Semler v. Gen. Elec. Capital Corp., B221103.
| Citation | 11 Cal. Daily Op. Serv. 5456,124 Cal.Rptr.3d 582,195 Cal.App.4th 175 |
| Decision Date | 06 May 2011 |
| Docket Number | No. B221103.,B221103. |
| Parties | Ronald H. SEMLER, Plaintiff and Appellant, v. GENERAL ELECTRIC CAPITAL CORPORATION, Defendant and Respondent. |
| Court | California Court of Appeals |
OPINION TEXT STARTS HERE
Background: Individual prospective investor in limited liability company (LLC) brought action against commercial lending institution, alleging that the institution violated the Unruh Civil Rights Act in conditioning its investment in the LLC on the exclusion of the individual investor. The Superior Court, Los Angeles County, No. SC103088,Linda K. Lefkowitz, J., sustained demurrer without leave to amend. Individual investor appealed.
Holding: The Court of Appeal, Mallano, P.J., held that conditioning investment on exclusion of investor who was a felon did not violate Unruh Civil Rights Act.
Affirmed.
Law Office of Kathryn M. Davis and Kathryn M. Davis, Walnut Creek, for Plaintiff and Appellant.
Sheppard, Mullin, Richter & Hampton, Costa Mesa, Alan H. Martin and Scott B. Lieberman for Defendant and Respondent.
This appeal raises the question of whether a commercial lending institution, which also invests its own money in a borrower's venture, violated the Unruh Civil Rights Act (Act) (Civ.Code, § 51) by declining to make a mezzanine loan to a limited liability company because one of its members was a felon. We conclude that being a felon is not a personal characteristic similar to those enumerated in the Act, the lending institution had legitimate business reasons justifying its decision—the repayment of the loan and making a return on its investment—and the potential consequences of allowing such a claim would improperly involve the courts in second-guessing a lending institution's expertise in determining loan and investment criteria.
The facts in this appeal are taken from the allegations of the complaint, which we accept as true. (See Hensler v. City of Glendale (1994) 8 Cal.4th 1, 8, fn. 3, 32 Cal.Rptr.2d 244, 876 P.2d 1043.)
The complaint, filed on May 13, 2009, alleged as follows. On or about November 2, 2005, plaintiff Ronald H. Semler, in his capacity as trustee of the Semler family trust, was invited pursuant to a private placement memorandum to invest in a limited liability company named ARI Overland Management, LLC (Overland Management), which was a member of another limited liability company, ARI Overland, LLC (ARI Overland). ARI Overland was formed to purchase real property located in San Dimas, California. The managing members of ARI Overland were Overland Management, in which Semler wanted to be a member, and Adler Realty Investment, Inc. (Adler Realty).
There were 10.58 “membership units” available for investment in Overland Management at a cost of $50,000 per unit. Semler intended to purchase five units, paying $250,000. According to the complaint, “[T]he investment [was] set to close on November 10, 2005.”
The private placement memorandum stated that defendant General Electric Capital Corporation (GE Capital), acting through its wholly owned subsidiary, GEBAM, Inc., had agreed to provide a mezzanine loan to ARI Overland in the approximate amount of $6.58 million. As alleged, by making a mezzanine loan, GEBAM, Inc., not only acted as a lender but also became an “equity participant” by making an “equity investment” in ARI Overland.
On or about November 11, 2005, GEBAM, Inc., informed Adler Realty, a managing member of ARI Overland, that it would provide the requested financing but would not accept Semler as a member of Overland Management because he had been convicted of felonies in 1988. In response to GEBAM, Inc.'s demand, ARI Overland excluded Semler as a member of Overland Management and did not allow him to invest in the venture. Thereafter, GEBAM, Inc., made the loan to, and invested in, ARI Overland.
The complaint described Semler's felonies as “technical tax violations, as well as export violations committed by a corporation of which, at the time the violations occurred, [Semler] was an employee, officer and shareholder.”
After soliciting the parties' views on the issue (see Evid.Code, §§ 459, 455), we decided to take judicial notice of the official federal court records concerning Semler's convictions. Those records disclosed that, by way of a superseding four-count information filed in the United States District Court for the Central District of California on February 10, 1988, Semler was charged with a conspiracy (see 18 U.S.C. § 371) allegedly involving the knowing falsification of customs documents (see 18 U.S.C. § 1001), willfully impeding the functions of the Internal Revenue Service, and exporting weapons to Syria (see 22 U.S.C. § 2778(c)). Pursuant to a plea agreement, filed in federal court on February 10, 1988, Semler agreed to plead guilty to the charges. In accordance with a “Judgment and Probation/ Commitment Order,” dated February 10, 1988, Semler received a sentence of three years on three of the counts and two years on the fourth count, all to run concurrently. He was also ordered to pay $10,000 per count for a total of $40,000. The federal court recommended that Semler serve his sentence at the Lompoc Prison Camp at Lompoc, California.
The complaint asserted one cause of action, for violation of the Unruh Civil Rights Act, identified as “Civ.Code, § 51, et. seq.” The cause of action alleged that GE Capital, acting through GEBAM, Inc., had violated the Act by declining to make a loan to ARI Overland because Semler, who wanted to invest in, and become a member of, Overland Management, was a felon.
GE Capital filed a demurrer, contending the action was barred by the two-year statute of limitations for personal injuries set forth in section 335.1 of the Code of Civil Procedure and, alternatively, the complaint failed to allege a violation of the Act.
In his opposition, Semler argued that a three-year limitations period applied (see Code Civ. Proc., § 338, subd. (a)) because his claim was not recognized at common law but was created by statute, that is, the Unruh Civil Rights Act. 1 Semler further argued that the Act protects felons from arbitrary discrimination and that GEBAM, Inc.'s decision to oust him from membership in Overland Management as a condition of making a loan and an investment in the venture served no legitimate business purpose.
The demurrer was heard on September 17, 2009. In a written tentative ruling, the trial court concluded that the action was barred by the two-year statute of limitations for personal injuries (Code Civ. Proc., § 335.1). The tentative ruling did not address whether the complaint alleged a violation of the Act. After argument, the trial court adopted its tentative ruling as its final ruling. On October 16, 2009, an order of dismissal was entered. Semler appealed.
On appeal, the parties debate whether the complaint is barred by the statute of limitations and whether GE Capital violated the Unruh Civil Rights Act. As the parties acknowledge, the courts are divided as to which statute of limitations governs a claim under the Act: the two-year limitations period for personal injuries (Code Civ. Proc., § 335.1) or the three-year limitations period for a liability created by statute ( id.,§ 338, subd. (a)). (See Gatto v. County of Sonoma (2002) 98 Cal.App.4th 744, 754–760, 120 Cal.Rptr.2d 550;Stamps v. Superior Court (2006) 136 Cal.App.4th 1441, 1449, fn. 8, 39 Cal.Rptr.3d 706.) We see no need to contribute to the ongoing discourse as to the appropriate statute of limitations. Instead, we address whether the complaint alleged a violation of the Unruh Civil Rights Act. Applying the three-part analysis adopted in Harris v. Capital Growth Investors XIV (1991) 52 Cal.3d 1142, 278 Cal.Rptr. 614, 805 P.2d 873( Harris ), we conclude that being a felon is not a personal characteristic similar to those enumerated in the Act, GEBAM,Inc., had legitimate business reasons justifying its decision—the repayment of the loan and making a return on its investment—and the potential consequences of allowing Semler's claim would improperly involve the courts in second-guessing a lending institution's expertise in determining loan and investment criteria. In short, GE Capital, acting through GEBAM, Inc., could permissibly deny a loan to, and decline to invest in, a limited liability company where a member of one of its managing members was a felon. The trial court therefore properly dismissed the case on demurrer.
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