Court Opinion

ID: 3185315
Source: CourtListenerOpinion
Date Created: 2016-03-14 22:19:04.373369+00
Date Added: 2024-06-11T14:03:11.473656
License: Public Domain

Filed 3/14/16 Kontrabecki v. Mechanics Bank CA1/1
                      NOT TO BE PUBLISHED IN OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for
publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication
or ordered published for purposes of rule 8.1115.

              IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

                                       FIRST APPELLATE DISTRICT

                                                  DIVISION ONE

JOHN T. KONTRABECKI et al.,
         Plaintiffs and Appellants,
                                                                    A143665
v.
MECHANICS BANK,                                                     (San Francisco County
                                                                    Super. Ct. No. CGC-14-537180)
         Defendant and Respondent.

         Defendant Mechanics Bank (the Bank) obtained a judgment against plaintiffs
John T. Kontrabecki (Kontrabecki), The JTK Trust (the Trust), and TKG California I,
LLC (the LLC) (collectively, plaintiffs), based on loan guaranties executed by plaintiffs
in 2001. Following several unsuccessful attempts to challenge the judgment, plaintiffs
filed the present action alleging the Bank obtained the judgment by fraud because it failed
to disclose to the court other guaranties that, it was alleged, had replaced the 2001
guaranties. The trial court sustained a demurrer without leave to amend, and we affirm.
                                                 BACKGROUND
         In April 2011, the Bank filed an action against plaintiffs (the Bank action) to
collect on debt guaranties. The complaint alleged that in 2007, Tri-Valley Vineyards,
LLC (Tri-Valley) gave a promissory note to the Bank (the 2007 note) in the amount of
$2.25 million. Tri-Valley fell into default on the 2007 note and owed the Bank over $2
million. Kontrabecki, and the Trust and the LLC, both of which are entities under the
control of Kontrabecki, were each alleged to have executed guaranties of Tri-Valley’s
obligations to the Bank in 2001 (the 2001 guaranties). The complaint sought to collect
under the 2001 guaranties for Tri-Valley’s debt under the 2007 note.
       As explained by plaintiffs in their opposition to a summary judgment motion filed
by the Bank, the 2001 guaranties had been executed in connection with a construction
loan given by the Bank to Tri-Valley in 2001 (the 2001 loan). In 2007, the Bank
“converted” the 2001 loan to “permanent loan” by extending the credit evidenced by the
2007 note. In a supplemental opposition to the summary judgment motion, plaintiffs
argued that the 2001 guaranties were “unenforceable” because they had been given in
connection with the 2001 loan, rather than the 2007 note. During oral argument on the
motion, the trial court recognized that the primary issue raised by the summary judgment
motion was whether the 2007 note was “what’s being guaranteed” by the 2001
guaranties. The court evidently found the 2001 guaranties applicable to the 2007 note,
since it granted the Bank’s motion for summary judgment and in August 2012 entered an
amended judgment against the plaintiffs, jointly and severally, totaling over $3.5 million.
       Following the grant of summary judgment, plaintiffs filed a motion for a new trial,
again arguing the 2001 guaranties did not apply to the 2007 note and contending the
Bank misled the court in contending to the contrary. The trial court denied the motion,
expressly rejecting plaintiffs’ arguments and finding “no fraud, mistake or surprise.” A
motion for reconsideration on the same ground was similarly denied.1 In the meantime,
plaintiffs had appealed the judgment, but their appeal was later dismissed for failure to
file a record. (Kontrabecki v. Mechanics Bank, A135820, order filed Aug. 31, 2012.)
       Over a year after the entry of judgment, in August 2013, plaintiffs filed a second
motion to vacate the judgment, which had become final by the dismissal of their appeal.
In a declaration submitted with the motion, Kontrabecki stated that each plaintiff
executed a guaranty at the time of the 2007 note (the 2007 guaranties), in addition to the
2001 guaranties. Although Kontrabecki had personally executed each of the 2007

1
 Plaintiffs later filed a writ of mandate in this court, seeking an order requiring the trial
court to set aside its order denying the motion for reconsideration. The writ was
summarily denied. (Kontrabecki v. Superior Court, A136026, order filed Jul. 25, 2012.)

                                              2
guaranties, he claimed he and the other plaintiffs “first became aware of the existence” of
the 2007 guaranties in 2013, when he found them in the files of Tri-Valley. Kontrabecki
claimed that Tri-Valley had received a copy of the closing documents from the 2007
transaction, while he and the other plaintiffs had not been provided a set. The motion to
vacate contended that the 2007 guaranties, and not the 2001 guaranties, applied to the
2007 note and claimed the Bank had “committed fraud” on plaintiffs and the court in not
bringing the 2007 guaranties to their attention in connection with the Bank action. The
trial court denied the motion to vacate, finding no fraud in the Bank’s failure to assert the
2007 guaranties because the 2001 guaranties also applied to the 2007 note.
       A month after the second motion to vacate was denied, plaintiffs filed the present
action.2 The operative complaint, the second amended complaint (complaint), contains
causes of action for relief from judgment on grounds of extrinsic fraud, declaratory relief,
breach of the implied covenant of good faith and fair dealing, rescission on grounds of
fraud, and rescission on grounds of failure of consideration. It seeks an order setting
aside the judgment in the Bank action, a declaration that the 2007 guaranties “superseded
and replaced” the 2001 guaranties, and various damages. The allegations of the
complaint echo the statements in Kontrabecki’s declaration in support of the second
motion to vacate, claiming that the Bank failed to provide plaintiffs with a copy of the
documents following closing of the 2007 note and, as a result, he was unaware of the
2007 guaranties until after entry of judgment in the Bank action. Attached to the
complaint are copies of the three 2007 guaranties, the texts of which are identical. The
2007 guaranties each state, on their first page, “If Lender presently holds one or more
guaranties, or hereafter receives additional guaranties from Guarantor, Lender’s rights
under all guaranties shall be cumulative. This Guaranty shall not (unless specifically
provided below to the contrary) affect or invalidate any such other guaranties.”

2
 The action was filed in Contra Costa County Superior Court and transferred to San
Francisco Superior Court. Following transfer of the action to San Francisco Superior
Court, plaintiffs filed a first amended complaint, to which the court sustained a demurrer
with leave to amend.

                                              3
         The Bank filed a demurrer to the complaint, arguing (1) the fraud cause of action
failed to state a claim because the underlying premise of the claim, that the 2007
guaranties effectively supplanted the 2001 guaranties, contradicted the express language
of the 2007 guaranties, (2) the allegations failed to state a claim for extrinsic fraud,
(3) the fraud claim was privileged under Civil Code section 47, and (4) the remaining
causes of action were barred by collateral and judicial estoppel and the statute of
limitations. The trial court sustained the demurrer without leave to amend and dismissed
the action.
                                        DISCUSSION
         On appeal, plaintiffs repeat the arguments they have been making throughout the
postjudgment proceedings. We find no merit in them.
         “On review of an order sustaining a demurrer without leave to amend, we exercise
independent judgment in assessing whether the complaint states a cause of action as a
matter of law. [Citation.] ‘ “ ‘We treat the demurrer as admitting all material facts
properly pleaded, but not contentions, deductions or conclusions of fact or law.
[Citation.] We also consider matters which may be judicially noticed.’ ” ’ [Citation.]
‘We affirm if any ground offered in support of the demurrer was well taken but find error
if the plaintiff has stated a cause of action under any possible legal theory. [Citations.]
We are not bound by the trial court’s stated reasons, if any, supporting its ruling; we
review the ruling, not its rationale.’ ” (AREI II Cases (2013) 216 Cal. App. 4th 1004,
1012.)
         A. Causes Of Action For Extrinsic Fraud And Declaratory Relief.
         “ ‘ “The court may grant relief under its inherent equity power if, because of the
fraud of his opponent, the aggrieved party was prevented from presenting his claim or
defense to the court. [Citations.] ‘Two essential conditions are found in a classic case in
equity which seeks to set aside a judgment: first, the judgment is one entered against a
party by default under circumstances which prevented him from presenting his case;
second, these circumstances result from extrinsic fraud practiced by the other party or his
attorney.’ ” ’ [Citation.] ‘ “Fraud is intrinsic and not a valid ground for setting aside a

                                               4
judgment when the party has been given notice of the action and has had an opportunity
to present his case and to protect himself from any mistake or fraud of his adversary, but
has unreasonably neglected to do so.” ’ [Citation.] [¶] Additionally, the party seeking
equitable relief on the grounds of extrinsic fraud or mistake must show three elements:
(1) a meritorious defense; (2) a satisfactory excuse for not presenting a defense in the first
place; and (3) diligence in seeking to set aside the default judgment once discovered.”
(Rodriguez v. Cho (2015) 236 Cal. App. 4th 742, 750.)
       Plaintiffs’ claim for extrinsic fraud fails for at least two reasons. First, plaintiffs’
allegations fail to demonstrate extrinsic fraud. It is well established that “[a]fter the time
for seeking a new trial has expired and any appeals have been exhausted, a final judgment
may not be directly attacked and set aside on the ground that evidence has been
suppressed, concealed, or falsified; in the language of the cases, such fraud is ‘intrinsic’
rather than ‘extrinsic.’ ” (Cedars-Sinai Medical Center v. Superior Court (1998)
18 Cal. 4th 1, 10.) Plaintiffs’ claim, that the Bank concealed or suppressed the 2007
guaranties, is classic intrinsic fraud, insufficient to support a collateral attack on a final
judgment. (Kachig v. Boothe (1971) 22 Cal. App. 3d 626, 634 [“in a litigated case the
concealment or suppression of material evidence is held to constitute intrinsic fraud”].)
       The sole case cited by plaintiffs to support their argument for extrinsic fraud,
Granzella v. Jargoyhen (1974) 43 Cal. App. 3d 551 (Granzella), is consistent with the
above authority. Granzella recognized that “ ‘[a] showing of fraud practiced in the trial
of the original action will not suffice [to vacate a final judgment]. The authorities hold
this to be intrinsic fraud, and uniformly hold that since there must be an end to litigation,
and the fraud was part of the case presented in the former action, equity will not reopen
the litigation.’ ” (Id. at p. 554.) The fraud found to be extrinsic in Granzella was a false
representation by a trusted family member that prevented the plaintiffs from contesting a
will. Accordingly, the court held, the fraud “was just as effective to prevent them from
presenting to the court the true facts concerning the invalidity of the will as if defendant
had physically prevented plaintiffs from appearing in the probate proceedings.” (Id. at

                                                5
p. 556.) This type of fraud is not alleged in the complaint; there is no question that
plaintiffs had proper notice of the Bank action and appeared to defend it.
       In addition, the complaint fails to demonstrate plaintiffs had a meritorious defense
to the Bank’s claims. The premise underlying plaintiffs’ fraud and declaratory relief
causes of action is that the Bank concealed the existence of the 2007 guaranties because,
as a legal matter, they supplanted the 2001 guaranties, on which the Bank action was
based. The theory is directly contradicted by the text of the 2007 guaranties. Each one
states, “If Lender presently holds one or more guaranties, or hereafter receives additional
guaranties from Guarantor, Lender’s rights under all guaranties shall be cumulative. This
Guaranty shall not (unless specifically provided below to the contrary) affect or
invalidate any such other guaranties.” Accordingly, the 2007 guaranties did not affect
plaintiffs’ liability under the 2001 guaranties, and their existence provides no defense to
the judgment in the Bank action.
       Notwithstanding the plain language of the 2007 guaranties, plaintiffs contend they
were not cumulative of the 2001 guaranties because the 2007 note states that it
supersedes the 2001 loan. The fact that the 2007 note superseded the 2001 loan,
however, does not mean the 2007 guaranties superseded the 2001 guaranties. As noted,
the plain language of the 2007 guaranties is to the contrary. Plaintiffs also contend the
2007 guaranties amended the 2001 guaranties because the 2007 guaranties contain a limit
on plaintiffs’ liability. That argument, too, is contradicted by the language of the 2007
guaranties, which state, “Guarantor’s liability will be Guarantor’s aggregate liability
under the terms of this Guaranty and any such other unterminated guaranties.”
Accordingly, any limitation of liability under the 2007 guaranties did not change
plaintiffs’ liability under the 2001 guaranties.
       Plaintiffs also contend that the issue of whether the 2007 guaranties supplant the
2001 guaranties is a factual issue that cannot be resolved on demurrer. On the contrary,
interpretation of a contract is a legal issue that can be resolved on demurrer. (Total Call
Internat., Inc. v. Peerless Ins. Co. (2010) 181 Cal. App. 4th 161, 173.) Because the
complaint does not allege any facts that call into question the meaning of the

                                              6
straightforward language of the 2007 guaranties, their interpretation is a proper matter for
determination on demurrer.
       Finally, plaintiffs argue that the guaranties contain a “dragnet” clause, which is
defined as a clause having the effect of making a security instrument security for a
debtor’s past, present, and future obligations.3 (Union Bank v. Wendland (1976)
54 Cal. App. 3d 393, 398 (Union Bank).) Such clauses are generally enforceable.
(Fischer, at p. 1444; Union Bank, at p. 398.) More importantly, the issue is simply
irrelevant. To the extent plaintiffs assert the argument with respect to the 2001
guaranties, it is too late. The judgment based on those guaranties is final and immune to
collateral attack on this ground. (Aerojet-General Corp. v. American Excess Ins. Co.
(2002) 97 Cal. App. 4th 387, 401.) To the extent plaintiffs assert the argument with
respect to the 2007 guaranties, it is of no significance, because the Bank has not relied on
those guaranties.4
       For the same reason, plaintiffs’ cause of action for declaratory relief fails to state a
claim. That cause of action seeks a declaration that the 2007 guaranties “superseded and
replaced” the 2001 guaranties. As discussed above, it is clear from the face of the
documents that the 2007 guaranties do not supersede the 2001 guaranties. Accordingly,
there is no legal or factual basis for the declaration sought by plaintiffs, and the trial court
properly dismissed it.
       B. The Remaining Causes Of Action.
       Plaintiffs’ remaining causes of action, for breach of the implied covenant of good
faith and fair dealing, rescission on grounds of fraud, and rescission on grounds of failure

3
 The concept is generally invoked with respect to mortgages and related deeds of trust.
(Fischer v. First Internat. Bank (2003) 109 Cal. App. 4th 1433, 1444–1445 (Fischer).)
Because plaintiffs were not debtors under the 2007 note, the limitations on dragnet
clauses are likely inapplicable to their situation.
4
  Because we find that the cause of action to vacate the judgment fails to state a claim for
two independent reasons, it is unnecessary for us to address the Bank’s further argument
that its conduct was privileged under Civil Code section 47.

                                               7
of consideration fail to state a claim because they are barred by the doctrine of collateral
estoppel.
       “The doctrine of collateral estoppel, ‘or issue preclusion, “precludes relitigation of
issues argued and decided in prior proceedings.” ’ [Citation.] ‘ “A prior determination
by a tribunal will be given collateral estoppel effect when (1) the issue is identical to that
decided in a former proceeding; (2) the issue was actually litigated and (3) necessarily
decided; (4) the doctrine is asserted against a party to the former action or one who was
in privity with such a party; and (5) the former decision is final and was made on the
merits.” ’ ” (Greene v. Bank of America (2015) 236 Cal. App. 4th 922, 932–933.)
       The third cause of action, for breach of the implied covenant of good faith and fair
dealing, contends that the Bank breached its obligations by failing to send a binder
containing the closing documents at the conclusion of the financing transaction that
resulted in the 2007 note and 2007 guaranties. The fourth cause of action, for rescission
based on fraud, alleges the Bank misrepresented its reasons for requesting that plaintiffs
execute the 2007 guaranties. The fifth cause of action, for rescission based on failure of
consideration, alleges “[t]here has been a material failure of consideration received by
Plaintiffs, in that the Bank has failed to honor or enforce” the 2007 guaranties.
       Underlying each of these claims is plaintiffs’ contention that the 2007 guaranties,
and not the 2001 guaranties, applied to the debt incurred by Tri-Valley under the 2007
note. Plaintiffs’ theory under the third cause of action is that they were injured because,
had a binder of documents been provided, they would have known to assert the 2007
guaranties in the Bank action. Similarly, in the two rescission claims, plaintiffs assert the
2007 guaranties should be rescinded because the Bank intended falsely to assert the 2001
guaranties as a basis for plaintiffs’ liability in the Bank action.
       Contrary to the premise for these three claims, however, it is now established
beyond challenge that the 2001 guaranties did guarantee the 2007 note. This issue was
actually litigated and necessarily decided against plaintiffs in the Bank action, and the
judgment in that action became final when plaintiffs’ appeal was dismissed.

                                               8
Accordingly, under the doctrine of collateral estoppel, plaintiffs are barred from asserting
claims premised on the theory that 2001 guaranties are not applicable to the 2007 note.
       Plaintiffs argue the doctrine of collateral estoppel does not apply because the
judgment in the Bank action was “made by the trial court without the court having the
benefit of having the [2007 guaranties] before it.” The argument, made without citation
to legal authority, misunderstands the doctrine of collateral estoppel. Once a judgment
has become final, it is binding on the parties even if it was wrongly decided. (Esparza v.
County of Los Angeles (2014) 224 Cal. App. 4th 452, 467 [“ ‘ “ ‘[A]n erroneous judgment
is as conclusive as a correct one’ ” ’ ”].) As discussed above, the judgment in the Bank
action became final when plaintiffs’ appeal was dismissed, and they have failed to
provide any cognizable basis for vacating the judgment. As a result, the judgment now
has full collateral estoppel effect, even if the judgment was erroneous because the court
was not provided with all relevant evidence.5
                                      DISPOSITION
       The judgment of the trial court is affirmed. The Bank may recover its costs on
appeal. (Cal. Rules of Court, rule 8.278, subds. (a)(1), (2).)

                                                  _________________________
                                                  DONDERO, J.

We concur:

_________________________
HUMES, P.J.

_________________________
MARGULIES, J.

5
 Because we conclude plaintiffs are barred from asserting the third, fourth, and fifth
causes of action by the doctrine of collateral estoppel, we need not reach the Bank’s other
arguments for dismissal of the claims.

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