United States District Court, N.D. California, San Francisco Division
ORDER GRANTING THE PLAINTIFF'S SUMMARY-JUDGMENT
MOTION RE: ECF NO. 81
BEELER United States Magistrate Judge.
a breach-of-contract lawsuit arising from a borrower's
breach of a multi-million-dollar loan
agreement. Forreststream, the lender, sued Gregory
Shenkman, the borrower, for failing to repay the loan and for
failing to pledge his interest in a company called EIS Group
to secure the loan. The court grants Forreststream's
motion for summary judgment.
Forreststream's Affiliates Lend Funds to Mr.
2009, Mr. Shenkman approached Irsek Den - a friend of twenty
years and a Forreststream principal - for a
loan. Mr. Den agreed to extend the loan through
two of his companies: Edmisano Consultancy Limited and
Denware Financial Services GMBH. Mr. Shenkman subsequently
requested additional funds, and Mr. Den agreed. The initial loans
through Edmisano and Denware, dated between October 2009 and
March 2012, totaled “somewhere between $10-12
million” (according to Mr. Shenkman), or $13, 875, 000
(according to Forreststream).
initial loans matured on January 1, 2014. On that date,
although Mr. Shenkman had “made payments towards the
principal balance” when he was able, he still owed $11,
875, 000 in principal and $2, 719, 614 in unpaid
interest. Mr. Shenkman defaulted, and the parties
entered into restructuring negotiations.
The Parties Negotiate and Agree to a Loan Restructuring
parties, including Alec Miloslavsky (Mr. Shenkman's
former business partner), negotiated a restructuring of
the initial loans between 2013 and 2014. The parties
signed the Loan Restructuring Agreement on April 29,
2014. The key terms are as follows. First,
Edmisano and Denware waived Mr. Shenkman's default on the
initial loans. Second, Edmisano and Denware assigned
the loans to Forreststream. Third, the parties bifurcated
the total loan balance: (1) Mr. Miloslavsky agreed to pay $5,
193, 650 in principal and $1, 093, 244 in interest; and (2)
Mr. Shenkman agreed to pay $6, 681, 350 in principal and $1,
626, 370 in interest. Fourth, Mr. Shenkman's portion of
the debt would accrue 10% interest per year. Fifth, Mr.
Shenkman agreed to repay the debt (including interest) within
twenty-four months of the parties' agreement, or by April
29, 2016. And sixth, within thirty business days
(by June 11, 2014), the parties agreed to sign a pledge
agreement “as security for the payment and performance
of [Mr. Shenkman's] obligations under the
Loan.” The pledge agreement was to include
“the security interest (direct or indirect) in all of
[Mr. Shenkman's] right, title and interest in, to and
under the  capital stock of EIS Group
ltd.” The relevant excerpt from the contract
is as follows:
5.1 The Parties hereby agree, oblige and undertake to sign
during 30 (Thirty) business days from the date hereof a
pledge agreement (“Pledge Agreement”) as a
security for the payment and performance of the
Borrower's obligations under the Loan.
5.2 The Parties agree that the security provided by such
Pledge Agreement as per clause 5.1 hereof shall by all means
include the security interest (direct or indirect) in all of
the Borrower's right, title and interest in, to and under
the the [sic] capital stock of EIS Group ltd (the
“Pledged Shares”) and any proceeds and
distributions under or pursuant to any agreements with
respect to the Pledged Shares and any rights to such
distributions, and any certificates and instruments
representing the Pledged Shares.
parties dispute whether Mr. Shenkman personally must pay the
loan or whether the sole recourse is against the EIS stock.
In their papers, they provide the following context. To
facilitate the negotiations, Maksim Sterlyagov and Michael
Zaits acted as intermediaries. The negotiations centered on
Mr. Shenkman's pledge of stock in EIS Group, Ltd., as
security under the restructured loan. The lenders
say that they would not have restructured the loan
“absent [Mr. Shenkman's] agreement to pledge the
EIS Stock to Forreststream.” Mr. Shenkman, although
“not eager to pledge” the EIS shares, “was
willing to do so on the condition that the restructured loan
be recourse as to the shares only.” Mr. Shenkman
repeatedly told “Mr. Den and/or his associates”
that he “would not pledge [his] shares in EIS unless
recourse under the restructured loan was limited to those
shares.” And in April 2014, when Mr. Zaits (one
of the intermediaries) presented Mr. Shenkman “with a
single page for signature and asked [Mr. Shenkman] to sign as
confirmation of [his] agreement to the terms [they] had been
discussing, ” Mr. Shenkman “understood this to
mean that Forreststream had agreed to [his] unequivocal
condition that pledging [his] EIS shares meant that the
restructured loan would be non-recourse.”
contract has no integration clause.
Mr. Shenkman Breaches the Agreement & Forreststream
Shenkman did not pledge his shares of EIS
stock. In May 2014, Forreststream sent Mr.
Shenkman a draft pledge agreement, but he did not sign
it. Mr. Shenkman instead “attempted to
renegotiate [the] deal by offering to pledge his shares in a
company named @mosphere, which he claimed held EIS
stock.” Forreststream contacted Mr. Sterlyagov
or Mr. Shenkman four times between August 2014 and November
2015 to convince Mr. Shenkman to pledge his
shares. On March 31, 2016, Forreststream sued
Mr. Shenkman for his failure to pledge the stock under the
Restructuring Agreement. The restructured loan's due date
was April 29, 2016; Mr. Shenkman did not pay the outstanding
balance. Forreststream then amended its complaint
to allege Mr. Shenkman's breach of his repayment
initially sought a preliminary injunction to enforce its
rights under the Loan Restructuring Agreement. But, after
Mr. Shenkman did not respond to or defend the case,
Forreststream moved for entry of default, which the clerk of
court granted. Forreststream then moved for default
judgment. Two days before the hearing on the
default-judgment motion, Mr. Shenkman appeared in the case
and moved to set aside the entry of default. The court
vacated Mr. Shenkman's default after he satisfied certain
conditions, including the execution of a stipulated
injunction to pledge his interests in EIS and @mosphere
“to secure performance of [his] obligations to
Forreststream, as determined in this
Action.” The parties then submitted a stipulated
schedule to complete discovery and for Forreststream to file
its summary-judgment motion. Forreststream moved for
summary judgment. The court held a hearing on March 9,
court must grant a motion for summary judgment if the movant
shows that there is no genuine dispute as to any material
fact and the moving party is entitled to judgment as a matter
of law. Fed.R.Civ.P. 56(a); Anderson v. Liberty Lobby,
Inc., 477 U.S. 242, 247-48 (1986). Material facts are
those that may affect the outcome of the case.
Anderson, 477 U.S. at 248. A dispute about a
material fact is genuine if there is sufficient evidence for
a reasonable jury to return a verdict for the non-moving
party. Id. at 248-49.
party moving for summary judgment has the initial burden of
informing the court of the basis for the motion, and
identifying portions of the pleadings, depositions, answers
to interrogatories, admissions, or affidavits that
demonstrate the absence of a triable issue of material fact.
Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986).
To meet its burden, “the moving party must either
produce evidence negating an essential element of the
nonmoving party's claim or defense or show that the
nonmoving party does not have enough evidence of an essential
element to carry its ultimate burden of persuasion at
trial.” Nissan Fire & Marine Ins. Co., Ltd. v.
Fritz Cos., Inc., 210 F.3d 1099, 1102 (9th Cir. 2000);
see Devereaux v. Abbey, 263 F.3d 1070, 1076 (9th
Cir. 2001) (“When the nonmoving party has the burden of
proof at trial, the moving party need only point out
‘that there is an absence of evidence to support the
nonmoving party's case.'”) (quoting
Celotex, 477 U.S. at 325).
moving party meets its initial burden, the burden shifts to
the non-moving party to produce evidence supporting its
claims or defenses. Nissan Fire & Marine, 210
F.3d at 1103. The non-moving party may not rest upon mere
allegations or denials of the adverse party's evidence,
but instead must produce admissible evidence that shows there
is a genuine issue of material fact for trial. See
Devereaux, 263 F.3d at 1076. If the non-moving party
does not produce evidence to show a genuine issue of material
fact, the moving party is entitled to summary judgment.
See Celotex, 477 U.S. at 323.
ruling on a motion for summary judgment, inferences drawn
from the underlying facts are viewed in the light most
favorable to the non-moving party. Matsushita Elec.
Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574,
Shenkman asserts that Forreststream's “key
evidence” is inadmissible. He challenges (1) the Loan
Restructuring Agreement, (2) Mr. Den's declaration
regarding the parties' agreement, and (3) Mr. Den's
and Ms. Mazukabzova's statements about the initial
outstanding loan balance.
argues that Mr. Shenkman should be judicially estopped from
presenting, and relying on, communications surrounding the
parties' restructuring negotiations.
Mr. Shenkman's Objections to the Loan Restructuring
Shenkman first argues that the Loan Restructuring Agreement
is inadmissible hearsay and questions the document's
contract is not hearsay. Hearsay is an out-of-court statement
introduced to prove the truth of the matter asserted.
Fed.R.Evid. 801(c). But “a written statement, which
itself ‘affects the legal rights of the parties or is a
circumstance bearing on conduct affecting their rights, '
falls outside the definition of hearsay.” United
States v. Bellucci, 995 F.2d 157, 161 (9th Cir. 1993). A
contract - “a legally operative document that defines
the rights and liabilities of the parties” - is not
hearsay. See Stuart v. Unum Life Ins. Co. of Am.,
217 F.3d 1145, 1154 (9th Cir. 2000); see also Universal
City Studios LLC v. Otis Elevator Co., No. CV
16-1521-DMG (KSx), 2016 WL 2642209, at *2 (C.D. Cal. May 9,
2016) (“[C]ommercial documents with independent legal
significance, such as insurance policies and contracts, are
legally-operative ‘verbal acts' which do not
also properly authenticated the Loan Restructuring Agreement.
is a condition precedent to admissibility” and
“unauthenticated documents cannot be considered in a
motion for summary judgment.” Orr v. Bank of Am.,
NT & SA, 285 F.3d 764, 773 (9th Cir. 2002) (internal
quotations omitted). To authenticate a document, a party
“must produce evidence sufficient to support a finding
that the item is what the proponent claims it is.”
Fed.R.Evid. 901(a). This may be done by the testimony of a
witness with knowledge of the item, testifying “that an
item is what it is claimed to be.” Id.
901(b)(1). “A document can be authenticated [under Rule
901(b)(1)] by a witness who wrote it, signed it, used it, or
saw others do so.” Orr, 285 F.3d at 774 n.8
(quoting 31 Wright & Gold, Fed. Prac. & Proc.:
Evidence § 7106, 43 (2000)) (alteration in original).
declaration, Ms. Mazukabzova authenticates the Agreement,
which is attached to the declaration. She declares
that she sent by email a final draft of the Agreement to Mr.
Sterlygov for Mr. Shenkman to sign. The Agreement she sent to
Mr. Sterlygov “was in the same form as the” Loan
Restructuring Agreement she attached to her
declaration. Later that same day, she states, she
“received an email from Mr. Sterlyagov indicating that
the Loan Restructuring Agreement had been executed by [Mr.
Shenkman].” Ms. Mazukabzova then “obtained a
physical copy of the executed Loan Restructuring
Agreement” and confirmed that Mr. Shenkman signed
it. Forreststream, Edmisano, and Denware
signed the Agreement, and Ms. Mazukabzova placed it in
Forreststream's books and records - of which she is
responsible for maintaining - “exactly in the form
attached” to her declaration.
Mazukabzova's declaration is sufficient to support a
finding that the Loan Restructuring Agreement is what
Forreststream claims it is. Mr. Shenkman doubts that Ms.
Mazukabzova “could ever lay a proper foundation for
admission of the” Loan Restructuring Agreement because
the document is in English and her native language is
Russian. But that argument does not alter Ms.
Mazukabzova's ability to identify the Loan Restructuring
Agreement. In any event, her English- language email
exchanges with Mr. Shenkman demonstrate her English
proficiency.Forreststream properly authenticated the
Loan Restructuring Agreement.
Mr. Shenkman's Objections to the Den Declaration
Shenkman also objects to Mr. Den's declaration concerning
the terms of the parties' Restructuring
Agreement. He asserts that Mr. Den's recounting
of the terms is based on the Agreement, which is hearsay,
making Mr. Den's statements double hearsay. But as
described above, the Loan Restructuring Agreement is not
hearsay. And to the extent Mr. Den's description of the
terms is hearsay or otherwise inadmissible (i.e.
because he lacks personal knowledge, as Mr. Shenkman argues),
the court does not rely on it to reach its conclusion. The
parties' Agreement speaks for itself.
Mr. Shenkman's Objections to the Den and Mazukabzova
Shenkman objects to Mr. Den's and Ms. Mazukabzova's
statements concerning the initial loan balance as of January
1, 2014. He argues that their statements, based
on Edmisano and Denware's books and records, are
hearsay. The court overrules the objection for
two reasons. First, to the extent the statements concern
amounts owed under the Restructuring Agreement, the Agreement
is not hearsay and speaks for itself. Second, the outstanding
initial-loan balance before restructuring seems irrelevant;
the issue here is the Loan Restructuring Agreement and Mr.
Shenkman's obligations under it.
Forreststream's Judicial Estoppel Argument
argues that the court should judicially estop Mr. Shenkman
from using the parties' restructuring negotiations
because he previously claimed that those discussions were
privileged. But because Mr. Shenkman never
“succeeded” on that argument, the court does not
preclude the evidence.
law on judicial estoppel governs cases in federal courts
regardless of whether they involve state law claims.
Johnson v. Oregon Dep't of Human Res. Rehab.
Div., 141 F.3d 1361, 1364 (9th Cir. 1998); Rissetto
v. Plumbers and Steamfitters Local 343, 94 F.3d 597, 603
(9th Cir. 1996). Judicial estoppel is an equitable doctrine
that prevents a party from benefitting by taking one position
but then later seeking to benefit by taking a clearly
inconsistent position. Hamilton v. State Farm Fire &
Cas. Ins. Co., 270 F.3d 778, 782 (9th Cir. 2001). It
“applies to positions taken in the same action or in
different actions, ” Samson v. NAMA Holdings,
LLC, 637 F.3d 915, 935 (9th Cir. 2010) (citing
Rissetto, 94 F.3d at 605)), and is intended to
protect the integrity of the judicial process by preventing a
litigant from “playing fast and loose with the courts,
” Russell v. Rolfs, 893 F.2d 1033, 1037 (9th
Cir. 1990). “It also ‘applies to a party's
stated position whether it is an expression of intention, a
statement of fact, or a legal assertion.'”
Samson, 637 F.3d at 935 (quoting Wagner v.
Prof'l Eng'rs in California Gov't, 354 F.3d
1036, 1044 (9th Cir. 2004)).
estoppel may be invoked by the court at its discretion.
Morris v. California, 966 F.2d 448, 453 (9th
Cir.1991). Several factors help determine whether judicial
estoppel applies. Hamilton, 270 F.3d at 782-83
(citing New Hampshire v. Maine, 532 U.S. 742, 750-51
(2001)). “‘First, a party's later position
must be ‘clearly inconsistent' with its earlier
position.'” Id. (quoting New
Hampshire, 532 U.S. at 750). Second, the party must have
“‘succeeded in persuading a court to accept that
party's earlier position so that judicial acceptance of
an inconsistent position in a later proceeding would create
the perception that either the first or second court was
misled.'” Id. at 782 (quoting New
Hampshire, 532 U.S. at 750) (internal quotations
omitted). “‘Absent success in a prior proceeding,
a party's later inconsistent position introduces no risk
of inconsistent court determinations, and thus no threat to
judicial integrity.'” Id. at 782-83
(quoting New Hampshire, 532 U.S. at 750) (internal
citations and quotations omitted). Third, the court considers
whether “‘the party seeking to assert an
inconsistent position would derive an unfair advantage or
impose an unfair detriment on the opposing party if not
estopped.'” Id. (quoting New
Hampshire, 532 U.S. at 751). These factors, however, are
not “‘inflexible prerequisites or an exhaustive
formula'” because “‘[a]dditional
considerations may inform the doctrine's application in
specific factual contexts.'” Id. (quoting
New Hampshire, 532 U.S. at 751).
asserts that, to set aside default, Mr. Shenkman was required
to show a meritorious defense. And to do so, Mr. Shenkman
relied on California's mediation privilege: he argued
that the privilege excluded the parties' negotiations and
written agreement, thus preventing Forreststream from proving
its case. Forreststream asserts that Mr. Shenkman
“succeeded” in presenting the privilege as a
“meritorious defense” because the court vacated
the entry of default and, “[h]ad the [c]ourt
not found that [Mr.] Shenkman established a
meritorious defense, ‘it would have been an abuse of
discretion to set aside the entry of
court does not read the meritorious-defense requirement, or
the vacating of default, to be so final on the matter. To
escape default, a party must indeed “make some
showing of a meritorious defense.” Haw.
Carpenters' Trust Funds v. Stone, 794 F.2d 508, 513
(9th Cir. 1986) (emphasis added). But the burden is light:
“‘[a]ll that is necessary to satisfy the
‘meritorious defense' requirement is to allege
sufficient facts that, if true, would constitute a
defense.'” United States v. Aguilar, 782
F.3d 1101, 1107 (9th Cir. 2015) (quoting United States v.
Signed Personal Check No. 730 Yubran S. Mesle, 615 F.3d
1085, 1094 (9th Cir. 2010)). The court does not decide
whether the factual allegations are true “when it
decides the motion to set aside the default” -
“that question would be the subject of the later
litigation.” Id. “This approach is
consistent with the principle that ‘the burden on a
party seeking to vacate a default judgment is not
extraordinarily heavy.' Id. (quoting TCI
Grp. Life Ins. Plan v. Knoebber, 244 F.3d 691, 700 (9th
Mr. Shenkman presented the mediation privilege as a
potentially meritorious defense. Indeed, he committed an
entire fifteen-page brief to argue that both the Agreement
and the parties' mediated communications, dating back to
early 2014, were privileged. He even “lodge[d] a
continuing objection to all of [Forreststream's]
reference[s] to the communications.” In doing so,
Mr. Shenkman presented facts that, if proven true, could have
shown that a mediation occurred, potentially barring some or
all of the Agreement and negotiations. He thus satisfied the
meritorious-defense requirement to get out of
Shenkman was not required to prove, and the court did not
conclude, that this defense was in fact successful.
That issue was (as it must have been) reserved for a later
determination. And when that happened - when the parties
presented to the court Mr. Shenkman's mediation-based
objection to the Agreement - the court rejected
it. (The parties have not raised the issue
concerning the communications surrounding the Agreement.) So
the court never decided the issue in favor of Mr. Shenkman;
it only allowed him to present it, and he has not
“succeeded” on that position.
Shenkman's current position - that the parties'
mediated communications are admissible - does not create the
perception that the court was before, or is now being,
misled, and does not pose a threat to judicial integrity. The
court declines to judicially estop Mr. Shenkman from
presenting evidence of the parties' negotiations.
* * *
the court overrules the parties' evidentiary objections.
asserts that Mr. Shenkman breached the Loan Restructuring
Agreement, which is governed by California Law.
elements of a breach of contract claim under California law
are: “(1) the existence of the contract; (2)
plaintiff's performance or excuse for nonperformance; (3)
defendant's breach; and (4) the resulting damages to the
plaintiff.” Oasis West Realty, LLC v. Goldman,
51 Cal.4th 811, 821 (2011).
parties do not dispute the Agreement's general terms -
for example, the principal and interest owed, the maturity
date, or the obligation to enter a pledge agreement. Mr.
Shenkman does not dispute that, “to the extent any
valid contract exists, his EIS stock was pledged to secure
the loan.” Instead, Mr. Shenkman contends that he
never signed the contract fully and is not bound by
it. He also argues that under the
contract's terms - considering extrinsic evidence of the
parties' negotiations - Forreststream cannot collect from
him personally; instead, the loan is a nonrecourse loan that
permits recovery only from his pledged stock.
matter of law, the court holds Forreststream establishes all
four elements of its contract claim: existence of the
contract, its performance; Mr. Shenkman's nonperformance;
and damages. Mr. Shenkman does not show any genuine issues of
material fact. Indeed, the facts are undisputed: Mr. Shenkman
signed the agreement (and is bound by it), and the
contract's terms provide that he is personally
responsible for the debt. The court grants summary judgment
Existence of a Contract
Shenkman's challenges - lack of assent and a nonrecourse
debt - are to the contract's existence and its terms.
establish that a contract exists, a party must demonstrate
four factors: (1) parties capable of contracting; (2) their
consent; (3) a lawful object; and (4) a sufficient cause or
consideration. Cal. Civ. Code § 1550; Stewart v.
Preston Pipeline Inc., 134 Cal.App.4th 1565, 1585-86
Shenkman first argues the second factor - consent - and
contends that he did not sign the full contract and thus is
not bound by it. He declares that in April 2014,
“Mr. Zaits, serving as the intermediary, presented
[him] with a single page for signature and asked [him] to
sign as confirmation of [his] agreement to the terms [they]
had been discussing.” Mr. Shenkman “understood
this to mean that Forreststream had agreed to [his]
unequivocal condition that pledging [his] EIS shares meant
that the restructured loan would be
non-recourse.” He did not “understand this to be
a final, binding agreement, but rather an agreement to work
together in good faith to finalize the terms at a later
date.” Mr. Shenkman signed the single page -
the Loan ...