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The Development Acquisition Group, LLC.; and v. Eaconsulting

March 7, 2011

THE DEVELOPMENT ACQUISITION GROUP, LLC.; AND
TEAM INVESTORS, INC., PLAINTIFFS,
v.
EACONSULTING, INC.; ROBITAH MOHDKHATIB, DEFENDANTS.



The opinion of the court was delivered by: Morrison C. England, Jr. United States District Judge

MEMORANDUM AND ORDER AND RELATED CROSS CLAIM.

Through this action, Defendant and Cross-Claimant ea Consulting, Inc. ("EA") moves for partial summary judgment pursuant to Federal Rule of Civil Procedure 56.*fn1

EA seeks disposition of two issues: first, whether EA is entitled to the return of all interest paid to Plaintiff and Cross-Defendant Development Acquisition Group ("DAG") under Cal. Civ. Code § 1916-2; and second, whether EA should be awarded treble damages on interest paid under Cal. Civ. Code § 1916-3. For the reasons set forth below, EA's Motion is granted in part and denied in part.*fn2

BACKGROUND

In late 2006, DAG executed a $500,000 loan to EA pursuant to a Convertible Promissory Note secured by a Stock Pledge Agreement. In the Stock Pledge Agreement, EA's CEO, Chin K. Wong ("Wong"), pledged his personal shares of stock in EA as security for the loan. (Undisp. Facts No. 1). The Convertible Promissory Note memorializing the loan set forth an interest rate of 8% over the course of ninety days with a provision for an increase to 12% in the event of default. (Decl. of Chin K. Wong, Ex. 7).

EA defaulted on this loan and the parties thereafter negotiated a loan modification agreement memorialized by a Second Convertible Promissory Note (the "Note") and a Stock Pledge Agreement ("Pledge Agreement"). Under that modification, the principal due was increased to $525,000.

The $525,000 figure represented the original principal plus DAG's claim for $40,000 in accrued interest through January 1, 2007 on the first promissory note, less a $15,000 payment made by EA. (Undisp. Facts No. 2). The Note contained the same terms as the original loan of an 8% interest rate over ninety days, amounting to an annual yield of 32%.

DAG alleges that EA defaulted on the Note. On May 29, 2007, DAG held a public auction for Wong's pledged shares of EA under the terms of the Pledge Agreement and sold the shares to Team Investors, a party to this action. (Compl. ¶16, 17). On July 14, 2008, after a failed attempt to reach a forbearance agreement between the parties, DAG sent the president of EA a letter requesting the transfer of Wong's shares to Team Investors. (Id. at ¶20-21). EA refused to accommodate that request. (Id. at ¶22).

To date, EA has paid a total of $558,519.13 on the loan, but DAG alleges that $256,804.07 is still owed. (Decl. of Shaun Fields Ex. A). After failed negotiations, DAG filed suit, alleging breach of contract for defaulting on the loan and seeking an order compelling transfer of the pledged shares. EA counter-claimed, arguing that the 32% annual interest rate sought by DAG violates California usury law pursuant to California Constitution Article XV § 1 and Cal. Civ. Code § 1916-2. The parties dispute whether any exception to California's usury laws apply.

STANDARD

The Federal Rules of Civil Procedure provide for summary judgment when "the pleadings, depositions, answers to interrogatories, and admissions on file, together with affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Rule 56(c). One of the principal purposes of Rule 56 is to dispose of factually unsupported claims or defenses. Celotex Corp. v. Catrett, 477 U.S. 317, 325 (1986). Under summary judgment practice, the moving party "always bears the initial responsibility of informing the district court of the basis for its motion, and identifying those portions of 'the pleadings, depositions, answers to interrogatories, and admissions on file together with the affidavits, if any,' which it believes demonstrate the absence of a genuine issue of material fact."

Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986) (quoting Rule 56(c)).

Rule 56 also allows a court to grant summary adjudication on part of a claim or defense. See Rule 56(a) ("A party seeking to recover upon a claim...may...move...for a summary judgment in the party's favor upon all or any part thereof."); see also Allstate Ins. Co. v. Madan, 889 F. Supp. 374, 378-79 (C.D. Cal. 1995); France Stone Co., Inc. v. Charter Township of Monroe, 790 F. Supp. 707, 710 (E.D. Mich. 1992).

The standard that applies to a motion for summary adjudication is the same as that which applies to a motion for summary judgment. See Rule 56(a), 56(c); Mora v. ...


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