Wri Opportunity Loans II LLC v. Cooper

• Decision Date: 23 August 2007
• Docket Number: No. B191590.,B191590.
• Citation: 154 Cal.App.4th 525,65 Cal.Rptr.3d 205
• Court: California Court of Appeals Court of Appeals
• Parties: WRI OPPORTUNITY LOANS II LLC, Plaintiff and Respondent, v. Ronald COOPER et al., Defendants and Appellants.

65 Cal.Rptr.3d 205

154 Cal.App.4th 525

WRI OPPORTUNITY LOANS II LLC, Plaintiff and Respondent, v. Ronald COOPER et al., Defendants and Appellants.

No. B191590.

Court of Appeal, Second District, Division 4.

August 23, 2007.

Robert A. Lisnow, Los Angeles, and Randi R. Geffner for Defendants and Appellants.

Blue & Schoor and Charles D. Schoor, Los Angeles, for Plaintiff and Respondent.

MANELLA, J.

Appellants Ronald I. Cooper and Ellen M. Cooper challenge summary judgment in favor of respondent WRI Opportunity Loans II, LLC. (WRIO) in its action for payment of a loan guaranteed by appellants. We reverse.

FACTUAL AND PROCEDURAL BACKGROUND

There are no material disputes about the following facts: In 1999, the Coopers were the sole principals in Cooper Commons, LLC. (CC), which planned to build residential townhouses and condominiums on a property in West Hollywood.¹ According to the budget for the project, the property was purchased for $5,979,066, and CC expected that the units, when completed, would sell for a total of $25,762,005. The senior and junior secured lenders on the project were, respectively, Comerica Bank—California (Comerica) and WRIO.

In November 1999, WRIO loaned $2,490,000 to CC. Under the loan documents, the loan matured in March 2002, and interest on the principal balance accrued at a rate equal to 2.0 percent above a reference rate set by the Bank of America (reference rate). The loan documents also contained provisions that accorded WRIO "additional interest." These provisions entitled WRIO to 4.0 percent of the gross sales price of each unit when it was sold to third parties not affiliated with CC; in addition, they awarded WRIO sums calculated according to a fixed schedule if other contingencies were to occur. By a written agreement, the Coopers personally guaranteed the performance of GC's obligations under the loan documents.

In June and December 2001, WRIO and CC amended the loan documents. The amendments increased the principal loan amount to $3,178,000, raised the interest rate to the greater of (i) 2.0 percent above the reference rate or (ii) 10.0 percent, and set the maturity date of the loan as June 12, 2002. In addition, the amendments increased the additional interest owed to WRIO upon sale of the unite to nonaffiliated parties: WRIO's share of the gross sales price of the first 15 units to be sold was raised to 5.0 percent, and its share of the gross sales price of the remaining units was raised to 4.5 percent. The Coopers expressly approved these amendments and agreed to guarantee CC's obligations, as amended.

On February 22, 2002, CC filed for bankruptcy under Chapter 11, and subsequently stated in that proceeding that WRIO held a secured claim for $3,178,000. No payment on WRIO's loan was made after the maturity date of June 12, 2002. In September 2002, the bankruptcy court authorized CC to obtain additional funding from Comerica to complete the construction of the project. The units in the project were completed and sold for a total of approximately $31.8 million. On March 2, 2005, WRIO demanded that the Coopers, as CC's guarantors, pay the amounts owed under the loan, but they did not respond.

On March 14, 2005, WRIO filed a complaint for breach of a written guaranty against the Coopers, and subsequently sought summary judgment, asserting that the Coopers were obliged to pay the principal and interest—including the so-called additional interest—that CC owed under the loan. When the Coopers opposed summary judgment on the ground that the loan was usurious, WRIO contended in its reply that the Coopers had waived a usury ; defense, and that the loan otherwise fell within an exemption to California usury law for shared appreciation loans (Civ. Code, § 1917 et seq.²). After the parties submitted additional briefing on the issues raised in WRIO's reply, the trial court granted summary judgment. On March 29, 2006, a judgment was entered awarding WRIO $6,634,300.82 plus additional accrued interest and costs.

DISCUSSION

The Coopers contends the trial court erred in granting summary judgment. We agree.

A. Standard of Review

"On appeal after a motion for summary judgment has been granted, we review the record de novo, considering all the evidence set forth in the moving and opposition papers except that to which objections have been made and sustained. [Citation.]" (Guz v. Bechtel National, Inc. (2000) 24 Cal.4th 317, 334, 100 Cal.Rptr.2d 352, 8 P.3d 1089.) We thus apply "`the same three-step process required of the trial court. [Citation.]'" (Bostrom v. County of San Bernardino (1995) 35 Cal. App.4th 1654, 1662, 42 Cal.Rptr.2d 669.) The three steps are (1) identifying the issues framed by the complaint, (2) determining whether the moving party has made an adequate showing that negates the opponent's claim, and (3) determining whether the opposing party has raised a triable issue of fact. (Ibid.)

"[S]ummary judgment law in this state no longer requires a plaintiff moving for summary judgment to disprove any defense asserted by the defendant as well as prove each element of his own cause of action.... All that the plaintiff need do is to `prove[ ] each element of the cause of action.' [Citation.]" (Aguilar v. Atlantic Richfield Co. (2001) 25 Cal.4th 826, 853, 107 Cal.Rptr.2d 841, 24 P.3d 493.) Once the plaintiff makes an adequate initial showing, the burden shifts to the defendant to show a triable issue of fact "as to that cause of action or a defense thereto." (Code.Civ.Proc, § 437c, subd. (p)(1).)

Aside from challenging one item of interest valued at $19,014.45, the Coopers do not contend on appeal that WRIO failed to carry its initial burden on summary judgment. Their central contention is that there are triable issues as to their usury defense. Before the trial court, they pointed to WRIO's investment analysis for the loan, as originally made, which projected that the loan would earn $1,441,418 over its 23-month term—including $1,032,080 in so-called "additional interest"—resulting in an interest rate of 38 percent, which exceeds the rate permitted by California usury law. In this connection, they submitted evidence that the maximum interest rate allowable under the usury law during the applicable period was 11.5 percent. WRIO did not dispute the Coopers' factual showing regarding the loan's interest rate, but asserted that the provisions for additional interest in the loan rendered it a shared appreciation loan exempt from the usury law. The trial court agreed with WRIO.

In view of the Coopers' factual showing regarding usury, we conclude they raised triable issues regarding the existence of a usury defense unless—as the trial court determined—the defense fails as a matter of law. Because neither party submitted extrinsic evidence bearing on the meaning of the loan documents and the pertinent historical facts regarding the loan are undisputed, the interpretation of the loan's provisions and its status as a shared appreciation loan are questions of law that we resolve de novo. (Parsons v. Bristol Development Co. (1965) 62 Cal.2d 861, 865-866, 44 Cal.Rptr. 767, 402 P.2d 839 [contract interpretation]; Ghirardo v. Antonioli (1994) 8 Cal.4th 791, 800-801, 35 Cal.Rptr.2d 418, 883 P.2d 960 [application of usury law to undisputed facts].)³ We therefore begin our inquiry by examining the applicable legal principles.

B. Usury

1. Elements

Generally, "[t]he California Constitution sets a maximum annual interest rate of seven percent on loans and forbearances, but allows parties by written contract to set the interest rate at up to 10 percent, or at the level of the Federal Reserve's discount rate plus 5 percent, on loans or forebearances involving real property. (Cal. Const., art. XV, § 1, subds.(1)(2).)"⁴ (Jones v. Wells Fargo Bank (2003) 112 Cal.App.4th 1527, 1534-1535, 5 Cal. Rptr.3d 835 (Jones).) To be usurious, a contract "must in its inception require a payment of usury"; subsequent events do not render a legal contract usurious. (Sharp v. Mortgage Security Corp. (1932) 215 Cal. 287, 290, 9 P.2d 819; Strike v. Trans-West Discount Corp. (1979) 92 Cal App.3d 735, 745, 155 Cal.Rptr. 132.) The essential elements of a claim of usury are: "(1) The transaction must be a loan or forbearance; (2) the interest to be paid must exceed the statutory maximum; (3) the loan and interest must be absolutely repayable by the borrower; and (4) the lender must have a willful intent to enter into a usurious transaction. [Citations.]" (Ghirardo v. Antonioli supra, 8 Cal.4th at p. 798, 35 Cal.Rptr.2d 418, 883 P.2d 960.)

As our Supreme Court has explained, "[t]he element of intent is narrow. `[T]he intent sufficient to support the judgment [of usury] does not require a conscious attempt, with knowledge of the law, to evade it. The conscious and voluntary taking of more than the legal rate of interest constitutes usury and the only intent necessary on the part of the lender is to take the amount of interest which he receives; if that amount is more than the law allows, the offense is complete.' [Citation.] Intent is relevant, however, in determining the true purpose of the transaction in question because `... the trier of fact must look to the substance of the transaction rather than to its form.... "[I]t is for the trier of the fact to determine whether the intent of the contracting parties was that disclosed by the form adopted, or whether such form was a mere sham and subterfuge to cover up a usurious transaction."' [Citations.]" (Ghirardo v. Antonioli supra, 8 Cal.4th at p. 798, 35 Cal.Rptr.2d 418, 883 P.2d 960.)

2. Interest Contingency Rule

The usury law is subject to numerous exceptions and statutory exemptions. (Southwest Concrete Products v. Gosh Construction Corp. (1990) 51 Cal.3d 701, 705-706, 274 Cal.Rptr. 404, 798 P.2d 1247; Jones, supra, 112 Cal.App.4th at pp. 1534-1535, 5 Cal.Rptr.3d 835.) Because interest is usurious only when it is "absolutely repayable by the...