Atalla v. Ambartsumyan

• Decision Date: 24 June 2020
• Docket Number: B289498
• Parties: EHAB ATALLA et al., Plaintiffs and Appellants, v. ARTASHES AMBARTSUMYAN, Defendant and Respondent.
• Court: California Court of Appeals Court of Appeals

EHAB ATALLA et al., Plaintiffs and Appellants, v. ARTASHES AMBARTSUMYAN, Defendant and Respondent.

B289498

COURT OF APPEAL OF THE STATE OF CALIFORNIA SECOND APPELLATE DISTRICT DIVISION SEVEN

June 24, 2020

NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS

California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.

(Los Angeles County Super. Ct. No. BC548936)

APPEAL from a judgment of the Superior Court of Los Angeles County, Stephanie M. Bowick, Judge. Affirmed.

Esensten Law, Robert L. Esensten and Randi R. Geffner for Plaintiffs and Appellants.

Papazian Law and Armen F. Papazian for Defendant and Respondent.

____________________ Ehab Atalla and Atef Hanna leased their truck stop to Artashes Ambartsumyan. After Ambartsumyan agreed to build a truck wash on the premises, Atalla and Hanna loaned funds to Ambartsumyan to complete construction of the truck wash. Ambartsumyan did not repay Atalla and Hanna.

Atalla and Hanna filed this action to recover the money they loaned Ambartsumyan. When Ambartsumyan filed a cross-complaint and asserted the interest rate was usurious, Atalla and Hanna filed an amended complaint alleging new causes of action to reform the promissory note (and avoid a usurious rate of interest by increasing the note's principal) and to recover damages for breach of the lease.

After a three-day bench trial, the trial court ruled against Atalla and Hanna on all contested issues and awarded Ambartsumyan attorneys' fees. Atalla and Hanna appealed. We affirm.

PROCEDURAL AND FACTUAL BACKGROUND

A. Atalla and Hanna Lease Their Truck Stop to Ambartsumyan

Atalla and Hanna own real property in Colton, California. On their property is the Royal Truck Stop, which consists of fueling stations, a restaurant, a convenience store, a truck scale, and a tire shop. In the early 2000's Atalla and Hanna spent funds planning the development of a truck wash and lube center at their truck stop. On February 18, 2003 Atalla and Hanna leased the truck stop to Ambartsumyan. The lease provided for Ambartsumyan to pay higher rent if Atalla and Hanna completed the truck wash. In January 2004 the parties reached their thirdin a series of amendments to the lease in which Ambartsumyan agreed to assume responsibility for building the truck wash. Under the January 2004 amendment, Ambartsumyan agreed to "build the whole truck wash and lube center on his own expense" and "compensate [Atalla and Hanna] for all the money [they] paid up to now for it."

During 2008 the parties entered into two additional amendments to the lease providing that, when Ambartsumyan opened the truck wash, the rent would be adjusted and the lease extended. The latter amendment also provided "clarification" regarding Ambartsumyan's ability to sublease the truck stop. During 2007 through early 2009, Ambartsumyan spent approximately $150,000 obtaining the required permits and performing grading and other preliminary work for the truck wash. Because he needed further funds to complete the project, Ambartsumyan approached financial institutions, but was unsuccessful obtaining a loan. The parties discussed funding the construction costs.

B. Ambartsumyan Borrows $275,000 from Atalla and Hanna

In 2009 the parties reached an agreement whereby Atalla and Hanna would deposit $275,000 and Ambartsumyan would also deposit $275,000 into an account (for a total of $550,000) controlled by Atalla and Hanna for Ambartsumyan to complete the truck wash. Their agreement was memorialized in a promissory note and loan agreement dated April 1, 2009. The promissory note provided that Atalla and Hanna's $275,000 loan to Ambartsumyan was due in "one lump sum" on April 30, 2012,with monthly-interest-only payments of $3,000. The loan agreement confirmed the $275,000 loan and set forth a procedure for the $550,000 to be disbursed to Ambartsumyan during construction. Ambartsumyan also executed a general guaranty and a security agreement as security for repayment of the $275,000 loan. The promissory note and related agreements, as well as the two lease amendments executed in 2008, did not mention any amounts owing to Atalla and Hanna under the third amendment.

Using the $550,000 fund, Ambartsumyan constructed the truck wash; it became operational in June 2010. When the promissory note matured in April 2012, Ambartsumyan admitted he could not repay the $275,000. Ambartsumyan testified he continued to make the $3,000 monthly interest payments until Atalla and Hanna filed this action in 2014, for a total of $192,000 in interest payments. For the same period, Atalla and Hanna testified that Ambartsumyan paid only $78,000 in interest. The lease and loan agreement both contain clauses for the prevailing party to recover reasonable attorneys' fees in any action or proceeding.

C. The Litigation

On June 18, 2014 Atalla and Hanna filed this action against Ambartsumyan, asserting two causes of action, seeking damages, recovery of collateral, and attorneys' fees based on Ambartsumyan's failure to pay the "lump sum balloon payment" of $275,000.

On August 8, 2014 Ambartsumyan filed a cross-complaint alleging the promissory note was usurious because the annualinterest rate was 13 percent, which exceeded the lawful maximum interest rate of 10 percent.¹ Because the interest rate on the promissory note was usurious, Ambartsumyan sought to recover his $192,000 in interest payments, as well as treble damages under Civil Code section 1916-3² based on the usurious interest payments ($36,000) made during the year preceding filing of the cross-complaint.³ Ambartsumyan also sought attorneys' fees.

On August 20, 2015 Atalla and Hanna filed an amended complaint alleging, in addition to Ambartsumyan's failure to pay the promissory note, causes of action seeking to reform thepromissory note, loan agreement, and security agreement and to recover damages for breach of the third amendment to the lease. Atalla and Hanna's new causes of action were based on allegations that, prior to January 1, 2004, Atalla and Hanna spent over $90,000 "in their efforts to construct the truck wash and lube center" (e.g., "plans, permits, construction experts, and pre-construction costs"). In their reformation cause of action, Atalla and Hanna alleged that, because of a "mutual mistake," these $90,000 expenditures were not included in the promissory note and accompanying agreements. The parties "intended to consolidate all amounts due" to Atalla and Hanna in the promissory note. Atalla and Hanna therefore alleged the principal amount of the $275,000 promissory note should be increased by $90,000, to $365,000. Atalla and Hanna also sought in a breach of contract cause of action to recover their $90,000 in expenditures as damages based on Ambartsumyan's failure to pay them under the third amendment. Atalla and Hanna sought attorneys' fees.⁴

D. The Trial

The case was tried in a three-day bench trial. The parties testified. After close of evidence, on October 26, 2016 the trial court granted Ambartsumyan's motion for judgment pursuant to Code of Civil Procedure section 631.8 on Atalla and Hanna's cause of action for breach of the third amendment to the lease seeking recovery of their alleged $90,000 in expenditures.Relying on Clark v. Tide Water Associated Oil Co. (1950) 98 Cal.App.2d 488 (Clark), the trial court ruled Atalla and Hanna's compliance with the lease's provisions for written notice and an opportunity to cure were conditions precedent to Atalla and Hanna's ability to sue for breach of the third amendment. Atalla and Hanna argued, although they admitted not sending a written notice, filing the complaint was adequate notice of their claims under the lease. Rejecting this argument, the trial court held "I'm going to grant the motion with respect to . . . [the] third cause of action, finding that . . . there was no evidence presented by the plaintiff of notice as set forth in 13.1 of the lease agreement, which is currently Exhibit 1, and the third lease attachment, Exhibit 4, is part of that lease agreement, and the court would find any provision in 1 would be applicable to Exhibit 4. . . . [t]he court is going to grant that motion as to the third cause of action in favor of the defendant and against the plaintiff for failure to provide notice required under the lease agreement."⁵ The trial court did not reach Ambartsumyan'sother grounds for judgment on this cause of action, statute of limitations and failure of proof.

E. The Trial Court's Rulings

In its tentative decision issued on January 31, 2017, the trial court found Ambartsumyan failed to make the $275,000 payment due under the promissory note, but the note's interest provision was usurious. Finding Ambartsumyan made all interest payments he described in his testimony ($192,000), the trial court offset these usurious payments to the principal, which reduced the amount owing to $83,000. In finding against Atalla and Hanna on their cause of action for reformation of the promissory note and related agreements, the trial court ruled: (i) there was no "mistake, justifying reformation"; (ii) the evidence failed to establish a common intention supporting the inclusion of the $90,000 in the amount borrowed; (iii) there were no documents providing that the parties agreed the principal amount borrowed was $365,000; and (iv) there was "insufficient itemization or documentation" of the alleged expenses Atalla and Hanna sought to consolidate in the promissory note. In connection with this final reason, the trial court found that "[Atalla and Hanna's] testimony was not credible in certain respects, and they changed their testimony or were vague inareas." The trial court also declined to award treble damages under section 1916-3, finding "in light of the circumstances...