Korman v. United Language Grp.
| Decision Date | 19 May 2023 |
| Docket Number | B313271 |
| Parties | YEUN KORMAN et al., Plaintiffs and Appellants, v. UNITED LANGUAGE GROUP, INC., et al., Defendants and Respondents. |
| Court | California Court of Appeals Court of Appeals |
NOT TO BE PUBLISHED
APPEAL from a judgment of the Superior Court of Los Angeles County No. 19BBCV00538, William D. Stewart, Judge. Dismissed in part and affirmed in part. ORIGINAL PROCEEDING in mandate. Petition denied.
Prospera Law, Albert T. Liou and Victor T. Fu for Plaintiffs and Appellants.
McBreen &Senior, David A. Senior and Ann K. Tria Fredrikson &Byron, Terrence J. Fleming, Christopher D Pham and Rachel L. Dougherty for Defendants and Respondents.
Yeun Korman, Yong Korman, Claudio Federico, Alen Keshishyan, and Eugene Du (the Korman parties) founded a company called Language Select, LLC. United Language Group, Inc. (ULG) purchased Language Select from the Korman parties for $65 million: $60 million in cash and a $5 million promissory note. This lawsuit is about the $5 million note.
To obtain the funds for the purchase, ULG borrowed money from two senior lenders. The senior lenders, in turn, required the Korman parties to sign subordination agreements to ensure ULG paid back the senior lenders before ULG paid the $5 million it owed the Korman parties.
Among the many terms of the promissory note and subordination agreements were two in particular that ultimately gave rise to the parties' dispute. First, ULG could not pay the Korman parties any principal owed on the $5 million promissory note until ULG repaid all of the debt it owed to the senior lenders (the Senior Debt). Second, ULG in the meantime had to make quarterly, interest-only payments on the promissory note to the Korman parties; however, ULG could only make interest payments if it was not in default on its borrowing obligations to the senior lenders (a Senior Default).
ULG made some of the interest payments on the $5 million promissory note, but eventually stopped. The Korman parties filed a lawsuit against ULG; its holding company, United Language Group Holdings, LLC; and six of ULG's officers and directors (Douglas Bergeron, Kristen Giovanis, Scott M. Honour, Peter R. Offenhauser, Michael Furey, and Marcy A. Haymaker) (collectively, the ULG parties). That lawsuit settled. But after ULG again stopped making interest payments on the promissory note, the Korman parties filed this action, asserting a cause of action against ULG and Language Select for breach of the promissory note and a cause of action against all of the ULG parties for breach of the settlement agreement on the theory the ULG parties agreed to pay back the promissory note as part of the settlement. The Korman parties also claimed the ULG parties breached the settlement agreement by filing it in court.
The ULG parties and Language Select moved for summary adjudication on each cause of action and for summary judgment. On the Korman parties' cause of action for breach of the promissory note, they argued they were entitled to judgment as a matter of law for two reasons. First, they argued that, because it was undisputed ULG had not paid off the Senior Debt it owed to the senior lenders, the subordination agreements precluded ULG from making any principal payments. Second, they argued that, because it was undisputed there was a Senior Default on ULG's obligations to the senior lenders, the subordination agreements precluded ULG from making interest payments on the promissory note. On the Korman parties' cause of action for breach of the settlement agreement, the ULG parties argued there was no breach of the settlement agreement because the settlement agreement did not modify the terms governing payment of the promissory note.
The trial court granted the motion and subsequently entered judgment on the Korman parties' complaint, although not on a cross-complaint ULG and Language Select had filed against the Korman parties (more on that later). On the cause of action for breach of the promissory note, the court ruled there was no breach because it was undisputed ULG had not paid off the Senior Debt. The Korman parties contend the subordination agreements were no longer binding because, after the Korman parties and ULG's senior lenders entered into the subordination agreements, ULG borrowed money from a new lender, which ULG used to pay off its debt to one of the two senior lenders and to acquire a new company. As we explain, the Korman parties are incorrect; ULG had not paid off the Senior Debt to the other senior lender, and the subordination agreements permitted ULG to incur additional debt. In addition, ULG and Language Select met their burden to show there was a Senior Default on ULG's obligations to that same senior lender, and the Korman parties did not submit sufficient evidence to create a triable issue of material fact.
On the cause of action for breach of the settlement agreement, the trial court agreed with the ULG parties that there was no breach of that agreement. We conclude that the Korman parties' claim for breach of the settlement agreement based on a breach of the promissory note fails because there was no breach of the latter agreement and that the ULG parties' filing of the settlement agreement did not cause the Korman parties any damages. Therefore, we affirm the judgment in favor of those ULG parties for whom there is an appealable judgment. We dismiss the appeal from the judgment in favor of ULG and Language Select, for whom there is no appealable judgment; treat that part of the appeal as a petition for writ of mandate; and deny the petition.
The Korman parties founded Language Select, which provides language interpretation services, in 2009. In 2016 they sold the company to ULG and its holding company, United Language Group Holdings, for $60 million in cash, a $5 million promissory note, and equity in United Language Group Holdings. The promissory note provided that interest on outstanding principal would accrue annually at 6 percent and that ULG and Language Select would make quarterly interest-only payments on the note.[1] The promissory note provided that, if ULG and Language Select did not make a required interest payment, they would be in default, after which any unpaid principal or interest would "become immediately due and payable."
To obtain funding for the purchase, the ULG entities[2] borrowed money from two lenders: Bell Bank and Yukon Capital Partners II, L.P. Both Bell Bank and Yukon required the Korman parties to enter into subordination agreements, which included the following terms:
The subordination agreements defined the terms "Senior Debt" and "Senior Default." They defined Senior Debt as "each and every debt, liability and obligation of every type and description which [ULG and Language Select] may now or at any time hereafter owe to [Bell Bank or Yukon] under the Senior Credit Documents, whether such debt, liability or obligation now exists or is hereafter created or incurred, . . . all renewals, extensions, modifications and refinancings thereof and any notes issued in whole or partial substitution for any notes issued in connection therewith." They defined Senior Default as "a Default or Event of Default" under the ULG entities' lending agreements with Bell Bank and Yukon.
When the Korman parties and Bell Bank and Yukon entered the subordination agreements, the ULG entities' lending agreement with Yukon was also subordinate to their lending agreement with Bell Bank. The Bell Bank-Yukon subordination agreement generally prohibited the ULG entities from making payments to Yukon before paying off their debt to Bell Bank, while permitting certain payments.
After the sale ULG and United Language Group Holdings filed a complaint against the Korman parties for fraud and breach of contract arising from the sale. The Korman parties filed a cross-complaint against the ULG parties for breach of the promissory note, alleging the ULG parties failed to make quarterly interest payments required under the note. The Korman parties and the ULG parties ultimately executed a settlement agreement resolving that lawsuit.[3]
After the parties settled the prior action, ULG made two interest payments on the note. ULG, however, did not make the third scheduled interest payment due in April 2019, believing the ULG entities "were in default of their senior lending agreements or, at the very least . . . would be in default immediately after paying the Seller Note." In response, the Korman parties filed this action.
In their operative complaint, the Korman parties asserted a cause of action against ULG and...
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