APPEAL from a judgment of the Superior Court of Los Angeles County, Matthew C. St. George, Commissioner. (Los Angeles County Super. Ct. No. BC379634)
The opinion of the court was delivered by: Johnson, J.
CERTIFIED FOR PUBLICATION
Third party claimant Citibank N.A. (Citibank) appeals from a judgment denying its petition to levy on deposit account funds held by City National Bank (CNB) and Provident Title (Provident) in the name of Downtown Lofts, LP in which Citibank claims a security interest. Plaintiff Oxford Properties, LLC (Oxford) and defendant Rehabilitation Associates, LLC (Rehab) formed a partnership known as Downtown Lofts, LP in 2003 to develop downtown loft property; Rehab bought out Oxford's partnership interest in Downtown Lofts in 2007 with proceeds from a refinance of the property by Citibank. As part of the refinance, Citibank took a trust deed and security interest in the partnership's real and personal property and later foreclosed on these interests. However, due to certain conditions placed on the sale of Oxford's partnership interest in Downtown Lofts, some of the Citibank loan proceeds were never disbursed to Oxford; Citibank claimed a security interest in the funds and sought to levy on them.
At the same time, due to numerous defalcations by Rehab and its principal in their dealings with Oxford in connection with the partnership, the matter proceeded to arbitration in which the arbitrator awarded Oxford $30 million in compensatory and punitive damages, as well as the funds on deposit in the two accounts in which Citibank claimed a security interest. The trial court denied Citibank's petition, finding that the two deposit accounts were property of Oxford and thus Citibank never acquired a security interest in them. We affirm.
FACTUAL BACKGROUND AND PROCEDURAL HISTORY
1. Background: Development of Main Mercantile Lofts
Oxford acquired an option to purchase the Main Mercantile Building (620 South Main Street) in downtown Los Angeles, and intended to redevelop the building as live-work units. Oxford's principal, Frank Gamwell, met Lance Robbins, principal of Rehab, and the two decided to form a partnership to redevelop the property as equal partners. Subsequently, Oxford and Rehab, along with a Gamwell-controlled entity known as Prudential Construction and Management, Inc., formed a general partnership known as "Downtown Lofts LLP" to redevelop the property.
Oxford acquired a construction loan from United Commercial Bank (UCB), and Gamwell guaranteed the loan. Around this time, the parties restructured the partnership pursuant to the second amended partnership agreement such that Rehab became a limited partner; Oxford remained a general partner and also became a limited partner. As a result of the restructuring, Rehab obtained a 50 percent interest in the partnership as a limited partner; Oxford obtained 49.5 percent interest in the partnership as a limited partner, and Oxford obtained a 0.5 percent interest as a general partner.
Construction of the lofts began in late 2003 or early 2004, and encountered delays and changes in the plans due to Robbins's conduct. In 2007, Oxford completed redevelopment of the building, but at such great expense that Oxford and Gamwell were on the brink of financial ruin. Gamwell sold all his available assets, mortgaged his home, and procured a high-interest personal loan for $1 million that was due in August 2007.
2. Sale of Oxford's Partnership Interest; Citibank Refinancing
On July 27, 2007, with the $1 million personal loan about to become due, Gamwell agreed to sell his partnership interest to Rehab for $3 million. Pursuant to the partnership sales agreement (PSA), Fedora Investment Corp. (Fedora), a Robbins-controlled company, became the general partner of Downtown Lofts; Rehab remained a limited partner, and Oxford retained a 0.5 percent limited partner interest until the final payment from Rehab.
The PSA provided that a $2.5 million payment would be made to Oxford from the then-pending refinance of the property through Citibank when such refinancing was completed; the remaining $500,000 due Oxford would be paid two years after the execution of the PSA, subject to certain terms and conditions set forth therein, but $100,000 was due unconditionally in August 2009.
In August 2007, Citibank loaned $11.7 million to Downtown Lofts. As security for the loan, Downtown Lofts gave Citibank a deed of trust on the property and a security interest in certain of Downtown Loft's personal property.*fn1 Prior to the closing of the Citibank loan, new accounts were opened for the partnership.
The settlement statements for the Citibank loan dated August 23, 2007 shows that $2,325,786.37 was disbursed to the Buyer (Downtown Lofts), and $700,000 (under the heading "Loan Charges to Citibank") was set aside for a "lender holdback." These two sums, after certain deductions described below, were disbursed to the CNB and Provident accounts, leaving balances in those accounts of $210,789.99 and $277,604.44, respectively.
The Provident account was used to pay lien claims. Provident insured title to the building free and clear of any exceptions for mechanic's lien rights, and required Gamwell to promise to it that Gamwell and his construction company would not make any lien claims against the building. Provident held back $700,000 from the Citibank refinancing for this purpose. As a result, contemporaneously with the closing of the Citibank loan, out of this $700,000 holdback, more than $400,000 was disbursed, leaving a balance of $277,737.69 remaining in the Provident account. Oxford was unable to obtain these funds because Robbins's signature was required and Robbins refused to release the funds.
The CNB account held the remainder of the proceeds of the purchase price for Oxford's partnership interest. According to Gamwell, upon the closing of the Citibank loan, Provident paid off the construction loan, and paid $2,325,786.37 into the partnership CNB account for payment to Gamwell. The CNB account had been used for redevelopment of the building, was currently dormant, and had a balance of $1,000. After the closing, the CNB account was used to pay Oxford for its partnership share and a balance of $229,237.19 remained in the CNB account.*fn2 These funds were to remain in the account until Robbins was satisfied that certain insurance conditions on the property had been met; however, Robbins never transferred the funds to Oxford.
After the Citibank loan on the building closed, Oxford transferred its partnership interests ...