Memorandum Points and Authorities

Cal. Super. - 6th Dist.March 20, 2019

Electronically Filed by Superior Court of CA, County of Santa Clara, on 6/30/2020 9:50 AM Reviewed By: A. Floresca Case #19CV344918 Envelope: 4528467 19CV344918 Santa Clara - Civil A. Floresca 10 ll 12 13 l4 15 l6 17 18 l9 20 21 22 23 24 25 26 27 9Q William B. Clayton, Jr. (S.B.N. 6081 1) Laurence J. McEvoy (S.B.N. 45565) CLAYTON & McEVOY, P.C. 333 W. Santa Clara Street, Suite 618 San Jose, California 951 13-1715 Telephone: (408) 293-9100 Facsimile: (408) 293-4172 Email: wbdfikiavion-mcevoy.com Email: 1iufiééclavton-mcevov.com Attorney for Defendants DMJ HOME SOLUTIONS, LLC, and DAVID HERRERA IN THE SUPERIOR COURT OF THE STATE OF CALIFORNIA IN AND FOR THE COUNTY OF SANTA CLARA ARVIND K. AGARWAL AND NEELO AGARWAL AS TRUSTEES OF THE AGARWAL FAMILY TRUST DATED AUGUST 2, 2001, Plaintiff, V. DMJ HOME SOLUTIONS, LLC, A NEVADA LLC; DAVID HERRERA, APEX DEVELOPMENT GROUP, LLC, A NEVADA LLC, ERIC FOGELSONG, DAN NOBLE, MICHAELA ROUSSEAU AND DOES 1 through 150, inclusive, Defendants. Case N0. 19CV34491 8 MEMORANDUM 0F POINTS AND AUTHORITIES IN OPPOSITION TO PLANITIFFS’ MOTION TO ENFORCE SETTLEMENT AGREEMENT Date: July 2, 2020 Time: 9:00 a.m. Dept: 20 Judge: Hon. Socrates P. Manoukian Complaint Filed: March 20, 2019 Defendants DMJ HOME SOLUTIONS, LLC, (“DMJ”) and DAVID HERRERA (HERRERA) submit the following Memorandum of Points, and Authorities in opposition to Plaintiffs’ Motion to Enforce Settlement Agreement: MEMORANDUM OF POINTS AND AUTHORITIES IN OPPOSITION TO PLANITIFFS’ MOTION TO ENFORCE SETTLEMENT AGREEMENT lO ll 12 l3 l4 15 16 l7 18 l9 20 21 22 23 24 25 26 27 9Q I. INTRODUCTION AND SUMMARY OF DEFENDANTS’ POST-SETTLEMENT EFFORTS TO PERFORM Defendant DMJ Home Solutions, LLC, (DMJ) is in the business 0f purchasing, rehabilitating, remodeling, developing and reselling residential real property. Defendant David Herrera (Herrera) is the managing member 0f DMJ. Plaintiffs’ Complaint arose out 0f two separate Joint Venture Agreements between Plaintiffs and DMJ. Plaintiffs recorded Lis Pendens against six 0f DMJ’s properties. Upon learning of the Lis Pendens, the first lien holder 0n each property halted DMJ’S access t0 the lender-controlled construction reserve accounts which halted all construction. DMJ was obligated to continue paying interest and holding costs. When funds ran out the lenders commenced foreclosure. DMJ filed a Motion t0 Expunge the Lis Pendens 0n the ground that the action arose out of contract and Plaintiffs did not have an interest in DMJ’S properties. The Court denied the Motion holding that the language 0f the Joint Venture Agreements gave Plaintiffs a security interest in all of DMJ’S properties (Herrera Decl., Ex. A). A Mutual Release and Settlement Agreement was signed on January 6, 2020 (Herrera Decl., Ex G). The settlement amount was $950,000 -- $800,000 cash payable within forty-five days to be funded by the refinance of DMJ’S properties and $150,000 secured by three $50,000 junior deeds of trust 0n three of DMJ’s properties. DMJ’S only assets were real estate properties so funding the $800,000 necessarily contemplated refinancing of some ofthem. Plaintiff retained all of the recorded Lis Pendens until the $800,000 paid. The Settlement Agreement included a procedure for DMJ to set up an escrow for the refinancing. Plaintiffs were t0 submit lien release documents together With their instruction that they could be recorded when the title company held $800,000 for their benefit and recorded the three $50,000 deeds of trust securing the remaining $1 50,000, which were t0 be junior t0 additional debt taken on any 0f the properties. 2 MEMORANDUM OF POINTS AND AUTHORITIES IN OPPOSITION TO PLANITIFFS’ MOTION TO ENFORCE SETTLEMENT AGREEMENT lO ll 12 13 14 15 16 17 l8 19 20 21 22 23 24 25 26 27 ’)Q DJM and Herrera were diligent and used their best efforts t0 secure the financing but encountered unforeseen difficulties with these difficult and complicated refinances. Herrera contacted hard money lenders but, as a result of the foreclosures and Lis Pendens, most were not interested. Finally, Damon Bowers 0f Private Capital Investments, Inc., (“Private Capital”) agreed t0 work With DMJ and provide the financing. Private Capital’s first condition t0 lending to DMJ was that the financial profile of DMJ could not diminish any further and that it be informed of any change 0f circumstances. If any properties were foreclosed or further encumbered prior to the loans closing, every transaction wofild need to start back at the beginning with new applications, etc. Private Capital required new appraisals Which Herrera provided by January 20th. Herrera opened escrow January 27th and provided title reports by January 30‘“. Private Capital completed its review of the appraisals and title reports by February 15‘. Herrera obtained payoff demands from each property’s first lien holder and provided them t0 Private Capital February 4th. On February 6‘“ Private Capital provided Herrera with a Letter of Intent t0 lend on the Santa Clara property (Herrera Decl, Ex. C). The maximum loan amount would be 70% 0f the Future Appraised Value (i.e. value of the finished property). Herrera was informed that the investors would only focus 0n one transaction at a time because there were attorneys involved and litigation in the background. On February 7‘“ Plaintiffs were informed of a need t0 close escrow 0n the Santa Clara property quickly because 0f a pending foreclosure (Herrera Decl, Ex. D). The refinance would pay Plaintiffs $100,000. Plaintiffs’ countered With demands beyond the terns if the Settlement Agreement (Herrera Decl., Ex. E). DMJ provided escrow with the Deeds of Trust to secure payment 0f the $150,000. The parties negotiated and resolved several issues raised by the transaction. DMJ submitted instructions and the deeds 0f trust to title on February 19th (Herrera 3 MEMORANDUM OF POINTS AND AUTHORITIES [N OPPOSITION TO PLANITIFFS’ MOTION TO ENFORCE SETTLEMENT AGREEMENT 10 ll 12 l3 l4 15 l6 l7 l8 19 20 21 22 23 24 25 26 27 9Q Decl, Ex. F) Herrera negotiated subordination agreements with each of the forty-six junior lienholders across the properties (Herrera Decl., Ex. G). He also resolved title issues, negotiated postponements 0f Trustee’s sales by the first lien holders, arranged for insurance, etc. Each time a Trustee’s sale was set the Pacific Capital stopped processing the loans until a postponement was obtained. Time was spent negotiating resolution of Plaintiffs’ demands. By early March Private Capital had an agreed loan structure for the refinance 0f three properties t0 pay Plaintiffs’ $800,000 as follows: a. $140,000 from the Santa Clara property t0 close first; b. $1 10,000 from the Stelling property t0 close second; and c. $550,000 from the Blackberry property t0 close third. Plaintiffs filed the within Motion to Enforce the Settlement Agreement. Herrera informed the Private Capital which delayed funding while it re-evaluated the situation. On March 16th the Health Officer of Santa Clara County issued a Shelter-In-Place Order. On March 19th Governor Newsom declared a State 0f Emergency and issued a Shelter-In-Place Executive Order. The entire process stopped as Private Capital reassessed the risk and restructured lending guidelines. Private Capital informed DMJ that, as a result of the pandemic and the Shelter-In-Place Orders, over one-half of the investors were lost. On April 14th Private Capital informed DMJ that it had sufficient investors to make the loans with a maximum 60% LTV. This was not sufficient. Negotiations with Private Capital resulted in an agreement that the construction and interest reserves could be reduced for each loan to work. This required DMJ t0 prepare a new construction budget for each property. On April 23rd a Notice of Trustee’s Sale was recorded by the first lien holder 0n the Telles Lane and Lilac Court properties with a May 22““ trustee’s sale date. The first lien holders have 4 MEMORANDUM OF POINTS AND AUTHORITIES IN OPPOSITION TO PLANITIFFS’ MOTION TO ENFORCE SETTLEMENT AGREEMENT lO 11 12 l3 l4 15 16 l7 l8 l9 20 21 22 23 24 25 26 27 ’79 been cooperative in postponing the trustee’s sales to allow the refinance transactions t0 close. On April 30th the first lien holder 0n the Blackberry Hill Road property recorded a Notice 0f Default. Each Notice 0f Default, Notice of Sale, and postponement of a trustee’s sale required Pacific Capital to reassess the situation. On May 4th Herrera provided Pacific Capital with the required construction updates and documents. Pacific Capital requested updated appraisals and payoff demands. Pacific Capital’s review 0f the Santa Clara property was completed and approved 0n May 7th (conditional 0n the appraisal and updated payoff demands). Between May 8th and May 3 1“, Pacific Capital completed review of the remaining properties and approved them. Pacific Capital provided Letters of Intent for the Telles Lane and Lilac Court properties (Herrera Decl., Ex’s. H &.I). However, as a result 0f the increased costs involved with the first lien holders, and the uncertainty of the pandemic’s effect on the market, the investors limited the amount they would lend. It was not sufficient. DMJ negotiated a solution With the first lien holders on each property whereby each will allow a refinance t0 reinstate their loans and replenish the construction reserve account with loans secured by a second lien 0n the property. The resolution is as follows: V a. Pacific Capital will fund the costs 0f construction and financing with loans secured by second deeds 0f trusts 0n each property; b. The second and third lien holders on each property must subordinate t0 Pacific Capital’s loans secured by a second deed 0f trust; b. Settlement funds will be paid to Plaintiffs as follows: i. $20,000 from the Santa Clara property closing first; ii. $20,000 from the Stelling property closing second; and iii. $760,000 from the Blackberry Hill property closing third. 5 MEMORANDUM OF POINTS AND AUTHORITIES IN OPPOSITION TO PLANITIFFS’ MOTION TO ENFORCE SETTLEMENT AGREEMENT 10 11 12 l3 l4 15 l6 l7 18 19 20 21 22 23 24 25 26 27 ’)Q Herrera is in the process of completing updated subordination agreements across all 0f DMJ’s properties. Pacific Capital requires that all 0f the lender’s conditions be met for all loans before it can provide an accurate timeline for funding and closing the separate escrows for each property being refinanced. In order to satisfy the Pacific Capital’s conditions and close each separate escrow, the following must be accomplished: a. DMJ must complete all required junior lien subordination agreements for all properties: b. DMJ must fulfill all conditions from Chicago Title Company including title insurance, entity docs for DMJ and any subordinate lenders investing with entities, etc., for all properties: and c. Plaintiffs must submit t0 Chicago Title Company written instructions and documents necessary to release the Lis Pendens and associated title defects from the property being refinanced in each escrow. Pacific Capital also requires that it have sole discretion 0f the order in which the loans are funded and escrow closed for each property. That order is as follows: a. 10191 Santa Clara Ave, Cupertino, CA 95014, with Plaintiffs receiving $20,000.00 from the refinance; b. 7825 Lilac Ct, Cupertino, CA 95014, with no funds available for Plaintiffs. c. 10410 N Stelling Rd, Cupertino, CA 95014, with Plaintiffs receiving $20,000.00 from the refinance; d. 1 18 Telles Lane, Fremont, CA 94539, with n0 funds available for Plaintiffs. e. 15435 Blackberry Hill Rd, Los Gatos, CA 95030, with Plaintiffs receiving $760,000.00 from the refinance; and 6 MEMORANDUM OF POINTS AND AUTHORITIES 1N OPPOSITION TO PLANITIFFS’ MOTION TO ENFORCE SETTLEMENT AGREEMENT lO ll 12 l3 l4 15 16 l7 18 l9 20 21 22 23 24 25 26 27 0Q f. 5401 Claremont Ave, Oakland, CA, With n0 funds available for Plaintiffs. Plaintiffs instructions t0 Chicago Title Company must be for the specified amount in the specified escrow. II. IMPOSSIBILITY OF PERFORMANCE AND FORCEMAJURE EXCUSE DEFENDANTS’ DELAY IN PERFORMANCE Plaintiffs’ recording of the Lis Pendens at the commencement of the case caused the lenders secured by first liens to freeze construction reserve accounts, exhaust payment reserves, and commence foreclosures. Some properties were lost and the financial profile of DMJ was severely damaged. DMJ was obligated to inform potential lenders of the litigation and terms of the settlement. A11, except one, were not interested in refinancing DMJ’S properties. Pacific Capital would not fund the refinance 0f all ofDMJ’S properties in a single transaction. It requires a separate escrow for each property t0 close in succession. DMJ and Herrera worked diligently to secure the financing t0 pay the settlement. They resolved many difficult problems involving the terms of the refinance loans, subordination of junior encumbrances, foreclosures, etc. The first escrow was about ready to fund When the Covid- 19 pandemic resulted in the State and County Shelter-in-Place Orders. This caused additional delay that was completely beyond their control. The law recognizes that there can be supervening impracticability causing delay in the performance 0f contracts. Section 261 of the Restatement of the Law 2nd, Contracts” provides: “Where, after a contract is made, a party’s performance is made impracticable without his fault by the occurrence 0f an event the non-occurrence 0f which was a basic assumption on which the contract was made; his duty t0 render that performance is discharged, unless the language 0r the circumstances indicate to the contrary.” The circumstances of the Lis Pendens, the foreclosures and pending foreclosures 0f properties, the conditions imposed by Pacific Capital, the difficulty in obtaining subordination agreements, Plaintiffs’ demands, etc., made DMJ’S timely performance impracticable. Case law 7 MEMORANDUM OF POINTS AND AUTHORITIES IN OPPOSITION TO PLANITIFFS’ MOTION TO ENFORCE SETTLEMENT AGREEMENT 10 11 12 l3 l4 15 l6 17 18 l9 20 21 22 23 24 25 26 27 9Q recognizes the defense 0f impossibility when performance is impracticable because of excessive and unreasonable difficulty. See Mineral Park Land C0. v. Howard, 172 C. 289 (1916). “Force majure” refers to an act or event that is completely beyond the control of any of the parties to the contract. Force majure is a defense to a party’s obligation when “acts of God” or other extraordinary events prevent a party from fulfilling its contractual obligations. Pacific Vegetable Oil Corporation v. CS. T., Limited, 29 Cal 2nd 228 (1946). While the Settlement Agreement does not contain a force majure clause, the defense 0f force majure t0 timely performance does not depend on being expressed in a contract. California Civil Code § 151 1(2) provides: “The want 0f performance 0f an obligation, 0r 0f an offer 0f performance, in whole 0r in part, 0r any delay therein, is excused by the following causes, to the extent t0 Which they operate: 1. When such performance 0r offer is prevented 0r delayed by an act 0fthe creditor, 0r by the operation oflaw, even though there may have been a stipulation that this shall not be an excuse. . .; 2. When it is prevented 0r delayed by an irresistible, superhuman cause, or by the act of public enemies 0f this state 0r of the United States, unless the parties have specifically agreed t0 the contrary...” (Emphasis added). The Settlement Agreement does not contain an agreement t0 the contrary. The defense of force manure derives from the statutory principal that “No man is responsible for that which no man can control.” Cal. Civ. Code § 3526. The test is whether, under the particular circumstances, there was such an insuperable interference occurring without the party’s intervention as could not have been prevented by the exercise 0f prudence, diligence and care. Pac. Vegetable Oil Corp, supra at 238, and cases cited therein. The Covid-19 pandemic alone, separate from the governmental regulations imposed because of it, is sufficient for a defense t0 delay 0f contract performance. An entirely separate excuse for delay 0f contract performance is “operation of law.” As serious at the impact 0f the COVID-19 pandemic was and is, the governmental actions taken to attempt t0 contain it are more than sufficient grounds for invoking the farce majure defense t0 excuse delay in performance. On March 16, 2020, the Health Officer 0f Santa Clara County 8 MEMORANDUM OF POINTS AND AUTHORITIES IN OPPOSITION TO PLANITIFFS’ MOTION TO ENFORCE SETTLEMENT AGREEMENT lO ll 12 l3 l4 l5 l6 l7 l8 l9 20 21 22 23 24 25 26 27 ordered all individuals in the County to shelter at their place of residence except to provide or receive certain essential services 0r engage in certain essential activities and work for essential businesses, and ordered all businesses to cease non-essential operations. (Order of the County Health Officer t0 Shelter in Place). On March 19, 2020, Govemor Newsom declared a State of Emergency and issued an Executive Order mandating the closure 0f all “non-essential” businesses. (Executive Department 0f the State 0f California, Executive Order N-33-20). As a result ofthe pandemic, and state and county orders, Pacific Capital cancelled funding the loans and funding dried up. Governmental actions are still evolving. These governmental actions made Defendants’ timely performance impossible. An action for breach of contract does not lie when its performance is prevented by operation of law. Nat ’l Pavements Corp. v. Hutchinson C0., 132 Cal App. 235, 238 (1933). As the governmental actions have abated Pacific Capital has found additional sources 0f funding and is prepared t0 make the loans to pay the settlement provided that it’s conditions to funding are satisfied. III. PLAINTIFFS HAVE NOT BEEN AND WILL NOT BE PREJUDICED BY THE DELAY IN PEROFRMANCE Following commencement 0f the case Plaintiffs recorded Lis Pendens against DMJ’S eight projects; Defendants’ Motion to Expunge was denied on the grounds that Joint Venture Agreements granted Plaintiffs an interest in all 0f DMJ’s projects. The Court held that the Joint Venture Agreement “clearly grants Plaintiffs a security interest in the “Property Developments” of Defendant and shall serve as security for “any and all of the Obligations, and, for the repayment thereof, Partner 2 (Plaintiffs) may resort t0 any such collateral in such order and manner as Partner 2 may elect” (emphasis in original). The Settlement Agreement provides that Plaintiffs retain their Lis Pendens until the settlement funds are paid. Their position has not been altered by the delay in performance. Granting Plaintiffs’ Motion for Enforcement 0f the Settlement by entering a money judgment will eliminate any possibility ofDMJ’s refinancing any ofthe properties and result in their foreclosure. 9 MEMORANDUM OF POINTS AND AUTHORITIES IN OPPOSITION TO PLANITIFFS’ MOTION TO ENFORCE SETTLEMENT AGREEMENT 10 ll 12 l3 l4 15 16 17 18 l9 20 21 22 23 24 25 26 27 ’)Q IV. CONCLUSINON The delay in performance was not caused by Defendants. It was caused by the combined circumstances 0f thé Lis Pendens, foreclosures and pending foreclosures of properties, conditions imposed by the lender Pacific Capital as a condition of refinancing six properties in the midst 0f construction, difficulty in obtaining subordination agreements, Plaintiffs” demands, the Covid-19 pandemic, and governments orders. These all made DMJ’s timely performance impracticable. Defendants have secured funding for the refinance loans t0 pay the $800,000 settlement. Pacific Capital is ready to fund the first refinance With the others t0 follow provided Plaintiffs submit the appropriate instructions and release documents for the refinance of the six properties. Respectfully submitted. Date: June 29, 2020 CLAYTON & MCEVOY, PC flByfiWf/ Laurence J. MéEvoy gAttorney for Defendants MJ HOME SOLUTIONS, LLC, and DAVID HERRERA 10 MEMORANDUM OF POINTS AND AUTHORITIES IN OPPOSITION TO PLANITIFFS’ MOTION TO ENFORCE SETTLEMENT AGREEMENT 10 11 12 1 la) 14 15 16 17 18 l9 20 21 22 23 24 25 26 27 28 AGARWAL v. DMJHOME SUOLUTIONS, LLC, ct al. Santa Clara Superior Court Case No. 19CV344918 PROOF OF SERVICE STATE OF CALIFORNIA, COUNTY OF SANTA CLARA I, Abby Cooke, hereby declare: I am a citizen of the United States, over 18 years of age, and not a party t0 the within action. I am employed in the County of Santa Clara; my business address is 333 W. Santa Clara St., Suite 61 8, San Jose, CA 951 13. On June 30, 2020, I served the within: 1. MEMORANDUM OF POINTS & AUTHORITIES IN OPPOSITION TO PLAINTIFFS’ MOTION TO ENFORCE SETTLEMENT AGREEMENT; 2. DECLARATION OF DAVID HERRERA IN OPPOSITION TO PLAINTIFFS’ MOTION TO ENFORCE SETTLEMENT AGREEMENT; 3. EXHBITS TO DECLARATION OF DAVID HERRERA IN OPPOSITION TO PLAINTIFFS’ MOTION TO ENFORCE SETTLEMENT AGREEMENT. 0n all parties in this action, as addressed below, by causing a true copy thereof to be distributed as follows: Douglas W. Dal Cielo, Esq. Brian M. Affrunti, Esq. BURKE, WILLIAMS & SORENSEN, LLP 60 S. Market Street, #1000 San Jose, CA 951 13-2336 ddalcielo@bwslaw.com baffruntngbwslaw.com Attorney for Plaintiffs ARVIND K. AGARWAL and NEELO AGARWAL as Trustees 0f the AGARWAL FAMILY TRUST dated August 2, 2001 V BY MAIL: I am "readily familiar" with the firm's practice 0f collection and processing correspondence for mailing. Under that practice it would be deposited with the U.S. Postal Service on that same day with postage thereon fully prepaid in the ordinary course 0f business. I am aware that on motion of the party served, service is presumed invalid if the postal cancellation date or postage meter date is more than one day after date 0f deposit for mailing an affidavit. \/ VIA E-MAIL: I caused such documents t0 be transmitted via e-mail to the stated parties at their respective e-mail addresses. I declare under penalty 0f perjury under the laws of the State of California that the foregoing is true and correct. Dated: June 30, 2020 WM; Abby Cookg Proof of Service Page 1 of2