Court Opinion

ID: 2657852
Source: CourtListenerOpinion
Date Created: 2014-03-25 19:21:37.624705+00
Date Added: 2024-06-11T09:12:47.549498
License: Public Domain

Filed 3/25/14
                               CERTIFIED FOR PUBLICATION

                IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

                               SECOND APPELLATE DISTRICT

                                        DIVISION FOUR

LEGENDARY INVESTORS GROUP                        B245620
NO. 1, LLC,
                                                 (Los Angeles Country
                  Plaintiff and Appellant,       Super. Ct. No. BC435774)

        v.

DANIEL J. NIEMANN et al.,

                  Defendants and Respondents.

        APPEAL from a judgment of the Superior Court of Los Angeles Country,
Susan Bryant-Deason, Judge. Reversed and remanded with directions.
        The Soni Law Firm, M. Danton Richardson and Leo E. Lundberg, Jr., for Plaintiff
and Appellant.
        Zimmerman, Axelrad, Meyer, Stern & Wise, Brian W. Zimmerman (Pro Hac
Vice), Law Office of Ernesto F. Aldover, Ernesto E. Aldover, for Defendants and
Respondents.
                              ______________________________
       Legendary Investors Group No. 1, LLC, appeals from a judgment of nonsuit in
favor of respondents Daniel J. Niemann, NPI Century City, LLC, and Niemann
Properties, Inc., in an action for breach of commercial guaranty agreements. We agree
with appellant that the motion for nonsuit was improperly granted. The judgment is
reversed and the case remanded for a new trial.

                    FACTUAL AND PROCEDURAL SUMMARY
       In 2007, DB NPI Century City, LLC (DB NPI) obtained a construction line of
credit for over $9.3 million from East West Bank. DB NPI’s primary members are
Drawbridge Special Opportunity Fund (Drawbridge) and respondent NPI Century City,
LLC. The latter is managed by respondent Niemann through respondent Niemann
Properties, Inc. (Niemann Properties). The loan was secured by a deed of trust and
guaranteed by respondents. The guaranties included various waivers, such as a waiver of
all rights and defenses arising by reason of “the cessation from any cause whatsoever[,]
other than payment in full, of the indebtedness” or “any act of omission or commission
by Lender which directly or indirectly results in or contributes to the discharge of
Borrower . . . or the indebtedness.”
       Due to project changes, East West Bank obtained an updated appraisal, which
showed a significant decrease in the value of the construction project. As a result, the
bank conditioned the disbursement of future loan advances on DB NPI’s putting up $1.7
million in additional equity. After further negotiations, Niemann Properties eventually
deposited over $114,000, and Drawbridge applied for a letter of credit in the amount of
$841,280. On Drawbridge’s application in May 2008, Wells Fargo Bank issued an
irrevocable standby letter of credit for that amount, “as security for credit facilities which
[East West Bank] will grant to [DB NPI].”
       Construction was delayed for various reasons, and the project was not completed
by the time the loan matured in May 2009. When the loan came due and was not paid,
East West Bank drew on the deposit and letter of credit. As required by the letter of
credit, the bank’s draft on it included the following language: “We hereby claim

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[$]841,280.00 . . . . The amount claimed by us represents and covers the unpaid
indebtedness including principal, interest and all charges and expenses incurred due to
East West Bank arising from the granting of banking facilities to DB NPI Century City,
LLC . . . .” After applying these funds to the loan, East West Bank sold the loan
documents to appellant for $4.5 million. At the time of sale, the bank’s records showed
an outstanding loan balance of over $5.4 million.
       DB NPI rejected appellant’s demand for payment, and appellant foreclosed on the
deed of trust, buying the property for a little over $2 million. In 2010, appellant sued DB
NPI and respondents to recover the deficiency. The parties stipulated to the dismissal of
DB NPI from the lawsuit. (See Legendary Investors Group No. 1, LLC v. DB NPI
Century City, LLC (Aug. 21, 2013, No. B244646 [nonpub. opn.]).)1 The trial court
denied appellant’s motion for summary judgment, sustaining respondents’ evidentiary
objections. At the outset of the jury trial, the court denied what it deemed to be
appellant’s motion in limine to preclude respondents from presenting evidence of their
defense that drawing down on the letter of credit extinguished the debt. The court did not
allow appellant to use impeachment evidence that respondents’ counsel claimed was
covered by a protective order issued in the East West Bank case. After appellant rested,
the court granted respondents’ motion for nonsuit, finding that appellant failed to make a
prima facie case because the debt was extinguished when East West Bank drew down on
the letter of credit.
       Appellant filed a timely appeal from the judgment.

       1
         Meanwhile, DB NPI sued appellant and East West Bank in DB NPI Century City,
LLC v. East West Bank (Super. Ct. Los Angeles County, 2012, No. BC425405, hereafter
“the East West bank case”), alleging the debt was extinguished, and the bank was liable
for relying on a flawed appraisal, delaying disbursements on the loan, and extorting
additional funds, among other things. Appellant was dismissed from the lawsuit early on
without prejudice, and the lawsuit against the bank eventually was settled for $2 million.
The release of claims and defenses in the settlement agreement expressly excluded claims
and defenses against appellant.

                                             3
                                       DISCUSSION
       Appellant challenges the trial court’s denial of its summary judgment motion and
motion in limine, the grant of respondents’ motion for nonsuit, and the rejection of
appellant’s impeachment evidence.
       As a general rule, the denial of summary judgment is harmless error after a full
trial covering the same issues. (Transport Ins. Co. v. TIG Ins. Co. (2012) 202
Cal. App. 4th 984, 1010–1011.) The denial of the motion may constitute prejudicial error
if the motion is denied on a legal ground not presented at trial. (Gackstetter v. Frawley
(2006) 135 Cal. App. 4th 1257, 1269 [reversible error where summary judgment motion
showed plaintiff’s claim barred by settlement].) Here, appellant’s motion was denied for
lack of evidence after the trial court sustained respondents’ evidentiary objections to the
declaration of appellant’s principal, Surjit Soni. Attached to the declaration were all loan,
assignment, and foreclosure documents, and in the declaration Soni referenced these
documents and stated the amount of the claimed deficiency. As appellant acknowledges,
this evidence was admitted at trial. Since the summary judgment motion presented the
same issues that were covered at trial, and appellant was allowed to introduce evidence
the court had rejected earlier, any error regarding the admissibility of this evidence at the
summary judgment stage is harmless and moot.
       Appellant argues the court incorrectly denied its motion in limine to preclude
respondent’s defense that the debt was extinguished by the letter of credit. The twofold
basis for this motion was that DB NPI had settled its lawsuit against East West Bank and
that, in the guaranties, respondents had waived any defense based on the bank’s release of
the debt or the borrower. When a motion in limine “results in the entire elimination of a
cause of action or a defense, we treat it as a demurrer to the evidence and review the
motion de novo . . . .” (County of Glenn v. Foley (2012) 212 Cal. App. 4th 393, 398.)
       Appellant contends the dismissal with prejudice following a settlement of the East
West Bank case constitutes a final judgment on the merits, or retraxit, and precludes
relitigating the issue whether the letter of credit extinguished the debt. Res judicata and
collateral estoppel do generally preclude relitigating the same claims and issues after a

                                              4
dismissal with prejudice. (See In re Estate of Redfield (2011) 193 Cal. App. 4th 1526,
1533 [“dismissal with prejudice is the modern name for a common law retraxit” and
principles of res judicata determine what issues are barred by it].) However, “parties may
by agreement limit the legal effect of a dismissal with prejudice so that it would not
constitute a retraxit and affect their rights in a later pending action.” (Alpha Mechanical,
Heating & Air Conditioning, Inc. v. Travelers Casualty & Surety Co. of America (2005)
133 Cal. App. 4th 1319, 1334, citing American Bankers Ins. Co. v. Avco-Lycoming
Division (1979) 97 Cal. App. 3d 732, 737; Manning v. Wymer (1969) 273 Cal. App. 2d 519,
526.) The mutual releases in the settlement agreement in the East West Bank case
expressly exclude claims and defenses by and against appellant. Thus, the dismissal of
East West Bank in that case does not affect respondents’ rights in this one.
       Appellant’s alternative theory in the motion in limine was that the guarantors had
waived any defense based on the lender’s release of the debt or borrower. The trial court
rejected that theory, apparently believing respondents’ defense raised a triable issue of
fact. Respondents argue this was not a prejudicial error because the motion for nonsuit
was granted before they presented a defense. That is incorrect.
       Defensive matter was elicited during appellant’s case-in-chief because Niemann
was called as an adverse witness under Evidence Code section 776. (See Miller v.
Dussault (1972) 26 Cal. App. 3d 311, 318 [“[a]lthough received during plaintiff’s case,
evidence elicited from an adverse party under section 776 is not treated as the plaintiff’s
evidence”].) The letter of credit was pre-admitted as a defense exhibit along with
appellant’s exhibits at the start of trial. Its language became relevant during appellant’s
case-in-chief only because Niemann insisted that it showed the debt was extinguished. In
granting respondents’ motion for nonsuit, the trial court essentially adopted the defense
theory: it found that the express language of the letter of credit “clearly states that the
borrower[’s] indebtedness is extinguished upon drawdown of the letter of credit.” The
court then concluded that, because there can be no guaranty without a loan, the
guarantors’ obligation was extinguished along with the borrower’s. That conclusion was

                                               5
erroneous because it failed to take into account evidence that the debt was not actually
paid in full and to give effect to the waivers in the guaranties.
       We review the grant of a nonsuit de novo. (Khajavi v. Feather River Anesthesia
Medical Group (2000) 84 Cal. App. 4th 32, 43.) We view the evidence in the light most
favorable to appellant, resolving all conflicts in its favor. (Woods v. Union Pacific
Railroad Co. (2008) 162 Cal. App. 4th 571, 576.) We disregard unfavorable testimony
received from adverse witnesses appellant called under Evidence Code section 776.
(Ashcraft v. King (1991) 228 Cal. App. 3d 604, 611 [in determining motion for nonsuit,
testimony favorable to plaintiff adduced from an adverse witness under Evid. Code,
§ 776 must be taken as true and unfavorable portions disregarded].) “If there is
substantial evidence to support [appellant’s] claim, and if the state of the law also
supports that claim, we must reverse the judgment. [Citation.]” (Margolin v. Shemaria
(2000) 85 Cal. App. 4th 891, 895.)
       On appeal, the parties argue extensively whether East West Bank’s drawing down
on the letter of credit extinguished DB NPI’s debt because the letter of credit required the
draft to state that the claimed amount “represents and covers the unpaid indebtedness.”
Respondents contend the language included in the letter of credit and draft represents DB
NPI’s agreement with East West Bank that the bank’s drawing down on the letter of
credit would eliminate DB NPI’s entire debt. Appellant disagrees. It points out that a
letter of credit creates a contractual relationship between the issuing bank (here Wells
Fargo Bank) and the beneficiary of the letter of credit (here East West Bank) that is
independent from the underlying agreement (here between DB NPI and East West Bank).
(See California Bank & Trust v. Piedmont Operating Partnership, L.P. (2013) 218
Cal. App. 4th 1322, 1334.) The “independence principle” is relevant to determining the
issuing bank’s liability, which is not an issue in this appeal. (See id. at pp. 1335–1336;
see also Mitsui Manufacturers Bank v. Texas Commerce Bank-Fort Worth (1984) 159
Cal. App. 3d 1051, 1055 [“[g]eneral references to underlying agreements are surplusage”
unless they explicitly create conditions for honoring drafts].)

                                               6
       Whether or not it contains a reference to an agreement between DB NPI and East
West Bank, the letter of credit does not lend itself to respondents’ interpretation.
‘“[E]ven if one provision of a contract is clear and explicit, it does not follow that that
portion alone must govern its interpretation; the whole of the contract must be taken
together so as to give effect to every part.’ [Citation.]” (See Quantification Settlement
Agreement Cases (2011) 201 Cal. App. 4th 758, 799.) The letter of credit purports to be
security for future “credit facilities.” In light of that provision, the statement that the
claimed amount “represents and covers the unpaid indebtedness” does not clearly show
an intent to extinguish the entire debt, including any pre-existing balances. Significantly,
the letter of credit expressly allows for multiple and partial drawings. That provision
cannot be given effect if, as respondents contend, a draft on the letter of credit for only a
part of the full amount committed has the effect of eliminating the entire debt.
The opinion of the bank’s custodian of records on the meaning of the phrase “unpaid
indebtedness” is irrelevant since contract interpretation is a legal question for the court.
(See e.g. Morrow v. Los Angeles Unified School Dist. (2007) 149 Cal. App. 4th 1424, 1444
[witness’s “opinion as to the meaning and legal effect of a contract” was inadmissible as
to interpretation of contract].)
       Niemann testified at trial that East West Bank drafted the statement that the
claimed amount “represents and covers the unpaid indebtedness,” which was included in
the letter of credit issued by Wells Fargo Bank. But as appellant has pointed out, it is
unclear that his testimony was based on personal knowledge so as to allow a construction
of that statement against the drafter since Niemann acknowledged that someone else
negotiated the letter of credit with East West Bank. Niemann’s own understanding of the
effect of the bank’s drawing down on the letter of credit is not competent extrinsic
evidence. (See PV Little Italy, LLC v. MetroWork Condominium Assn. (2012) 210
Cal. App. 4th 132, 157 [a party’s “subjective statements of ‘understanding’ are irrelevant
. . . , particularly where there is no evidence that [the other party] had the same
understanding”].) Since Niemann was called as an adverse witness, for purposes of the
nonsuit we also may disregard the portions of his testimony that were unfavorable to

                                               7
appellant. (See Ashcraft v. King, supra, 228 Cal.App.3d at p. 611.) Thus, we may
disregard his claim that the bank agreed the letter of credit would be “the last monies in,”
or the bank’s last resort on the debt.2
       Moreover, whether the bank’s decision to draw down on the letter of credit before
pursuing other security compromised its position with regard to DB NPI’s debt is not
dispositive of respondents’ obligation under the guaranties. A guaranty “is a separate and
independent obligation from that of the principal debt. [Citations.]” (United Central
Bank v. Superior Court (2009) 179 Cal. App. 4th 212, 215–216.) By their own terms, the
guaranties continue in force until the indebtedness is “fully and finally paid and
satisfied.” Respondents’ construction of the statement in the letter of credit and in the
bank’s draft that $841,280 “represents and covers the unpaid indebtedness” conflicts with
the bank’s own records, which show an outstanding balance of more than $5 million after
the letter of credit was applied to the debt. For purposes of the nonsuit, this conflict must
be resolved in appellant’s favor. (See Woods v. Union Pacific Railroad Co., supra, 162
Cal.App.4th at p. 576.) In light of the remaining balance, it cannot be said that the debt
was actually paid in full.3

       2
        Because of that conclusion, we do not consider appellant’s argument that it
should have been allowed to impeach Niemann’s claim with evidence from the East West
Bank case.
       3
         At oral argument, respondent’s counsel cited Doria v. International Union (1961)
196 Cal. App. 2d 22. The nonsuit in that case was upheld because the plaintiff, a former
union officer, had affirmatively undertaken to prove in his case-in-chief that the union
president had authority to bind the union on two promissory notes made in the plaintiff’s
favor, instead of relying on the usual presumptions applicable to negotiable instruments.
(Id. at p. 32.) Because the evidence showed the president lacked authority to make the
notes, the plaintiff could not rely on presumptions or unsubstantial discrepancies to create
an evidentiary conflict. (Id. at pp. 33–34.) The case is inapposite. The court did not
consider the treatment of an adverse witness’s testimony in the context of a nonsuit, and
“‘“cases are not authority for propositions not considered.””’ (McWilliams v. City of
Long Beach (2013) 56 Cal. 4th 613, 626.) Nor is the existence of a substantial unpaid
balance, as shown by the records of East West Bank, a minor discrepancy in the evidence
before us.
                                              8
       The waivers specifically limit the guarantors’ defenses arising by reason of “the
cessation from any cause whatsoever[,] other than payment in full, of the indebtedness.”
They also broadly limit the guarantors’ defenses based on acts by the lender that release
either the debt or the borrower. It has long been recognized that “a surety is not
discharged by release of the principal where ‘the surety consents to remain liable
notwithstanding the release.’ [Citations.]” (Bloom v. Bender (1957) 48 Cal. 2d 793, 800; see
also River Bank America v. Diller (1995) 38 Cal. App. 4th 1400, 1413.) Thus, whether or
not the bank’s draw down on the letter of credit had the effect of releasing the debt or DB
NPI, the guarantors remained obligated under the waivers in the guaranties because the
debt was not actually paid in full.
       The trial court erred in granting respondents’ motion for nonsuit.

                                      DISPOSITION
       The judgment is reversed and the matter is remanded for a new trial. Appellant is
entitled to its costs on appeal.
       CERTIFIED FOR PUBLICATION

                                                 EPSTEIN, P. J.
We concur:

       WILLHITE, J.

       MANELLA, J.

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