Cottonwood Cajon Es, LLCv.Gamboa

COURT OF APPEAL, FOURTH APPELLATE DISTRICT DIVISION ONE STATE OF CALIFORNIASep 27, 2018
D073069 (Cal. Ct. App. Sep. 27, 2018)

D073069

09-27-2018

COTTONWOOD CAJON ES, LLC, Cross-complainant, Cross-defendant and Respondent, v. HENRY GAMBOA, Cross-complainant and Appellant.

Law Offices of Ronald Richards & Associates, Law Offices of Geoffrey Long, Ronald N. Richards and Geoffrey S. Long for Cross-complainant, Cross-defendant, and Respondent. Patel Stilwell and Andrew R. Stilwell for Cross-complainant and Appellant.


NOT TO BE PUBLISHED IN OFFICIAL REPORTS

California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115. (Super. Ct. No. 37-2011-00065341-CU-BT-EC) APPEAL from an order after judgment of the Superior Court of San Diego County, Eddie C. Sturgeon, Judge. Affirmed. Law Offices of Ronald Richards & Associates, Law Offices of Geoffrey Long, Ronald N. Richards and Geoffrey S. Long for Cross-complainant, Cross-defendant, and Respondent. Patel Stilwell and Andrew R. Stilwell for Cross-complainant and Appellant.

Henry Gamboa appeals from an order denying his motion to discharge a receiver appointed to aid Cottonwood Cajon ES, LLC (Cottonwood) in the satisfaction of a $15.9 million judgment against Gamboa.

Cottonwood is the creditor and Gamboa is the guarantor of a commercial loan that went into default. Cottonwood obtained a $15.9 million judgment against Gamboa for breach of the guaranty, which Gamboa has not paid. The trial court appointed a receiver to assist in the satisfaction of the judgment and Gamboa thereafter filed a motion to discharge the receiver, arguing that a receiver was unnecessary because the judgment had already been satisfied. The trial court denied Gamboa's motion to discharge the receiver.

On appeal, Gamboa does not dispute that he has paid nothing to satisfy the judgment, evaded service of the judgment enforcement orders, and refused to respond to discovery requests in aid of enforcement. Instead, Gamboa contends that the judgment is satisfied because, after the trial court issued the judgment, Cottonwood purchased the real property that served as collateral for the commercial loan at a nonjudicial foreclosure sale. In Gamboa's view, Cottonwood's recovery of both a monetary judgment and the real property that served as collateral would constitute an "illegal double-recovery." For the reasons discussed below, we reject Gamboa's argument and affirm the order.

Cottonwood also requested that we impose sanctions on Gamboa and his counsel for what Cottonwood believes is a frivolous appeal. We deny Cottonwood's motion.

FACTUAL AND PROCEDURAL BACKGROUND

On December 21, 2007, Far East National Bank (the Bank) loaned $11.5 million to Premier Golf Properties, L.P. (the Borrower), the owner of a golf course in Rancho San Diego. The Borrower executed a deed of trust pledging its golf course and surrounding land (the Property) as collateral. Henry Gamboa, the Borrower's then-chairman, executed a guaranty promising repayment of the loan and obligating Gamboa to pay the loan balance in the event of a default.

The guaranty states that Gamboa's liability is "exclusive and independent" of any security relating to the Borrower's loan obligations. Further, the guaranty contains the following waiver of Gamboa's rights and defenses related to the loan:

[The Bank] may, at its election, foreclose on any security held for the [loan] Obligations by one or more judicial or nonjudicial sales, or exercise any other right or remedy the [Bank] may have against the Borrower, or any security, without affecting or impairing in any way the liability of [Gamboa] hereunder except to the extent the [loan] Obligations have been paid . . . . [Gamboa] waives all rights and defenses that [Gamboa] may have because the [loan] Obligations are or become secured by real property. This means, among other things . . . if the [Bank] forecloses on any real property collateral pledged by [Gamboa] . . . the amount of the [loan] Obligations may be reduced only by the price for which that collateral is sold at the foreclosure sale, even if the collateral is worth more than the sale price . . . .

The Bank assigned its interests in the loan, deed of trust, and guaranty to Cottonwood. At some point during the life of the loan, the Borrower defaulted on its payments and Gamboa was unable to satisfy the Borrower's outstanding loan obligations, which resulted in Cottonwood filing a cause of action against Gamboa for breach of the guaranty. The trial court granted Cottonwood's motion for summary judgment and, on April 5, 2016, entered judgment in Cottonwood's favor in the amount of $15.9 million, plus interest, attorney fees, and costs. Gamboa appealed the judgment to this court in October 2016 (Cottonwood Cajon ES, LLC v. Gamboa (Oct. 6, 2017, D071186)), but later voluntarily requested that we dismiss the appeal before briefing commenced, which we did.

On November 10, 2016, after the entry of judgment, the trustee for the deed of trust recorded a notice of trustee's sale stating that the trustee intended to sell the Property in a nonjudicial foreclosure sale. In response, Gamboa filed a separate action in the superior court, arguing that the notice of trustee's sale contained misrepresentations and seeking, among other things, an injunction to stop the sale. The court denied Gamboa's request to enjoin the sale and, on December 7, 2016, Cottonwood acquired the Property at the foreclosure sale through a $100,000 credit bid.

Cottonwood requested that we take judicial notice of court filings and orders in the action to enjoin the foreclosure sale. We grant Cottonwood's unopposed request. (Evid. Code, § 452, subds. (a) & (d); People v. Harbolt (1997) 61 Cal.App.4th 123, 126-128.)

On May 18, 2017, Cottonwood requested that the trial court appoint a receiver under Code of Civil Procedure section 708.620. Cottonwood contended that Gamboa had paid nothing to satisfy the judgment, evaded service of enforcement orders, and failed to respond to discovery in aid of enforcement. The trial court granted Cottonwood's motion, reasoning that "[t]he appointment of a receiver is a reasonable method to obtain the fair and orderly satisfaction of the judgment."

Gamboa then filed a motion to discharge the receiver, arguing that the foreclosure sale satisfied the judgment, such that there was no longer a need for a receiver. Gamboa claimed it would violate California's public policy disfavoring double recovery to allow Cottonwood to obtain the Property, which Gamboa claimed had a fair market value greater than the judgment, and recover on the judgment. The trial court denied Gamboa's motion and Gamboa appealed.

DISCUSSION

A. Legal Standards Governing Receiverships

A receiver is an agent and officer of the court that preserves and manages receivership property for the benefit of all who may have an interest in the property. (Southern California Sunbelt Developers, Inc. v. Banyan Limited Partnership (2017) 8 Cal.App.5th 910, 922.) Code of Civil Procedure section 564 provides that a court may appoint a receiver, among other circumstances, after judgment "to carry the judgment into effect." (Code Civ. Proc., § 564, subd. (b)(3); see id., § 708.620.)

" 'A receivership terminates upon completion of the duties for which the receiver was appointed; or at any other time upon court order.' [Citation.] 'However, termination of a receivership does not relieve the receiver of his or her duties. To be relieved of such duties, a receiver must be discharged by court order.' " (O'Flaherty v. Belgum (2004) 115 Cal.App.4th 1044, 1094 (dis. opn. of Grignon, J.) We review an order discharging a receiver for abuse of discretion. (Sly v. Superior Court (1925) 71 Cal.App. 290, 294.) B. Legal Standards Governing Guaranties

"A guarantor is one who promises to answer for the debt or perform the obligation of another when the person fails to pay or perform." (Gramercy Investment Trust v. Lakemont Homes Nevada, Inc. (2011) 198 Cal.App.4th 903, 911.) "[A] guaranty is a separate and independent obligation from the principal debt." (United Central Bank v. Superior Court (2009) 179 Cal.App.4th 212, 215; see Gray1 CPB, LLC v. Kolokotronis (2011) 202 Cal.App.4th 480, 489 ["[A] creditor may seek a personal judgment against any guarantor 'since a guaranty is an obligation separate and independent from that binding the principal debtor.' "].) Under Civil Code section 2809, a guarantor's obligation "must be neither larger in amount nor in other respects more burdensome than that of the principal; and if in its terms it exceeds it, it is reducible in proportion to the principal obligation." C. Application

All further statutory references are to the Civil Code, unless otherwise noted.

Broadly stated, Gamboa argues that the trial court erred in declining to discharge the receiver because, according to Gamboa, the nonjudicial foreclosure of the Property satisfied the judgment in this case. Though Gamboa's argument is simple to state as a general matter, the specifics of Gamboa's position are more difficult to discern.

At certain points in his briefing, Gamboa appears to suggest that Cottonwood's election to proceed with a foreclosure sale—and to collect the proceeds therefrom—is the event that satisfied the judgment. On the other hand, Gamboa also suggests that his chief complaint is that Cottonwood acquired the Property at the sale for just $100,000—far less than the $18.5 million Gamboa claims the Property is worth. Although we are not certain if Gamboa is relying on Cottonwood's election to proceed with a foreclosure sale or Cottonwood's purchase of the Property at that sale, or some combination of both, we are certain of one thing—Gamboa's theory (or theories) lack(s) merit.

1. Cottonwood's Election to Proceed with the Nonjudicial Foreclosure Sale Does Not Satisfy the Judgment in This Case

As noted, Gamboa contends that we should treat the nonjudicial foreclosure sale of the Property as satisfaction of the judgment because allowing Cottonwood to proceed with the sale and also to collect on the judgment "would violate California's well-settled and strong policy disfavoring double-recovery by secured creditors." In support of this argument, Gamboa cites section 2809, which effectively states that a guarantor's liability can be no larger in amount or more burdensome than the underlying principal obligation.

Gamboa appealed the judgment to this court in 2016 and then requested that we dismiss the appeal, which we did. Our order dismissing the appeal from the judgment divested us of jurisdiction to consider Gamboa's challenges to the judgment. (See Woodridge Escondido Property Owners Assn. v. Nielsen (2005) 130 Cal.App.4th 559, 577.)

California's Enforcement of Judgments Law (Code Civ. Proc., §§ 680.010-724.20) highlights the incongruity between Gamboa's merits-based argument and the procedural posture of this case. The Enforcement of Judgments Law specifies the procedures governing the satisfaction of judgments, including Code of Civil Procedure section 724.010, subdivision (a), which states that a "money judgment may be satisfied by payment of the full amount required to satisfy the judgment or by acceptance by the judgment creditor of a lesser sum in full satisfaction of the judgment." Gamboa does not even attempt to show how his argument comports with the Enforcement of Judgments Law. Gamboa also has provided us with no authority suggesting that a judgment may be satisfied merely because a party enforces its rights in a separate and independent action against a nonparty. Accordingly, we decline to adopt Gamboa's argument.

Even if Gamboa had asserted his argument in the proper procedural posture, we would find, as a matter of law, that Gamboa waived his argument. It is well-established that a guarantor may waive rights and defenses that it would otherwise be able to assert under section 2809—i.e., the statute on which Gamboa bases his argument. (River Bank America v. Diller (1995) 38 Cal.App.4th 1400, 1416 (River Bank) [finding waiver of section 2809 defense where "[t]he parties by their contract specifically agreed that the liability of the surety was not to be affected by the security provisions in the notes"]; Bloom v. Bender (1957) 48 Cal.2d 793, 804-805 (Bloom) ["[T]he surety cannot be held to be prejudiced where by consensual agreement he undertakes to remain liable after the obligation of the principal is discharged through a composition or settlement arrangement."].) If a guarantor executes such a waiver, he will remain liable for the guaranty "even though some future event eliminates the principal's obligation." (River Bank, at p. 1414.)

Here, the warranty that Gamboa executed states that Gamboa "waives all rights and defenses that [he] may have because the [loan] Obligations are or become secured by real property," and that "if [Cottonwood] forecloses on any real property collateral pledged by the Borrower . . . the amount of the [loan] Obligations may be reduced only by the price for which that collateral is sold at the foreclosure sale, even if the collateral is worth more than the sale price . . . ." It also states that "[t]he obligations of [Gamboa] . . . are independent of the [loan] Obligations of the Borrower, and a separate action or actions may be brought and prosecuted against [Gamboa] whether or not action is brought against the Borrower . . . ."

Together, these provisions demonstrate that: (1) Gamboa knew that his guaranty was independent of and exclusive from the Borrower's obligations; (2) Gamboa agreed that Cottonwood could proceed against him without proceeding against the Borrower or the security; and (3) if Cottonwood proceeded against the security, the loan obligations guaranteed by Gamboa would only be reduced by the amount of the proceeds that Cottonwood received at the foreclosure sale. Accordingly, we find that Gamboa waived his rights and defenses under section 2809, and cannot now argue that he is being held liable for more than the amount of the debtor's underlying obligations. (Bloom, supra, 48 Cal.2d at pp. 804-805; River Bank, supra, 38 Cal.App.4th at p. 1414.)

Gamboa raises two arguments as to why this waiver does not preclude him from asserting his defenses under section 2809. Neither argument has merit.

First, Gamboa contends that California's ban against double-recovery cannot be waived. In support of this argument, Gamboa cites decisions in which courts have held that creditors may not enforce borrowers' waivers of certain statutory rights, including their rights under the antideficiency laws. (See Commonwealth Mortgage Assurance Co. v. Superior Court (1989) 211 Cal.App.3d 508, 515-517.) However, section 2856 expressly provides that guarantors—unlike borrowers—may agree in advance to waive many of those same statutory rights. (G & W Warren's, Inc. v. Dabney (2017) 11 Cal.App.5th 565, 581-582.) As discussed ante, this permits guarantors to waive their rights and defenses under section 2809. (River Bank, supra, 38 Cal.App.4th at p. 1414.)

Second, Gamboa points to an exception in the waiver at issue here, which states that the waiver does not apply "to the extent the [loan] Obligations have been paid." According to Gamboa, the Borrower's loan has been paid in full. We disagree. Cottonwood's election to proceed with a nonjudicial foreclosure sale of the Property precludes Cottonwood from seeking further recovery against the Borrower in a deficiency action. (Code Civ. Proc. § 580d.) However, that fact does not establish that there was ever a payment in full of the Borrower's loan obligations. (See Legendary Investors Group No. 1, LLC v. Niemann (2014) 224 Cal.App.4th 1407, 1414-1415.)

Accordingly, we reject Gamboa's argument that the nonjudicial foreclosure sale of the Property satisfied the judgment in this action.

2. Cottonwood's Acquisition of the Property Does Not Constitute a Satisfaction of the Judgment in this Case

As noted, Gamboa also contends that the judgment in this action is satisfied because Cottonwood acquired the Property at the foreclosure sale for a mere $100,000, far less than the $18.5 million that Gamboa claims the Property is worth. According to Gamboa, allowing Cottonwood to obtain the Property at such a steep discount and to recover on the judgment in this action would result in "vast inequity." We disagree.

As an initial matter, we cannot simply assume that the Property has a fair market value of $18.5 million, as Gamboa requests. The trial court made no factual findings suggesting that the Property is valued at $18.5 million and it would be improper for us to assume so on appeal. (In re Marriage of Smith (1990) 225 Cal.App.3d 469, 493-494 [" 'Our role as an appellate court is not that of factfinder; that is the role of the trial court.' "].)

Even if we were to assume that Cottonwood acquired the Property for less than its fair market value, that would make no difference. Here, Cottonwood paid $100,000 to acquire the Property at a public nonjudicial foreclosure sale—an opportunity that was available to other bidders. We are aware of no authority suggesting that a judgment may be satisfied when a judgment creditor pays for an asset like the Property on the open market. In the absence of such authority, we reject Gamboa's argument. D. Sanctions

Gamboa claims that the foreclosure sale was "trumped up" and the notice of trustee's sale misrepresented facts to dissuade potential bidders from attending the sale. Gamboa also contends that the purchase price of the Property was so low that it raises a presumption of fraud or unfairness. Gamboa failed to timely raise these arguments in the proceedings below and the trial court therefore declined to consider them. For the same reason, Gamboa has forfeited these arguments on appeal. (In re Marriage of Eben-King & King (2000) 80 Cal.App.4th 92, 117.) --------

Cottonwood moved this court to issue sanctions against Gamboa and Gamboa's counsel in the amount of $28,336.00 for filing what Cottonwood contends is a frivolous appeal. We notified counsel that we would consider the sanctions motion concurrently with the appeal. Gamboa opposed Cottonwood's motion for sanctions.

California Rules of Court, rule 8.276, subdivision (a)(1) provides that a court may sanction a party or attorney for "[t]aking a frivolous appeal . . . ." As the Supreme Court has held, an appeal is frivolous when (1) under a subjective standard, the appellant and his or her counsel took the appeal for an improper motive (e.g., to harass the respondent or delay an adverse judgment); or (2) under an objective standard, the appeal is totally and completely devoid of merit. (In re Marriage of Flaherty (1982) 31 Cal.3d 637, 649 (Marriage of Flaherty).) However, "[c]ounsel and their clients have a right to present issues that are arguably correct, even if it is extremely unlikely that they will win on appeal." (Id. at p. 650.) Cottonwood raises three arguments as to why it believes the appeal is frivolous.

First, Cottonwood claims that the appeal is frivolous because the guaranty contains a waiver of Gamboa's rights and defenses under section 2809. As noted, that waiver states that the loan obligations guaranteed by Gamboa may be reduced only by the price for which the Property is sold at a foreclosure sale, even if the Property is worth more than that price. We agree that this waiver precludes Gamboa from prevailing. However, the mere existence of the waiver does not render Gamboa's appeal frivolous. As discussed ante, Gamboa presented a nonfrivolous argument that the waiver, by its terms, does not apply because the Borrower's loan obligations purportedly were paid in full.

Second, Cottonwood claims that the appeal is frivolous because Gamboa's claims regarding the fair market value of the Property are based on inadmissible evidence. Cottonwood objected to the evidence at issue in the trial court and, on appeal, argues that the trial court "sustained Cottonwood's objections." Cottonwood is mistaken. The trial court found that Gamboa forfeited the legal arguments he intended to support with the evidence, but it did not rule on the admissibility of Gamboa's evidence.

Finally, Cottonwood argues that the appeal is frivolous because of the lack of authority supporting Gamboa's claim that a nonjudicial foreclosure sale can satisfy a judgment against a guarantor. We agree that the authorities do not support Gamboa's request for relief, but, by the same token, note that there are no cases that have expressly rejected the extensions of the law Gamboa proposes. Thus, this is an instance in which sanctions could chill the assertion of appellate rights. (Marriage of Flaherty, supra, 31 Cal.3d at p. 650.) Accordingly, we decline Cottonwood's request for monetary sanctions.

Cottonwood also included a one-sentence request in its motion, asking that we award it attorney fees based on a prevailing party provision in Gamboa's guaranty.

DISPOSITION

The order is affirmed. The matter is remanded to the trial court to consider whether attorney fees are appropriate under the guaranty's prevailing party provision. Respondent to recover its costs.

O'ROURKE, Acting P. J. WE CONCUR: IRION, J. DATO, J.