Kensington Apartment Props., LLC v. Loanvest IX, L.P. (In re Kensington Apartment Props., LLC)

• Decision Date: 19 August 2019
• Docket Number: Adversary No. 17-04018,Case No. 10-73976 CN
• Parties: In re: KENSINGTON APARTMENT PROPERTIES, LLC, Debtor. KENSINGTON APARTMENT PROPERTIES, LLC, Plaintiff, v. LOANVEST IX, L.P., SOUTH BAY REAL ESTATE COMMERCE GROUP, LLC, AND GEORGE CRESSON Defendants.
• Court: U.S. Bankruptcy Court — Northern District of California

In re: KENSINGTON APARTMENT PROPERTIES, LLC, Debtor.

KENSINGTON APARTMENT PROPERTIES, LLC, Plaintiff, v. LOANVEST IX, L.P., SOUTH BAY REAL ESTATE COMMERCE GROUP, LLC, AND GEORGE CRESSONDefendants.

Case No. 10-73976 CN

Adversary No. 17-04018

UNITED STATES BANKRUPTCY COURT NORTHERN DISTRICT OF CALIFORNIA

August 19, 2019

The following constitutes the order of the Court.

Chapter 11

FINAL ORDER ON MOTIONS FOR SUMMARY JUDGMENT AND ORDER SETTING CONTINUED STATUS CONFERENCE

The parties in this adversary proceeding have cross-moved for summary judgment or summary adjudication (the "Summary Judgment Motions").On July 2, 2019, this court issued a tentative decision regarding the Summary Judgment Motions and heard further argument on August 5, 2019.Having considered the parties' arguments, this court issues the following order granting in part and denying in part the Summary Judgment Motions.

The summary judgment standard is well established.Summary judgment is appropriate when the moving party"shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law."Fed. R.Civ. P. 56(a), applicable here by Fed. R. Bankr. P. 7056.The moving party"initially bears the burden of proving the absence of a genuine issue of material fact."In re Oracle Corp. Sec. Litigation, 627 F.3d 376, 387(9^th Cir.2010).If the moving party meets its initial responsibility, the burden then shifts to the opposing party to establish that a genuine issue as to any material fact actually does exist.SeeMatsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586(1986).

"In evaluating the evidence to determine whether there is a genuine issue of fact,"the court draws "all reasonable inferences supported by the evidence in favor of the non-moving party."Walls v. Central Contra Costa Transit Auth., 653 F.3d 963, 966(9^th Cir.2011).It is the opposing party's obligation to produce a factual predicate from which the inference may be drawn.SeeRichards v. Nielsen Freight Lines, 602 F.Supp. 1224,1244-45(E.D.Cal.1985), aff'd, 810 F.2d 898, 902(9^th Cir.1987).To demonstrate a genuine issue, the opposing party"must do more than simply show that there is some metaphysical doubt as to the material facts....Where the record taken as a whole could not lead a rational trier of fact to find for the nonmoving party, there is no 'genuine issue for trial.'"Matsushita, 475 U.S. at 587(citation omitted.).

Finally, if a court does not grant all of the relief requested by a summary judgment motion, it "may enter an order stating any material fact - including an item of damages or other relief - that is not genuinely in dispute and treat the fact as established in the case."

Defendants' Summary Judgment Motion

Defendants have moved for summary judgment against each claim for relief in Plaintiff's first amended complaint.

PlaintiffKensington Apartment Properties, LLC("Kensington") asserts that defendantLoanvest IX, L.P.("Loanvest") breached the terms of Kensington's confirmed Chapter 11 plan by submitting an inflated payoff demand into the March 30, 2016 refinance escrow of its real property located at 2601 East 20^th Street, Oakland, California.This court analyzed the underlying secured debt in its December 2, 2015 decision in the Landmark Chapter 11 case(the "December 2nd Memorandum Decision").The December 2^nd Memorandum Decision establishes the following, undisputed facts: Kensington and Landmark borrowed $484,000 from Loanvest in December 2007(the "Loanvest Note").The Loanvest Note called for monthly, interest-only payments with the principal balance due on January 2, 2010.The Loanvest Note carried a 13% interest rate, with a default interest rate of 20%, and authorized Loanvest to recover reasonable attorney's fees "expended or incurred by the holder in connection with the enforcement of the holder's rights and/or collection of any amounts that become due to the holder under this Note...."Kensington secured the Loanvest Note with a senior deed of trust against real property located 2601 East 20^th Street in Oakland (the "Parking Garage"), and Landmark secured the Note with a junior deed of trust against real property located at 3640 Grand Avenue in Oakland.Landmark and Kensington were co-obligors under the Loanvest Note with joint and several liability.The Loanvest Note was governed by California law.

Kensington and Landmark did not pay off the Loanvest Note in January 2010, and the parties extended its maturity date to November 1, 2012.Kensington and Landmark thereafter defaulted, and Loanvest declared the Note immediately due and payable (by letter dated November 29, 2010), and later recorded a notice of default and notice of trustee's sale.Kensington filed its Chapter 11 on December 6, 2010, and Landmark filed its own Chapter 11 case on April 19, 2011.

Kensington confirmed its Chapter 11 plan by order dated August 3, 2011(the "Kensington Plan"), and Landmark confirmed its second amended Chapter 11 plan by order dated August 31, 2012(the "Landmark Plan").While both plans provide for the Loanvest Note, Kensington and Landmark's treatment of it differed.The Kensington Plan (pursuant to the terms of the "Loanvest Amendment to Debtor's First Amended Chapter 11 Plan As Modified," filed on July 5, 2011) states that Loanvest's claim "shall be treated as fully secured and paid:

1. $10,000 on account within 15 days of the Effective Date;

2. $2,100 per month for a period of 48 months from the Effective Date; the Claim shall be paid in full within 48 months after the Effective Date.

3.Property taxes on the subject collateral shall be paid on a current basis.

The amount of the claim shall include post-petition interest and fees pursuant to section 506(b) of the Bankruptcy Code.The Plan does not purport to reduce the amount of the claim in any way, including, but not limited to, post-petition interest and all other charges provided under the loanagreement with the Debtor.Any deficiency between the payments during the 48 months following the Effective Date and the principal and interest amounts that the Holder is entitled to during such time shall be added to the unpaid principal balance to be paid at the end of the plan term.Pending payment in full as provided herein, [Loanvest] shall retain its lien against the Garages and, upon fifteen days written notice to the Debtor and his counsel, shall be free to enforce its state law remedies to foreclose its Allowed Secured Claim if not paid as provided herein.The Debtor, may, at any time, prepay in whole or in part, [the Loanvest Note], without a prepayment fee."¹

In February 2016, Landmark refinanced its secured debt against its Grand Avenue property, and paid Loanvest (consistent with the holding of the December 2nd Memorandum Decision) $783,604.20, which fully satisfied Landmark's obligation to Loanvest under its Chapter 11 plan.As stated above, Landmark's Chapter 11 plan treatment of the Loanvest Note differed significantly from its treatment under the Kensington Chapter 11 plan.The parties could not agree on how to apply the Landmark plan, and this court resolved that dispute with its December 2^nd Memorandum Decision.The parties now dispute the amount due Loanvest under Kensington'sChapter 11 plan.

On March 30, 2016, Kensington closed a refinance escrow for its Parking Garage and paid, under protest, $447,869.90 to Loanvest on its secured claim.Kensington asserts that this amount was significantly inflated.It contends that Loanvest miscalculated its payoff amount by 1) using the Loanvest Note's 20% default interest (rather than the 13% non-default interest rate); 2) compounding interest in contravention of California's usury laws; and 3) demanding payment of attorney's fees that were unrelated to the collection of the secured claim.

Loanvest appears to contend that it is entitled to the default interest rate amount and all of the attorney's fees included in its payoff demand, and that since the Loanvest Note was negotiated/arranged by a licensed real estate broker, it was exempt from California's usury prohibitions.Curiously, despite arguing for summary judgment on the breach of contract claim (i.e.,that it accurately calculated its Kensington escrow payoff demand, Loanvest alleges in its counter-claim that Kensington is in default of its plan, and that Loanvest is still owed substantial sums on its claim.²

1) Breach of Contract Claim

Defendants' summary judgment motion as to the breach of contract claim is DENIED.Triable issues of fact exist regarding whether Loanvest accurately calculated its payoff demand.When this court analyzes George Cresson's emails to the title company and the settlement statement, it cannot determine how Loanvest calculated the interest due and whether the attorney's fee component of the payoff demand is correct.Cresson himself could not explain the attorneys' fee component of Loanvest's escrow demand.³

2.Usury Claim.Section 2 of the Usury law (Cal. Civ. Code §1916.12-2) prohibits the compounding of interest unless an "agreement to that effect is clearly expressed in writing and signed by the party to be charged."While Loanvest has demonstrated that the parties employed a licensed real estate broker to arrange/negotiate the underlying Loanvest Note, it has not presented any legal authority that this exempts it from this provision of California's Usury law.See, e.g., Wishnev v. Northwestern Mut. Life Ins. Co., 880 F.3d 493(9^th Cir.2018);Martin v. Metro Life Ins. Co., 179 Fed.Supp. 3d 948, 953 (N.D.Cal. 2016).Moreover, if the prohibition against compound interest does apply, Exh. M to the Dollar declaration and various Cresson emails create a triable issue of fact that Loanvest compounded interest, particularly since Loanvest may have used its Chapter 11 claim amount as the base from which to start calculating the interest that accrued post-petition and post-confirmation.Accordingly, the...