Response ReplyCal. Super. - 6th Dist.May 8, 202010 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 200V366450 Santa Clara - Civil Eric V. Rowen (SBN CA 106234) Matthew R. Gershman (SBN CA 25303 1) GREENBERG TRAURIG, LLP 1840 Century Park E., Ste 1900 Los Angeles, California 90067 Telephone: 3 1 0.586.7700 Facsimile: 3 1 0.586.7800 rowene@gtlaw.com gershmanm@gtlaw.com Brian C. Gee (SBN CA 3 17436) GREENBERG TRAURIG, LLP 1900 University Ave., 5th Fl. East Palo Alto, CA 94303 Telephone: 650.289.7888 geeb@gtlaw.com Electronically Filed by Superior Court of CA, County of Santa Clara, on 1/18/2022 7:58 PM Reviewed By: F. Miller Case #20CV366450 Envelope: 8083310 Attorneysfor Defendants ARENA ORIGINATION C0., LLC and ARENA LIMITED SPV, LLC SUPERIOR COURT OF THE STATE OF CALIFORNIA FOR THE COUNTY OF SANTA CLARA 199 BASSETT, LLC, a California limited liability company, Plaintiff, V. 199 BASSETT OWNER, LLC, a Delaware limited liability company, STARTCITY VENTURES, LLC, a Delaware limited liability company, 457 MINNA OWNER, LLC, a Delaware limited liability company, JONATHAN DISHOTSKY, an individual, MO ) SAKRANI, an individual, JOSH LEHMAN, an ) individual, ARENA ORIGINATION CO., LLC,) a Delaware limited liability company, ARENA LIMITED SPV, LLC, a Delaware limited liability company, and DOES 1- 20, inclusive, vvvvvvvvvvvv vvvvv Defendants. CASE NO. 20CV366450 REPLY IN SUPPORT OF DEFENDANTS ARENA ORIGINATION CO., LLC & ARENA LIMITED SPV, LLC’S DEMURRER TO PLAINTIFF’S SECOND AMENDED COMPLAINT Date: January 25, 2022 Time: 9:00 a.m. Dept: 7 Action Filed: January 21, 2021 SAC Filed: August 27, 2021 Case No. 20CV366450 ARENA DEFENDANTS’ REPLY IN SUPPORT OF DEMURRER TO SAC 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 II. III. TABLE OF CONTENTS INTRODUCTION .......................................................................................................................... 4 LEGAL DISCUSSION ................................................................................................................... 5 A. The Opposition confirms Plaintiff’ s fraudulent transfer claim fails as t0 Arena ................ 5 B. The Opposition confirms the SAC’S feigned ignorance about the legal effect of the Reconveyance cannot evade its legal effect ...................................................................... 10 C. Plaintiff s Opposition confirms the remaining derivative claims against Arena fail ........ 13 D. The Opposition confirms leave t0 amend should be denied. ............................................ 13 CONCLUSION ............................................................................................................................. 13 1 Case N0. 20CV366450 ARENA DEFENDANTS’ REPLY IN SUPPORT OF DEMURRER TO SAC 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 TABLE OF AUTHORITIES Page(s) Federal Cases Hassen v. Jonas, 373 F.2d 880 (9th Cir. 1967) .................................................................................................................. 5 Kelleher v. Kelleher, N0. 13-CV-05450-MEJ, 2015 WL 5693726 (N.D. Cal. Sept. 29, 2015) ............................................... 5 United States v. Sec. Trust & Sav. Bank, 340 U.S. 47 (1950) .................................................................................................................................. 8 State Cases Arcturus Mfg. Corp. v. Super. CL, 223 Cal. App. 2d 187 (1963) .................................................................................................................. 8 Berger v. Varum, 35 Cal. App. 5th 1013 (2019) ................................................................................................................. 7 Blank v. Kirwan, 39 Cal. 3d311 (1985) ........................................................................................................................... 13 Brown v. Goldstein, 34 Cal. App. 5th 418 (2019) ................................................................................................................. 12 Cheung v. Daley, 35 Cal. App. 4th 1673 (1995) ............................................................................................................... 10 DuPont Merck Pharmaceutical C0. v. Super. CL, 78 Cal. App. 4th 562 (2000) ....................................................................................................... 9, 10, 11 Fontenot v. Wells Fargo Bank, N.A. (201 1) 198 Ca1.App.4th 256 ................................................................................................................. 10 George v. Automobile Club ofS. Cal, 201 Cal.App.4th 1112 (2011) ....................................................................................................... 11, 12 Goodman v. Kennedy, 18 Cal. 3d 335 (1976) ........................................................................................................................... 13 Hofi’man v. Smithwoods RVPark, LLC, 179 Cal. App. 4th 390, 400 (2009) ....................................................................................................... 11 Major Clients Agency v. Diemer, 67 Cal. App. 4th 1116 (1998) ............................................................................................................... 13 Mehrtash v. Mehrtash, 93 Cal. App. 4th 75 (2001) ..................................................................................................................... 5 Mother Cobb ’s Chicken T., Inc. v. Fox, 10 Cal. 2d 203 (1937) ........................................................................................................................... 10 2 Case N0. 20CV366450 ARENA DEFENDANTS’ REPLY IN SUPPORT OF DEMURRER TO SAC 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Poseidon Development, Inc. v. Woodland Lane Estates, LLC, 152 Cal. App. 4th 1106 (2007) .................................................................................................... 11 Puissegur v. Yarbrough, 29 Cal. 2d 409 (1946) ............................................................................................................................. 8 Richman v. Hartley, 224 Cal. App. 4th 1182 (2014) ............................................................................................................... 9 Scott v. JPMorgan Chase Bank, NA, 214 Cal. App. 4th 743 (2013) ............................................................................................................... 11 Siege] v. Am. Sav. & Loan Assn, 210 Cal. App. 3d 953 (1989) .................................................................................................................. 6 Westside Ctr. Assocs. v. Safeway Stores 23, Ina, 42 Cal. App. 4th 507 (1996) ....................................................................................................... 9, 10, 11 State Statutes Cal. CiV. Proc. Code § 697.310(a) ................................................................................................................ 6 Other Authorities Black’s Law Dictionary (1 1th ed. 2019) ....................................................................................................... 8 Miller and Starr California Real Estate § 132210 (4th ed. 2021) ................................................................. 6 Miller and Starr California Real Estate § 42:57 (4th ed. 2021 .................................................................... 8 Miller and Starr California Real Estate, supra, § 132140 ............................................................................ 6 3 Case N0. 20CV366450 ARENA DEFENDANTS’ REPLY IN SUPPORT OF DEMURRER TO SAC 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 I. INTRODUCTION Plaintiff’s Second Amended Complaint (“SAC”) is the second attempt t0 state a claim against the Arena defendants (“Arena”). The last time around, in an Order sustaining Arena’s Demurrer to the First Amended Complaint (“FAC”), this Court correctly recognized that the challenged conveyance-referred to in the Demurrer as the 199 Bassett Junior Deed 0f Trust-no longer creates a lien against Plaintiff s borrower’s Subject Property. The Court gave Plaintiff another chance to amend, because (i) the FAC’s claim seeking t0 set aside a lien that n0 longer exists is moot, and (ii) Plaintiff failed to allege facts supporting any Viable claim for money damages against Arena. Now, Plaintiff” s theory on money damages is that Arena’s acceptance 0f the 199 Bassett Junior Deed 0f Trust somehow impeded Plaintiff’s collection efforts against its borrower’s Subj ect Property. The Demurrer established Plaintiff s theory fails 0n its face. A handful of irrefutable facts-all admitted in the SAC and/or judicially noticeable from recorded title documents-cement the point. First, Plaintiff has n0 present ability t0 collect its borrower’s debt out of its borrower’s Subj ect Property’s equity, but instead first has t0 secure a judgment and, then, record a judgment lien against the Subj ect Property. Plaintiff does not yet have a judgment against its borrower-let alone a judgment lien. Thus, the 199 Bassett Junior Deed of Trust could not have impeded Plaintiffs collection efforts, because Plaintiff did not and still does not have the ability t0 collect out of the Subject Property’s equity. Second, if and When Plaintiff obtains an enforceable judgment lien in the future, the 199 Bassett Junior Deed 0f Trust could not impede Plaintiff” s future collection efforts at that time, because it has already been reconveyed and n0 longer cucumbers title to-or any equity in-the Subject Property. Third, because Arena is neither the borrower on nor the guarantor of Plaintiff s unsecured loan given to defendant 199 Bassett Owner, Arena is not liable for Plaintiff” s alleged injury 0f not receiving interest on the loan. Still, the Opposition assumes it is enough for the SAC to allege various conclusions for how the 199 Bassett Junior Deed 0f Trust supposedly interfered with Plaintiff’s collection efforts. That ignores the fundamental flaw that Plaintiff could not collect from the Subject Property 0r its borrower’s equity unless and until Plaintiff first Wins a judgment here against defendant 199 Bassett Owner. Once it is appreciated that Plaintiff cannot, as a matter of law, collect out of the equity from Plaintiff s borrower’s Subj ect Property until such future time Plaintiff establishes an enforceablejudgment lien, there is n0 way Plaintiff” s conclusory theories 0f damage-all tied to a non-existent, former lien-can state a claim against Arena. 4 Case N0. 20CV366450 ARENA DEFENDANTS’ REPLY IN SUPPORT OF DEMURRER TO SAC 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Although the Opposition also assumes the 199 Bassett Junior Deed 0f Trust was never reconveyed, that ignores the legal effect of a recorded reconveyance, 0f Which this Court already correctly took judicial notice. Plaintiff cannot evade the legal effect 0f that recorded reconveyance just by falsely claiming another document-a Forbearance Agreement-somehow negated the reconveyance. In fact, the Forbearance Agreement is attached t0 the SAC, and its plain language confirms the 199 Bassett Junior Deed 0f Trust was t0 be reconveyed s0 as to n0 longer create a lien against Plaintiff” s borrower’s Subject Property. Arena should be dismissed, leaving Plaintiff t0 pursue its borrower for any unsecured debt it might owe. II. LEGAL DISCUSSION A. The Opposition confirms Plaintiff’s fraudulent transfer claim fails as t0 Arena. The Demurrer established (i) “injury-in-fact” is an “essential element” 0f a claim brought under the California Uniform Voidable Transactions Act (“UVTA”) (formerly known as the California Uniform Fraudulent Transfer Act), and (ii) Plaintiff has not stated a claim for injury caused by Arena where, as here, the borrower’s transferred interest in the Subject Property (the 199 Bassett Junior Deed 0f Trust lien) has been returned t0 the borrower. (See Demurrer at 15 (citing, among other authority, Hassen v. Jonas, 373 F.2d 880, 883 (9th Cir. 1967) (holding where transferee “has himself remedied the situation by returning the transferred property, the statutory purpose has been satisfied” and there can be n0 claim); Kelleher v. Kelleher, N0. 13-CV-05450-MEJ, 2015 WL 5693726, at *1 1-13 (ND. Cal. Sept. 29, 2015) (holding transferee entitled t0 defense judgment Where he had already “effectively voided the transfer himself” and plaintiff “has in effect been restored to her original position”); Mehrtash v. Mehrtash, 93 Cal. App. 4th 75, 82 (2001) (affirming defense judgment where plaintiff asserting fraudulent transfer claim was uninjured).) The Opposition does not dispute the first point that injury-in-fact is required t0 state a claim.1 Instead, the Opposition takes issue With the second point, arguing the SAC alleges financial injury “stemming from the Arena Defendants’ conduct”-i.e., Arena’s prior acceptance 0f the 199 Bassett Junior Deed 0f Trust. (Opposition at 6-7.) The Opposition confirms Plaintiff’s only theories of financial injury are 1 In arguing Kelleher and Mehrtash are somehow not analogous t0 this situation (Opposition at 7), the Opposition misses the point-which is that injury-in-fact is a required element to state a claim. This Court agreed, citing both Kelleher and Mehrtash in the prior Order sustaining Arena’s Demurrer t0 the FAC. (9/27/2021 Declaration ofMatthew Gershman (“Gershman Decl.”), EX. 1 (August 13, 2021 Order) at 8.) 5 Case N0. 20CV366450 ARENA DEFENDANTS’ REPLY IN SUPPORT OF DEMURRER TO SAC 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 “diminished property value, missed opportunity t0 obtain the lien over two years ago, interest, exemplary damages, and costs.” (Id. at 9.) The Demurrer addressed each category 0f alleged injury, establishing none were Viable. (Demurrer 19-20.) Unable to grapple with the Demurrer’s points and authorities addressing each category of alleged injury, the Opposition offers six general responses. Each fails. m, the Opposition repeats Plaintiff’s general refrain that the 199 Bassett Junior Deed 0f Trust somehow interfered With Plaintiff’s ability to collect against its defaulting borrower out 0f the equity from the borrower’s Subject Property. (E.g., Opposition at 9.) That is impossible because Plaintiff’s loan is unsecured. (SAC, 11 17.) The Demurrer established that because Plaintiff is an unsecured lender, Plaintiff could not proceed directly t0 collect from equity in its defaulting borrower’s property, but instead first has to obtain ajudgment against its defaulting borrower. Only if successful in doing so could Plaintiffthen establish ajudgment lien against the Subj ect Property and then enforce thatjudgment lien against the Subj ect Property. See Cal. CiV. Proc. Code § 697.3 10(a) (judgment creditor can secure judgment with a lien recorded against judgment debtor’s property); Karl E. Geier et a1., Miller and Starr California Real Estate § 132210 (4th ed. 2021) (“When a note or other obligation is unsecured and the maker defaults, the holder can accelerate the maturity date 0f the obligation and sue the maker for the entire unpaid principal and interest. The personal judgment can then be enforced by executing upon any of the maker’s assets.”). Thus, a junior lien against the Subject Property could not have interfered with Plaintiffs collection efforts, because Plaintiff did not have-and still to this day does not have-the legal ability to collect from equity in the Subj ect Property. Eventually, if Plaintiff Wins here against its borrower, 199 Bassett Owner, Plaintiffmay establish a judgment lien and collect from equity in its borrower’s Subject Property. But that is a hypothetical event in the future that cannot sustain a claim of injury-in-fact allegedly caused in the past by Arena. Even still, entertaining the hypothetical does not improve Plaintiff’s position. Arena’s prior acceptance 0f the 199 Bassett Junior Deed 0f Trust could never impede or harm a hypothetical future judgment lien because-as this Court previously recognized-the 199 Bassett Junior Deed of Trust was reconveyed, is no longer a lien, and does not encumber the Subject Property. (See Demurrer at 16 (citing Miller and Starr California Real Estate, supra, § 132140 (“On recordation [0f a reconveyance of deed 0f trust], the lien is extinguished”); Siege] v. Am. Sav. & Loan Assn, 210 Cal. App. 3d 953, 957 (1989) (“Recordation 0f the deed 0f reconveyance extinguishes the lien 0n the property created by the deed 0f trust”); Gershman Decl. EX. 1 6 Case N0. 20CV366450 ARENA DEFENDANTS’ REPLY IN SUPPORT OF DEMURRER TO SAC 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 (Court’s 8/10/2021 Order) at 11 (holding FAC-Which sought t0 set aside the 199 Bassett Junior Deed 0f Trust-spoke t0 a “situation that no longer exists (the Junior DOT encumbering the Property)”).) Unable t0 dispute these basic principles, the Opposition resorts to a strawman argument. Citing general UVTA statutes, Plaintiff argues a creditor seeking t0 bring a fraudulent conveyance claim need only possess a right to payment from the debtor and is not required already to hold a judgment 0r other form of secured claim against the debtor. (Opposition at 10-1 1.) That misstates the issue, because there is no longer a claim to set aside a conveyance that, as a matter 0f law, already was reconveyed and n0 longer constitutes a lien. Instead, Plaintiff is left trying t0 allege financial injury caused by Arena’s prior acceptance of that now-reconveyed lien. But, as established, the reconveyed lien could not cause Plaintifffinancial injury where Plaintiff had-and still has-no ability t0 collect from the equity in its borrower’s Subject Property. Nor could a no-longer-existing lien ever impede Plaintiff’s future hypothetical collection rights against the Subj ect Property, should Plaintiffwin this case against its borrower and establish a judgment lien. For the same reasons, Plaintiff’s continued reliance on Berger v. Varum, 35 Cal. App. 5th 1013 (2019) is misplaced. (Opposition at 9-10.) Although the plaintiff in Berger was able to state a claim 0f financial injury caused by the defendant’s alleged hindering and obstructing the plaintiff’s “collecting [0n] ”2 Plaintiff here has n0 judgment t0 collect upon With which Arena could have interfered.the Judgment, Simply, the alleged facts giving rise t0 a Viable claim 0f financial injury in Berger d0 not exist here. Plaintiff s SAC concedes the fatal flaw, alleging at paragraph 50 that the 199 Bassett Junior Deed of Trust is harmful t0 Plaintiff t0 the extent it makes it “more difficult for Plaintiff, as creditor, t0 collect payment.” (SAC, 11 54.) As established, the 199 Junior Deed 0f Trust (i) could not have made it more difficult for Plaintiff to collect, because that lien only formerly affected title to borrower’s Subject Property and Plaintiff still t0 this day has no enforceable judgment lien against the Subject Property and thus n0 ability t0 collect out of equity from that property, and (ii) also cannot impair Plaintiff” s future hypothetical judgment enforcement efforts, because the 199 Junior Deed 0f Trust was reconveyed and thus n0 longer is a lien. Second, the Opposition points t0 the SAC’s allegations that the Subject Property’s value has “diminished” over the years since Plaintiff” s borrower defaulted. (E.g., Opposition at 9.) That does not get 2 Berger, 35 Cal. App. 5th at 1025; see also id. at 1017-18 (plaintiff alleged fraudulent transfers that occurred after “entry ofjudgment”). 7 Case N0. 20CV366450 ARENA DEFENDANTS’ REPLY IN SUPPORT OF DEMURRER TO SAC 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 around the fimdamental problem of Plaintiff having n0 ability t0 collect from the equity in that property. Simply, any alleged diminution in the Subj ect Property’s value is irrelevant because Plaintiff only ever had an unsecured promissory note from its borrower (SAC, 11 17), and, therefore, Plaintiff’s status as an unsecured creditor meant Plaintiff held n0 security interest in the borrower’s Subject Property. See, e.g., Black’s Law Dictionary (1 1th ed. 2019) (defining “unsecured creditor” as “[a] creditor who, upon giving credit, takes no rights against specific property 0f the debtor” (emphasis added)); cf. Karl E. Geier et 211., Miller and Starr California Real Estate § 42:57 (4th ed. 2021) (explaining that real property interests transferred by a debtor prior to a creditor obtaining a judgment lien against the property are “not affected” by the subsequent judgment lien). And until Plaintiff obtains a judgment against its borrower in this case and then secures that judgment With an enforceable judgment lien against the Subj ect Property, Plaintiff Will have no ability to collect from the Subject Property. How quickly Plaintiff can succeed in doing so has nothing to do With Arena, but instead has only t0 do with how fast Plaintiff can get t0 a judgment in this case against 199 Bassett Owner. In sum, the Opposition’s assertions about alleged fluctuations in the borrower’s Subject Property’s value-all prior t0 Plaintiff obtaining any enforceable judgment lien against the Subject Property-do not state a Viable claim against Arena. Lird, the Opposition offers a similarly defective argument that all defendants somehow caused Plaintiff to delay in pursuing an attachment lien against its borrower’s Subject Property. (E.g., Opposition at 9.) Aside from the fact that Plaintiff was solely in control 0f When it chose to pursue prejudgment attachment against 199 Bassett Owner’s Subj ect Property, Plaintiff’ s argument misunderstands the nature 0f the attachment remedy. An attachment lien is only a prejudgment remedy; an eventual judgment against Plaintiff” s borrower is required for Plaintiff t0 perfect its attachment lien position and then-and only then- be in position t0 satisfy its claim from equity in the Subject Property. See Arcturus Mfg. Corp. v. Super. CL, 223 Cal. App. 2d 187, 191-92 (1963) (“[An attachment lien] is only a potential right or contingent lien that must be perfected by means 0f a judgment”); Puissegur v. Yarbrough, 29 Cal. 2d 409, 412 (1946) (“The attaching creditor obtains only a potential right 0r a contingent lien”); United States v. Sec. Trust & Sav. Bank, 340 U.S. 47, 50 (1950) (holding, under California law, “[t]he attachment lien gives the attachment creditor no right t0 proceed against the property unless he gets a judgment”). And because the 199 Bassett Junior Deed ofTrust already was reconveyed, it cannot interfere with Plaintiff s hypothetical futurejudgment 8 Case N0. 20CV366450 ARENA DEFENDANTS’ REPLY IN SUPPORT OF DEMURRER TO SAC 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 lien priority against title to the Subj ect Property. Thus, any alleged induced “delay” 0r “missed opportunity” t0 obtain an earlier attachment does not state a Viable claim against Arena. M, the Opposition asserts Plaintiff need not show Arena was the borrower in order t0 allege that Arena caused financial injury. (Opposition at 11.) That misses the point of the Demurrer’s argument that Plaintiff s alleged theory of damage in the form 0f unpaid interest 0n the loan is irrelevant as t0 Arena because the SAC concedes Arena is neither the borrower nor the guarantor 0n the loan. (Demurrer at 19.) It is axiomatic that only a borrower 0r guarantor is liable for unpaid debt owed t0 the lender. See, e.g. , Richman v. Hartley, 224 Cal. App. 4th 1182, 1186 (2014) (holding plaintiff must prove the existence 0f a contract between the parties to prevail on a cause of action for breach of contract). Plaintiff does not seriously contest this, but instead suggests Arena could still be liable because the SAC alleged “theories 0f conspiracy and aiding and abetting in relation to fraudulent conveyance.” (Opposition at 11.) That is flawed circular logic. The Demurrer established-and the Opposition does not dispute-that theories 0f conspiracy and aiding and abetting do not stand 0n their own, but stand 0r fall based on an underlying claim. (See Demurrer at 21 n.6 (collecting authorities).) As established, the SAC does not state an underlying fraudulent conveyance claim against Arena, and Plaintiff cannot save the defective underlying claim by pointing in circles t0 admittedly derivative claims. m, the Opposition repeats allegations from the SAC that Plaintiff incurred “costs.” (E.g., Opposition at 6.) But the SAC and Opposition never explain how Arena caused any 0f Plaintiff’s alleged “costs.” Nor could Plaintiffdo so. The Demurrer established that ifPlaintiff is referencing “costs” associated With the unpaid debt owed by 199 Bassett Owner, Arena is not liable for those costs for the same reason it is not liable for the unpaid debt owed by borrower 199 Bassett Owner-i.e., Arena is not the borrower 0r guarantor. (Demurrer at 20.) The Demurrer also established that if Plaintiff is referencing “costs” associated with this action, Plaintiff is improperly attempting t0 bootstrap hypothetical future claims for prevailing- party costs even though Plaintiff has failed t0 state a claim against Arena. (Demurrer 19-20.) Either way, the SAC has not tethered any alleged conduct by Arena to any alleged “costs” incurred by Plaintiff. The Opposition does not respond t0 these points in the Demurrer, thereby conceding them. See DuPont Merck Pharmaceutical C0. v. Super. CL, 78 Cal. App. 4th 562, 566 (2000) (“By failing to argue the contrary, plaintiffs concede this issue”); Westside Ctr. Assocs. v. Safeway Stores 23, Ina, 42 Cal. App. 4th 507, 529 9 Case N0. 20CV366450 ARENA DEFENDANTS’ REPLY IN SUPPORT OF DEMURRER TO SAC 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 (1996) (“failure to address the threshold question . . . effectively concedes that issue and renders its remaining arguments moot”). m, the Opposition points t0 allegations in the SAC 0f “punitive damages,” but fails to respond to the Demurrer’s points and authorities 0n that issue. (E.g., Opposition at 6.) The Demurrer established there can be no award 0f punitive or exemplary damages against Arena without a Viable underlying claim for compensatory damages against Arena. (Demurrer at 20 (citing Cheung v. Daley, 35 Cal. App. 4th 1673, 1675-77 (1995) (“‘Actual damages must be found as a predicate for exemplary damages.’ . . . [fl] . . . [T]he rule applicable is, as declared frequently, that punitive damages are never more than an incident t0 a cause 0f action for actual damages, and, when allowed, are allowed only in addition to recovered actual damages.’ . . . We conclude that ... an award 0f exemplary damages must be accompanied by an award 0fcompensatory damages ....” (quoting Mother Cobb ’s Chicken T., Inc. v. Fox, 10 Cal. 2d 203, 205-06 (1937))).) The Opposition’s failure t0 respond is a concession. See DuPont Merck Pharmaceutical C0,, 78 Cal. App. 4th at 566; Westside Ctr. Assocs., 42 Cal. App. 4th at 529. In sum, the SAC does not state a fraudulent conveyance claim against Arena. B. The Opposition confirms the SAC’s feigned ignorance about the legal effect 0f the Reconveyance cannot evade its legal effect. In connection With Arena’s Demurrer to the FAC, the Court took judicial notice 0f the Substitution 0f Trustee and Deed of Full Reconveyance (the “‘Reconveyance”), which reconveyed the 199 Bassett Junior Deed 0f Trust. (Gershman Decl., EX. 1 (August 13, 2021 Order) at 5.) In doing so, the Court overruled Plaintiff’s objections, correctly holding that while Plaintiff seeks to ascribe sinister motives to Arena’s Reconveyance, Plaintiff does not “dispute the authenticity 0f the document itself.” (Id. (emphasis in original).) Thus, Plaintiff could not bury its head in the sand and ignore the Reconveyance’s legal effect of removing the 199 Bassett Junior Deed 0f Trust as a lien from title to the Subj ect Property. As this Court put it: Generally, when it comes t0 recorded real property records, “a court may take judicial notice 0f the fact of a document’s recordation, the date the document was recorded and executed, the parties t0 the transaction reflected in a recorded document, and the document’s legally operative language, assuming there is n0 genuine dispute regarding the document’s authenticity. From this, the court may deduce and rely upon the legal eflect 0f the recorded document, when that effect is clear from its face.” (Fontenot v. Wells Fargo Bank, N.A. (201 1) 198 Ca1.App.4th 256, 265.) 10 Case N0. 20CV366450 ARENA DEFENDANTS’ REPLY IN SUPPORT OF DEMURRER TO SAC 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 (Id. (emphasis added).) See also Poseidon Development, Inc. v. WoodlandLane Estates, LLC, 152 Cal. App. 4th 1106, 1116-18 (2007) (court properly takes judicial notice of the effect 0f a recorded instrument); Scott v. JPMorgan Chase Bank, NA, 214 Cal. App. 4th 743, 754 (2013) (“Where, as here, judicial notice is requested of a legally operative document-like a contract-the court may take notice not only 0f the fact of the document and its recording or publication, but also facts that clearly derive from its legal effect.”) The circumstances now are unchanged. Plaintiff still does not-and cannot-dispute the authenticity 0f the Reconveyance. Instead, the Opposition’s attack on the Reconveyance is grounded in Plaintiff’s erroneous premise that the Court must accept as true whatever Plaintiff claims the Forbearance Agreement says as to the legal effect of the Reconveyance. (Opposition at 11-12.) That is not the law. The Demurrer established that a court does not accept a plaintiffs mischaracterizations of a document that are contradicted by the document itself. (Demurrer at 14, 16 (citing Hoflman v. Smithwoods RVPark, LLC, 179 Cal. App. 4th 390, 400 (2009) (“Under the doctrine 0f truthful pleading, the courts ‘will not close their eyes t0 situations Where a complaint contains allegations of fact inconsistent With attached ’3’ documents, or allegations contrary t0 facts which are judicially noticed. )).) The Opposition does not-and cannot-refute this legal standard, thereby conceding the point. See DuPont Merck Pharmaceutical Ca, 78 Cal. App. 4th at 566; Westside Ctr. Assocs., 42 Cal. App. 4th at 529. In fact, settled California law holds “it is proper to sustain a demurrer Without leave t0 amend” where, as here, the subject document “is not reasonably susceptible t0 the meaning alleged in the complaint.” George v. Automobile Club ofS. Cal, 201 Cal. App. 4th 1112, 1128 (201 1). With this legal framework in mind, turning to the actual language of the Forbearance Agreement (attached as Exhibit G t0 the SAC) only establishes that the Forbearance Agreement confinns-and does not somehow negate, as Plaintiff wrongly claims-the Reconveyance. As the Demurrer established-and the Opposition ignores-the Forbearance Agreement’s plain language: 1. requires that Arena “shall reconvey . . . the Bassett Junior Deed of Trust ..., it being the intent 0f the parties that, after the reconveyances contemplated hereby, the [Minna] Loan and Bassett Loan shall n0 longer be cross-collateralized” (SAC EX. G § 4.1 (emphasis added)); and 2. makes clear that, although the Arena loans remain in place, the reconveyed liens and security interests-i.e., the 199 Bassett Junior Deed ofTrust-do not: “Except as expresslyprovided 11 Case N0. 20CV366450 ARENA DEFENDANTS’ REPLY IN SUPPORT OF DEMURRER TO SAC 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 in this [Forbearance] Agreement, 0r effected by the reconveyances contemplated hereby, the liens, security interests and assignments created by the Loan Documents and Bassett Loan Documents are and continue t0 be valid, effective, properly perfected, enforceable and ... confirmed in all respects.” (Id. § 10 (emphasis added).) The Opposition never attempts to reckon with this plain language. Instead, the Opposition resorts t0 conflating an Arena loan with the 199 Basset Junior Deed 0f Trust used t0 secure it, arguing that because “the loan previously secured by the 199 Bassett Junior Deed 0f Trust ‘remains in full force and effect’ . . . the lien still remains.” (Opposition at 12 (emphasis added).) The fallacy in Plaintiff s argument is patent: the loan is not the lien, and the lien is not the loan. Thus, while the Forbearance Agreement confirms the loan remains in place, it does not follow that the lien once securing that loan remains in place. T0 the contrary, the plain language in the Forbearance Agreement quoted above-and ignored by Plaintiff- confirms (i) the Arena loan remained in place but (ii) the 199 Bassett Junior Deed of Trust that once secured that loan was to be reconveyed. That is consistent With the legal effect of the recorded Reconveyance. Unable t0 address head 0n What the Forbearance Agreement says, the Opposition instead suggests- without any legal authority-that a plaintiff can simply “disagree” With what a contract says to manufacture a “question 0f fact” regarding an alleged “ambiguity” that cannot be resolved 0n demurrer. (Opposition at 12.) Again, Plaintiff ignores California law. “The interpretation of a contract is a judicial function,” and a trial court’s “ruling 0n the threshold determination 0f ‘ambiguity’ ... is a question 0f law, not of fact.” Brown v. Goldstein, 34 Cal. App. 5th 418, 432-33 (2019). “Ordinarily, the objective intent 0fthe contracting parties is a legal question determined solely by reference t0 the contract’s terms.” Id. at 432 (emphasis added). Even where extrinsic evidence is offered, only if a court finds there is a conflict in “extrinsic evidence” that could support dueling interpretations t0 Which the document is “reasonably susceptible” is there a “factual conflict t0 be resolved by the jury.” Id. at 433. Even then, at the demurrer stage, a plaintiff contending a document is ambiguous cannot rely 0n naked assertions 0f ambiguity, but must have included in the complaint allegations ofthe supposed extrinsic evidence that could support a dueling proffered interpretation t0 which the document is “reasonably susceptible.” George, 201 Cal. App. 4th at 1127-28; see also id. at 1122 (allegations of “unidentified parol evidence” may not stave off demurrer). 12 Case N0. 20CV366450 ARENA DEFENDANTS’ REPLY IN SUPPORT OF DEMURRER TO SAC 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Here, the SAC does not even allege the predicate claim that the Forbearance Agreement is ambiguous, let alone identify extrinsic evidence that could make the Forbearance Agreement reasonably susceptible t0 Plaintiff’s proffered interpretation. Instead, Plaintiff just concludes the Forbearance Agreement negates the Reconveyance, based 0n Plaintiff’ s conflation of loans With liens. Having conflated loans With liens, Plaintiffs proffered interpretation that conflicts With the Forbearance Agreement’s plain language must be rejected. In short, Plaintiff cannot make false claims about what the Forbearance Agreement says t0 evade the legal effect of the Reconveyance and stave off Arena’s dismissal on demurrer, and, of course, regardless 0f Plaintiff” s false assertions as t0 the meaning of the Forbearance Agreement, the legal effect 0f the Reconveyance is dispositive-there no longer is a junior lien. C. Plaintiff’s Opposition confirms the remaining derivative claims against Arena fail. The Opposition admits Plaintiff’s remaining claims against Arena for conspiracy and aiding and abetting are derivative 0f the fraudulent transfer claim. (Opposition at 12-13.) Because the fraudulent transfer claim fails as against Arena, so, too, do these derivative claims. D. The Opposition confirms leave t0 amend should be denied. Plaintiff had the burden t0 demonstrate how the SAC could be amended to state a claim against Arena.3 The Opposition makes a passing request to amend once more, but offers n0 explanation of (i) What allegations Plaintiff would add, or (ii) how such allegations would cure the defects. Plaintiff has not carried its burden t0 obtain leave for yet another attempt t0 amend. III. CONCLUSION For all these reasons, and for the reasons established in the Demurrer and the Court’s Order sustaining the prior Demurrer t0 the FAC, the Court should sustain this Demurrer Without leave to amend. DATED: January 18, 2022 GREENBERG TRAURIG, LLP By: /S/Eric V. Rowen Attorneys for Defendants ARENA ORIGINATION CO., LLC and ARENA LIMITED SPV, LLC 3 See Major Clients Agency v. Diemer, 67 Cal. App. 4th 1116, 1133 (1998) (“The burden is on the plaintiff, however, t0 demonstrate the manner in Which the complaint might be amended”); Blank v. Kirwan, 39 Cal. 3d 3 1 1, 318 (1985) (burden of proving a reasonable possibility 0f curing a defect by amendment falls “squarely 0n the plaintiff”); Goodman v. Kennedy, 18 Cal. 3d 335, 349 (1976) (“Plaintiffmust show in what manner he can amend his complaint and how that amendment Will change the legal effect 0fhis pleading”). 13 Case N0. 20CV366450 ARENA DEFENDANTS’ REPLY IN SUPPORT OF DEMURRER TO SAC \DOONQ 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 DECLARATION OF SERVICE I am a citizen of the United States, over the age 0f 18 years, and not a party t0 or interested in this action. I am employed in the County of Los Angeles, State of California and my business address is Greenberg Traurig, LLP, 4 Embarcadero Center, 30th Floor, San Francisco, CA 941 1 1. On this day I caused t0 be served the following document(s): REPLY IN SUPPORT OF DEFENDANTS ARENA ORIGINATION CO., LLC & ARENA LIMITED SPV, LLC’S DEMURRER TO PLAINTIFF’S SECOND AMENDED COMPLAINT E By placing D the original g a true copy into sealed envelopes addressed and served as follows: SAMUEL A. CHUCK Attorneys for Plaintiff MISSY M. CORNEJO 199 Bassett, LLC ROSSI, HAMERSLOUGH, REISCHL & CHUCK 1960 The Alameda, Suite 200 San Jose, CA 95 126-1493 Tel: (408) 261-4252 Fax: (408) 261-4292 sam@rhrc.net missy@rhrc.net JESSE MICHAEL SUAREZ Attorney for Defendants 1020 Kearny St. 199 Bassett Owners, LLC, Starcity Ventures, San Francisco, CA 94133 LLC, 457 Minna Owner LLC jesse@starcity.com ELIZABETH M. PAPPY, ESQ. Attorneys for Defendants NICHOLAS J. MUSCOLINO, ESQ. Jon Dishotsky, M0 Sakrani, Josh Lehman, Burke, Williams & Sorensen LLP Jesse Suarez 1901 Harrison Street, Suite 900 Oakland, CA 94612-3501 epappy@bwslaw.com muscolino@bwslaw.com E BY ELECTRONIC SERVICE: I caused such document to be delivered by electronic means to the addresses listed above. I declare under penalty ofperjury under the laws 0fthe State of California that the foregoing is true and correct. Marisela H. Navarro Case N0. 20CV366450 PROOF OF SERVICE