Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caed-2_08-cv-00621/USCOURTS-caed-2_08-cv-00621-0/pdf.json

Nature of Suit Code: 190
Nature of Suit: Other Contract Actions
Cause of Action: 28:1332 Diversity-Other Contract

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IN THE UNITED STATES DISTRICT COURT 

FOR THE EASTERN DISTRICT OF CALIFORNIA 

XTREMESTRUCTURES, INC., a 

Delaware Corporation, 

 Plaintiff, 

 v. 

THE ONE TREE GROUP, INC., a 

Nevada Corporation, 

 Defendant. 

______________________________/

No. 2:08-CV-00621 JAM CMK 

Order Granting Motion to 

Dismiss

 Plaintiff XtremeStructures, Inc. (AXtreme@) brought this 

action for usury against The One Tree Group, Inc. (AOTG@) under 

Section 1(2) of Article XV of the California Constitution. OTG 

now moves for dismissal for failure to state a claim upon which 

relief can be granted under Rule 12(b)(6) of the Federal Rules 

of Civil Procedure. Xtreme opposes the motion. For the reasons 

stated below, the motion is GRANTED.1 

 

1

 This motion was determined to be suitable for decision 

without oral argument. E.D. Cal. L.R. 78-230(h). 

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FACTUAL ALLEGATIONS AND PROCEDURAL BACKGROUND 

Plaintiff entered into a promissory note with OTG on June 

18, 2007. Compl. & 4. According to the terms of the note, OTG 

agreed to loan $500,000 to Plaintiff, and Plaintiff agreed to 

repay that sum over a term of nine months. Id. The principal 

amount of the loan was later reduced to $400,000. Id. The 

promissory note provided for 10% interest per annum to be 

compounded on a monthly basis. Id. 

Plaintiff alleges that while executing the promissory note, 

Plaintiff and OTG entered into a side deal for an additional 5% 

interest on the loan. Id. & 5. Plaintiff further alleges that 

the combination of the interest rate contained in the promissory 

note together with the 5% additional interest negotiated in the 

side deal resulted in a total interest rate of 15%. OTG denies 

these allegations. 

On March 3, 2008, Plaintiff filed its complaint for usury 

against OTG. Docket at 1. On April 16, 2008, OTG filed its 

motion to dismiss Plaintiff=s complaint. Docket at 8, 13. 

OPINION 

Federal Rule of Civil Procedure 12(b)(6) permits a 

complaint to be dismissed for failure to state a claim upon 

which relief can be granted. In considering whether to dismiss 

a complaint, A[a]ll well-pleaded facts in the complaint are 

accepted as true and construed in the light most favorable to 

the nonmoving party.@ Intri-Plex Techs., Inc. v. Crest Group, 

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Inc., 499 F.3d 1048, 1052 (9th Cir. 2007). A[A]ttachments to a 

complaint are to be considered part of the complaint in deciding 

a Rule 12(b)(6) motion.@ Edwards v. Marin Park, Inc., 356 F.3d 

1058, 1062 (9th Cir. 2004)(citing Hal Roach Studios, Inc. v. 

Richard Feiner & Co., 896 F.2d 1542, 1555 n.19 (9th Cir. 1990)). 

ADismissal is proper under Rule 12(b)(6) if it appears beyond 

doubt that the plaintiff can prove no set of facts to support 

his claims.@ Manshardt v. Fed. Judicial Qualifications Comm., 

408 F.3d 1154, 1156 (9th Cir. 2005). AFactual allegations must 

be enough to raise a right to relief above the speculative 

level.@ Bell Atl. Corp. v. Twombly, 127 S.Ct. 1955, 1965 (2007). 

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 Plaintiff alleges that the promissory note, together with 

the side agreement, provided for an interest rate of 15%, a rate 

which it alleges is usurious under California law. Section 1(2) 

of Article XV of the California constitution provides that 

parties may only contract for loans that have interest rates 

that are the higher of 10 percent per annum or 5 percent per 

annum plus the prevailing rate of the preceding month. However, 

before the Court can reach the issue of whether the promissory 

note and the side agreement together are usurious, it must first 

determine whether Plaintiff has sufficiently pled the existence 

of a valid side agreement. 

Plaintiff alleges: AWhen plaintiff signed the Promissory 

Note, defendant imposed upon plaintiff additional requirements 

that resulted in a side deal for an additional 5 percent 

interest on the loan.@ Compl. & 5. Plaintiff does not allege 

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that there is any writing that documents the side deal or that 

there was a subsequent modification of the contract increasing 

the stated interest rate. Rather, Plaintiff asks the Court to 

consider extrinsic evidence, including parol evidence, to 

determine that the promissory note is usurious. See Pl. Opp=n to 

Mot. to Dismiss at 4-5. 

 California law is clear that a written contract Asupersedes 

all the negotiations or stipulations concerning its matter which 

preceded or accompanied the execution of the instrument.@ Cal. 

Civ. Code ' 1625. See also Cal. Civ. Code ' 1639; Cal. Code of 

Civ. Pro. ' 1856. AExtrinsic evidence cannot be admitted to 

prove what the agreement was, not for any of the usual reasons 

for exclusion of evidence, but because as a matter of law the 

agreement is the writing itself. Such evidence is legally 

irrelevant and cannot support a judgment.@ Casa Herrera, Inc. v. 

Beydoun, 32 Cal.4th 336, 344 (2004). Furthermore, courts may 

not consider evidence that is at “variance with the written 

agreement.” Id.; see also Sapin v. Security First Nat’l Bank, 

243 Cal.App.2d 201, 204 (1966) (same in context of a promissory 

note). 

 Parol evidence may only be admitted when there is evidence 

that the contract is not a complete and final embodiment of the 

agreement. Sullivan v. Massachusetts Mut. Life Ins. Co., 611 

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F.2d 261, 264 (9th Cir. 1979). To determine whether a contract 

is integrated, the court should consider: 

(1) whether the written agreement appears to state a 

complete agreement; (2) whether the alleged oral 

agreement directly contradicts the writing; (3) 

whether the oral agreement might naturally be 

made as a separate agreement; and (4) whether a 

jury might be misled by the introduction of the 

offered parol evidence. 

Id. (citing Brawthen v. H & R Block, Inc., 52 Cal.App.3d 139, 

146 (1975)). 

 The promissory note between Plaintiff and OTG is an 

integrated agreement. The promissory note addresses the 

principal amount, the interest rate, the term, as well as 

procedures for enforcing the note. Most importantly, the 15% 

interest rate alleged by Plaintiff directly contradicts the 10% 

interest rate term in the note. It would not be natural for the 

interest rate to be agreed upon separately in the context of a 

promissory note. The promissory note appears to be the final 

embodiment of the party with respect to the interest rate. 

 The cases Plaintiff cites for the proposition that courts 

may look to extrinsic evidence when a contract is illegal do not 

apply in this context. In Homami v. Iranzadi, 211 Cal.App.3d 

1104 (1989), the plaintiff sought to enforce an oral side deal 

to a promissory note that allowed him to collect 12% interest 

per annum while avoiding federal taxes. There, the court 

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refused to enforce the oral side agreement because it had an 

illegal purpose. Id. At 1112. 

Similarly, in Precision Fabricators, Inc. v. Levant, 182 

Cal.App.2d 637 (1960), the plaintiff sought to enforce a joint 

venture agreement where the parties had not obtained the 

requisite license to act as joint venturers. There the court 

refused to enforce the joint venture agreement because it 

violated the law. Id. at 642. In Maze v. Sycamore Homes, Inc., 

230 Cal.App.2d 746, 748 (1964), the trial court admitted parol 

evidence because it found that the contract was ambiguous, not 

because the contract was illegal. Unlike the plaintiffs in 

Homami and Precision Fabricators, neither party is asking the 

Court to enforce a 15% interest rate. Furthermore, Plaintiff 

has not alleged that the promissory note is ambiguous. Because 

the promissory note is clear as to the 10% interest rate, parol 

evidence may not be considered. 

 Accordingly, because Plaintiff has failed to allege that a 

valid oral agreement existed which increased the interest rate 

on the promissory note to 15%, it has not sufficiently pled a 

claim for usury. However, because amendment does not appear 

futile at this time, this claim is dismissed without prejudice. 

/// 

/// 

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ORDER 

 For the reasons stated above, OTG’s Motion is GRANTED, 

without prejudice. Plaintiff has twenty (20) days from service 

of this order to amend its complaint. 

 IT IS SO ORDERED. 

Dated: June 2, 2008. 

 

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