Conrad v. Bank of America, C016482

Citation45 Cal.App.4th 133,53 Cal.Rptr.2d 336
Decision Date09 April 1996
Docket NumberNo. C016482,C016482
CourtCalifornia Court of Appeals
PartiesRobert L. CONRAD et al., Plaintiffs and Appellants, v. BANK OF AMERICA, National Trust and Savings Association, et al., Defendants and Respondents.

Appeal from a judgment of the Superior Court of El Dorado County, Lloyd B. Hamilton, Judge. * Super. Ct. No. 51426.

Eisen & Johnston Law Corporation, Jay-Allen Eisen, Marian M. Johnston, Karen Leaf, Ann Perrin Farina, Seaman, Seaman & Ostwald, Mitchell S. Ostwald, Blackman & Blackman and Peter A. Blackman, Sacramento, for Plaintiffs and Appellants.

Kristian D. Whitten, Arne D. Wagner, Michael J. Halloran, San Francisco, Weintraub, Genshlea & Sproul, Audrey A. Millemann, Sacramento, Crosby, Heafey, Roach & May, Peter W. Davis and Kathy M. Banke, Oakland, for Defendants and Respondents.

SPARKS, Associate Justice.

In Oneida Motor Freight, Inc. v. United Jersey Bank (3d Cir.1988) 848 F.2d 414, the United States Court of Appeals for the Third Circuit held that a debtor's lender liability claims asserted against a bank in a postbankruptcy complaint were barred because the debtor failed to list those claims in the bankruptcy proceedings. The court concluded that the debtor "violated both its statutory and fiduciary duty to disclose this current claim against the bank during the pendency of the bankruptcy case. By virtue of this failure to disclose, equitable and judicial estoppel operate against further litigation by [the debtor]." (Id. at p. 415.) The central issue in this case is whether the holding in Oneida Motor Freight, Inc. (Oneida Motor Freight ), and its progeny bars relief in this case. We conclude it does.

In this fraud action the jury found in favor of plaintiffs Robert L. Conrad, Barbara L. Conrad and Industrial Enterprises, Inc. (Industrial Enterprises), and against defendants G.F. Burk and Bank of America, National Trust and Savings Association (Bank). The trial court granted defendants' motion for judgment notwithstanding the verdict based upon the plaintiffs' failure to list or otherwise identify their claims during their bankruptcy proceedings. On plaintiffs' appeal we shall affirm the judgment notwithstanding the verdict.

FACTUAL AND PROCEDURAL BACKGROUND

In the mid-1970's, Robert Conrad and his wife Barbara began operating a business engaged in high pressure water blasting. Eventually they expanded into equipment fabrication, including chassis for the maritime industry. 1 At some point in time the Conrads incorporated their business under the name Industrial Enterprises, Inc. 2 In 1976 or 1977, defendant Burk, the manager of the Bank's Placerville branch office, solicited plaintiffs' business and the parties' business relationship began.

Over the next several years the Bank made numerous loans to the plaintiffs. This included a real estate loan secured by commercial property owned by the Conrads, a line of credit in the amount of $110,000, and a number of short-term operating loans. 3 During this time the business was marginal from a financial standpoint. It frequently suffered losses and although it successfully repaid its loans it was unable to accumulate operating capital and had a deficit net worth.

In mid-1982, Industrial Enterprises obtained a U.S. Small Business Administration (SBA) guaranteed loan from Government Funding, California Business & Industrial Development Corporation (hereafter Government Funding) in the amount of $250,000. Most of that loan was used for debt repayment. As security for that loan Government Funding obtained liens on virtually all business assets of the corporation, guarantees from the Conrads secured by secondary liens on the commercial property and their residence, and an agreement that without prior written consent the business would not obtain additional loans or transfer or encumber business assets. Upon receipt of that loan plaintiffs advised Government Funding that in the normal course of business Industrial Enterprises utilized short-term loans for the construction of inventory in response to specific orders with repayment from receipts. Government Funding, with SBA approval, agreed to grant an exception to its loan contract which permitted Industrial Enterprises to borrow up to $125,000 from the Bank for a period not to exceed three months.

In September 1982, Burk advised plaintiffs that the Bank would not entertain applications for long-term loans but would supply only working capital loans against completed contracts on which the Bank would carry assignments. In early March 1983, the Bank terminated Industrial Enterprises's line of credit. Burk advised plaintiffs that the reasons for this were that the company had operated at a loss for the past two years and its deficit net worth was expected to increase further. After ensuing discussions with Robert Conrad, the Bank did not restore the line of credit but did agree to consider loan requests on an individual, one-by-one, basis. For collateral the Bank took security interests in company vehicles and trailers and During 1983 and into the first half of 1984, the Bank extended a number of short-term loans to Industrial Enterprises. The last loans extended to Industrial Enterprises were approved by Burk in May and June 1984. In early May 1984, Burk approved two short-term working capital loans for $40,000 each. The loans were to mature in early August 1984, and were to be repaid out of payments due Industrial Enterprises from previously billed receivables. Burk approved an additional loan for $20,000 in June. After the loans had matured in August and the customer payments earmarked for their payment were received, Industrial Enterprises sought to extend the debt through additional loans. Burk would not agree to extend additional loans to Industrial Enterprises, but he did agree to let funds paid on behalf of Industrial Enterprises in August "pass through" to the company rather than being applied to debt repayment. He did so because at that time Industrial Enterprises had billed receivables for goods supplied to Matson Navigation Company (Matson), which plaintiffs agreed would serve as the source for payment of the outstanding loans.

obtained a security agreement and assignment of contracts.

Matson was one of Industrial Enterprises's major customers for maritime chassis. In the summer of 1984 Matson was contemplating a major acquisition of chassis and plaintiffs wished to expand their production capacity in order to participate as suppliers. However, they were not in a position to do so without outside assistance for a number of reasons: Industrial Enterprises had a negative net worth with no accumulated working capital; as individuals the Conrads owed money under first deeds of trust on their residence and their commercial property and had given secondary liens against those properties to secure their guarantees of the Government Funding loan; Industrial Enterprises had pledged virtually all of its assets as security for the Government Funding loan and had agreed not to sell or encumber its assets or to borrow additional funds except for small, short-term, working-capital loans from the Bank; Industrial Enterprises still owed the Bank for the loans it had extended in the first half of the year; and Industrial Enterprises had substantial outstanding accounts payable owed to previous suppliers of materials. Robert Conrad asked Burk if the Bank would consider making a large capital loan and was told that it would not. They discussed options and it was suggested that the Conrads could consider selling the company, going public with a stock offering, or finding a partner or joint venturer.

The plaintiffs decided to attempt to find a joint venturer and to this end Robert Conrad spoke with his material suppliers. Industrial Enterprises was referred to a company called AG Motors and they began negotiating the terms of a joint venture. Eventually Industrial Enterprises and AG Motors entered into a joint venture agreement under which Industrial Enterprises would build chassis frames and AG Motors would complete construction of chassis to be supplied to Matson. The joint venturers agreed to submit a bid under Industrial Enterprises's name to supply Matson with 125 chassis at a minimum profit margin in order to ensure a contract award. They anticipated that the initial order would allow them to get the "glitches" out of their venture and build their credibility and reputation. Industrial Enterprises submitted a bid to Matson in July and in August Matson determined to award the contract to Industrial Enterprises. Matson issued a written purchase order for 125 chassis on September 19, 1984.

On August 24th and August 28th, AG Motors and Industrial Enterprises exchanged letters confirming their agreement to the joint venture. Pursuant to that agreement, Industrial Enterprises expected to receive a substantial infusion of working capital by the end of August. On August 31st Robert Conrad called AG Motors for a progress report and was told that AG Motors was withdrawing from the venture.

The events that transpired shortly after AG Motors withdrew from the joint venture form the basis for plaintiffs' claim against the Bank and Burk. Robert Conrad testified that he talked to Burk a few days after learning that AG Motors was withdrawing. He told Burk that they were going to use their liquid asset base and "that kind of Burk testified that in the latter part of September Robert Conrad made a request for financing with an initial loan request in the amount of $40,000, but he denied that he agreed to make such a loan. In his conversation with Conrad a few days before the 26th or 27th, Burk was told that Industrial Enterprises could not provide any billed receivables for repayment and security purposes. In addition to Burk's general knowledge of the company's financial status, the...

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