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Onions Etc., Inc., et al v. Defendant Fresno-Madera Federal Land Bank Association

July 23, 2012


The opinion of the court was delivered by: Michael J. Seng United States Magistrate Judge



(ECF NO. 778)

Litigation in this case arose out of the financial collapse of Defendant Z&S Fresh, Inc., doing business as Z&S Distributing Company, Inc., a California corporation ("Z&S"). (Compl., ECF No. 1.) Multiple claims and cross-actions have been filed against and amongst the various Defendants and related parties by a number of creditors. Included among those are the still-pending claims by the Fresno-Madera Federal Land Bank Association, FCLA*fn1 ("Land Bank"), against Aron Margosian*fn2 and Carrie Margosian ("Margosians") as alleged guarantors of certain debt owed to Land Bank by ZM Fresh Special T's, Inc., a California corporation formerly known as ZMC Fresh Inc., a California corporation (both, "ZM").*fn3 ZM had been formed by Aron Margosian and Martin Zaninovich, the principal of Z&S. The Margosians have counter-claimed against the Land Bank seeking damages for misrepresentation and related claims arising out of the execution of their guaranty.*fn4

The Land Bank consented to the jurisdiction of the Magistrate Judge on September 30, 2011 (Consent of Land Bank, ECF No. 746); the Margosians jointly consented to the jurisdiction of the Magistrate Judge on October 3, 2011. (Consent of Margosians, ECF No. 747.) The District Court Judge referred the claims between Land Bank and the Margosians to the undersigned for all purposes based upon the parties' consent to Magistrate Judge jurisdiction. (Correctional Order, ECF No. 826.)

On January 17, 2012, Land Bank filed this motion for summary judgment or in the alternative summary adjudication of its claims against the Margosians and the counter-claims and defenses of the Margosians. (Mot. for Summ. J. ("MSJ"), ECF Nos. 778-785.) The Margosians filed an opposition to the motion for summary judgment and evidentiary objections.*fn5 (Opp'n., ECF Nos. 791-797.) The Land Bank filed a reply and objections to evidence.*fn6 (Reply, ECF Nos. 798-800.) The matter was submitted to the undersigned for decision after extended oral argument February 17, 2012.

For the reasons set out below, the Court grants Land Bank's motion for summary judgment in full.


Z&S's principal, Martin Zaninovich, and Cross-Defendant Aron Margosian created ZM, a business operating a fruit packing shed. As of mid-2008, ZM was indebted to Land Bank on a $3.9 million term loan ("Term Loan") secured by a first deed of trust on the ZM packing shed and to Fresno-Madera Production Credit Association ("PCA") on a one-year $1 million operational revolving line of credit loan ("RLOC Loan") secured by a first lien on personal property. (Undisputed Facts, ("UFs") 1-3, 5-6.) Z&S, Zaniniovich, and both Margosians were shown as individual guarantors of both loans. (UFs 2, 4, 7-8.) In late 2008, following statutory*fn7 notice from Land Bank and PCA that the Loans were "distressed" and suitable for "restructure", ZM, Martin Zaninovich and the Margosians applied for and were provided a restructuring of the two loans into a single 15-year $4,810,000 term Land Bank loan ("Restructure Loan") secured by a first deed of trust on the ZM packing shed and, at least on the face of things, guarantied by Z&S, Zaninovich and the Margosians.

(UFs 14-21.) The Restructure Loan fell into default in July 2009. (UF 36.) There remained $3,404,528.04 unpaid on the Restructure Loan as of January 13, 2012.*fn8 (UF 37.) Land Bank seeks to recover that sum from the Margosians. It claims here that there is no dispute as to any material fact relevant to its claims or claims against it by the Margosians and it is entitled to judgment against them for the full unpaid balance of the Restructure Loan.

The Margosians claim that in soliciting and securing their purported signatures on the Restructure Loan General Continuing Guaranty ("Guaranty"), the Land Bank concealed material facts about the financial plight of the borrower, ZM, and the other guarantors, Z&S and Zaninovich, and misrepresented the nature, content and effect of the Restructure Loan documents the Margosians were being asked to sign, (UFs 38-39; Margosians Resp. to UF ("RUF") 39; Margosian Disputed Facts ("MDFs) 10, 14, 20-21) and as such is liable to the Margosians for general, special and punitive damages for fraud, misrepresentation, and breach of the implied covenant of good faith and fair dealing.*fn9

The Land Bank responds to the latter claims by maintaining that undisputed facts show it disclosed to the Margosians all it had a duty to disclose, that the Margosians' claims as to oral misrepresentation by the Land Bank at the time of signing the Restructure Loan Guaranty are barred by the parol evidence rule, and that claims for punitive damages are not recoverable against a federally chartered instrumentality such as the Land Bank.


Rule 56 of the Federal Rules of Civil Procedure states as to a party who has moved for summary judgment:

The judgment sought shall be rendered forthwith if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law. Accordingly, to prevail on a motion for summary judgment, the movant must demonstrate that (1) there is no genuine issue as to any material fact; and (2) that he is entitled to summary judgment as a matter of law. As to the first of these determinations, a fact is deemed "material" if proof of its existence or nonexistence would affect the disposition of the case under the applicable law. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). An issue of material fact is "genuine" if the evidence offered is such that a reasonable jury might return a verdict for the non-movant. Id. at 257. In determining whether a genuine issue has been raised, the court must construe all inferences and ambiguities against the movant and in favor of the non-moving party. United States v. Diebold, Inc., 369 U.S. 654, 655 (1962).

The party seeking summary judgment shoulders the initial burden of demonstrating to the court that there is no genuine issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). Once the movant has made this threshold demonstration, the non-moving party, to survive the motion for summary judgment, may not rest on the allegations averred in his pleadings. Rather, the non-moving party must demonstrate that specific, material facts exist which give rise to a genuine issue. Id. at 324. Under this standard, the existence of a mere scintilla of evidence in support of the opposition's position is insufficient to withstand the summary judgment motion. Anderson, 477 U.S. at 252. Likewise, conclusory allegations or denials, without more, are insufficient to preclude the granting of the summary judgment motion. Ross v. Communications Satellite Corp., 759 F.2d 355, 365 (4th Cir. 1985), overruled on other grounds at 490 U.S. 228 (1989).

The parties bear the burden of supporting their motions and oppositions with the papers they wish the court to consider and/or by specifically referencing any other portions of the record they wish the Court to consider. Carmen v. San Francisco Unified School Dist., 237 F.3d 1026, 1031 (9th Cir. 2001). The court will not undertake to mine the record for triable issues of fact. Id.


A. The Restructure Loan and Guaranty

As noted, the Land Bank proceeds against the Margosians based upon the latter's execution of documents which on their face make them liable as guarantors for the unpaid Restructure Loan of ZM. The undisputed facts create a prima facie case of liability on the part of the Margosians.

In November or December 2008*fn10 , ZM entered into the Restructure Loan agreements under which Land Bank agreed to loan $4,810,000 to ZM to pay off the Land Bank Term Loan and the PCA RLOC Loan. (UFs 21, 25, 33-34.) The Restructure Loan Agreement provided that all indebtedness thereunder was to be unconditionally and continuously guarantied by Z&S, Martin Zaninovich, the Margosians.*fn11 (UF 26; Hackler Decl., Exs. 8-9.) Aron Margosian signed the Restructure Loan as Treasurer and Chief

Financial Officer of ZM. (UF 27.) Aron and Carrie Margosian each signed the Guaranty thereby personally guarantying repayment of the $4,810,00 Restructure Loan. (UFs 29, 43.) In July 2009, the Restructure Loan fell into default. (UF 36.) As noted above, the sum of $3,404,528.04 remains unpaid and past due under the Guaranty. (UF 37.)

Absent the Margosians' counter-claims and affirmative defenses relating to the facts, circumstances and representations leading to their signing the Guaranty, there would be no question as to their liability as guarantors, and Land Bank would be entitled to judgment against them for the full balance due under the Guaranty.*fn12 The Margosian claims and defenses are analyzed below.

B. Alleged Concealment

In May 2008, the Land Bank did an analysis of the credit status of ZM ("Credit Analysis Report") in which its officer concluded that: 1) ZM had used its operating line of credit to pay for capital expenditures; 2) Land Bank's loans to ZM did not meet applicable underwriting standards; 3) Z&S provided the major source of income relied upon by the Land Bank in making its loans to ZM; 4) ZM relied upon Z&S to finance its operations, pay its bills and make its loan payments because ZM could not; 5) ZM was financially draining Z&S; and, 6) Z&S was not creditworthy. (MDF 10.) The Credit Analysis Report also reflected the Bank officer's opinion that if the Land Bank did ...

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