Court Opinion

ID: 7275469
Source: CourtListenerOpinion
Date Created: 2022-07-25 18:03:47.44917+00
Date Added: 2024-06-11T16:18:50.129050
License: Public Domain

Filed 7/25/22 Tower Park Properties v. Hughes Investment Partnership CA2
   NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS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 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has not been certified for publication or ordered published for purposes of rule 8.1115.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

                         SECOND APPELLATE DISTRICT

                                        DIVISION TWO

 TOWER PARK PROPERTIES,                                              B313592
 LLC, et al.,
                                                                     (Los Angeles County
           Plaintiffs and Appellants,                                Super. Ct. No.
                                                                     19SMCV00567)
           v.

 HUGHES INVESTMENT
 PARTNERSHIP, LLC, et al.,

           Defendants and Respondents.

     APPEAL from a judgment of the Superior Court of
Los Angeles County, Mark A. Young, Judge. Affirmed.
     Manatt, Phelps & Phillips, Barry W. Lee and Benjamin G.
Shatz for Plaintiffs and Appellants.
     Winston & Strawn, Rolf Woolner, Alexandra Aurisch and
Linda T. Coberly for Defendants and Respondents.
       The parties assert conflicting rights to 157 acres of land
(the Property) that has long been the subject of federal and state
litigation. Appellants Tower Park Properties, LLC (TPP) and
Tower Park Development Company, LLC (TPD) obtained over
$50 million from respondents MH Holdings II H, LLC (MH) and
Hughes Investment Partnership (HIP) to develop the Property.
Trust deeds on the Property secured the loans.
       Appellants did not repay the loans and transferred the
Property to a third party without the lenders’ consent. When
respondents began foreclosure proceedings, appellants filed this
lawsuit. The trial court sustained respondents’ demurrers
without leave to amend, ruling that appellants’ rights were
previously litigated and cannot be relitigated, and they failed to
state a claim. On de novo review, we affirm the judgment for
respondents. Appellants have not demonstrated that they can
amend their pleading to state a claim.
                              FACTS
       Respondents are owned by Mark Hughes Family Trust
(Trust). MH held title to the Property, located on a mountain
above Beverly Hills, which Mark Hughes purchased in 1998.
Alexander Hughes (Hughes) is Trust’s sole noncontingent
beneficiary. Hughes is not a party to this lawsuit.
       In 2004, respondents financed appellants’ acquisition of the
Property for the purpose of developing it. Appellants obtained a
series of loans from respondents: $25,350,000 in 2004;
$18 million in 2006; and $7 million in 2010. The loans were
secured by deeds of trust on the Property. TPP filed for
bankruptcy in 2008; during reorganization, it had disputes with
respondents over the loans.

                                 2
      Appellants reached a written settlement with respondents
and Trust in 2013, reducing TPP’s debt from $81 million to
$57.5 million (the Settlement). Appellants agreed to pay
$5 million as consideration for the Settlement. The parties
agreed “to use their reasonable best efforts” to secure bankruptcy
court approval of the Settlement. Appellants allegedly tried to
tender the discounted payoff in 2013 and 2015, but it was
refused.
      Trust beneficiary Hughes opposed the Settlement and
asked the probate court to remove the trustees who signed it.
The court suspended the trustees’ power to approve the
Settlement and appointed a trustee ad litem, Fiduciary Trust
International of California (FTIC), to “independently determine
whether the [Settlement] . . . is proper and in the best interests of
the Trust, and shall take whatever action is necessary and
appropriate to promote or forestall approval” of the Settlement in
bankruptcy court.
      After a trial, the probate court removed the trustees in
March 2013, finding they substantially breached their fiduciary
duties by selling the Property for no money down to a buyer who
lacked financial resources, education or experience in real estate
development. Though the buyer defaulted on the loans, the
trustees never declared default and lent more and more money.
The court appointed FTIC as interim successor trustee. The
removal of the trustees was upheld on appeal. (Hughes v. Klein
(Mar. 30, 2015, A138983) [nonpub. opn.] [2015 Cal.App.Unpub.
LEXIS 2279].) FTIC is not a defendant in this current lawsuit.
      The Settlement required bankruptcy court approval.
Respondents filed papers asking the court to approve the
Settlement. At the time, respondents were still controlled by the

                                  3
original trustees, who had yet to be removed. After the
bankruptcy court rejected Hughes’s objections, he appealed its
January 2013 approval of the Settlement.
       The Ninth Circuit Court of Appeals ruled in 2017 that
Hughes’s appeal voided the Settlement’s provisions. The court
cited a Settlement clause stating that debt-reduction provisions
take effect after bankruptcy court approval unless “any appeal” is
filed within 14 days. Hughes appealed within the 14-day period,
nullifying the Settlement provisions. (In re Tower Park Props.,
LLC (9th Cir. Nov. 27, 2017, No. 16-56092) 704 Fed.Appx. 702
[2017 U.S.App. LEXIS 23916].)
       The parties returned to bankruptcy court. FTIC sought
dismissal of TPP’s adversary proceeding, which alleged a breach
of the Settlement arising from FTIC’s rejection of appellants’
tender of the discounted debt and opposition to the Settlement.
We take judicial notice that on July 5, 2022, the bankruptcy court
dismissed TPP’s complaint with prejudice. It rejected claims that
FTIC breached the Settlement or violated the covenant of good
faith and fair dealing by colluding with Hughes to appeal the
court’s 2013 approval of the Settlement. TPP’s federal claims
against FTIC mirror its claims against respondents here;
appellants agree that the two actions have “substantially
overlapping allegations and claims.”
       HIP filed a foreclosure action in 2016 (the Foreclosure
Action). 1 In 2018, the court summarily adjudicated the
foreclosure claim in favor of HIP. The court found TPP did not
repay its loan, was in default, and improperly transferred its

      1The case is Hughes Investment Partners, LLC v. Secured
Capital Partners, LLC, et al. (Super. Ct. L.A. County, 2018, No.
BC636286).

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interest in the Property to Secured Capital Partners (SCP),
without HIP’s consent. The court rejected arguments that HIP
had to honor the terms of the Settlement.
       Appellants and SCP filed this lawsuit to enjoin foreclosure
on the Property after respondents recorded notices of default
claiming that appellants owe $192,557,155.40 in principal and
interest. Appellants allege breaches of the Settlement and the
implied covenant of good faith and fair dealing. In May 2019, the
court denied appellants an injunction, citing the Foreclosure
Action and the Ninth Circuit decision.
       One day before the foreclosure sale, SCP petitioned for
bankruptcy; an automatic stay stopped the sale. Later, SCP
returned the Property to TPP. The maneuvers failed.2
Respondents proceeded with nonjudicial foreclosure of the
Property in August 2019.
                           DEMURRERS
       Respondents demurred, asserting res judicata, collateral
estoppel, and abatement. In response, appellants argued that
their claims are not barred by res judicata because the pleading
shows that “these Defendants and others worked in concert to
deny Plaintiffs the benefits of the Settlement Agreement.” They
proposed to amend the complaint to change their request to
enjoin foreclosure into a cause of action for wrongful foreclosure.
Respondents replied that claims made in the pleading are based

      2 The bankruptcy court dismissed SCP’s petition, saying it
“reeked of bad faith.” TPP tried to stop foreclosure with its own
bankruptcy, only to have the judge accuse it of bringing “the most
bad faith case I’ve ever, ever seen,” an “extraordinary abuse of
the legal system” and “an affront to the judicial system.” SCP is
not a party to this appeal.

                                 5
on purported failures to accept tenders of the discounted payoff
under the Settlement and use “ ‘best efforts’ ” to get the
Settlement approved; however, the Ninth Circuit declared that
the Settlement provisions are void ab initio. There was no duty
to accept a tender.
       The court ruled that res judicata or collateral estoppel bar
appellants’ lawsuit: The claims were adjudicated or could have
been raised in prior federal or state court actions. Appellants fail
to state a claim for breach of the Settlement or the implied
covenant of good faith and fair dealing. The court denied leave to
amend because principles of res judicata preclude further
litigation. It dismissed the case with prejudice.
                           DISCUSSION
       1. Appeal and Review
       Appeal lies from a judgment of dismissal after demurrers
are sustained without leave to amend. (Code Civ. Proc., §§ 581d,
904.1, subd. (a)(1); Serra Canyon Co. v. California Coastal Com.
(2004) 120 Cal.App.4th 663, 667.) We review pleadings de novo
to determine if a cause of action has been stated, accepting the
truth of the complaint’s facts but not the truth of contentions or
conclusions of fact or law. (Aryeh v. Canon Business Solutions,
Inc. (2013) 55 Cal.4th 1185, 1191; Moore v. Regents of University
of California (1990) 51 Cal.3d 120, 125.)
       A demurrer “is to be sustained if the action is barred by the
absolute defense of res judicata and such defense appears from
the face of the complaint or from matters of which the court may
or must take judicial notice.” (Miller v. R. K. A. Management
Corp. (1979) 99 Cal.App.3d 460, 465; Code Civ. Proc., § 430.30,
subd. (a) [demurrer may be based on “any matter of which the
court is required to or may take judicial notice”].) The trial court

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took judicial notice of federal and state court records. We follow
suit. (Evid. Code, §§ 452, subd. (d), 459.)
       2. Forfeiture of Claims on Appeal
       Respondents argue that appellants forfeited their claims by
failing to make them in the trial court, observing that appellants
offered “a token opposition.” Respondents cite several inapposite
examples of forfeiture, e.g., Mattco Forge, Inc. v. Arthur Young &
Co. (1997) 52 Cal.App.4th 820, 847 [appeal from a jury verdict] or
Meridian Financial Services., Inc. v. Phan (2021) 67 Cal.App.5th
657, 699–700, and DiCola v. White Brothers Performance
Products, Inc. (2008) 158 Cal.App.4th 666, 676 [appeals from
summary judgment].
       When demurrers are sustained, we determine if a
complaint alleges “facts sufficient to state a cause of action under
any possible legal theory.” (City of Dinuba v. County of Tulare
(2007) 41 Cal.4th 859, 870, italics added.) “[T]he ‘any possible
legal theory’ standard encompasses a legal theory presented for
the first time in an opening appellant’s brief.” (Gutierrez v.
Carmax Auto Superstores California (2018) 19 Cal.App.5th 1234,
1244.) Forfeiture does not apply here.
       3. Appellants’ Claims
             a. Declaratory and Injunctive Relief
       Appellants’ first cause of action alleges that they are “not in
default of their obligations under the loans secured by the Deeds
of Trust.” They claim “they tendered all amounts due under the
Deeds of Trust and [respondents] wrongfully rejected such
tender. The parties further dispute the amounts due on the
loans, if any, secured by the Deeds of Trust.” Appellants seek a
judicial declaration of their rights and duties under the loans and
trust deeds.

                                  7
       The court sustained a demurrer to the first cause of action
on the grounds of collateral estoppel, citing the 2018 ruling in the
Foreclosure Action brought by HIP. (See fn. 1, ante.) A lawsuit is
precluded if (1) it raises a claim or issue identical to a claim or
issue litigated in a prior proceeding; (2) the prior proceeding
resulted in a judgment on the merits; and (3) the party against
whom res judicata is asserted was a party or in privity with a
party to the prior proceeding. (Boeken v. Phillip Morris USA, Inc.
(2010) 48 Cal.4th 788, 797.) Federal law similarly requires
identity of claims, a judgment on the merits, and privity. (Tahoe-
Sierra Preservation Council, Inc. v. Tahoe Regional Planning
Agency (9th Cir. 2003) 322 F.3d 1064, 1077.)
       In the Foreclosure Action, the court found that no principal
was paid on the fourth deed of trust and TPP violated the trust
deed by transferring its interest to SCP without HIP’s written
consent. The court authorized HIP to foreclose. The ruling
addressed respondents’ right to foreclose and whether appellants
are entitled to a setoff. The court also disposed of SCP’s cross-
complaint alleging that respondents wrongfully opposed
Settlement provisions giving appellants a discounted payoff. The
cross-complaint was barred by the Ninth Circuit’s finding that
the Settlement provisions are void ab initio.
       Appellants argue (1) the Foreclosure Action and this
lawsuit do not involve identical issues; (2) there is no showing
that TPP is in privity with TDP or SCP; and (3) applying
collateral estoppel is unjust.
       First, appellants assert that the Foreclosure Action did not
cover their claim that respondents’ notices of default overstate
the debt owed. Appellants’ opposition to the demurrer clarifies
that respondents “grossly overstated the amounts due on their
notes, both because Plaintiffs should be entitled to the benefits of
the Settlement Agreement, and also because as a matter of

                                 8
equity, Plaintiffs should not be required to pay penalty and
default interest for the almost five year period during which the
United States Bankruptcy and District Courts said they were in
full compliance with their obligations to the Lenders.”
       As a matter of law, appellants cannot claim a benefit from
the Settlement because it is void ab initio, i.e., since it was signed
in 2013. (In re Tower Park Props., LLC, supra, 704 Fed.Appx.
702 [2017 U.S.App. LEXIS 23916].) Appellants cannot relitigate
the viability of the Settlement in this case, five years after the
Ninth Circuit invalidated it.
       Second, appellants claim, “TPP was not a party to the
foreclosure proceeding and was not in privity with TPD or SCP.” 3
This is incorrect. TPP intervened in the Foreclosure Action,
opposed summary adjudication, appeared, and objected to the
court’s proposed order. “ ‘ “[A]n intervener becomes an actual
party to the suit by virtue of the order authorizing him to
intervene.” ’ ” (Western Heritage Ins. Co. v. Superior Court (2011)
199 Cal.App.4th 1196, 1206.) As a party to the Foreclosure
Action, TPP is bound by the decision in that case.
       Third, applying collateral estoppel is not unjust.
Appellants claim that HIP refused to amend its pleadings in the
Foreclosure Action to name TPP as a party, after TPP discovered
that its conveyance of the Property to SCP was ineffectual. TPP
became a party to the Foreclosure Action after obtaining leave to
intervene. TPP had its day in court.

      3 TPP was not named as a defendant in the Foreclosure
Action because it had transferred its interest to SCP.

                                  9
             b. Breach of Settlement and the Implied
                 Covenant of Good Faith
       The trial court ruled that the second and third causes of
action, for breach of the Settlement and breach of the implied
covenant of good faith and fair dealing, are barred by res
judicata. We need not determine whether the bankruptcy ruling
the court cited is preclusive. Regardless, appellants have failed
to state a claim.
       Appellants allege, on information and belief, that
respondents colluded and conspired with FTIC and Hughes to
breach the Settlement by “allowing Alexander [Hughes] and
FTIC to take actions (a) to oppose Bankruptcy Court Approval of
the Settlement Agreement; and (b) to pursue for four plus years
appeals of the Bankruptcy Court’s order approving the
Settlement Agreement. In addition, [respondents] breached the
Settlement Agreement by refusing to accept tender of those
amounts called for under the Settlement Agreement.” These acts
violate the covenant of good faith and fair dealing.
       Respondents performed their part of the bargain: They
joined with appellants to ask the bankruptcy court to approve the
Settlement. Although Trust beneficiary Hughes contested the
Settlement, he is not a party to this lawsuit. The federal court
record proves that the named defendants here, MH and HIP,
secured bankruptcy court approval of the Settlement.
       Appellants’ pleading and brief lean heavily on their early
successes in the lower federal courts, which ruled that the
Settlement’s debt-reduction provisions “remained in effect
notwithstanding Alexander’s appeal.” Appellants call these
“sound decisions.” However, the early successes were erased
when the Ninth Circuit held that Hughes’s appeal made the debt-

                               10
reduction provisions “ ‘void and of no force or effect ab initio,’ ”
meaning they “did not go into effect.” (In re Tower Park Props.,
supra, 704 Fed.Appx. 702 [2017 U.S.App. LEXIS 23916].)
      Appellants cannot sue respondents for “allowing” Hughes—
who was not a party to the Settlement—to exercise his First
Amendment right to petition the courts, including his appeal.
Respondents do not control the Trust beneficiary. Appellants
cannot sue respondents for rejecting a tender of Settlement
money. As noted, the Ninth Circuit found the Settlement
provisions “did not go into effect.” If respondents had accepted a
tender, they would have to return the money to obey the Ninth
Circuit. Appellants cannot resurrect the Settlement by claiming
respondents colluded with Hughes: Hughes and respondents
took opposing positions in January 2013, and no allegations in
appellants’ pleading can change the existing federal court record.
Hughes’s appeal on February 5, 2013, voided the Settlement,
regardless of what respondents did later.
      4. Leave to Amend
      Appellants argue that the court abused its discretion by
denying leave to amend. In opposition to the demurrers they
merely wrote, “Plaintiffs should be given leave to amend,”
without specifying how they could cure the pleading. A request
to amend may be asserted for the first time on appeal. (Aubry v.
Tri-City Hospital Dist. (1992) 2 Cal.4th 962, 971; Code Civ. Proc.,
§ 472c, subd. (a).) Appellants have the burden of showing a
reasonable possibility that the complaint’s defects could be cured
by amendment. (King v. CompPartners, Inc. (2018) 5 Cal.5th
1039, 1050; T.H. v. Novartis Pharmaceuticals Corp. (2017) 4
Cal.5th 145, 162.)

                                11
       Appellants argue that they can amend to allege additional
facts showing collusion between respondents and Alexander
Hughes, citing a newly discovered common defense agreement
between Hughes and FTIC. An agreement between FTIC and
Hughes does not show collusion with respondents, who secured
bankruptcy court approval of the Settlement.
       Appellants argue that TPP is “excused” from obtaining
bankruptcy court approval of the Settlement and is “fully entitled
to the benefits” of the Settlement. Appellants cannot relitigate
this issue. TPP did seek bankruptcy court approval of the
Settlement and, with respondents’ assistance, obtained it. The
Ninth Circuit later declared the Settlement’s provisions void.
State courts cannot revive contractual benefits that a federal
appeals court nullified five years ago.
       Finally, appellants urge us to equate this case with TPP’s
bankruptcy court adversary case against FTIC. Of course,
appellants were unaware, when they filed their brief, that the
bankruptcy court would dismiss TPP’s case, a ruling that TPP
has now appealed. In any event, respondents sought bankruptcy
court approval of the Settlement. They are not similarly situated
to FTIC, who objected to the Settlement. The federal adversary
case between TPP and FTIC does not justify a continuation of
this lawsuit against MH and HIP. In sum, appellants have not
shown a reasonable possibility that an amendment could cure the
pleading’s defects.

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                        DISPOSITION
     The judgment dismissing appellants’ complaint is affirmed.
Respondents are entitled to recover their costs from appellants.
     NOT TO BE PUBLISHED.

                                         LUI, P. J.
We concur:

     ASHMANN-GERST, J.

     CHAVEZ, J.

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