Onions v. Z&S Fresh, Inc.
| Decision Date | 20 March 2015 |
| Docket Number | No. 12-16813,12-16813 |
| Court | U.S. Court of Appeals — Ninth Circuit |
| Parties | ONIONS ETC., INC., Plaintiff, v. Z & S FRESH, INC., Defendant, And FRESNO-MADERA FEDERAL LAND BANK ASSOCIATION, FCLA, a corporation existing and operating under the Farm Credit Act of 1971, as amended, Intervenor-Defendant - Appellee, v. ARON MARGOSIAN and CARRIE MARGOSIAN, Cross-Defendants - Appellants. |
NOT FOR PUBLICATION
MEMORANDUM*Appeal from the United States District Court for the Eastern District of California
Argued and Submitted November 19, 2014 San Francisco California
Before: BERZON and RAWLINSON, Circuit Judges and BUCKLO,** Senior District Judge.
The Fresno-Madera Federal Land Bank Association, FCLA ("Land Bank") sued Aron and Carrie Margosian for breaching their guaranty of a $4.8 million restructured loan made to ZM Fresh Special T's, Inc. ("ZM"), formerly known as ZMC Fresh, Inc. The Margosians asserted cross claims alleging that the Land Bank (1) misrepresented that the guaranty would not expose the Margosians to personal liability for ZM's indebtedness and (2) obtained their signatures on the guaranty by fraudulently concealing known facts about ZM's precarious finances. The district court granted summary judgment for the Land Bank and entered a $3.4 million judgment against the Margosians. We reverse in part, affirm in part, and remand.
. With regard to the fraudulent misrepresentation claim, the district court held that Bank of America v. Pendergrass, 4 Cal. 2d 258 (1935), "precludes the Margosians from introducing parol evidence of a promise directly at variance with the promise in the written agreement." Onions Etc., Inc v. Z & S Fresh, Inc., 880 F.Supp.2d 1092, 1108 (E.D. Cal. 2012). The California Supreme Court has overruled Pendergrass, so our review takes full account of the parol evidence that the district court discounted. See Riverisland Cold Storage, Inc. v. Fresno-Madera Prod. Credit Ass'n, 55 Cal. 4th 1169 (2013).
On the merits, the Margosians' fraudulent misrepresentation claim turns on whether they "justifiabl[y] reli[ed]" on the Land Bank's verbal assurance that signing the guaranty would not make them personally liable for ZM's restructured loan.1 Alliance Mortg. Co. v. Rothwell, 10 Cal. 4th 1226, 1239 (1995) (quoting Molko v. Holy Spirit Ass'n, 46 Cal. 3d 1091, 1108 (1988)). The CaliforniaSupreme Court has cautioned that "[e]xcept in the rare case where the undisputed facts leave no room for a reasonable difference of opinion, the question of whether a plaintiff's reliance is reasonable is a question of fact." Id. (quoting Blankenheim v. E.F. Hutton & Co., 217 Cal. App. 3d 1463, 1475 (1984)). That is, summary judgment is appropriate only when "reasonable minds can come to only one conclusion based on the facts." Id.
Viewing the evidence in the light most favorable to the Margosians-as we must at the summary judgment stage-the record leaves ample room for a "reasonable difference of opinion" about whether they reasonably relied on the Land Bank's misrepresentations. Id.
According to the Margosians, in October or November 2008, Martha Hugger, a Land Bank Vice President and Loan Documentation Manager, called the Margosians unexpectedly on the pretense that she happened to be in the area and needed to discuss a "simple formality" with them. Hugger arrived at the Margosians' home with Rob Frudden, a Land Bank Vice President and SeniorLoan Officer. Frudden had sent the Margosians two letters in July 2008 advising them that ZM's original loans-which the Margosians had personally guaranteed-were or may be distressed. Perhaps anticipating that the Margosians had ignored or forgotten about Frudden's letters-which plainly identified him as a Land Bank Vice President-Hugger introduced Frudden as a new trainee who was just there to observe.
Hugger set a casual tone for the meeting and "talked quite a lot about everything else except th[e] simple formality" that prompted her visit. When Hugger eventually presented the guaranty to the Margosians for signature, Carrie Margosian asked what would happen if ZM struggled financially. Hugger initially dodged the question. When Carrie Margosian pressed for an answer, Hugger said the Land Bank could only foreclose on the loan's collateral-i.e., ZM's newly constructed warehouse-and would recover any deficiency from two other guarantors: (1) Martin Zaninovich, who co-owned ZM along with AronMargosian, and (2) Z & S Fresh, Inc. ("Z&S"), a wholesale distribution company that Zaninovich owned by himself. With that reassurance, the Margosians signed a seven-page, single-spaced "Restructure Agreement" identifying them as guarantors and an eight-page, single-spaced "General Continuing Guaranty" purporting, by negative implication, to expose them to personal liability.2
According to the Land Bank's own records, the meeting at the Margosians' home lasted only thirteen minutes. After the meeting, Frudden congratulated Hugger for "helping Mrs. Margosian, whom [sic] was a little overwhelmed, get comfortable with all of the documents and getting her signature."
The district court characterized the Land Bank's alleged actions as "disconcerting," but gave this evidence insufficient weight when applying the summary judgment standard. Onions Etc., 880 F.Supp.2d at 1103. To the extentthe district court faulted the Margosians for not reading or understanding the personal liability provision of the guaranty, a finding of negligence is not fatal to their fraudulent misrepresentation claim. See Rothwell, 10 Cal. 4th at 1239-40 .
On the factual record developed below, a judge or jury could find that the Margosians acted reasonably. Only someone with extraordinary fortitude and sophistication would not have succumbed to the Land Bank's pressure tactics (as depicted by the Margosians' evidence)-i.e., calling out of the blue and asking to make an unscheduled visit to the Margosians' home, misleading the Margosians as to Frudden's position, characterizing the purpose of the visit as a simple formality, and giving a false answer to Carrie Margosian's question about personal liability. At a minimum, summary judgment was not appropriate because a jury could creditthe Margosians' version of events, and if it does, there is "room for a reasonable difference of opinion" about whether the Margosians justifiably relied on Hugger's assurance that they would not be personally liable for ZM's restructured loan. Id. at 1239.
. The Margosians' other cross claim alleges that the Land Bank fraudulently concealed materials facts about ZM's precarious financial condition before asking them to guarantee the $4.8 million restructured loan.
Under California law, a creditor must disclose known facts about a debtor's finances to a prospective surety when, among other things, "the creditor 'has reason to believe that the facts are unknown to the surety.'" Sumitomo Bank of Cal. v. Iwasaki, 70 Cal. 2d 81, 93 (Cal. 1968) (quoting Restatement (First) of Security § 124(1) (1941)). Restatement (Third) of Suretyship & Guaranty § 12 (1996)—which expressly derives from Restatement (First) of Security § 124(1)—explains that "whether the obligee has reason to believe that... facts are unknown to the secondary obligor[] shall be determined in light of the obligee'sreasonable beliefs as to (a) the nature of the secondary obligor's relationship to the principal obligor; (b) the nature of the secondary obligor's business; and (c) the secondary obligor's ability to obtain knowledge of such facts independently in the exercise of ordinary care." Id. § 12(4). Importantly, the Restatement's commentary emphasizes that a creditor's duty to disclose Id. § 12(3) cmt. f.
In May 2008, almost six months before the Land Bank asked the Margosians to guarantee ZM's restructured loan, Frudden prepared a Credit Analysis Report in which he concluded that: (1) ZM was financially dependent on Z&S, Zaninovich's wholesale distribution company; (2) Z&S's bank had instructed the company to stop using its $5.5 million line of credit to prop up ZM and related entities; and (3)ZM could not "stand alone" financially and would continue to "drain[]" Z&S to pay its existing loans.
At the summary judgment stage, the Margosians' fraudulent concealment claim turns on whether a reasonable judge or jury could find that the Land Bank had reason to believe they were unaware of ZM's precarious financial position before they guaranteed the $4.8 million restructured loan. The record does not support such a conclusion, even after viewing the evidence in the light most favorable to the Margosians.
In November 2007, Aron Margosian signed a loan agreement, promissory note, and security agreement with the Land Bank identifying himself as ZM's "Treasurer." When ZM accepted the Land Bank's proposal for a restructured loan in August 2008, Aron Margosian certified that he was ZM's "Secretary" and "Chief Financial Officer/Treasurer." It was reasonable for the Land Bank to presume from Aron Margosian's officer titles that he was familiar with ZM's financial statements and, by extension, its financial dependence on Z&S'soperating line of credit. At a minimum, the Land Bank was entitled to presume that Aron Margosian had the "ability to obtain knowledge of such facts independently in the exercise of ordinary care." Restatement (Third) of Suretyship & Guaranty § 12(4)(c)....
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