RTC Mortg. Trust 1994-S2 v. Shlens

• Decision Date: 19 March 1998
• Docket Number: No. B095859,B095859
• Citation: 72 Cal.Rptr.2d 581,62 Cal.App.4th 304
• Parties: , 98 Cal. Daily Op. Serv. 1966, 98 Daily Journal D.A.R. 2720 RTC MORTGAGE TRUST 1994-S2, Plaintiff and Appellant, v. Robert D. SHLENS, Defendant and Appellant.
• Court: California Court of Appeals Court of Appeals

Page 581

72 Cal.Rptr.2d 581

62 Cal.App.4th 304, 98 Cal. Daily Op. Serv. 1966,

98 Daily Journal D.A.R. 2720

RTC MORTGAGE TRUST 1994-S2, Plaintiff and Appellant, v. Robert D. SHLENS, Defendant and Appellant.

No. B095859.

Court of Appeal, Second District, Division 7, California.

March 19, 1998.

Rehearing Denied April 8, 1998.

Review Denied June 24, 1998.

Pircher, Nichols & Meeks and James L. Goldman, Los Angeles, for Plaintiff and Appellant.

Baker, Silberberg & Keener, Robert C. Baker and Jeffrey P. Nolan, Santa Monica, for Defendant and Appellant.

LILLIE, Presiding Justice.

Defendant Shlens appeals from a summary judgment granted in favor of plaintiff on its first amended complaint for judicial foreclosure of a deed of trust and for a declaration that plaintiff is entitled to a deficiency judgment against Shlens for all amounts due under the note which are left unsatisfied after foreclosure and sale of the property. ¹ Plaintiff appeals from the denial of its post-judgment motion for attorney's fees and costs under Civil Code section 1717. The principal issue on defendant's appeal is whether the trial court properly determined that as a matter of law plaintiff was entitled to a deficiency judgment against Shlens in that Shlens' state law defenses were barred under the federal common law doctrine known as the D'Oench, Duhme doctrine (D'Oench, Duhme & Co. v. F.D.I.C. (1942) 315 U.S. 447, 62 S.Ct. 676, 86 L.Ed. 956), or under the doctrine's "partial codification" (Weber v. New West Federal Savings & Loan Assn. (1992) 10 Cal.App.4th 97, 99, 12 Cal.Rptr.2d 468) in the federal statutes at 12 United States Code section 1823(e) (section 1823(e)).

FACTUAL AND PROCEDURAL BACKGROUND

On January 22, 1988, Western Bank, as broker for Western Federal Savings & Loan Association (Western Federal), funded a $3,500,000 loan to Shlens in order for Shlens to refinance a prior loan he had obtained in 1987 when he purchased real property, a 91-unit apartment complex located at 6710-40 Hayvenhurst Avenue in Van Nuys. In connection with the 1988 refinance loan, Shlens executed and delivered to Western Bank a promissory note and, to secure his obligations under the note, a multifamily deed of trust and assignment of rents; both instruments were dated January 22, 1988, although the trust deed was executed by Shlens on January 28, 1988. Neither the note nor the deed of trust contains any exculpatory language precluding a deficiency judgment against Shlens, nor was any such agreement included as a rider or attachment to the deed of trust or note. On January 22, 1988, Western Bank assigned its beneficial interest in the trust deed and note to Western Federal; the corporation assignment of deed of trust was executed by Western Bank on January 26, 1988; the trust deed and corporation assignment of deed of trust were recorded in the office of the County Recorder on February 4, 1988. Soon after Western Bank's assignment to Western Federal, Western Federal reimbursed Western Bank for the funds loaned to Shlens, but Western Bank continued to service the Shlens loan until December 1992.

In June 1993, the Resolution Trust Corporation (RTC) was appointed receiver for Western Federal. On July 1, 1993, Shlens defaulted on his payments on the note. According to Shlens, since the inception of the loan in 1988, the property had steadily decreased in value as it had become "a victim of drug smuggling and gang violence," and repair costs and vacancies increased while In September 1994, the Bankruptcy Court granted plaintiff relief from automatic stay, and shortly thereafter RTC Mortgage Trust brought the instant action for judicial foreclosure of deed of trust and declaratory relief; the cause of action for declaratory relief sought a legal determination the plaintiff was entitled to a deficiency judgment against Shlens if amounts due under the note were left unsatisfied after a foreclosure sale. According to plaintiff, prior to commencing the action, all monies payable under the note were due and payable; demand was made on Shlens to pay the balance due, but no part has been paid; as of January 1, 1995, the total principal and interest of about $3.8 million was due and owing on the loan; Shlens also owed about $79,000 in delinquent property taxes on the property.

rental income decreased. In 1992 and 1993, Shlens had requested a forbearance of the loan principle and engaged in negotiations with Western Bank, and then Western Federal, for a renegotiation of the note; Western Federal and then the RTC did not formally respond to his requests. In November 1993, Shlens quitclaimed the property to co-defendant 6710-40 Hayvenhurst, a limited partnership, which filed for bankruptcy relief in March 1994. On March 8, 1994, RTC recorded a notice of default under the note. In August 1994, RTC, as receiver for Western Federal, assigned the note and deed of trust to plaintiff RTC Mortgage Trust 1994-S2 (hereinafter RTC Mortgage Trust). Plaintiff is a Delaware Business Trust, in which the RTC has a 51 percent ownership interest, and 1994-S2 Limited, a limited partnership of private investors, has a 49 percent interest.

According to the declaration of Mitchell Clarfield, submitted by plaintiff in support of its motion for summary judgment, Clarfield was an account officer of Carbon Mesa Advisors, Inc., the servicing agent for plaintiff; plaintiff's files for the Shlens loan contained no document executed by Western Bank or by Western Federal which purports to limit Shlens' personal liability for any obligations under the note; plaintiff obtained its files from the RTC, which in turn received the documents from Western Federal. One of the documents in plaintiff's file was a six-page "Loan Analysis & Approval Form," dated January 4, 1988, which was signed by five members of Western Federal's loan committee; there is nothing in that form which indicates that Western Bank or Western Federal had approved any sort of agreement limiting the lender's recourse in the event of default by the borrower.

J. Leo Sullivan, the Major Loan Manager and Senior Vice President of Western Federal from 1985 to 1992, declared that the "Loan Analysis & Approval Form" (Form) was used by Western Federal to document the principal terms of loans for purposes of presenting the loan and the terms to the loan committee for its approval, and to document the committee's approval of the loan; it was Western Federal's policy that all terms of a loan, including any non-recourse provisions, would be included in the Form, which constituted the record of the action taken by the loan committee with respect to the loan; no other document or form reflected the loan committee's approval of specific loan terms; although there were loan committee minutes, the minutes provide very little information about the loans, merely indicating the loan number, the dollar amount, and the persons present at the committee meeting. The Loan Analysis & Approval Form for the Shlens loan indicates that Western Bank acted as the broker on the Shlens loan. The underwriting of the loan and review and approval of the loan terms would have been performed by Western Federal, not Western Bank; Western Federal's loan committee, of which he was a member, approved the Shlens loan on January 6, 1988.

According to Ben Slayton (Slayton), Western Bank's managing director, Western Federal had an agreement with Western Bank that upon Western Federal's approval, Western Bank would initially fund the loan, and then Western Federal would purchase the loan from Western Bank within 30 days; Western Bank itself did not approve the Shlens loan. Although the loan was initially funded by Western Bank, Western Federal was the bank which took the risk relating to default on the loan; it was Western Bank's practice to inform the borrower that Western In opposition to the motion for summary judgment, defendant contended that plaintiff was not entitled to any deficiency after foreclosure by virtue of an alleged "exculpatory agreement." According to Shlens' February 24, 1995, declaration, during the time he approached Western Bank for a loan and during the time of execution of the loan documents, he dealt only with employees of Western Bank; on or about January 28, 1988, he executed numerous documents pertaining to the loan; included among the documents was "the Exculpatory Language which was drafted by Western Bank in response to my insistence that I was only interested in refinancing under a non-recourse loan. My understanding was that this was a standard exculpatory provision executed within the banking industry."

Bank intended to sell the loan on the secondary market, and to inform the borrower that the purchasing bank would conduct its own analysis and approval of the loan; this process was called "prior approval."

Shlens' attorney, Jeffrey P. Nolan, stated in his February 24, 1995, declaration that earlier in February 1995, he reviewed documents produced by plaintiff and found in the loan files plaintiff obtained from the RTC an alleged exculpation agreement. Upon Western Bank's insolvency, the RTC inventoried the assets; an RTC document captioned "Investor Review File Index" pertaining to the Shlens loan refers to a document titled Exculpation Language.

The document titled Exculpation Language, dated January 28, 1988, refers to Western Bank's loan number for the loan to Shlens. The document states in pertinent part that "Borrower shall not be liable personally for the payment of the principal and interest on the debt payable under this Note, and the sole recourse of Lender for collection of such amounts shall be against the Property." The document was signed only by Shlens and by the vice president of the property management firm which managed his property on Hayvenhurst Avenue, the latter signing as a witness. The escrow officer from City National Bank, apparently the escrow company for the loan, stamped the document indicating...