Series Agi W. Linn of Appian Grp. Investors De LLC v. Eves

• Citation: 158 Cal.Rptr.3d 193,217 Cal.App.4th 156
• Decision Date: 14 June 2013
• Docket Number: A135832
• Court: California Court of Appeals Court of Appeals
• Parties: SERIES AGI WEST LINN OF APPIAN GROUP INVESTORS DE LLC, Plaintiff and Respondent, v. Robert EVES, Defendant and Appellant.

217 Cal.App.4th 156

158 Cal.Rptr.3d 193

SERIES AGI WEST LINN OF APPIAN GROUP INVESTORS DE LLC, Plaintiff and Respondent,

v.Robert EVES, Defendant and Appellant.

A135832

Court of Appeal, First District, Division 2, California.

Filed June 14, 2013

See 1 Witkin, Summary of Cal. Law (10th ed. 2005) Contracts, § 1002 et seq.

Marin County Superior Court, Honorable Roy C. Chernus (Marin County Super. Ct. No. CIV–1201214)

Attorney for Defendant and Appellant: Wild, Carey & Fife, San Francisco, John E. Carey, Jr.

Attorneys for Plaintiff and Respondent: Katzoff & Riggs, Emeryville, Kenneth S. Katzoff and Stephen G. Preonas

Richman, J.

Robert Eves appeals from the Judicial Council form AT–120 Right to Attach Order and Order for Issuance of Writ of Attachment. The appeal presents a single issue, one that appears to be an issue of first impression, not only in California, but in the entire country: If a surety specifically excludes a specified asset from a continuing guaranty, are the proceeds from the sale of that asset still excluded when the surety is called to answer for its guaranty?

The novelty of the issue notwithstanding, we resolve it as simply one of contractual interpretation. Our examination of the guaranty, together with other documents executed at the same times, shows that Eves could have inserted language extending the exclusion from the assets to the sale proceeds of those same assets. He simply failed to do so. Judicially correcting that omission would amount to an improper rewriting of the parties' contract. For this reason we agree with the trial court that the proceeds are not exempt from being attached to satisfy the surety's obligation.

BACKGROUND

According to the papers of plaintiff Series AGI West Linn of Appian Group Investors DE, LLC (Series AGI), in April 2007 it lent $3.1 million to VPC–OR West Linn Limited Partnership, LLC (VPC–OR) for the development of a “commercial marketplace” in West Linn, Oregon. The loan provided for interest at 13 percent per annum, and an “exit fee of the amount equal to an annualized thirteen percent ... of the original principal balance” of the loan. ¹ The loan was secured by a deed of trust, which was junior to another deed of trust held by a financial institution that had loaned VPC–OR $18.4 million.

Contemporaneously, Eves executed a “Continuing Guaranty” by which he “unconditionally guarantees and promises to pay Lender [Series AGI] ... any and all indebtedness ... of Borrower [VPC–OR] to Lender.” ² A “Guaranty of Loan Addendum” setting out seven categories of assets as “Schedule 1,” added: “The following assets are excluded from the Robert J. Eves personal Guaranty: [¶] ... [¶] The personal residence of Robert J. Eves at Via Regina, 27 Moltrasio, Como, Italy and its contents.” ³ The parties expected the project to be completed by the end of April 2009. But it was not to be.

Series AGI's deed of trust was extinguished when the senior lender foreclosed. VPC–OR made no payments on the loan, and Eves refused to honor his guaranty. In March 2012 Series AGI filed suit to recover approximately $6.3 million from VPC–OR, or Eves, together with prejudgment interest, and attorney fees, according to the terms of the loan agreement and the continuing guaranty. ⁴ One month after it filed its complaint, Series AGI applied for a prejudgment order of attachment ( Code Civ. Proc., § 484.010).

In his combined opposition and claim of exemption (Code Civ. Proc., §§ 484.060, 484.070), Eves opposed only that part of the application aimed at “proceeds from the sale” of the Como house, which “[b]y the terms of the personal guarantee upon which plaintiff's application for attachment ... is based ... are ‘excluded’ from attachment.” Eves based this conclusion on his reading of the guaranty's paragraph 13: “Limitation of Recovery. [¶] Notwithstanding the foregoing, the personal Guaranty of Eves may only be collected from assets not expressly excluded, as provided in the Asset Exclusion Schedule for Eves is attached hereto as Schedule 1; provided such limitation shall be inapplicable in the event Eves or any affiliate of Eves supplements or enhances in any material manner any Excluded Asset but only to the extent of such supplement or enhancement.”

Series AGI's application was submitted on papers, exhibits, and declarations. Series AGI's first declaration, by attorney Stephen Preonas, concerned the amount of attorney fees Series AGI was likely to incur, together with an explanation of the damages it was seeking. The second, by Jon Lotter, Series AGI's manager, authenticated a number of attached exhibits, including the guaranty, and narrated the history of the planned project.

Eves responded with a declaration by attorney John E. Carey, Jr., that simply authenticated an attached copy of the guaranty. Eves himself provided two declarations. The first purported to set out Eves's “understanding” of the guaranty. The trial court sustained Series AGI's objections that virtually all of Eves's declaration was speculation, opinion, or otherwise lacked foundation.

Lotter then filed a supplemental declaration explaining how paragraph 13 came to be included in the guaranty. The final declaration was the supplemental one by Eves, which is the only source of particulars regarding the sale of his Italian residence: “I sold that property in the summer of 2011. The proceeds of the sale ... were all cash and that cash has been deposited in various accounts. No part of the proceeds of [the] sale has ever been comingled with any other funds. The sale proceeds have always been easily identifiable because they have been in segregated accounts as I have drawn them down to satisfy various obligations.” ⁵ The apparent purpose of this explanation was to buttress Eves's claim that “where collateral is sold, the secured creditor's security interest automatically attaches to the proceeds of sale. Cal. U. Com.Code, § 9315(a)(2) (‘A security interest attaches to any identifiable proceeds of collateral.’)”

Following a brief hearing, the trial court made an order denying “Eves' claim of ‘exemption’ for the Como, Italy property” proceeds and granting Series AGI's application for an order of attachment. Eves timely sought review of this appealable order. (Code Civ. Proc., § 904.1, subd. (a)(5).)

REVIEW

Preliminary Matters And The Scope Of Our Review

Although the parties do not suggest that any other documents executed contemporaneously with the guaranty (i.e., VPC–OR's promissory note, security agreement, and deed of trust) are useful in ascertaining the scope and meaning of the guaranty, these other instruments may be considered for that purpose. (Civ.Code, §§ 1642, 1647; Davenport v. Stratton (1944) 24 Cal.2d 232, 244–245, 149 P.2d 4.) Consideration of the other documents is particularly appropriate because they are referenced on each of the pages of the guaranty. ( Goodwin v. Nickerson (1875) 51 Cal.166, 169; Fidler v. Board of Trustees (1931) 112 Cal.App. 296, 309, 296 P. 912.)

The Attachment Law (Code Civ. Proc., §§ 481.010–493.060) requires the party seeking a prejudgment attachment to demonstrate the probable validity of its claim, i.e., that it is “more likely than not that the plaintiff will obtain a judgment against the defendant” (Code Civ. Proc., §§ 481.190, 484.090, subd. (a)(2).). An attachment is properly issued in an action involving a contractual claim of money of a fixed or ascertainable amount of more than $500 (Code Civ. Proc., § 483.010, subd. (a)). An attachment may be issued against a natural person only if the claim arises “out of the conduct by the defendant of a trade, business, or profession.” ( Id.,§ 481.010, subd. (c).) A trial court's findings on these issues will be upheld if supported by substantial evidence. (Code Civ. Proc., § 484.090, subd. (a); Lorber Industries v. Turbulence, Inc. (1985) 175 Cal.App.3d 532, 534–535, 221 Cal.Rptr. 233; Nakasone v. Randall (1982) 129 Cal.App.3d 757, 762, 181 Cal.Rptr. 324.) However, none of the trial court's findings on these points is challenged by Eves.⁶Although the precise point does not appear to have been authoritatively established, it appears from some statutory language and case law that a claim of exemption upheld by the trial court is also judged according to the substantial evidence standard. (See Code Civ. Proc., § 484.090, subd. (b) [“If ... the court finds that the defendant has failed to prove that all the property sought to be attached is exempt from attachment”] italics added; Schwartzman v. Wilshinsky (1994) 50 Cal.App.4th 619, 626, 57 Cal.Rptr.2d 790 [whether account is meant for individual's retirement, and thus exempt from levy, is substantial evidence question]; Yaesu Electronics Corp. v. Tamura (1994) 28 Cal.App.4th 8, 14, 33 Cal.Rptr.2d 283 [same]; but see Code, Civ. Proc., § 484.090, subd. (c) [“If the court determines that property of the defendant is exempt from attachment, in whole or in part, the right to attach order shall describe the exempt property and prohibit attachment of the property”], italics added.)

However, because there are no contested issues of fact, the issue becomes one of law. (Continental Casualty Co. v.Hartford Acc. & Indem.Co. (1966) 243 Cal.App.2d 565, 570, 52 Cal.Rptr. 533.) Thus, it is our independent duty is to interpret Eves's guaranty in a manner that will effectuate its purpose. (Civ.Code, § 1636; Cates Construction, Inc. v. Talbot Partners (1999) 21 Cal.4th 28, 39, 86 Cal.Rptr.2d 855, 980 P.2d 407; U.S. Leasing Corp. v. d uPont (1968) 69 Cal.2d 275, 284–285, 290, 70 Cal.Rptr. 393, 444 P.2d 65.)

Analysis

A guaranty is a form of surety, whereby the guarantor “promises to answer for the debt ... of another.” (Civ.Code, § 2787) A guaranty is a form of contract and subject to the usual rules governing contract interpretation. (Civ.Code, § 2837; Rest.3d Suretyship and Guaranty, § 14, p. 69.) The oft-repeated formulation of that interpretive function first appeared in 1903: “While it is...