Elyaszadeh v. RREF WB Acquisitions CA2/5 ( 2013 )

Filed 12/6/13 Elyaszadeh v. RREF WB Acquisitions CA2/5
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for
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IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND APPELLATE DISTRICT
DIVISION FIVE
SHAHRAM ELYASZADEH et al., B243477
Cross-complainants and Appellants, (Los Angeles County Super. Ct.
No. BC468648)
v.
RREF WB ACQUISITIONS, LLC,
Cross-defendant and Respondent.
APPEAL from a judgment of the Superior Court of Los Angeles County, Richard
E. Rico, Judge. Reversed and remanded.
Kaplan, Kanegos & Kadin, David Scott Kadin and Leslie McAfee for Cross-
complainants and Appellants.
Greenberg Traurig LLP, Howard J. Steinberg and Nicholas A. Insogna for Cross-
defendant and Respondent.
__________________________________
Cross-complainants and appellants Shahram Elyaszadeh, Elko Mall, LLC, and
Malibu Ocean View Villas, LLC, appeal from a judgment of dismissal following an order
sustaining a demurrer without leave to amend in favor of cross-defendant and respondent
RREF WB Acquisitions, LLC, in this action arising out of loan guarantees. Appellants
contend their amended cross-complaint states a cause of action for fraud, based on the
Supreme Court’s recent decision in Riverisland Cold Storage, Inc. v. Fresno-Madera
Production Credit Assn. (2013) 55 Cal. 4th 1169 (Riverisland). We conclude the
principles expressed in Riverisland apply retroactively. Therefore, we reverse and
remand for further proceedings.
FACTS1
Elyaszadeh owns property in Van Nuys, California. He is also the managing
member of Elko LLC, which owns real property in Elko, Nevada, and of Malibu LLC,
which owns real property in Malibu, California.
On August 22, 2007, Wilshire State Bank agreed to loan $4.3 million to Malibu
LLC for the development of four ocean view homes. The loan was secured by a deed of
trust on the Malibu property. Elyaszadeh also executed a guaranty.
In June 2009, prior to the date that the loan was due, Elyaszadeh negotiated an
extension and construction financing with the Bank’s chief financial officer, Joanne Kim.
Kim, as well as Dan Young, a construction loan department representative, and other loan
officers and loan processors, told Elyaszadeh that the Bank would extend the due date
and provide construction financing of at least $4.6 million in exchange for additional
collateral. In reliance on the Bank’s representations that it would provide construction
financing, Elyaszadeh provided a second deed of trust on the Elko property for $4.3
million, a deed of trust on the property in Van Nuys, and another guaranty.
1 In accordance with the standard of review on appeal, we state the material facts
properly pleaded in the complaint as true. (McAllister v. Los Angeles Unified School
District (2013) 216 Cal. App. 4th 1198, 1206-1207.)
2
At the same time, the Bank provided a loan of $3 million to Elko LLC, secured by
a first deed of trust on the Elko property. Kim presented Elyaszadeh with a “Notice of
Final Agreement,” dated June 22, 2009. Kim told Elyaszadeh that the Bank would make
the construction loan. She said the loan documents, including the notice of final
agreement, reflected that the Bank would make the construction loan. In reliance on her
representations, Elyaszadeh signed the deeds of trust, guarantees, loan documents, and
notice of final agreement. As part of the agreement, the Bank agreed to hold $300,000 in
interest reserves.
The representations made on behalf of the Bank were false. The Bank did not
intend to provide construction financing and refused to provide construction financing.
The Bank took the interest reserves and commenced foreclosure proceedings on the Elko
and Malibu properties. On June 27, 2011, the Bank assigned its interest in the loans,
guarantees, and deeds of trust to RREF.
PROCEDURAL BACKGROUND
In August 2011, RREF filed a complaint against Elyaszadeh to recover on the
guarantees. In October 2011, Elyaszadeh, Elko LLC, and Malibu LLC filed a cross-
complaint against RREF and the Bank. In December 2011, they filed an amended cross-
complaint. In addition to the facts above, they alleged that they were fraudulently
induced to enter the transactions. If they had known the Bank did not intend to provide
construction financing, they would not have provided additional collateral as security.
The amended cross-complaint alleged that RREF assumed the Bank’s liabilities related to
the loans as follows: “Cross-Complainants are informed and believe, and on those
grounds allege, that Cross-Defendant RREF is an assignee and/or successor-in-interest of
the Bank in connection with the transactions involving the Bank which are alleged in this
Cross-Complaint, including, but not limited to, the deeds of trust which are the subject of
the within action and that Defendant RREF assumed, either contractually and/or by
operation of law, the obligations of the Bank to Plaintiff which are alleged in the within
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action, and that RREF is liable for the acts and/or omissions alleged in this action.” The
amended cross-complaint similarly alleged the Bank assigned its rights and obligations in
the deeds of trust on the Malibu and Elko properties to RREF in June 2011, as well as the
guarantees, and based on information and belief, RREF assumed the liabilities of the
Bank when it acquired its interest in the Malibu loan.
The amended cross-complaint asserted causes of action against RREF for
declaratory relief, to set aside a fraudulent transfer, for cancellation of deeds of trust, and
for injunctive relief to prevent foreclosure of the three properties at issue.
On January 25, 2012, RREF filed a demurrer to the amended cross-complaint on
the ground that all of the causes of action were barred by the parol evidence rule. The
extrinsic promise to provide construction financing directly contradicted the express
terms of the agreements saying the Bank had not made any collateral promises. RREF
noted the parol evidence rule applies to fraud claims. RREF argued the causes of action
for declaratory relief, cancellation of documents, and to enjoin foreclosure were remedies
and not separate causes of action. In addition, Elyaszadeh had not alleged any
representations were made on behalf of RREF. RREF asserted it could not be held
vicariously liable for representations of the Bank, because the purchaser of a mortgage is
not liable for a loan originator’s fraudulent misrepresentation. With respect to the cause
of action for fraudulent transfer, RREF argued that Elyaszadeh received valuable
consideration, as shown by the allegations of the cross-complaint, and only creditors can
assert claims for fraudulent transfers.
Elyaszadeh, Elko LLC, and Malibu LLC opposed the demurrer on the ground that
the amended cross-complaint stated a cause of action for fraud in the inducement, which
was an exception to the parol evidence rule. They argued that by accepting the benefits
of the loan, RREF accepted the obligations.
RREF filed a reply. A hearing was held on February 22, 2012. The trial court
found the parol evidence rule barred the causes of action in the amended cross-complaint,
which were based on fraudulent promises in direct conflict with the written terms of the
agreements. The court sustained the demurrer without leave to amend. On June 15,
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2012, the court entered a judgment of dismissal in favor of RREF. Elyaszadeh, Elko
LLC, and Malibu LLC filed a timely notice of appeal.
In January 2013, the Supreme Court issued Riverisland, reaffirming that evidence
of a fraudulent promise which contradicts the terms of a written agreement is admissible
under the fraud exception to the parol evidence rule, and expressly overruling Bank of
America etc. Assn. v. Pendergrass (1935) 4 Cal. 2d 258 (Pendergrass). (Riverisland,
supra, 55 Cal.4th at p. 1172.)
DISCUSSION
Standard of Review
“‘On appeal from a judgment dismissing an action after sustaining a demurrer
without leave to amend, the standard of review is well settled. The reviewing court gives
the complaint a reasonable interpretation, and treats the demurrer as admitting all
material facts properly pleaded. [Citations.] The court does not, however, assume the
truth of contentions, deductions or conclusions of law. [Citation.] The judgment must be
affirmed “if any one of the several grounds of demurrer is well taken. [Citations.]”
[Citation.] However, it is error for a trial court to sustain a demurrer when the plaintiff
has stated a cause of action under any possible legal theory. [Citation.] And it is an
abuse of discretion to sustain a demurrer without leave to amend if the plaintiff shows
there is a reasonable possibility any defect identified by the defendant can be cured by
amendment. [Citation.]’ [Citation.]” (McAllister v. Los Angeles Unified School Dist.
(2013) 216 Cal. App. 4th 1198, 1206.)
Fraud
On appeal, Elyaszadeh, Elko LLC, and Malibu LLC contend the amended cross-
complaint states causes of action against RREF based on fraud. We agree.
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The elements of fraud are: (a) a misrepresentation (false representation,
concealment, or nondisclosure), (b) with knowledge of falsity, (c) the intent to defraud,
(d) justifiable reliance, and (e) resulting damage. (Lazar v. Superior Court (1996) 12
Cal. 4th 631, 638.) “Every element of the fraud cause of action must be pleaded
specifically, and the policy of liberal construction of the pleadings will not sustain a
defective pleading. [Citation.]” (Thrifty Payless, Inc. v. The Americana at Brand, LLC
(2013) 218 Cal. App. 4th 1230, 1239 (Thrifty Payless).) “‘“Except in the rare case where
the undisputed facts leave no room for a reasonable difference of opinion, the question of
whether a plaintiff’s reliance is reasonable is a question of fact.”’ [Citation.]” (Ibid.) “A
defrauded party may elect to stand on the contract and recover damages, or rescind the
contract. [Citation.]” (Id. at pp. 1239-1240.)
“The parol evidence [rule] provides that an integrated written agreement may not be
varied by extrinsic evidence to alter or add to the terms of the writing. [Citation.]” (Thrifty
Payless, supra, 218 Cal.App.4th at p. 1240.) However, an established exception to the
parol evidence rule, set forth in Code of Civil Procedure section 1856, allows a party to
present extrinsic evidence to show that the agreement was procured by fraud. (Code Civ.
Proc., § 1856, subds. (f) & (g); Riverisland, supra, 55 Cal.4th at pp. 1174-1175.) Code of
Civil Procedure section 1856, subdivision (f), provides a broad exception to the parol
evidence rule for evidence relevant to the validity of the agreement, while Code of Civil
Procedure section 1856, subdivision (g), expressly allows evidence of fraud. (Riverisland,
supra, at pp. 1174-1175.)
“Riverisland reaffirmed that ‘“[i]t was never intended that the parol evidence rule
should be used as a shield to prevent the proof of fraud.”’ (Riverisland, [supra, 55
Cal.4th] at p. 1182.)” (Thrifty Payless, supra, 218 Cal.App.4th at p. 1240.) Pendergrass
had held that representations inconsistent with the provisions of the written contract are
inadmissible. The Riverisland court concluded that the decision in Pendergrass was not
supported by the plain language of Code of Civil Procedure section 1856 and “failed to
account for the fundamental principle that fraud undermines the essential validity of the
parties’ agreement. When fraud is proven, it cannot be maintained that the parties freely
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entered into an agreement reflecting a meeting of the minds.” (Riverisland, supra, at
p. 1182.) “Thus, characterizing Pendergrass as ‘an aberration,’ that ‘finds no support in
the language of the statute codifying the parol evidence rule and the exception for
evidence of fraud,’ the Supreme Court overruled Pendergrass. (Riverisland, at pp. 1172,
1182.)” (Thrifty Payless, supra, at p. 1240.)
“As a general rule a decision of a court overruling a prior decision or invalidating
a statute will be given full retroactive effect. [Citation.] However, there are exceptions
to the general rule of retroactivity to protect those who acted in reliance on the overruled
law. The United States Supreme Court has held a state may make a choice for itself
between the principles of forward operation and relation back on the grounds of equity
and fairness. The federal Constitution does not compel retroactive application of
overruling decisions. [Citations.] Furthermore, the California Constitution permits an
appellate court to restrict retroactive application in the interest of fairness and equity,
even though prospective application of the new decision temporarily preserves a
mistaken rule of law. [Citations.]” (Kawasaki Motors Corp. v. County of Orange (1983)
146 Cal. App. 3d 780, 783.)
In this case, the amended cross-complaint alleged causes of action for cancellation
of the written documents and declaratory relief as a result of the fraudulent
representations of Bank employees, which Elyaszadeh and his companies relied upon,
and for which RREF became liable by way of assignment. However, the trial court found
that the amended cross-complaint failed to state any cause of action based on the parol
evidence rule and the decision in Pendergrass. We conclude the holding of Riverisland
is entitled to full retroactive effect. As explained in Riverisland, Code of Civil Procedure
section 1856 at all times provided an exception to the parol evidence rule for evidence of
fraud. RREF has not shown that the contracting parties relied on the erroneous rule in
Pendergrass that evidence of fraudulent promises would not be admissible to contradict
the terms of the written agreement. Fairness and equity require retroactive application of
Riverisland to prevent use of the parol evidence rule as a shield for fraudulent conduct.
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We conclude the general rule of retrospective application of court decisions applies in
this case.
RREF contends the trial court’s ruling should be affirmed on alternative grounds
raised in the demurrer which the trial court did not reach, including whether the amended
cross-complaint sufficiently alleged that RREF was liable for the Bank’s representations.
Given the change in the law represented by Riverisland, and the possibility of further
amendment of the complaint in light of its holding, this is not an appropriate case to rule
on alternative grounds not addressed in the trial court. We remand for further
proceedings. (See Giraldo v. California Dept. of Corrections and Rehabilitation (2008)
168 Cal. App. 4th 231, 252.)
DISPOSITION
The judgment and the order sustaining the demurrer are reversed. The matter is
remanded to the trial court for further proceedings consistent with this opinion.
Appellants Shahram Elyaszadeh, Elko Mall, LLC, and Malibu Ocean View Villas, LLC,
are awarded their costs on appeal.
KRIEGLER, J.
We concur:
TURNER, P. J.
MOSK, J.
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