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HSBC Bank USA v. Dara Petroleum

May 27, 2010

HSBC BANK USA, NATIONAL ASSOCIATION, AS INDENTURE TRUSTEE FOR THE BENEFIT OF THE NOTEHOLDERS AND THE CERTIFICATEHOLDERS OF BUSINESS LOAN EXPRESS BUSINESS LOAN TRUST 2005-A, PLAINTIFF,
v.
DARA PETROLEUM, INC. DBA WATT AVENUE EXXON, A CALIFORNIA CORPORATION; SARBJIT S. KANG, AN INDIVIDUAL; NARGES EGHTESADI, AN INDIVIDUAL; EXXON MOBIL CORPORATION FKA EXXON CORPORATION, A NEW JERSEY CORPORATION; U.S. SMALL BUSINESS ASSOCIATION, A UNITED STATES GOVERNMENT AGENCY; AND DOES 1 THROUGH 20, INCLUSIVE, DEFENDANTS,



AND RELATED CROSSCLAIMS AND COUNTERCLAIMS.

MEMORANDUM AND ORDER RE: MOTION FOR JUDGMENT ON THE PLEADINGS

Plaintiff HSBC Bank USA, National Association, as Indenture Trustee for the benefit of the Noteholders and the Certificateholders of Business Loan Express Business Loan Trust 2005-A brought this action against defendants Dara Petroleum, Inc. dba Watt Avenue Exxon ("Dara"), Sarbjit S. Kang, Narges Eghtesadi, Exxon Mobil Corporation ("Exxon") and the United States Small Business Association ("SBA") for judicial foreclosure and breach of written guarantee stemming from a default on a commercial loan plaintiff originated. Defendants Dara, Kang, and Eghtesadi then filed counterclaims against plaintiff for breach of contract and fraud. Before the court is plaintiff's motion for judgment on the pleadings on Dara, Kang, and Eghtesadi's counterclaims.

I. Factual and Procedural Background

Dara is the owner of real property located at 3449 El Camino Avenue, Sacramento, California. (Compl. ¶ 11.) On June 11, 2004, plaintiff sent Dara a letter with the terms for an $800,000 loan. (Dara/Kang Countercl. ¶ 6; Eghtesadi Countercl. ¶ 5.) This letter (the "letter loan agreement") indicated the loan's interest rate would be "[t]he 30-Day LIBOR equivalent to the Wall Street Journal Prime 2.75% adjusted on the 1st day of each calendar month (Margin over 30-Day LIBOR will be determined at time of closing)."*fn1 (Dara/Kang Countercl. Ex. 1 at 1; Eghtesadi Countercl. Ex. 1 at 1.) Plaintiff then prepared an adjustable rate promissory note ("Note") with the section on the interest rate allegedly left blank at the time of signing. (Dara/Kang Countercl. ¶ 9; Eghtesadi Countercl. ¶ 8.)

On July 29, 2004, Dara and plaintiff entered into a loan agreement whereby plaintiff agreed to loan Dara a principal sum of not more than $800,000. (Compl. ¶ 12.) Plaintiff executed the Note in the amount of $800,000 to Dara and Dara agreed to repay the loan, with interest, in monthly installments. (Id. ¶¶ 13-14.) The loan was secured by a Deed of Trust, in which Dara conveyed its interest in the subject property to Fidelity National Title Company as trustee for the benefit of plaintiff. (Id. ¶ 15.) Kang and Eghtesadi also individually executed unconditional written guarantees of the loan, guaranteeing plaintiff payment of all amounts due under the Note. (Id. ¶ 19.)

At the time of the signing of these documents, Aaron Hopkins, plaintiff's vice-president, allegedly explained that the loan was to bear interest at the LIBOR index rate plus 2.75%. (Dara/Kang Countercl. ¶ 10; Eghtesadi Countercl. ¶ 9.) However, the Note indicates that the interest rate to be charged to Dara was 5.5% over the LIBOR index rate. Dara, Kang, and Eghtesadi allege that plaintiff intentionally hand-wrote the rate of 5.5% into the Note after they signed a blank version of it and misled them into believing the interest rate on the loan would be 2.75% over the LIBOR rate under the terms of the letter loan agreement. (Dara/Kang Countercl. ¶ 14; Eghtesadi Countercl. ¶ 13.)

Dara, Kang, and Eghtesadi eventually defaulted on their obligations under the loan and guarantees. (Compl. ¶ 21.) On June 3, 2009, plaintiff sent Dara, Kang, and Eghtesadi demand for payment letters stating that the Note and guarantees were in default and demanded full payment of the amount due under the agreements by June 17, 2009. (Id.) Defendants failed to pay the amount due on the loan.

In response, plaintiff brought this action to foreclose on the property and for breach of the guarantees in Sacramento County Superior Court on July 7, 2008. The SBA removed the action to this court on August 24, 2009. (Docket No. 1.) Dara and Kang filed an answer to the Complaint and counterclaims for breach of contract and fraud based on the alleged improprieties in the Note's interest rate on October 30, 2009. (Docket No. 22.) Eghtesadi filed an answer to the Complaint and almost identical counterclaims on November 24, 2009. (Docket No. 32.) After an initial hearing on plaintiff's motion on April 12, 2010, the court held a hearing on May 24, 2010, and heard testimony from expert witnesses on the definition of "the 30 Day LIBOR equivalent to the Wall Street Journal Prime."

II. Discussion

Judgment on the pleadings is appropriate after the pleadings have closed when, on the face of those pleadings, accepting the allegations of the non-moving party as true, no material issue of fact remains to be resolved. See Fed. R. Civ. P. 12(c); Hal Roach Studios, Inc. v. Richard Feiner & Co., Inc., 896 F.2d 1542, 1550 (9th Cir. 1990). Under such circumstances, the moving party can obtain judgment as a matter of law. Hal Roach Studios, 896 F.2d at 1550. "Generally, district courts have been unwilling to grant a Rule 12(c) dismissal 'unless the movant clearly establishes that no material issue of fact remains to be resolved and that he is entitled to judgment as a matter of law.'" Doleman v. Meiji Mut. Life Ins. Co., 727 F.2d 1480, 1482 (9th Cir. 1984) (quoting 5A C. Wright & A. Miller, Federal Practice and Procedure: Civil, § 1368 at 690 (1969)).

On a motion for judgment on the pleadings, the factual allegations of the non-moving party are taken as true. Doleman, 727 F.2d at 1482 (citing Austad v. United States, 386 F.2d 147, 149 (9th Cir. 1967)). A Rule 12(c) motion is therefore essentially equivalent to a Rule 12(b)(6) motion to dismiss and consequently, a district court may "dispos[e] of the motion by dismissal rather than judgment."*fn2 Sprint Telephony PCS, L.P. v. County of San Diego, 311 F. Supp. 2d 898, 902-03 (S.D. Cal. 2004). "[D]ismissal can be based on either the lack of a cognizable legal theory or the absence of sufficient facts alleged under a cognizable legal theory." Sprint Telephony, 311 F. Supp. 2d at 902-03; see also Balistreri v. Pacifica Police Dep't, 901 F.2d 696, 699 (9th Cir. 1988).

When an essential component of the contract uses specialized, technical terms which are not understandable to a person outside the relevant field, the court may look to extrinsic evidence for guidance in defining and interpreting the terms at issue. See 3 Starkie on Evidence, 1033 ("Where terms are used which are known and understood by a particular class of persons, in a certain special and peculiar sense, evidence to that effect is admissible for the purpose of applying the instrument to its proper subject-matter; and the case seems to fall within the same consideration as if the parties in framing their contract had made use of a foreign language which the courts are not bound to understand."); see also Yassin v. Solis, No. B215201, --- Cal. Rptr. 3d ----, 2010 WL 1802354, at *6 (Cal. App. 2 Dist. May 6, 2010) (using architecture dictionaries and treatises to interpret a complex term in an architecture contract).

"When considering a motion for judgment on the pleadings, [a] court may [also] consider facts that are contained in materials of which the court may take judicial notice." Heliotrope Gen., Inc. v. Ford Motor Co., 189 F.3d 971, 981 n.18 (9th Cir. 1999) (internal citations omitted). A court may take judicial notice of facts "not subject to reasonable dispute" because they are either "(1) generally known within the territorial jurisdiction of the trial court or (2) capable of accurate and ready determination by resort to sources whose accuracy cannot reasonably be questioned." Fed. R. Evid. 201. Additionally, "[a] copy of a written instrument which is an exhibit to a pleading is a part thereof for all purposes." Fed. R. Civ. P. 10.

Plaintiff requests the court take judicial notice of two documents: (1) a copy of the letter loan agreement executed by Eghtesadi on behalf of Dara, attached as Exhibit 1 to both the Dara/Kang and Eghtesadi counterclaims, and (2) a copy of the published money index rates from the Wall Street Journal on July 29, 2004. (See Pl.'s Req. Judicial Notice at 1:6-18.) The court will take judicial notice of these documents because the letter loan agreement is attached to the pleadings and its accuracy has not in dispute, and the copy of the Wall Street Journal index rates from the Wall Street Journal itself is a source whose accuracy cannot be questioned. See, e.g., ...


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