambiguous and clear, and therefore enforceable.  (J.B.B. Inv. Partners Ltd., 37 Cal. App. 5th at 13.)

Here, after multiple inquiries as to whether Defendant would accept Plaintiff’s offer to settle the matter for $5,000, on February 11, 2021, Defendant’s former counsel responded by email, stating “My client accepts the $5000 in settlement to settle the case in its entirety.  Kindly forward over the settlement agreement draft for my review.”  (Powell Decl. 13, Exh. 6.)  Defendant does not argue that this acceptance is ambiguous.  Defendant also does not raise any argument that the settlement agreement is missing specific terms, or that the material terms of such an agreement were ambiguous and or unclear.  It is unlikely they could.  The emails between the parties were straightforward, and the language used by Defendant’s former counsel indicates a clear acceptance of a $5000 settlement offer.  

Defendant argues that because the parties intended to reduce the agreement to a final writing, the email communications could not constitute a binding agreement. But this argument is unavailing.  “When parties intend that an agreement be binding, the fact that a more formal agreement must be prepared and executed does not alter the validity of the agreement.” (See Blix Street Records, Inc. v. Cassidy (2010) 191 Cal.App.4th 39, 48, 119 Cal.Rptr.3d 574; see also Harris, 74 Cal.App.4th at p. 307, 87 Cal.Rptr.2d 822 [“Where the writing at issue shows ‘no more than an intent to further reduce the informal writing to a more formal one’ the failure to follow it with a more formal writing does not negate the existence of the prior contract”].)

The plain language of these communications demonstrates, as a matter of law, the existence of a settlement agreement between the parties. (See Weddington Productions, Inc. v. Flick (1998) 60 Cal.App.4th 793, 811, 71 Cal.Rptr.2d 265 [“ ‘The existence of mutual consent is determined by objective rather than subjective criteria, the test being what the outward manifestations of consent would lead a reasonable person to believe’ ”].)  Accordingly, this court concludes that Defendant has met its burden to establish the existence of a valid contract, (2) its performance or excuse for nonperformance, (3) defendant's breach, and (4) the resulting damages to the plaintiff.  Indeed, Defendant has not attempted to argue that the latter three elements are not met here.

Switching the burden to Defendant, Defendant contends that any email sent by its former counsel purporting to agree to a settlement was sent by mistake.  Eui S. Chang, President of Defendant, attests in his Declaration that “[a]ny alleged authorization for the previous counsel for Yukmi, Ms. Jamie Kim, to settle this case with Plaintiff, Arica, LLC (“Arica”) for $5,000.00 was a mistake and misunderstanding. That email agreeing to the settlement sent by Ms. Kim was sent in error and was a miscommunication.” (See Chang Decl. 2.)  Defendant has not presented authority demonstrating that a “mistake” or miscommunication between an attorney and client negates an otherwise valid settlement.  

Defendant’s only evidence in opposition is the self-serving Declaration of Chang, stating that any settlement “was a mistake and misunderstanding.” (See Chang Decl. 2.)  But that is the extent of it.  There is nothing in the record to corroborate that the email of Defendant’s former counsel was in fact, a mistake, or that there had been a miscommunication between Defendant and its counsel, or between Defendant’s former counsel and Plaintiff’s counsel.  There is also nothing in the record to suggest Defendant’s attorney did not have the authority to enter into the settlement.  (See Ellerd v. County of Los Angeles, 273 Fed.Appx. 669, 670 (9th Cir. 2008) [applying California law to reject party’s argument that she was not bound by settlement when she only “presented a declaration stating that she did not agree to the settlement” but “[c]onspicuously missing is any statement to the effect that her lawyer was not authorized to act on her behalf”].)

Thus, Defendant’s evidence is insufficient to raise a triable issue of material fact as to whether there was a mutual manifestation of intent to contract.  (See King v. United Parcel Services, Inc. (2007) 152 Cal.App.4th 426, 433 [uncorroborated and self-serving declarations are insufficient to create a genuine issue of material fact].)  Thus, Plaintiff is entitled to summary adjudication of the second cause of action.  

Accordingly, Plaintiff’s motion for summary judgment is GRANTED.

Moving party to give notice.

IT IS SO ORDERED.

Dated:   July 26, 2022 ___________________________________

Randolph M. Hammock

Judge of the Superior Court