Westamerica Bank v. Mbg Industries, Inc.

• Decision Date: 19 December 2007
• Docket Number: No. F051226.,F051226.
• Citation: 158 Cal.App.4th 109,70 Cal.Rptr.3d 125
• Court: California Court of Appeals Court of Appeals
• Parties: WESTAMERICA BANK, Plaintiff and Appellant, v. MBG INDUSTRIES, INC. et al., Defendants and Respondents.

70 Cal.Rptr.3d 125

158 Cal.App.4th 109

WESTAMERICA BANK, Plaintiff and Appellant, v. MBG INDUSTRIES, INC. et al., Defendants and Respondents.

No. F051226.

Court of Appeal, Fifth District.

December 19, 2007.

The Law Firm of Powell & Pool and Don J. Pool for Plaintiff and Appellant.

Sagaser, Jones & Hahesy, Scott D. Laird and David W. Burnett for Defendants and Respondents.

OPINION

HARRIS, Acting P.J.

INTRODUCTION

Plaintiff and appellant Westamerica Bank filed an amended complaint against defendants and respondents Michelle Ross and MBG Industries, Inc., for breach of contract when respondents defaulted on a $300,000 line of credit.¹ Respondents filed a cross-complaint against appellant, alleged appellant refused to renew or extend the line of credit because of gender discrimination against Ms. Ross, and raised causes of action based on state and federal anti-discrimination laws. Respondents extended a pretrial offer to compromise pursuant to Code of Civil Procedure² section 998, only as to the allegations of appellant's amended complaint on the money owed on the defaulted note, and not on the gender discrimination issues raised by their cross-complaint. As we will explain, section 998 "is a cost-shifting statute which encourages the settlement of actions, by penalizing parties who fail to accept reasonable pretrial settlement offers. A plaintiff who refuses a reasonable pretrial settlement offer and subsequently fails to obtain a `more favorable judgment' is penalized by a loss of prevailing party costs and an award of costs in the defendant's favor." (Heritage Engineering Construction, Inc. v. City of Industry (1998) 65 Cal.App.4th 1435, 1439, 77 Cal. Rptr.2d 459.) An offer made by one party to "any other party to the action" must "allow judgment to be taken" in order to be valid under section 998. (§ 998, subd. (b).)

Appellant did not accept respondents' offer. The court subsequently granted appellant's motion for summary judgment on the cross-complaint.' Thereafter, the parties entered into a stipulated judgment in appellant's favor on the amended complaint, but on terms not as favorable as the terms of respondents' previous offer to settle. The trial court found respondents' offer to settle only the amended complaint was valid to trigger the provisions of section 998, and granted respondents' motion for postoffer attorney fees and costs.

We are presented with the question of whether respondents' offer to settle only the amended complaint was valid under section 998, even though it would have left a pending cross-complaint between the identical parties unresolved, or whether it would have "allow[ed] judgment to be taken" against respondents on the amended complaint. (§ 998, subd. (b).) We will review the purposes behind the various statutory and legal principles raised in this case, and conclude that respondents' offer to settle only the amended complaint was valid to trigger the provisions of section 998, even though it would not have resulted in an appealable final judgment, because it was an offer to the other party in the separate and independent action of the amended complaint which would have allowed "judgment to be taken." (§ 998, subd. (b).)

FACTS

In December 1994, Michael Ross formed and operated Pacific Control Company in Fresno, which provided commercial electrical contracting and installation of electrical controls. Michelle Ross, his wife, was an employee of the company and served as its office and business manager.

The Promissory Notes and Credit Lines

On June 11, 1997, Valliwide Bank (Valliwide) extended a line of credit to "Michael W. Ross dba Pacific Control Company." Mr. Ross executed a promissory note in the principal amount of $100,000 in favor of Valliwide. The note provided that Mr. Ross was to pay the loan on demand, or if no demand was made, in one payment of all outstanding principal plus accrued unpaid interest on June 30, 1998.

As part of the same transaction, and as collateral for the line of credit, Mr. Ross, doing business as Pacific Control Company, executed a commercial security agreement in Valliwide's favor, pledging the products, equipment, supplies, accounts receivables, and other collateral from Pacific Control Company. Valliwide perfected its security interest by filing a UCC-1 financing statement with the California Secretary of State's office.

The parties agree that appellant Westamerica Bank subsequently became Valliwide's successor in interest.

On July 22, 2003, Mr. Ross, doing business as Pacific Control Company, executed a change-in-terms agreement with appellant, which identified the amount of the loan as $300,000, due either on demand or on June 30, 2004, pursuant to specific terms and conditions. The change-in-terms agreement contained a clause on attorney fees and expenses, and identified Westamerica as "lender" and Mr. Ross as "borrower."

"Lender may hire or pay someone else to help collect this Agreement if Borrower does not pay. Borrower will pay Lender that amount. This includes, subject to any limits under applicable law, Lender's attorneys' fees and Lender's legal expenses, whether or not there is a lawsuit, including attorneys' fees, expenses for bankruptcy proceedings (including efforts to modify or vacate any automatic stay or injunction), and appeals. Borrower also will pay any court costs, in addition to all other sums provided by law."

In September 2003, Mr. Ross formed MBG Industries, Inc. (MBG) and he was the sole shareholder. Mr. Ross sold Pacific Control to MBG, MBG created a division called Pacific Control Company, and it carried on essentially the same business. According to respondents, Ms. Ross was an employee of MBG and "continued working closely with her husband."

On June 27, 2004, Mr. Ross died. Ms. Ross inherited and succeeded to his property, including but not limited to 100 percent of his shares in MBG Industries, Inc.

The parties agree that after Mr. Ross died, respondents approached appellant, acknowledged the line of credit obligation, and applied for a renewal or extension of the line of credit. On September 2, 2004, respondents filed a written application with appellant for credit. On September 14, 2004, appellant advised respondents it would not renew the note that had been due on June 30, 2004, that appellant was going to sue on the defaulted note, and that appellant was moving for an ex parte writ of attachment.

Appellant's Amended Complaint

On or about September 28, 2004, appellant filed a complaint in the Superior Court of Fresno County against respondents based on their default on the June 30, 2004 line of credit.

On October 21, 2004, appellant, as successor in interest to Valliwide Bank, filed a first amended complaint against Ms. Ross and MBG Industries, Inc., doing business as Pacific Control Company, as successor in interest to Michael Ross, formerly doing business as Pacific Control Company. The amended complaint set forth the factual background, as set forth ante, as to the 1997 line of credit and the 2003 change-in-terms agreement with Mr. Ross, that Mr. Ross died in June 2004, and the $300,000 note was due on June 30, 2004.

Appellant's amended complaint alleged seven causes of action, all of which were based on respondents' default on the $300,000 line of credit. The first and second causes of action were for breach of contract and money lent, and alleged MBG failed to pay the amount due on June 30, 2004, and the unpaid balance plus interest was $306,999.72, plus accrued daily interest.

The third, fourth, and fifth causes of action were for claim and delivery, conversion, and conspiracy to convert, and alleged MBG unlawfully detained the collateral pledged as security, refused to return the collateral, and respondents conspired to hinder, delay, and defraud appellant from collecting the accounts and equipment pledged as collateral under the security agreement for the line of credit.

The sixth and seventh causes of action were against Ms. Ross, that a petition for probate of Mr. Ross's estate had not been filed, and Ms. Ross, as the decedent's spouse, was derivatively liable for breach of contract and Mr. Ross's debt under the promissory note.

Appellant's amended complaint prayed for damages of $306,999.72, representing the amount due on the line of credit, plus accruing interest; an order for immediate possession of the collateral pledged as security for the line of credit; the value of the property converted plus interest; damages for time and money expended in pursuit of the converted property; general, punitive and exemplary damages; and attorney fees and costs of suit.

Respondents' Cross-complaint

On November 17, 2004, United Security Bank issued a conditional commitment to respondents for a $300,000 revolving line of credit, pending an appraisal of business real property. On November 22, 2004, respondents notified appellant of United Security Bank's conditional loan commitment, and that respondents intended to use the $300,000 loan from United Security Bank to satisfy appellant's claims in the amended complaint.

On December 20, 2004, respondents filed an answer to the amended complaint and denied the allegations. On the same day, respondents filed a cross-complaint against appellant. Respondents alleged that after Mr. Ross's death, Ms. Ross and MBG applied for and sought an extension of the line of credit from appellant using the same and additional collateral as to the existing line of credit, appellant refused to extend the terms or the maturity date, refused to accept interest payments, and instead filed suit for breach of contract. Respondents alleged they were qualified for the credit for which they applied, and subsequently obtained a $300,000 line of credit from United Security Bank.

Respondents alleged appellant denied the extension request because of Ms. Ross's gender, that Ms. Ross was of equal credit stature as Mr. Ross, Mr. Ross repeatedly obtained extensions and...