Court Opinion

ID: 2658001
Source: CourtListenerOpinion
Date Created: 2014-03-26 19:32:58.643078+00
Date Added: 2024-06-11T13:00:41.415348
License: Public Domain

Filed 3/26/14 Shack v. McBeth CA2/1
                  NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS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 This opinion has not been certified for publication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 ONE

WILLIAM E. SHACK, JR.,                                               B242922

         Plaintiff and Respondent,                                   (Los Angeles County
                                                                     Super. Ct. No. BC413231)
         v.

SANDRA K. MCBETH,

         Defendant and Appellant.

         APPEAL from a judgment of the Superior Court of Los Angeles County. Yvette
M. Palazuelos, Judge. Affirmed.
         Ashton R. Watkins for Defendant and Appellant.
         Abdulaziz, Grossbart & Rudman and Bruce D. Rudman for Plaintiff and
Respondent.

                                                _____________________
       The trial court determined in a court trial that defendant Sandra K. McBeth was
liable to plaintiff William E. Shack, Jr., for fraudulently inducing him to make a loan of
about $200,000 to her. The court entered judgment for Shack. McBeth appeals,
contending the trial court erred in entering judgment because (1) Shack’s fraud action
was barred by the one-action rule embodied in Code of Civil Procedure section 726; 1
(2) Shack’s fraud action was barred by the antideficiency statute, section 580d;
(3) Shack’s action did not fall within the exception to the one-action rule set forth in the
Financial Code and therefore Shack lacked standing to bring his fraud action; and
(4) insufficient evidence supported the judgment. We conclude that, as a matter of law,
Shack had standing to bring his fraud action and that Shack’s fraud action was not barred
by the one-action rule or the antideficiency statute. Further, McBeth has failed to
substantiate her claim that insufficient evidence supported the judgment, as she failed to
provide us with a record on appeal that supports her contention. We affirm the judgment.
                                      BACKGROUND
       Shack and McBeth are the only parties to this appeal. The first cause of action by
Shack against McBeth for “fraudulently induced hard-money loan” is the only cause of
action addressed by the parties. Both parties waived a court reporter. There is nothing in
the record to suggest that McBeth requested a settled statement2 or a statement of
decision, and neither is contained in the record. Instead, McBeth refers to trial exhibits;
Shack’s second amended complaint (which was not the operative complaint at the time of
trial); and written closing arguments which are contained in the record on appeal.
McBeth has not even supplied us with a copy of the judgment from which she appeals.
       From the clerk’s transcript, which does not contain a complete record of what
occurred below, we glean the following: On July 27, 2010, Shack and a Mr. Woods, who

       1   Undesignated statutory citations are to the Code of Civil Procedure.
       2 California Rules of Court, rule 8.137, sets forth extensive procedures for the
appellant to follow in making a motion to use a settled statement instead of a reporter’s
transcript and filing a condensed narrative of the oral proceedings that the appellant
believes necessary for the appeal.

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is now deceased, filed the operative verified third amended complaint (TAC). The first
cause of action was for “Fraudulent Inducement to Procure Loan . . .” against McBeth.
The TAC alleged in pertinent part: McBeth requested a loan from Shack, to be repaid
within 90 days. McBeth represented to Shack that she owned 23 pieces of real property,
and that her equity and income was more than sufficient to allow her to repay the loan
within 90 days. McBeth agreed to secure the loan by recording a trust deed in favor
Shack on a property located on Don Ricardo Drive in Los Angeles, which she
represented had sufficient equity to cover the loan. In reliance upon these
representations, Shack loaned her $210,000 on August 9, 2007. The promissory note was
secured by a recorded deed of trust on the Don Ricardo property in favor of Shack.
       The TAC alleged that, contrary to McBeth’s representations, there was insufficient
equity in the Don Ricardo property to cover the loan and McBeth did not have sufficient
equity or income to repay the loan. McBeth never made any payments on the loan.
Following McBeth’s default on the promissory note, the Don Ricardo property was
foreclosed with Shack becoming the owner, and Shack had been damaged by McBeth in
an amount in excess of $230,000.
       A court trial commenced on May 30, 2012, and the trial court took the matter
under submission. On June 11, 2012, McBeth filed a “closing brief,” arguing, among
other things, that the one-action rule of section 726 barred Shack’s action; the
antideficiency statute, section 580d, barred Shack’s action; Shack’s action did not fall
within the exception to the one-action rule set forth in the Financial Code and therefore
Shack lacked standing to bring his fraud action; and Shack’s fraud claim was not
supported by the evidence. There is nothing in the record to indicate that McBeth made
such arguments prior to or during trial.
       On June 19, 2012, Shack filed a response to McBeth’s closing brief, arguing that
the one-action rule and the antideficiency statute do not bar a fraud claim and that
sufficient evidence supported the judgment.
       Judgment was entered on June 27, 2012. There are no copies of a minute order
reflecting the judgment or the judgment in the record on appeal. According to Shack’s

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brief on appeal, “The judgment found McBeth liable for fraud and awarded the amount of
the loan, $200,000, plus pre-judgment interest from October 11, 2007 through June 27,
2012 at the rate of 10 percent, plus attorneys fees and costs as provided by law. . . . Costs
were awarded [to Shack] pursuant to a cost bill that was not attacked in the amount of
$838.00.”
       McBeth appealed.
                                       DISCUSSION
A. Shack’s fraud action was not barred by the one-action rule or the antideficiency
statute
       McBeth contends that (1) Shack’s fraud action was barred by the one-action rule
embodied in section 726; (2) Shack’s fraud action was barred by the antideficiency
statute, section 580d; and (3) Shack’s action did not fall within the exception to the one-
action rule under the Financial Code and therefore Shack lacked standing to bring his
fraud action. We disagree.
       Our Supreme Court has held that the one-action rule and the antideficiency
statutes “do not preclude an action against a borrower for fraud in the inducement of a
loan.” (Alliance Mortgage Co. v. Rothwell (1995) 10 Cal. 4th 1226, 1236–1237 (Alliance
Mortgage).)
       Alliance Mortgage explains “there is only ‘one form of action’ for the recovery of
any debt or the enforcement of any right secured by a mortgage or deed of trust. That
action is foreclosure, which may be either judicial or nonjudicial. (Code Civ. Proc.,
§§ 725a, 726, subd. (a).)” (Alliance Mortgage, supra, 10 Cal.4th at p. 1236.)
       “In a nonjudicial foreclosure, also known as a ‘trustee’s sale,’ the trustee exercises
the power of sale given by the deed of trust. [Citation.] Nonjudicial foreclosure is less
expensive and more quickly concluded than judicial foreclosure, since there is no
oversight by a court, ‘[n]either appraisal nor judicial determination of fair value is
required,’ and the debtor has no postsale right of redemption. [Citation.] However, the
creditor may not seek a deficiency judgment. [Citation.] Thus, the antideficiency
statutes in part ‘serve to prevent creditors in private sales from buying in at deflated

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prices and realizing double recoveries by holding debtors for large deficiencies.’
[Citation.]” (Alliance Mortgage, supra, 10 Cal.4th at p. 1236.)
       In addition, Alliance Mortgage holds: “The antideficiency statutes have been
broadly interpreted to protect the debtor. It is settled, however, and defendants here
concede, that the antideficiency statutes do not preclude an action against a borrower for
fraud in the inducement of a loan. (See, e.g., Guild Mortgage Co. v. Heller [(1987) 193
Cal.App.3d [1505,] 1518] [it has long been recognized that antideficiency statutes do not
preclude a fraud suit]; Manson v. Reed (1986) 186 Cal. App. 3d 1493, 1501 [recognized
exception to the antideficiency statute is a suit for fraud]; Glendale Fed. Sav. & Loan
Assn. v. Marina View Heights Dev. Co. (1977) 66 Cal. App. 3d 101, 138–139
[antideficiency statutes not available to trustor as a defense to an action by beneficiary for
fraud; action for fraud is not action for deficiency judgment]; Fin. Code, §§ 779, 7460,
15102.) There are several reasons for this exception. First, ‘[a] suit for fraud obviously
does not involve an attempt to recover on a debt or note. As such, it stands separate and
apart from any action which the antideficiency legislation seeks to preclude.’ (Guild
Mortgage [Co. v. Heller] [(1987)]193 Cal.App.3d [1505,] 1512; Manson v. Reed, supra,
186 Cal.App.3d at p. 1501 [‘The distinction is that a suit for fraud is a completely
separate remedy than a suit on the promissory note secured by the deed of trust.’].)
‘Furthermore, the antideficiency laws were not intended to immunize wrongdoers from
the consequences of their fraudulent acts. Finally, assuming that the court applies a
proper measure of damages, fraud suits do not frustrate the antideficiency policies
because there should be no double recovery for the beneficiary.’ [Citation.]” (Alliance
Mortgage, supra, 10 Cal.4th at pp. 1237–1238.)
       Despite this authority, McBeth contends that Shack lacked standing to bring the
fraud action, arguing that the exception to the one-action rule applies only to credit
unions, credit associations, and banks. McBeth cites section 726, which provides in
subdivision (f) that “[n]otwithstanding this section or any other provision of law to the
contrary, any person authorized by this state to make or arrange loans secured by real
property . . . that . . . purchases . . . any loan secured . . . by a mortgage or deed of trust on

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real property” may bring an action for recovery of damages for the borrower’s fraudulent
conduct in inducing the original lender to make that loan. (§ 726, subd. (f).) She also
cites to Financial Code sections 1301, subdivision (a), 7460, subdivision (a), and 15102,
subdivision (a), which permit banks, associations, and credit unions to sue for fraud based
on fraudulent conduct by a borrower inducing a lender to make the loan. McBeth’s
argument is unfounded.
       As we observe above, case law establishes that a claim for damages based on
fraudulent inducement to make the loan is not barred by the one-action rule or the
antideficiency statutes. (Alliance Mortgage, supra, 10 Cal.4th at pp. 1237–1238.)
Statutory provisions concerning the one-action rule and the antideficiency statutes merely
supplement, rather than replace, common law: “The common law rule has been
supplemented by a specific set of statutes that cumulatively permit all state chartered
banks and national banks, all state and federal savings associations, and all state and
federal credit unions, and their respective subsidiaries and affiliates, as well as all other
persons ‘authorized by this state to make or arrange loans secured by real property or any
successor in interest thereto’ to pursue actions for fraud against borrowers irrespective of
the one-action and antideficiency statutes. [3]” (4 Miller and Starr, Cal. Real Estate (3d
ed. 2013) § 10:206, p. 10-769.) Indeed, an action for fraud in the inducement is not even
an action for a “deficiency” and thus is not subject to antideficiency statute.
       Accordingly, McBeth has failed to establish that Shack lacked standing to bring an
action for fraud against her or that Shack’s fraud action was barred by the one-action rule
or the antideficiency statute.
B. McBeth has failed to substantiate her claim that insufficient evidence supported
the judgment, as she failed to provide a record on appeal that supports that
contention
       McBeth contends that insufficient evidence supported the judgment. We conclude
that McBeth has failed to substantiate her claim that insufficient evidence supported the

       3   “Code Civ. Proc., § 726, subds. (f), (g), (h); Fin. Code, §§ 551, 7460, 15102.”

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judgment, as she failed to provide us with a record on appeal that supports that
contention.
       At trial, Shack was required to prove the elements of promissory fraud. On
appeal, McBeth was required to show how the trier of fact erred. To do so, McBeth had
to overcome the presumption in favor of the judgment. “A judgment or order of a lower
court is presumed to be correct on appeal, and all intendments and presumptions are
indulged in favor of its correctness. [Citations.]” (In re Marriage of Arceneaux (1990)
51 Cal. 3d 1130, 1133.) “[A] party challenging a judgment has the burden of showing
reversible error by an adequate record.” (Ballard v. Uribe (1986) 41 Cal. 3d 564, 574.)
       McBeth contends on appeal that Shack failed to establish the elements of his cause
of action for promissory fraud, primarily disputing his proof that there was a false
representation concerning the equity in the Don Ricardo property and disputing that he
relied upon any such representation. McBeth failed to provide us with a statement of
decision, settled statement, reporter’s transcript, or even the judgment itself. There is
virtually no record for us to review for error. Thus, we indulge every presumption in
support of the judgment and conclude that McBeth has not shown affirmatively that
insufficient evidence supported the judgment.

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                                     DISPOSITION
      The judgment in favor of William E. Shack, Jr., on the first cause of action is
affirmed. Shack is to recover his costs on appeal.
      NOT TO BE PUBLISHED.

                                                MILLER, J.*
We concur:

      CHANEY, Acting P. J.

      JOHNSON, J.

        * Judge of the Los Angeles Superior Court, assigned by the Chief Justice pursuant
to article VI, section 6 of the California Constitution.

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