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Crossroads Investors, L.P. v. Federal National Mortgage Association

California Court of Appeals, Third District, Yolo

July 26, 2017

CROSSROADS INVESTORS, L.P., Plaintiff and Respondent,

         APPEAL from a judgment of the Superior Court of Yolo County No. CV CV 12-1067, Daniel P. Maguire, Judge. Reversed with directions.

          Buchalter Nemer, Buchalter, Jeffrey S. Wruble, Efrat M. Cogan, and Oren Bitan for Defendant and Appellant.

          Law Offices of Melinda Jane Steuer and Melinda Jane Steuer for Plaintiff and Respondent.


          NICHOLSON, Acting P. J.

         This appeal challenges the trial court's denial of defendant's special motion to strike the complaint under Code of Civil Procedure section 425.16, otherwise known as the anti-SLAPP statute.[1] Defendant Federal National Mortgage Association (Fannie Mae) initiated nonjudicial foreclosure proceedings against property owned by plaintiff Crossroads Investors, L.P. (Crossroads), but Crossroads filed for bankruptcy protection, staying the proceedings. Its proposed reorganization plan called for selling the property to a third party, who would reinstate the loan but on different material terms less favorable to Fannie Mae. Fannie Mae would not be paid what it was owed in full. The bankruptcy court called the plan “dubious, ” and Crossroads' counsel agreed they were “trying to have our cake and eat it too.”

         Crossroads alleges while the bankruptcy stay was in effect and afterwards, it requested accountings from Fannie Mae under Civil Code section 2924c to learn the amount required to reinstate or pay off the defaulted loan. It also tendered performance both to reinstate and pay off the loan as authorized under Civil Code section 2924c. Fannie Mae did not respond to the requests for accountings except in response to an interrogatory served on it as part of the bankruptcy action. It also refused to accept the tenders.

         Crossroads failed to obtain confirmation of a reorganization plan, and the bankruptcy court granted Fannie Mae relief from the stay. Crossroads alleges Fannie Mae promised in a telephone conversation with Crossroads' counsel to notify Crossroads of the date it intended to sell the property. Fannie Mae shortly thereafter sold the property, and it did so without providing prior notice to Crossroads.

         Crossroads filed this action against Fannie Mae for wrongful foreclosure, breach of contract, fraud, and other tort and contract causes of action. Fannie Mae filed an anti-SLAPP motion, contending the actions on which Crossroads based its complaint arose from the exercise of its constitutional rights of speech and petition; specifically, statements and omissions made in, or concerning issues under review in, the bankruptcy action. It also argued Crossroads could not establish a prima facie case in support of its claims. The trial court disagreed and denied the motion. In an earlier opinion, we affirmed the trial court's order.

         The California Supreme Court granted Fannie Mae's petition for review, depublished our original opinion, and transferred the matter to us to reconsider the appeal in light of Baral v. Schnitt (2016) 1 Cal.5th 376 (Baral). The parties have filed supplemental briefs which we have considered.

         We now reverse the trial court's ruling and direct it to grant the anti-SLAPP motion. Except for claims based on one of Fannie Mae's actions discussed below, all of Crossroads' claims arose from Fannie Mae's constitutionally protected actions that were taken as part of, or related to, the bankruptcy action. Further, Crossroads did not establish a prima facie case in support of those claims, as all of its tort claims based on protected activity attacked statements privileged under Civil Code section 47, and its contract claims arising from protected activity were barred as a matter of law.


         In 2005, Crossroads borrowed $9 million subject to a promissory note. The note was secured by a deed of trust recorded against an apartment building Crossroads owned in Woodland. Fannie Mae became the beneficiary of the deed.

         The note imposed on Crossroads a prepayment premium (sometimes referred to as yield maintenance or a prepayment penalty) should Crossroads pay the unpaid principal before the note's maturity date or should Crossroads default and Fannie Mae accelerate the loan.

         Crossroads defaulted on the note in late 2010. Fannie Mae served Crossroads with a notice of default, and it accelerated the loan. On February 1, 2011, Fannie Mae initiated nonjudicial foreclosure proceedings by recording the notice of default against the property. The notice stated Crossroads could reinstate the loan by paying all past due payments plus costs and expenses permitted by statute. It informed Crossroads that as of December 30, 2010, that amount was $286, 900.10.

         As required by Civil Code section 2924c (section 2924c), the notice of default informed Crossroads it could reinstate the loan by tendering the amount it owed to bring its payments current no later than five business days before the date Fannie Mae intended to sell the property. It informed Crossroads that after the expiration of that time period, the only way to stop the foreclosure was to pay off the loan before the sale occurred. It also informed Crossroads it could learn how much it owed either by submitting a written request for a written itemization or by contacting Fannie Mae's trustee. It provided the trustee's address and phone number.

         In addition to recording the notice of default, Fannie Mae instituted state court litigation against Crossroads and secured a receiver to take control of the property.

         On April 15, 2011, Crossroads entered into a contract to sell the property to Ezralow Company, LLC (Ezralow) for $10.95 million. On May 9, 2011, Crossroads and Ezralow proposed to Fannie Mae that Ezralow would assume Crossroads' obligations and pay off the loan on condition Fannie Mae agreed to waive the prepayment premium. Fannie Mae refused to waive the premium, and it rejected the proposal.

         Fannie Mae recorded a notice of trustee's sale against the property on June 24, 2011. The notice stated the property would be sold on July 19, 2011. It also stated the total unpaid amount of Crossroads' obligations and reasonable estimated costs, expenses and advances as of the notice's date was estimated to be $10, 525, 126.40. The notice stated prepayment premiums, accrued interest and advances “will increase this figure” prior to the sale, and it provided a Web site address and telephone number for Crossroads to use to obtain updated sale information.

         On July 18, 2011, the day before the property was scheduled to be sold, Crossroads filed for Chapter 11 bankruptcy protection. It did so in part “to restructure the Loan so that it can consummate the sale of the Property to [Ezralow] and assumption of the Loan by [Ezralow].” In its petition, Crossroads asserted it owed Fannie Mae approximately $8.7 million. When Crossroads declared bankruptcy, the state court action was stayed but not dismissed. (11 U.S.C. § 362.)

         On the following day, July 19, Crossroads entered into an amended and restated contract to sell the property to Ezralow for $10.95 million. This agreement conditioned the sale on the filing by Crossroads of a Chapter 11 bankruptcy proceeding, which it had, and on Crossroads seeking, and the bankruptcy court approving, a reorganization plan under which Ezralow would assume and reinstate the loan, and the loan's terms would be restructured to eliminate the prepayment premium and vary the interest rate and the maturity date. The agreement required Ezralow to approve the proposed reorganization plan before Crossroads submitted it to the court. If Ezralow disapproved the proposed plan, the agreement was automatically terminated. Also, Ezralow could terminate the agreement and cancel escrow if the bankruptcy court did not approve eliminating the prepayment premium as part of the reorganization plan.

         Crossroads filed its first disclosure statement and proposed reorganization plan with the bankruptcy court, and it based its plan on the terms of the July 19, 2011 sale agreement with Ezralow.[2] Crossroads' proposed plan asked the court to approve the sale to Ezralow for $10.95 million, but it also proposed eliminating the prepayment premium. The bankruptcy court rejected Crossroads' first disclosure statement in part because it failed to acknowledge Fannie Mae's full claim.

         Fannie Mae filed a proof of claim in the bankruptcy action for $10, 447, 090.43. The claim included $1, 590, 616.61 for the prepayment premium. Crossroads objected to the claim, contending, among other things, the prepayment premium was an unreasonable liquidated damages provision unenforceable under Civil Code section 1671.[3] At a hearing on February 6, 2012, the bankruptcy court disagreed and overruled Crossroads' objection. It ruled the prepayment premium was enforceable under California law, and Fannie Mae could claim it in the bankruptcy proceeding.[4]

         On the same day it ruled Fannie Mae was entitled to claim the prepayment premium, the bankruptcy court conditionally granted Fannie Mae relief from the bankruptcy stay. The court had disapproved Crossroads' first disclosure statement, and Crossroads had made no effort to prosecute plan confirmation until only recently when it filed a second statement. The court granted Fannie Mae relief from the stay to be effective three months later on May 15, 2012, provided Crossroads had not obtained confirmation of its reorganization plan by that date.

         After the bankruptcy court rejected Crossroads' objection to the prepayment premium, Crossroads served an interrogatory in the bankruptcy action on Fannie Mae that asked for the amount required “under state law” to cure the loan as of June 1, 2012. Fannie Mae responded by stating it could not provide an accurate response because the interrogatory sought an amount that was contingent upon future events; it would provide a response on June 1, 2012.

         At the bankruptcy hearing on its second disclosure statement, Crossroads contended its July 19, 2011 sale agreement with Ezralow was still the operating agreement for purposes of its reorganization plan. It asked the court to rule on whether its plan under that agreement to eliminate the prepayment premium and decelerate the loan had a chance of being accepted. The court called the Ezralow agreement “dubious.” It explained: “You are trying to have your cake and eat it too. You are trying to sell this to somebody else and avoid calling it a sale to somebody else, right? That is what is going on here. [¶] I mean, your client-this debtor is going to retain a small piece and is going to sell it to someone else, and the reason your client is holding on to a small piece is you are trying to avoid calling it a sale so you don't have to do a sale clause or acceleration clause or whatever.”

         Crossroads' counsel agreed with the court's summary, saying, “We are trying to have our cake and eat it too.” The court said it lacked sufficient information to declare at that point in time whether Crossroads' proposed plan could be confirmed. The court disapproved the second disclosure statement and granted Crossroads time to file an amended statement. The following month, the court rejected Crossroads' third disclosure statement.

         Ezralow's senior vice president stated in a declaration that Ezralow was committed to purchasing the property and reinstating or paying off the loan in full, including prepayment penalties, if necessary. Ezralow had the financial wherewithal to do so.

         Similarly, Crossroads' bankruptcy counsel, Kenrick Young, stated in a declaration that while the bankruptcy action was pending from July 2011 to May 2012, Crossroads informed Fannie Mae many times it was ready, willing, and able to cure the default or pay off the loan upon being provided the amount necessary to do so. Crossroads had the ability to fulfill its tender offers because Ezralow had agreed to pay those funds on its behalf. Although it opposed the prepayment premium, Crossroads informed Fannie Mae that if the bankruptcy court determined Fannie Mae was entitled to the prepayment premium, Crossroads would pay Fannie Mae's claim in full because the contracted sales price was sufficient to pay it. Young did not specify when or where Crossroads relayed this information to Fannie Mae.

         Young also stated in his declaration that while the bankruptcy action was pending, Crossroads asked Fannie Mae many times to provide the amount required to cure the default or pay off the loan. Crossroads alleges in its verified complaint that Fannie Mae refused to accept Crossroads' tenders and provided no response to Crossroads' requests for an accounting. Young did not specify when or where Crossroads made these requests or Fannie Mae refused to accept tender.

         In April 2012, Crossroads filed its fourth disclosure statement, which the court conditionally approved.[5] Crossroads also filed a motion to continue the stay.

         While the motion to continue the stay was pending, Young e-mailed a settlement offer to Fannie Mae's attorney, Anthony Napolitano, on May 2, 2012. Crossroads offered to pay Fannie Mae $9 million to compromise Fannie Mae's bankruptcy claim. Fannie Mae rejected the offer.

         The bankruptcy court heard the motion to continue the stay on May 14, 2012, and took the matter under submission. After the hearing, Young asked Napolitano if Crossroads would still be willing to entertain a settlement offer. He also asked if Fannie Mae would notify him if it intended to foreclose on the property. Napolitano told Young he wanted to wait for the court's ruling on the motion to continue the stay before engaging in any further discussions.

         The bankruptcy court denied the motion to continue the stay. It had given Crossroads ample time to obtain a confirmed reorganization plan, and it was apparent Crossroads' proposed plan was “likely unconfirmable.” Despite the court's previous approval of Fannie Mae's claim for the prepayment premium, Crossroads was still seeking to sell the property to Ezralow as part of its reorganization without providing for payment of the premium. The bankruptcy court found no legal way for Crossroads to accomplish its objective through bankruptcy, and thus concluded Crossroads' plan did not have a reasonable possibility of being confirmed within a reasonable time.[6]

         Fannie Mae's relief from the bankruptcy stay became effective on May 15, 2012, as Crossroads had not obtained an approved reorganization plan by that date.

         On May 17, 2012, Young spoke with Napolitano by telephone. The two attorneys remembered the call differently, but for our purposes, we assume the truth of Young's testimony where there is conflict. Young asked if Fannie Mae would be willing to hold off on foreclosing and support a sale to Ezralow under a provision of the Bankruptcy Code. Fannie Mae would be paid the full amount of its claim, but the sale would not close for two months. Young asked for a payoff amount to pay the loan in full. Young also asked Napolitano if he would agree to notify Crossroads of any scheduled sale date by a reasonable time prior to its occurrence. Young stated in his declaration that Napolitano agreed to provide notice of a sale.

         Later that day, Napolitano by e-mail asked to inspect the property. Young responded by e-mail that Crossroads wished to sell the property to Ezralow and pay Fannie Mae. He asked if Fannie Mae would agree to a consensual sale of the property to Ezralow on condition Fannie May received the amount it claimed in its amended bankruptcy claim. Young said Crossroads was looking at a July or early August 2012 close of escrow. Crossroads alleged Napolitano did not respond to this e-mail.

         Young contacted Napolitano by telephone on May 22, 2012. He asked Napolitano to provide him with the amount required to cure the default. He also proposed that Crossroads would dismiss its bankruptcy action to allow for a faster sale to Ezralow and payment in full to Fannie Mae. He stated Crossroads was ready, willing, and able to cure the default or pay Fannie Mae in full upon receiving the amount of its demand. Napolitano stated that in this call, Young also asked him to confirm in writing that Fannie Mae would give him notice before foreclosing. Napolitano told Young he could not provide him with the confirmation but he would relay Young's request for a reinstatement quote to Fannie Mae and get back to him.

         On May 24, 2012, the trustee sold the apartment complex at a nonjudicial foreclosure sale. The sale took Crossroads by surprise. Young believed Napolitano would have honored his promise to notify him of any scheduled sale prior to the sale date.

         Crossroads objected to the trustee's sale and asked the trustee to set it aside and not record a new deed. It also dismissed its bankruptcy action in June 2012. It filed this action against Fannie Mae and the trustee and recorded a lis pendens. However, the trustee recorded a trustee's deed upon sale.


         Crossroads' first amended complaint alleges seven causes of action against Fannie Mae: wrongful foreclosure, breach of contract, breach of the implied covenant of good faith and fair dealing, negligence, fraud, promissory estoppel, and intentional interference with a contractual relationship.[7] It seeks to rescind the trustee's sale and to recover damages. Crossroads alleges the conduct by Fannie Mae from which all of its causes of action arise consists of: (1) Fannie Mae's repeated failure to provide, in response to Crossroads' requests and its interrogatory, a timely and accurate accounting of the amount needed to reinstate the loan or pay the loan in full, in violation of section 2924c; (2) its refusal to accept Crossroads' tenders of the amount required to cure the default or pay the loan in full, in violation of section 2924c; and (3) its falsely stating it would provide Crossroads with advance notice of a trustee's sale, and its actual failure to provide that notice.

         Fannie Mae filed an anti-SLAPP motion and a demurrer against the complaint. The trial court denied the motion. It ruled Fannie Mae had not shown Crossroads' action arose from Fannie Mae's protected activity. The court wrote: “The gravamen of plaintiff's first amended complaint is its contention that defendant wrongfully foreclosed upon the subject property in an illegally conducted non-judicial foreclosure.” The court also overruled the demurrer.


         Fannie Mae contends the trial court erred when it denied its anti-SLAPP motion. It argues it submitted sufficient evidence to establish that Crossroads was suing based on Fannie Mae's protected activities, and that Crossroads failed to show it was likely to succeed on the merits. We agree, except with regard to any claims arising from Fannie Mae's rejection of the May 2011 settlement proposed by Crossroads and Ezralow. Those claims did not arise from protected activity.


         Scope and Standard of Review

         A. Law of the case doctrine

         Before proceeding, we must address an issue Crossroads raises about our scope of review. Crossroads contends our current review is subject to the law of the case doctrine. It argues our prior opinion continues to be the law of this case on all points it decided except the issues impacted by Baral, and that the scope of our current review is limited accordingly. We disagree. The law of the case doctrine does not ...

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