The opinion of the court was delivered by: Marilyn L. Huff, District Judge United States District Court
MEMORANDUM DECISION ON ACCOUNTING
The Plaintiffs remaining before the Court are: (1) Manal Naoom (d/b/a L.T.M. Auto Sales); (2) Afshin Kashani (d/b/a Auto Finance Group); (3) Auto Finance Group, Inc.; (4) Parviz Ghadimi (d/b/a M.P. Motors); and (5) Mehran Khomamizadeh (d/b/a Car Mart) (collectively, "Plaintiffs"). Plaintiffs filed the Third Amended Complaint on May 15, 2006. The remaining Defendants are Secured Assets of California, SAIF, Inc., and Thomas Sterling. In their remaining claims, Plaintiffs seek an accounting, declaratory relief, injunctive relief, and they seek to recover for usury and under RICO.
In its summary judgment order, the Court ruled that SAIF, Inc. may enforce the various agreements as successor in interest. The Court also ruled that Plaintiffs Manal Naoom, Afshin Kashani, Parvis Ghadimi, Mehran Khomamizadeh, and Javad Mousavinia, and Counterdefendant Nashat Naoom breached the agreements set forth in Claims I through X of SAIF, Inc.'s countercomplaint as to unpaid principal. Further, the Court ruled in the summary judgment order that Plaintiffs are entitled to an accounting of the amounts due under the agreements, and the Court bifurcated the accounting from the remaining causes of action for trial.
The Court held the trial on the accounting beginning on November 21, 2006 and concluding on November 30, 2006 to determine the amounts that each Plaintiff currently owes to SAIF, Inc. Robert Reynolds and Richard Miller appeared for Plaintiffs, and Richard Van Dyke appeared for Defendants. The Court heard testimony from Thomas Sterling, Khasrow Alex Baghaei, Manal Naoom, Danielle Rauto, Emebet Selassie, Mark Daniel Close, Afshin Kashani, and Parviz Ghadimi. The court received into evidence hundreds of exhibits. After hearing the evidence, evaluating the credibility and demeanor of the witnesses, reviewing all of the exhibits, and carefully considering the arguments of counsel, the Court finds:
1. Manal Naoom (d/b/a L.T.M. Auto Sales) is liable to SAIF, Inc. in the amount of $117,393.66;
2. Afshin Kashani (d/b/a Auto Finance Group) is liable to SAIF, Inc. in the amount of $157,794.22;
3. Parviz Ghadimi (d/b/a M.P. Motors) is liable to SAIF, Inc. in the amount of $206,008.74, potentially offset by any credit for amounts deposited with the Court if appropriate; and
4. Mehran Khomamizadeh (d/b/a Car Mart) is liable to SAIF, Inc. in the amount of $255,105.00.
The Court has requested further briefing on prejudgment interest and attorneys' fees, and will request briefing or documentation on the potential offset.
"An action for an accounting . . . is a proceeding in equity for the purpose of obtaining a judicial settlement of the accounts of the parties in which proceeding the court will adjudicate the amount due, administer full relief and render complete justice[.]" Verdier v. Superior Court, 199 P.2d 325, 327 (Cal. Ct. App. 1948). An accounting is typically a two step process. After determining the right to an accounting, the court either refers the matter for an accounting or conducts the accounting itself. See, e.g., 1A C.J.S., Accounting, §§ 45, 47; 1 Am. Jur. 2d, Accounts and Accounting, § 66. Accordingly, having found that Plaintiffs are entitled to an accounting, the Court proceeds to adjudicate the amounts due to SAIF, Inc.
To arrive at the amount each Plaintiff owes to SAIF, Inc., the Court must combine the amount of unpaid principal with interest and fees, and then offset any usury. As noted below, the parties agree on the universe of checks that passed between each Plaintiff and SAIF, Inc. and on the absolute amounts of principal, interest, and fees, but Plaintiffs claim that the vehicle inspection and account servicing fees are really usurious interest charges. Accordingly, after describing SAIF, Inc.'s lending program and the documents executed by each of the dealers, the Court will address the issue of usury.
1. SAIF, Inc.'s Inventory Financing Program
Thomas Sterling testified credibly that SAIF, Inc. conducted an inventory financing program, also referred to as a flooring program, which was intended to provide short term loans to used car dealers to finance inventory. Sterling and Khasrow Alex Baghaei, SAIF, Inc.'s account manager during most of the time period in question, testified that SAIF, Inc. would loan up to 80% of the wholesale value of each vehicle as stated by the Kelley Blue Book. The dealers would provide titles to SAIF, Inc. as collateral for the loans. The loans did not contain amortization of principal, but were for interest and fees only.
The credible evidence showed that SAIF, Inc. and each new dealer would execute several documents at the beginning of the lending relationship. Each new dealer would execute a security and buy back agreement, a promissory note, and a personal guarantee. (Security and buy back agreement, promissory note, and personal guarantee for: Manal Naoom and L.T.M. Auto Sales, Defs.' Exs. A, B, & D; Afshin Kashani and Auto Finance Group, Defs.' Exs. M, N, & O; Parviz Ghadimi and M.P. Motors, Defs.' Exs. X, Y, & AA; and Mehran Khomamizadeh and Car Mart, Defs.' Exs. AJ, AK, & AM) As the lending relationship continued, a vehicle identification list was used to track details of the vehicles being funded, the funding amounts, and the pay off dates. (Vehicle identification list attached to security agreement for: L.T.M. Auto Sales, Defs.' Ex. A; Auto Finance Group, Defs. Ex. M; M.P. Motors, Defs.' Ex. X; and Car Mart, Defs.' Ex. AJ.) The evidence indicated that the date of pay off indicated the date that the dealer either paid off the loan or exchanged a new title for the one held by SAIF, Inc. SAIF, Inc. used a note change record to keep track of any new advances or paydowns, the date of any changes, and the amount of the new interest payment. (Note change record attached to corresponding promissory note for: L.T.M. Auto Sales, Defs.' Ex. B; Auto Finance Group, Defs.' Ex. N; M.P. Motors, Defs.' Ex. Y; and Car Mart, Defs. Ex. AK.) Generally, the account manager and the dealer would initial each change on the note change record. The credible evidence showed that the interest payment amount indicated on the note change record was a combination of the interest charge, the vehicle inspection fee, and the account servicing fee set forth on the promissory note, sometimes reduced by an applicable percentage discount. The evidence demonstrated that each dealer willingly agreed to pay the principal, interest, account servicing fees, and vehicle inspection fees.
Baghaei worked as the account manager on Plaintiffs' accounts until Gary Tkacs took over. The evidence indicated that Baghaei conducted much of the business at the dealers' places of business. Accordingly, Baghaei visited the dealers to provide new funding, to collect checks, and to provide or exchange titles. The evidence indicated that the account manager entered any new fundings or pay downs of principal on the note change records in the field, and the account manager and dealers typically initialed each change on the note change record. Further, the evidence showed that the account manager would update the vehicle identification list in the field.
The evidence demonstrated that SAIF, Inc.'s flooring program was competitive with other inventory financing companies. The evidence indicated that several of the dealers had used other flooring plans. Further, the evidence showed that SAIF, Inc. offered M.P. Motors a lower financing rate to match a competitor and gained its business as a result. The evidence also demonstrated that SAIF, Inc.'s flooring plan provided advantages over some of the larger inventory financing companies. SAIF, Inc. provided more personal service and more flexibility to the dealers. Baghaei came to the dealerships at least twice a month, and as Parviz Ghadimi testified, Baghaei spoke the same language as the dealers and understood their backgrounds, which provided a level of comfort to the dealers. Moreover, SAIF, Inc. offered dealers the option to pay off the loan when it became due or they could "rebook" the loan and exchange new titles for the old ones. Thus, under SAIF, Inc.'s program, dealers did not necessarily have to pay off the loan when due. Also, SAIF, Inc. did not require dealers to pay off sold cars until the next visit from the account manager, whereas some competitors required pay off within 48 hours of a car being sold. These SAIF, Inc. practices provided a substantial benefit to dealers.
The evidence showed that each new funding correlated to new vehicles and, as indicated above, that Plaintiffs and the account manager generally initialed the note change record for each new advance. Accordingly, the evidence demonstrated that each new funding constituted a new loan agreement between the parties. Substantial evidence demonstrated that the dealerships willingly agreed to the finance charges and fees as reflected in the original promissory notes, the vehicle identification lists, each note change record, and the checks paid by the dealers for the flooring plan.
The evidence indicated that SAIF, Inc. had written policies and procedures for new and existing dealers. (Defs.' Ex. BY.) Sterling testified that these written policies had evolved over time. Sterling testified that SAIF, Inc. instituted vehicle inspection and account servicing procedures to reduce risk related to inventory financing. Sterling testified that SAIF, Inc. would look at the dealers' practices, and in particular at how often they turned over their inventory, in determining whether to initially fund a dealer. He testified that the quicker the dealers turned over their inventory, the better chance they would have of securing financing from SAIF, Inc. and making a profit from their used car sales. Sterling testified that the initial vehicle inspection required a verification of the car's vehicle identification number and verification that the car matched the title. Subsequent inspections involved verification that the same vehicles made up the dealer's inventory. Sterling testified that SAIF, Inc.'s policies required inspections twice a month.
Baghaei testified regarding the account servicing and the initial and subsequent vehicle inspections. As to account servicing, Baghaei testified that he conducted nearly all business at the dealers' locations, and thus SAIF, Inc.'s program provided dealers with personal service. He picked up titles and checks, he executed note changes with the dealers on the note change records, and he updated the vehicle identification lists for each dealer. The evidence demonstrated that he visited the dealerships at least twice a month and that he spoke the same language as the dealers and understood their backgrounds. Moreover, as noted above, the credible evidence showed that SAIF, Inc.'s account servicing provided flexibility to the dealers. SAIF, Inc. offered dealers the option of rebooking their loans rather than paying them off when due. Further, SAIF, Inc. did not require dealers to pay off ...