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Scc Acquistions Inc. v. Central Pacific Bank

June 25, 2012

SCC ACQUISTIONS INC., ET AL., CROSS-COMPLAINANTS AND APPELLANTS,
v.
CENTRAL PACIFIC BANK, CROSS-DEFENDANT AND RESPONDENT.



Appeal from a judgment of the Superior Court of Orange County, Charles Margines, Judge. Affirmed. (Super. Ct. No. 30-2008-00112660)

The opinion of the court was delivered by: Moore, J.

OPINION

Appellants SCC Acquisitions, Inc. and Bruce Elieff (collectively appellants), guarantors on a loan by respondent Central Pacific Bank (the bank) to Fillmore Sun LCC (Fillmore Sun), appeal from a judgment of the superior court denying them relief and finding in favor of the bank on appellants' cross-complaint. Appellants contend the trial court erred in instructing the jury. Finding no error, we affirm.

I

FACTS

In August 2005, the bank lent Fillmore Sun over $7.3 million for costs involved in purchasing certain property and for "paying the predevelopment costs related to the development of the Property." Under the terms of the one-year loan, Fillmore Sun would pay only the interest on the loan until the maturity date of the loan, August 24, 2006, at which time the entire principal would be due. The loan also contained a provision affecting the maturity date: If there were no uncured default outstanding at the time of the maturity date, in the bank's sole and absolute opinion and judgment the maturity date would be extended to February 24, 2007. The clause also provided "[t]he granting of such extension, however, is not intended to imply any agreement for any other or further extension of the Maturity Date." Appellants guaranteed payment of the loan.

The loan maturity date was extended five times, the last of which occurred on November 28, 2007, extending the maturity date from October 26, 2007 to April 26, 2008. It appears that after the last extension was granted, the bank did its quarterly review of the risks posed by its various loans and downgraded the Fillmore Sun loan from 4W (a standard loan) to a 6 (a substandard loan), requiring the bank to set aside over $1 million as a reserve to protect against a possible loss on the loan. Although we have not been cited to supporting evidence in the record on appeal, the parties appear to agree a late January 2008 internal bank memorandum noted that if a decision was made to not renew the loan, the borrower should be notified of the decision at that time.

On March 14, 2008, the bank sent a term sheet for the Fillmore loan. The term sheet presented terms "for a possible restructure" of the loan and noted the term sheet was "for discussion purposes only, is subject to Bank approval and should not be construed as a commitment to lend." The proposed terms included a one-year interest only at a loan to value rate of 50 percent. It also proposed any such loan should "close no later than [March 31, 2008]."

On April 16, 2008, the bank decided to sell a number of its outstanding loans, including the Fillmore Sun loan, in a loan pool sale. Prior to that time, the bank did not anticipate selling the Fillmore loan. In July 2008, the bank sold the loan to Gray 1 CPB, LLC (Gray 1) in the loan pool sale. Fillmore was in default on the loan at that time. Gray 1 then sued the guarantors. It filed suit against SCC in September 2008, and subsequently filed suit against Elieff, as his guarantee was to pay if SCC failed to perform.

Appellants cross-complained against the bank. The causes of action included rescission based on sham guaranties, breach of contract and the implied covenant of good faith and fair dealing, promissory estoppel, and intentional fraud based on suppression of facts. The parties agree phase one of the trial resulted in a $9.1 million judgment against appellants and in favor of Gray 1. Appellants' cause of action for rescission based on sham guarantees was tried in this phase of the trial. Appellants have not appealed from that judgment.

In the second phase of the trial, the court impaneled a jury on a number of appellants' remaining causes of action, including fraud. Appellants' theory of liability was that while the original loan and the loan extensions all called for interest only payments until the maturity date of the loan, at which point the entire principal was due, the bank led Fillmore Sun and appellants to believe it would extend the loan as a matter of course. Appellants alleged that prior to the April 26, 2008 maturity date on the last extension, the bank "wanted out of the California residential real estate market" and decided to sell its existing loans -- including the loan to Fillmore Sun -- to the highest bidder.

The jury rendered special verdicts. It found the bank made no false representations of an important fact to appellants and that the bank made a promise to appellants, but the bank intended to perform the promise when the promise was made. The jury also found the bank intentionally failed to disclose an important fact to appellants which could not have reasonably been discovered by appellants, but it was done without an intent to deceive. The court then found in favor of the bank and adjudged that appellants take nothing by their cross-complaint.

II DISCUSSION

Appellants contend the trial court prejudicially erred when it instructed the jury pursuant to two special instructions requested by the bank. "The propriety of jury instructions is a question of law that we review de novo. [Citation.]" (Cristler v. Express Messenger Systems, Inc. (2009) 171 Cal.App.4th 72, 82.) If an instruction is found to be erroneous, reversal is required only when "it appears probable that the improper ...


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