Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caed-2_08-cv-03008/USCOURTS-caed-2_08-cv-03008-1/pdf.json

Nature of Suit Code: 140
Nature of Suit: Negotiable Instruments
Cause of Action: 28:1332 Diversity-Contract Default

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 Because oral argument will not be of material assistance, 1

the Court ordered this matter submitted on the briefing. E.D.

Cal. Local Rule 78-230(h).

1

UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF CALIFORNIA

THE DEVELOPMENT ACQUISITION No. 2:08-cv-03008-MCE-JFM

GROUP, LLC.; and TEAM 

INVESTORS, INC.,

Plaintiffs,

v. MEMORANDUM AND ORDER

eaCONSULTING, INC.; ROBITAH

MOHDKHATIB,

Defendants.

----oo0oo----

Through this action, Plaintiff The Development Acquisition

Group, LLC (“Plaintiff”) moves for summary adjudication of its

claim for breach of contract as well as summary adjudication of

the cross-claim for declaratory relief filed by Defendant

eaConsulting, Inc. (“Defendant”). Plaintiff so moves pursuant to

Federal Rule of Civil Procedure 56. For the reasons set forth

below, Plaintiff’s Motion is denied.1

Case 2:08-cv-03008-MCE -JFM Document 29 Filed 01/19/10 Page 1 of 7
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2

BACKGROUND

In late 2006, Plaintiff executed a $500,000 loan to

Defendant secured by a Stock Pledge Agreement in which

Defendant’s CEO, Chin K. Wong, pledged his personal shares of

stock in the Defendant corporation as security for the loan. The

Convertible Promissory Note memorializing the loan set forth an

interest rate of 8% over the course of 90 days with a provision

for an increase to 12% in the event of default. Defendant

defaulted on the loan and parties thereafter executed a loan

modification agreement memorialized by a second Convertible

Promissory Note (the “Note”) and Stock Pledge Agreement (“Pledge

Agreement”). In it, the principal due was increased to $525,000. 

Although Defendant has made substantial payment, Plaintiff

alleges that money is still owed on the Note. Defendant argues

that the 32% annual interest rate sought by Plaintiff violates

California usury law under California Constitution Article XV

§ 1.

After failed negotiations, Plaintiff filed suit for breach

of contract for failure to pay the Note and to compel

registration of the pledged shares. Plaintiff now seeks summary

adjudication of its breach of contract claim and Defendant’s

cross-claim for declaratory relief on the usury issue.

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3

STANDARD

The Federal Rules of Civil Procedure provide for summary

judgment when “the pleadings, the discovery and disclosure

materials on file, and any affidavits show that there is no

genuine issue as to any material fact and that the movant is

entitled to a judgment as a matter of law.” Fed. R. Civ. P.

56(c). One of the principal purposes of Rule 56 is to dispose of

factually unsupported claims or defenses. Celotex Corp. v.

Catrett, 477 U.S. 317, 323-324 (1986).

Rule 56 also allows a court to grant summary adjudication on

part of a claim or defense. See Fed. R. Civ. P. 56(a) (“A party

claiming relief may move...for summary judgment on all or part of

the claim.”); see also Allstate Ins. Co. v. Madan, 889 F. Supp.

374, 378-79 (C.D. Cal. 1995); France Stone Co., Inc. v. Charter

Township of Monroe, 790 F. Supp. 707, 710 (E.D. Mich. 1992).

The standard that applies to a motion for summary

adjudication is the same as that which applies to a motion for

summary judgment. See Fed. R. Civ. P. 56(a), 56(c); Mora v.

ChemTronics, 16 F. Supp. 2d. 1192, 1200 (S.D. Cal. 1998).

A party seeking summary judgment always bears the

initial responsibility of informing the district court

of the basis for its motion, and identifying those

portions of “the pleadings, depositions, answers to

interrogatories, and admissions on file together with

the affidavits, if any,” which it believes demonstrate

the absence of a genuine issue of material fact.

Celotex Corp. v. Catrett, 477 U.S. at 323 (quoting Rule 56(c)).

If the moving party meets its initial responsibility, the burden

then shifts to the opposing party to establish that a genuine

issue as to any material fact actually does exist. 

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4

Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574,

585-87 (1986); First Nat’l Bank v. Cities Serv. Co., 391 U.S.

253, 288-89 (1968).

In attempting to establish the existence of this factual

dispute, the opposing party must tender evidence of specific

facts in the form of affidavits, and/or admissible discovery

material, in support of its contention that the dispute exists. 

Fed. R. Civ. P. 56(e). The opposing party must demonstrate that

the fact in contention is material, i.e., a fact that might

affect the outcome of the suit under the governing law, and that

the dispute is genuine, i.e., the evidence is such that a

reasonable jury could return a verdict for the nonmoving party. 

Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 251-52

(1986); Owens v. Local No. 169, Assoc. of Western Pulp and Paper

Workers, 971 F.2d 347, 355 (9th Cir. 1987). Stated another way,

“before the evidence is left to the jury, there is a preliminary

question for the judge, not whether there is literally no

evidence, but whether there is any upon which a jury could

properly proceed to find a verdict for the party producing it,

upon whom the onus of proof is imposed.” Anderson, 477 U.S. at

251 (quoting Schuylkill and Dauphin Improvement Co. v. Munson, 81

U.S. 442, 448 (1871)). As the Supreme Court explained, “[w]hen

the moving party has carried its burden under Rule 56(c), its

opponent must do more than simply show that there is some

metaphysical doubt as to the material facts....Where the record

taken as a whole could not lead a rational trier of fact to find

for the nonmoving party, there is no ‘genuine issue for trial.’” 

Matsushita, 475 U.S. at 586-87.

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5

In resolving a summary judgment motion, the evidence of the

opposing party is to be believed, and all reasonable inferences

that may be drawn from the facts placed before the court must be

drawn in favor of the opposing party. Anderson, 477 U.S. at 255.

Nevertheless, inferences are not drawn out of the air, and it is

the opposing party’s obligation to produce a factual predicate

from which the inference may be drawn. Richards v. Nielsen

Freight Lines, 602 F. Supp. 1224, 1244-45 (E.D. Cal. 1985),

aff’d, 810 F.2d 898 (9th Cir. 1987).

ANALYSIS

Plaintiff seeks summary adjudication on its breach of

contract claim asserting that it is entitled, as a matter of law,

to full repayment of the loan entered into by parties at a 32%

interest rate per annum. Central to this matter is a

determination of the applicability of California’s usury law.

California Constitution Article XV § 1 provides that

interest charged on an obligation in excess of 10% is usurious

and therefore cannot be collected. However, several statutory

exemptions to this rule exist, including an exemption for

indebtedness over $300,000. Cal. Corp. Code § 25118. 

Notwithstanding, this statutory exemption to the constitutional

rule may not apply if a loan is guaranteed by personal assets. 

Cal. Corp. Code § 25118(e)(1). 

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 Plaintiff contends that the 8% interest rate on a ninety- 2

day loan reflected in the Convertible Promissory Note translates

to a 32% interest rate per annum.

6

Plaintiff alleges Defendant has breached the terms of the

loan by failing to repay the Note at a 32% annual interest rate.2

Although California’s usury law generally limits the interest

that may be charged, Plaintiff argues that statutory exemption

applies because the loan is for an indebtedness over $300,000. 

However, Defendant’s CEO Chin K. Wong pledged over to

Plaintiff 525,000 personally held shares of Common Stock in the

Defendant corporation as security for the loan. The Promissory

Note specifically refers to the Pledge Agreement as providing

collateral to the loan. (Pl.’s Mot. Summ. J., Ex. “Convertible

Promissory Note”, Jan. 2, 2007, at 1-2) The Pledge Agreement was

entered into and signed by Mr. Wong as an individual, not on

behalf of the Defendant corporation or in his capacity as CEO. 

(Pl.’s Mot. Summ. J., Ex. “Stock Pledge Agreement”, Jan. 2, 2007,

at 1-8) As such the collateral pledged to secure the loan was a

personal asset within the meaning of Cal. Corp. Code

§ 25118(e)(1). The loan is therefore disqualified for statutory

exemption. 

It is inconsequential the assets pledged were shares of the

Defendant corporation itself. The items offered could have just

as easily been widgets. As long as it was privately owned and

privately pledged, the collateral existed as a personal asset

falling outside the reach of statutory exemption to California’s

usury law. 

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 Because oral argument will not be of material assistance, 3

the Court ordered this matter submitted on the briefing. E.D.

Cal. Local Rule 78-230(h).

7

Consequently, collection on the Note must comply with the

limitations of California Constitution Article XV § 1. Summary

adjudication on the matter would be improper.

CONCLUSION

For the reasons stated above, Plaintiff’s Motion for Summary

Adjudication (Docket No. 16) is DENIED without prejudice.3

IT IS SO ORDERED. 

Dated: January 15, 2010

_____________________________

MORRISON C. ENGLAND, JR.

UNITED STATES DISTRICT JUDGE

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