Sawyer v. First City Financial Corp.
| Decision Date | 08 October 1981 |
| Citation | 124 Cal.App.3d 390,177 Cal.Rptr. 398 |
| Court | California Court of Appeals Court of Appeals |
| Parties | Edmund V. SAWYER, et al., Plaintiffs and Appellants, v. FIRST CITY FINANCIAL CORPORATION, LTD., et al., Defendants and Respondents. Civ. 24043. |
Weissman, Jones & Gamer and Peter P. Gamer, San Diego, for plaintiffs and appellants.
Seltzer, Caplan, Wilkins & McMahon, Gerold L. McMahon, James B. Person, San Diego, Orrick, Herrington & Sutcliffe, William L. Riley, George A. Yuhas, San Francisco, Platt, Tebbetts & Peterson, Harold F. Tebbetts and Linda E. Boelhauf, San Diego, for defendants and respondents.
Plaintiffs appeal from adverse summary judgment rulings in favor of all defendants. An understanding of the litigation requires an analysis of two separate cases involving essentially the same parties, of which the present appeal relates specifically to the second. For reference purposes these two cases will be called "Sawyer I" and "Sawyer II." Each case arises from the same general factual background.
The principal parties to both cases are the plaintiffs Sawyer, owners and sellers of land; the defendants First City Financial Corporation Ltd. and its subsidiaries, purchasers and encumbrancers of the land who sought to develop it; and Toronto Dominion Bank of California, the development lender to First City Financial's subsidiary. The broad brush of facts is that in May of 1974 the Sawyers sold 32 acres of land in La Jolla, California, to the subsidiary of First City F.C. Financial Associates, Ltd. for $1,180,000 consisting of $510,000 in cash and a note secured by deed of trust in the sum of $670,000. Concurrently with the sale, F.C. Financial Associates committed to borrow $1,800,000 in the form of a development loan from Toronto Dominion Bank. This loan was guaranteed by First City and was secured by a first deed of trust on the realty, the Sawyers specifically subordinating their deed of trust to the new encumbrance. The Sawyers as part of the sales documents specifically waived any deficiency judgment with respect to their note and deed of trust, with the result that after the sales and refinancing escrows closed their sole resource for collection of their $670,000 note was foreclosure on their deed of trust, now subordinate to a $1,800,000 first deed of trust to the Bank.
Early in 1975, F.C. Financial Associates discontinued payments on the note to Toronto Dominion Bank, asserting that it could not proceed further with development of the land because the construction bids it had received were excessively high. Total amounts owed on the note at that time approximated $900,000. Toronto Dominion Bank commenced non-judicial foreclosure proceedings on April 1, 1975, and purchased the land at foreclosure sale in September, 1975, for its bid of $650,000. The land was ultimately transferred in December 1976 to Lexington Properties, Inc., a corporation owned by one Richard Ehrlich, for a purchase price of some $800,000.
The Sawyers contend in pleadings and other documentation that at the time of the foreclosure sale Toronto Dominion Bank had agreed to resell the realty to First City for a price equal to the Bank's total investment in it, but that this transfer was delayed until the sale to Ehrlich and his corporation could be arranged, so that neither First City nor its subsidiary again appeared as record titleholder. Ehrlich and his corporation obtained development funds for the property from a corporation called Lomitas Properties, Inc., which is a corporation owned and controlled by the majority stockholders, directors and officers of First City, and which derived its funds from First City.
Appellant's view of the facts, therefore, is that the Sawyers were induced to take a non-recourse note for more than half the consideration involved in the sale of their land, the security for which note was made subject to a large development loan. The development borrower then defaulted on the note and arranged with the development lender to foreclose, to buy in at the foreclosure sale, and to resell to the development borrower for the amount of the foreclosure sales price plus the balance of the loan guarantee. The practical effect of this transaction, it is alleged, was to wipe out the obligation to the Sawyers and permit First City to proceed with sale or development of the land without having to pay $650,000 of the purchase price. In order to avoid airing the mechanics of the transaction, the agreement between the Toronto Bank and First City was kept secret, and the resale to First City was not recorded, the ultimate purchaser being a puppet of First City set up in an apparently independent corporation, borrowing funds from a new and anonymous lending company, but actually deriving development funds indirectly from First City. We are alert to caution that the above construction of the facts from and after the foreclosure sale is that alleged by the plaintiffs, who seek the opportunity of proving same in a full-scale evidentiary trial.
Sawyer I was commenced in July of 1975. The defendants were F.C. Financial Associates, its parent First City Financial Corporation, and, later, another subsidiary of First City (all sometimes called herein "Financial"); and Toronto Dominion Bank of California ("Bank"). The several causes of action all were based upon contractual theories. Reference was made to the Land Acquisition and Development Loan Agreement executed between Financial and Bank, which provided for the construction of a planned residential development in accordance with an existing permit. The Sawyers alleged that they were third party beneficiaries of that agreement and had been damaged by the failure of Financial to perform in accordance with it. The breach is alleged not only as a simple breach of contract, but as a breach by the defendants of "a contractual duty of good faith and fair dealing." A separate cause of action asks for declaratory relief with respect to the contractual commitments; and a final cause of action seeks judicial foreclosure of the Sawyer note. The monetary relief prayed for was the amount of the note ($674,500) plus attorney fees.
The case was tried in February of 1978. By stipulation the issues were severed for trial and dispositive issues were presented to a judge, sitting without jury. The judgment rendered in March of 1978, focused upon the issue of the validity of the waiver by Sawyers of their right to a deficiency judgment. This waiver was found to be effective and judgment was rendered in favor of all defendants on all causes of action. Following affirmance on appeal, the judgment became final in December of 1979.
Sawyer II was filed in January of 1978. Entitled "Complaint for Damages Based Upon Conspiracy and Fraud," it joined as defendants all of the parties named in Sawyer I and in addition the ultimate purchaser Ehrlich and his corporation, Lexington Properties; the new financier of the development, Lomitas Properties; and a number of officers and directors of the Financial Companies and the Toronto Bank. Three of the causes of action of this new lawsuit are based upon an alleged conspiracy among the defendants to cause a default in the Bank's note and trust deed, hold a sham sale, and take other action for the purpose of eliminating the obligation to the Sawyers. The only essential difference in the three causes of action is the date of commencement of the alleged conspiracy one alleging the evil motives from the very start of the land acquisition transaction, a second alleging commencement of the conspiracy when Financial defaulted on its note payments, and a third alleging commencement of the conspiracy at the time of the foreclosure sale. The fourth cause of action uses the same factual allegations as the basis for a claim of intentional interference with contractual relation (Financial's note obligation to the Sawyers). Damages alleged are the same as in Sawyer I except that additional punitive damages are sought.
The procedural history of Sawyer II is detailed as follows:
1. Promptly upon filing Sawyer II, counsel sought to consolidate with Sawyer I, and moved for a continuance of the trial of Sawyer I. This motion was opposed by the defendants, who objected because the issues and causes of action of Sawyer II were different from those of Sawyer I, and also because the case, then pending for two and one-half years, was scheduled for trial nine days later. The court denied a motion to continue the trial of Sawyer I, and it was tried without consolidation with Sawyer II.
2. In January of 1980, the Toronto Bank and its officers moved for summary judgment in Sawyer II upon the ground of the res judicata effect of Sawyer I, and also upon the basis of a written release which had been executed in favor of the Bank in Sawyer I removing the Bank from the case before its trial. The Honorable Douglas Woodworth denied the motion based upon res judicata, but granted the motion as to the Bank only, upon the ground of the written waiver. The bank officers moved for reconsideration on the theory that the waiver should be construed to cover them as well as the Bank, and this motion was taken under submission by the judge in March of 1980. On July 24, 1980, Judge Woodworth denied the motions by written minute order.
3. In May of 1980, a separate motion for summary judgment was filed by the Financial corporations on the ground that Sawyer I was res judicata to the issues of Sawyer II that the plaintiffs had split their cause of action by attempting to relitigate the same issues in a second lawsuit. The bank officers (whose motion for reconsideration was then pending before Judge Woodworth) joined in this motion, and it was set for hearing before the Honorable Franklin B. Orfield. On July 25, 1980, Judge Orfield...
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