Judge Teresa A. Beaudet, Case Number: 19STCV38220, Date: 2024-04-25 Tentative Ruling

This matter came on for trial on February 14-15, 2024, in Department 50 of the above-entitled Court before the Hon. Teresa A. Beaudet, sitting without a jury. The Court, having considered the evidence and read the arguments of counsel, issues this tentative and proposed Statement of Decision. This tentative and proposed Statement of Decision will become the Statement of Decision unless, within 15 days hereafter, a party serves and files objections to the proposed Statement of Decision.

On June 6, 2022, the parties filed a Joint List of Stipulated Facts for Trial. Pursuant thereto,

1. Plaintiff Warren Breslow, as Trustee of The Survivor’s Trust Under the Warren L. Breslow Trust (“Breslow”) and Defendant IC Funding, Inc. (“IC”) entered into a promissory note dated March 12, 2018 (the “Note”) wherein Breslow agreed to loan $250,000 (the “Principal Balance”) to IC. (TE1)[1]

3. Defendant Carmiel Cohen (“Cohen”) executed the Note as President of IC and, at that time, believed he was President of IC. Cohen later learned that he never was the President of IC.

4. At the time Cohen executed the Note, he believed that he had authority to execute the Note on behalf of IC.

7. Cohen entered into a Guaranty dated March 12, 2018 (the “Guaranty”). (TE2)

8. Cohen read and understood the terms of the Guaranty when he executed the Guaranty.

9. Breslow has performed all of the conditions, covenants and promises required to be performed in accordance with the terms and conditions of the Note.

12. – 27. From April 17, 2018 through August 14, 2019, Cohen made interest payments required by Paragraphs 3.1 and 3.2 of the Note in cash. Breslow’s secretary Barbara Efnor logged these payments in a handwritten ledger and provided Cohen a copy of the ledger as a receipt of payment. (TE4-01-02)

28. Neither IC nor Cohen have made any payment of interest towards the Note since August 14, 2019.

29. The Maturity Date (as defined in Paragraph 3.3 of the Note) ran on March 12, 2021.

31. IC has not paid the entire outstanding Principal Balance of the Note, together with all accrued but unpaid interest under the Note.

32. Cohen as not paid the entire outstanding Principal Balance of the Note, together with all accrued but unpaid interest under the Note.

33. Cohen has not made a donation to Beit T’Shuvah in connection with the loan.

Breslow seeks damages from IC for breach of the Note and from Cohen for breach of the Guaranty. More specifically, he seeks damages for principal and interest totaling $523,660.34 as of April 1, 2024. Default was entered as to IC on January 23, 2020.

Cohen contends that he made seventeen additional cash payments to Breslow totaling $170,000 that should be applied to the amount due under the Guaranty. Additionally, Cohen asserts in his Third Affirmative Defense in his Answer that the Loan and Guaranty are usurious because he was required to donate two percent of the Loan amount to a charity called Beit T’Shuvah each year which results in a usurious twelve percent interest rate per year. In his “Post Trial Closing Trial Brief” (the “Cohen Closing Brief”), Cohen also contends that (a) the use of a three-hundred-sixty-day year in the Note also results in a usurious interest rate as well as an incorrect damage calculation, and (b) a $36.33 overpayment of interest also resulted in a usurious interest rate.[2]

C. Did Cohen pay Breslow seventeen payments of $10,000 in cash to be applied toward the

E. If so, what impact does a usury finding have on the damages claimed by Breslow?

As a result of stipulated fact nos. 15 and 16, there is no dispute that IC breached the Note by failing to pay Breslow the Principal Balance, together with all accrued but unpaid interest under the Note.

Cohen does not dispute that he breached the Guaranty. In the Cohen Closing Brief at page 4, lines 5-7, he states that he “is only claiming an offset of $170,000 and not the full $250,000. In other words under the Guaranty, he admits there is a balance of $80,000 subject to further offset for the usurious interest as applied to principal.”

C. Did Cohen Pay Breslow Seventeen Payments of $10,000 in Cash to be Applied Toward the Balance Due on the Note?

Cohen contends that in addition to the monthly interest payments that he made in cash, he

also made seventeen additional cash payments toward the Principal Balance. However, the Court did not find this contention credible or supported by the evidence at trial.

First, Breslow testified that Cohen admitted to Breslow soon after his default on October 1, 2019, that he had not made any payments towards the Principal Balance. (Trial Tr., Vol. 1 at 47:2-21.)

Second, Cohen offered no written proof that he made any of the alleged principal payments; this stands in contrast to the parties’ course of conduct regarding the interest payments where there was a written record. With respect to the interest payments, Cohen prepared a handwritten form of a ledger that he gave to Breslow’s secretary. (TE4; Trial Tr., Vol. 2 at 20:5-11, 15-28, 21:1-2.) Each time Cohen made an interest payment, Breslow’s secretary wrote in the amount of the payment and signed the form ledger. (TE4; Trial Tr., Vol. 1 at 37:17-21.) She then gave Cohen an updated copy of the form ledger (Trial Tr., Vol. 2 at 21:13-22:1), and Breslow’s secretary maintained the original form ledger, as updated, in her files for the next payment. (Trial Tr., Vol. 1 at 37:17-27.)

Cohen did not prepare a similar ledger for the alleged principal payments, request a receipt for the alleged payments, or otherwise contemporaneously note in writing any of the alleged payments worth approximately five times the amount of the interest payments ($2,100 versus $10,000). At trial, Cohen testified:

Q: Mr. Cohen, did you receive a receipt from Mr. Breslow for any of the $10,000 payments?

Q: And you don’t have a text message from Mr. Breslow confirming receipt of any of the $10,000 payments, correct?

Q: And Mr. Breslow never sent you an e-mail confirming receipt of any of the $10,000 payments in writing, sir? (Trial Tr., Vol. 2 at 22:7-19)

Q: And, Mr. Breslow, never sent you anything in writing confirming receipt of any of the $10,000 payments, correct?

Q: In fact, you never asked Mr. Breslow for a receipt for any of the 10,000 payments; correct?

Even though Cohen claims he received the cash to make the alleged principal payments in the amount of $170,000 from IC, Cohen also did not obtain a receipt or anything in writing from IC showing that it gave Cohen the cash for the alleged principal payments. Cohen also never confirmed in writing to IC that the payments were made. (Trial Tr. Vol. 2 at 24:5-25:25.)

Cohen’s inconsistent statements concerning the circumstances surrounding the alleged principal payments stands in contrast to the undisputed and consistent evidence concerning the circumstances of each interest payment. There is no dispute that, with respect to the interest payments, Cohen came into Breslow’s office each month and handed Breslow’s secretary the interest payment (except there was one month where Cohen handed Breslow the interest payment at his office). (TE4-01; Trial Tr., Vol. 1 at 35:15-26.) In every case, except one, the payment was made by Cohen in cash. (Trial Tr., Vol. 1 at 35:15-21.) The specific dates of each payment are memorialized in the ledger. (TE4.)

However, with respect to the alleged principal payments, Cohen provided vague and/or contradictory facts concerning when and where he allegedly made the payments. In supplemental responses to Breslow’s special interrogatories that Cohen verified under penalty of perjury on September 5, 2020, Cohen described the circumstances surrounding the purported principal payments. (TE13.) Specifically in response to Special Interrogatory No. 21, which asked: “[i]f you contend that you have made any payments towards the principal due under the loan documents, state the dates and value of any such payments,” Cohen responded:

[a]ll payments came from cash supplied by IC Funding and were paid to Breslow in cash. The cash was given to [Cohen] by Nadav Ibi and was given to Mr. Breslow at either his home or his office in Beverly Hills, California. There were 17 $10,000 payments, but [Cohen] does not recall the dates other than they would have been after March of 2018 and before March of 2019.

(Trial Tr., Vol. 2 at 31:28-32:21; TE13.) At his deposition, Cohen confirmed that he did not recall the exact dates that he made the alleged principal payments to Breslow. (Trial Tr., Vol. 2 at 33:2-11.)

However, during direct examination, Cohen changed important aspects of his story. For example, instead of testifying that he “does not recall the dates other than they would have been after March of 2018 and before March of 2019,” Cohen testified that the alleged principal payments “coordinated with the dates and times as the payment that I paid interest,” that there were 17 payments because “they just correspond with the dates here [referring to the ledger].” (Trial Tr., Vol. 2 at 17:24-18:11; 18:16-18 [Q: “And would you do that after you gave the interest payments to his secretary?” A: “Few times before but normally after.”].)

During cross-examination, Cohen again changed his story and testified that the payments could have been made a day or three days before or after the interest payment was made (Trial Tr., Vol. 2 at 33:2-26), instead of corresponding to the date of the interest payment as he testified on direct examination. Cohen also testified on direct examination that he delivered “most” of these payments to Breslow “in his home.” (Trial Tr., Vol. 2 at 18:12-15.) In response to the question on cross-examination, “Did you ever make any of the $10,000 payments at Mr. Breslow’s office?” Cohen responded unequivocally “No.” (Trial Tr., Vol. 2 at 30:26-28.) This testimony is inconsistent with his response to Special Interrogatory No. 21 quoted above that the “cash [for the alleged principal payments] was … given to Mr. Breslow at either his home or his office in Beverly Hills, California.” (Trial Tr., Vol. 2 at 32:13-17, emphasis added.)

Based upon the above evidence, the Court does not find the testimony of Cohen to be credible regarding the purported seventeen payments of $10,000 in cash. Consequently, no credit will be given to the amount due under the Note and the Guaranty for such purported payments.

In the Cohen Closing Brief, Cohen asserts that the interest rate in the Note is usurious for four reasons: First, he contends that because he paid $170,000 towards the Principal Balance, the calculations on Exhibit 20, Breslow’s calculation of damages, are wrong and exceed the amount owed. As discussed above, the Court does not find that Cohen paid the $170,000, so there is no such calculation error.

Second, Cohen contends that use of a three-hundred-sixty-day year in the Note results in a rate of more than ten percent interest. Cohen does not explain how the reference in the Note to a three-hundred-sixty-day year results in a rate of interest in excess of ten percent. In fact, paragraph 3.1 of the Note states that the rate of interest per year on the Note is 10 percent, which equals $25,000 per year in interest (10 percent of $250,000). (TE1, ¶ 3.1.) The Note requires interest to be paid monthly. (TE1, ¶ 3.2.) $25,000 divided by 12 months is $2,083 per month, the amount shown as due each month on Breslow’s calculation of damages. (TE20) This also is consistent with the way Cohen calculated the monthly interest owed under the Note, as reflected by his handwritten calculation on the top of TE4-01: “250,000 @ 10% = 25,000 Int. Year. 25,000 ÷ 12 $2083/mo.” (TE4; Trial Tr., Vol. 2 at 20:15-24.) The evidence shows that Cohen was not charged more than $25,000 in interest per year. As noted by Breslow at trial, even if the interest had been based on a daily rate, it would simply mean that there would be five days in which interest was not charged. (Trial Tr., Vol. 1, 65:28-66:1-2 [“10 percent is calculated on 360 days. There is no interest charged on the other five or six days.”].)

In support of his three-hundred-sixty-day year theory, Cohen relies on the case of C hern v. Bank of America (1976) 15 Cal. 3d 866. There, plaintiff filed a class action lawsuit for breach of contract and violation of Business and Professional Code section 17500 concerning a loan. (I d. at p. 869, 871.) The interest on the loan was calculated using a 9 percent stated rate divided by 360 to determine a daily rate. This daily rate was then multiplied by the number of days the loan is outstanding. In this calculation, the use of a 360-day year instead of a 365-day year resulted in the annual rate on the loan being 9.125 percent instead of the stated 9 percent. (I d. at p. 870.) The court found this to be misleading. Here, the interest on the loan was not calculated based on a daily rate and then multiplied by the number of days the loan is outstanding. As shown above, the interest was paid monthly, and the calculation started with the total annual interest (10 percent of $250,000, or $25,000) and then divided by 12 months to reach the monthly amount due (or, $2,083 per month). Consequently, the Court does not find that the reference to a three-hundred-sixty-day year makes the Note usurious.

Third, Cohen contends that because he was required to make a donation to Beit T’Shuvah of two percent in order to secure the loan from Breslow, that requirement made the Note usurious. However, as pointed out by Breslow, Cohen never made the donation to Beit T’Shuvah. (Stip. Fact 33; Trial Tr., Vol. 2 at 14:23-15:18.) Cohen claims that this fact is irrelevant to his usury defense. However, Cohen does not cite any legal authority in support of this claim. As Breslow points out in his Reply in Support of Post-Trial Closing Brief, “[a] transaction is not usurious, so as to require the lender to refund usurious interest received by him until there has been an actual payment of usurious interest.” (D omarad v. Fisher & Burke, Inc. (1969) 270 Cal.App.2d 543, 560, citing Penziner v. West American Finance Co., 10 Cal.2d 160, 179.)

Finally, Cohen claims that he actually paid more than ten percent interest because he made an overpayment of $36.33. (Cohen Closing Brief, p. 5, ll. 10-18.) However, Breslow established that $36.34 was applied to the outstanding principal balance as shown in the first 17 lines of the “Over/Under Payment” and “Balance” columns on TE20. (Breslow’s Post-Trial Closing Brief, 11:12 [“The outstanding principal amount on the Note totaling $249,963.66”]; fn 6 [“Cohen overpaid the required monthly interest by $36.34. Per Paragraphs 3.7 and 6.5 of the Note (TE1), this partial prepayment was applied to the principal balance.”].) Thus, Cohen never paid any interest over the legal rate. This is in accord with S ections 3.7 and 6.5 of the Note, which provide:

3.7 Prepayments. Borrower shall have the right to prepay all or any part of the outstanding principal balance of this Note, without penalty or premium, at any time. Any partial prepayment shall be applied to principal and shall not alter the amount or due date of the scheduled monthly or other payments due hereunder.

6.5 Interest Rate Limitation. The provisions of this Note and of all agreements between Borrower and Lender are expressly limited so that in no contingency shall the amount paid, or agreed to be paid, for the use, forbearance, or detention of the money to be loaned hereunder exceed the maximum amount permissible by law. …, and if, from any circumstance whatsoever, Lender should ever receive as interest an amount that would exceed the highest lawful rate, the amount that would be excessive interest shall be applied to the reduction of the principal balance owing hereunder (or, at Lender's option, be paid over to Borrower) and shall not be counted as interest.

The Court does not find that any of the four theories advanced by Cohen establish that the Note was usurious.

Because the Court finds that the evidence did not show that the Principal Balance should

be reduced based upon any principal payments by Cohen, and because the Court did not find that Cohen had proven any of the grounds alleged by him for finding that the Note was usurious, IC and Cohen owe Breslow the amount of $523,660.34 as of April 1, 2024, plus attorney fees and costs pursuant to paragraph 6.4 of the Note and paragraph 12(d) of the Guaranty.

The Court finds in favor of Breslow and awards damages in the amount of $523,660.34, plus attorney fees and costs per motion. Within ten days after this Statement of Decision becomes final, Breslow is ordered to file and serve a proposed judgment in accordance with these findings (with a courtesy copy delivered to Dept. 50). The Court hereby dismisses the Doe defendants.

Breslow is ordered to give notice of this tentative and proposed Statement of Decision.

[1] References to “TE” are to the Trial Exhibit.

[2] Although these contentions were not included in the Affirmative Defenses raised in the Answer, Cohen did question Breslow during the trial regarding whether use of a three-hundred-sixty-day year in the Note results in a usurious interest rate.

Superior Court of California

County of Los Angeles

Department 50