Tribeca Cos. v. First Am. Title Ins. Co.
| Decision Date | 26 August 2015 |
| Docket Number | A142430 |
| Citation | 192 Cal.Rptr.3d 354,239 Cal.App.4th 1088 |
| Court | California Court of Appeals Court of Appeals |
| Parties | TRIBECA COMPANIES, LLC, Plaintiff and Appellant, v. FIRST AMERICAN TITLE INSURANCE COMPANY, Defendant and Respondent. |
Buchman Provine Brothers Smith LLP, Horace W. Green, Walnut Creek, Humbert Law, C. Mark Humbert, San Francisco, for Appellant.
Boutin Jones Inc., Michael T. Fogarty, Sacramento, for Respondent.
Plaintiff Tribeca Companies, LLC (Tribeca), appeals from the judgment of the trial court in favor of defendant First American Title Insurance Company (First American). Tribeca initiated this lawsuit after First American refunded a $1 million deposit to a real estate investor out of an escrow account that Tribeca had opened. Tribeca claimed it was entitled to the deposit and asserted claims for breach of contract, breach of fiduciary duty, fraud, and negligence. After a bench trial, the court found in favor of First American. We affirm.
Tribeca is a California limited liability company formed in October 2005 by William Faidi, its sole shareholder. It is a San Francisco-based private equity investment firm that makes investments in “distressed” real estate by purchasing and foreclosing on defaulted mortgage loans. Sky Pacific Holdings I, LLC (Sky Pacific), is another California limited liability company also formed by Faidi, who is its sole member.
Tribeca and Sky Pacific are separate and distinct legal entities, created at different times for different purposes. Sky Pacific is a single-purpose entity, originally formed in late 2009 to facilitate an investment transaction involving a distressed loan, referred to at trial as the “UBS transaction.”1 Ultimately, Faidi used a different entity formed under Delaware law for that transaction.
Sergey Grishin was introduced to Faidi as a prospective investor by Dovi Frances of Deutsche Bank. Grishin and Faidi decided to form a joint venture to pursue investment opportunities compatible with Faidi's strategy of purchasing senior mortgage notes on distressed real estate. On April 1, 2010, they executed a limited liability company agreement for that purpose, referred to at trial as the “joint venture agreement” (JVA).
Grishin Faidi's joint venture was structured as a two-member limited liability company named Sky Group Ventures, LLC (Sky Group), whose articles of incorporation were filed on April 5, 2010. The “Tribeca Member” of the joint venture was Sky Pacific, which acted as Sky Group's manager. The other member of Sky Group, referred to in the JVA as the “SGA Member,”2 was an entity created for Grishin named SGSF Capital Venture, LLC (SGSF).3 Neither Tribeca nor Grishin was designated as a member of Sky Group.
The JVA described general protocols for investment in real estate loan portfolios, but did not specifically identify any proposed investments. As the managing member, Sky Pacific was to take all actions in furtherance of Sky Group's business. The acquisition of any investment was conditioned on review and prior approval by both members of the joint venture. SGSF was responsible for providing the entire funding needed for Sky Group to acquire an approved investment.
Pursuant to a proposed escrow agreement—attached to the JVA as exhibit B and entitled, “Staggered Escrow Agreement Regarding Investment” (Exhibit B)—following Sky Pacific's presentation of a prospective investment, SGSF was to deposit the sum of $1 million into an escrow account that Sky Pacific would open. If SGSF thereafter failed to approve the prospective investment, this deposit would be refundable. If SGSF reviewed and approved the investment, then the deposit would become nonrefundable and would be applied toward the actual costs of acquiring the investment. SGSF would then deposit the balance of the funds necessary to acquire the investment.4 If it failed to make any such deposit, the initial contribution of $1 million was to be “immediately released to [Sky Pacific] as liquidated damages.”
The last paragraph of Exhibit B states: “An agreement substantially similar to this Exhibit B shall be presented to Escrow Agent by SGA Member and Tribeca Member in connection with each prospective Investment, shall be modified for each such Investment to change the amount of the Initial Deposit, if applicable, and to change the applicable dates, and shall serve as a binding Escrow Instruction with respect to such Investment.”
As its first proposed investment, the two Sky Group members focused on a senior mortgage note known as the “J.E. Roberts Note,” which was secured by various San Francisco commercial properties owned or controlled by Frank and Walter Lembi. Prior to the 2008 real estate crash, the Lembis had borrowed substantial sums to buy apartment buildings, and by 2009 they had defaulted on many of their loan obligations. The J.E. Roberts Note was one such obligation. Tribeca had been pursuing negotiations to buy the J.E. Roberts Note prior to Grishin's involvement.
In March 2010, Faidi instructed Tribeca asset manager Alicia Jeffrey to set up an escrow account at First American in anticipation of Sky Group's investment in the J.E. Roberts Note. She understood the purpose of the escrow was to hold funds that could later be transferred to a transactional escrow once the investment was put under contract.
On March 31, 2010, Jeffrey contacted First American senior escrow officer Heather Kucala. Kucala was the escrow officer Tribeca had used for the UBS transaction. Jeffrey testified at trial that she told Kucala the new escrow account would hold a deposit from an investor in a joint venture. She identified the proposed escrow using the term “staggered escrow account,” and indicated this term would likely appear on an incoming wire transfer and should be referenced in the escrow file. Kucala asked what “staggered escrow” meant, and Jeffrey replied that she did not know.5 Kucala said it did not matter because the term would appear in the “reference line” only. Kucala did not ask to see a copy of the JVA and did not indicate that First American would have any problem in setting up the account. Kucala also did not ask for the name of the investor and Jeffrey did not mention Grishin by name. Kucala provided Jeffrey with wiring instructions and an escrow account number, NCS-435-432-SF. Jeffrey gave the wiring information to a coworker with directions to forward the information to Grishin.
At trial, Kucala denied Jeffrey had told her the escrow funds were coming from a third party investor. Instead, Jeffrey said she wanted a “single-party” escrow, sometimes referred to as a “holding” escrow. Kucala acknowledged Jeffrey used the term “staggered escrow account,” which Kucala had never heard before. If Jeffrey had said the account would hold funds from an investor, Kucala would have required a third party authorization.
On April 1, 2010, Kucala e-mailed Jeffrey documents necessary to open the escrow account, including draft escrow instructions entitled, “Escrow Instructions (Single Party Escrow)” (Single Party Instructions). In these instructions, Tribeca is clearly identified as the “Depositor.” Before the Single Party Instructions were finalized, Jeffrey specifically asked Kucala to open the escrow account in Tribeca's name and to include Tribeca's tax identification number and business address in the escrow instructions.
The draft Single Party Instructions provided that “Depositor and Escrow Agent have agreed that the sum of $1,000,000.00 ... be deposited by Depositor with Escrow Agent for subsequent disbursement upon the terms and conditions set forth in these Instructions.” (Italics added.) The finalized document retains this language and further states: “Escrow Agent shall retain the Escrowed Funds until such time as instructed in writing by Depositor to disburse the Escrowed Funds (including any interest earned thereon) to Depositor or such third party or parties as may be designated by Depositor.”
Kucala prepared the draft instructions in a single party format with the understanding that Tribeca itself would be depositing the funds and that there would be no other principals or signatories to the escrow. In this respect, the arrangement was unlike a conventional escrow, in which two or more parties on opposite sides of a transaction deposit funds and documents for future exchange after the closing conditions are met. Tribeca had utilized a similar holding escrow for the earlier UBS transaction. On that occasion, Kucala received wired funds directly from Faidi and held the funds in a peripheral account while awaiting his subsequent instruction to transfer the funds to a formal transactional escrow.
Tribeca and First American engaged in extensive negotiations regarding the form and content of the Single Party Instructions. The negotiations continued for more than a month, and are reflected in numerous e-mail messages contained in the appellate record.6 Among other things, Tribeca asked for a waiver of the $950 handling fee and the elimination of an indemnification provision. During the negotiations, First American invited Tribeca to propose alternative escrow instructions. Tribeca's instructions did not provide for the handling of third party funds, and did not require a third party's signature.
On April 23, 2010, Jeffrey sent an e-mail to Kucala with proposed alternative escrow instructions. While the JVA provides that instructions substantially similar to Exhibit B are to be provided to the escrow company, Jeffrey did not show Kucala Exhibit B because, at that time, she was not aware of that requirement. As a result, the final Single Party Instructions were not similar to the escrow instructions contained in Exhibit B.
On April 5, 2010, a wire transfer from Grishin came into...
To continue reading
Request your trial