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Mark J. Warfel #197874 LAW OFFICES OF MARK J. WARFEL 234 East Foothill Blvd. Arcadia, CA 91006-2508 (626) 301-9327 FAX (626) 609-0413 Mwarfel@gmail.com DESIREE MEGUERDITCHIAN (292249) FOOTHILL LAW GROUP 230 East Foothill Blvd Suite C Arcadia, CA 91006 TEL: 626.239.6135 FAX: 626.226.5545 Attorneys for Defendants and cross-complainants, TARGET MORTGAGE, INC. and NILDA ANN MARIE MEG
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SUPERIOR COURT OF THE STATE OF CALIFORNIA
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FOR THE COUNTY OF SAN DIEGO
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CASE: 37-2016-00003885-CU-FR-CTL
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JOHN SCOFIELD HAGE and BONNIE GRACE HAGE, individually etc.,
) ) ) ) Plaintiffs, ) ) vs. ) ) GOTMORTGAGE.COM, etc., ) et al., ) ) Defendants. ) ___________________________) ) And related cross-actions. ) )
TARGET MORTGAGE, INC., AND NILDA MEG’S NOTICE OF INTENTION AND MOTION TO VACATE AND ENTER DIFFERENT JUDGMENT; MEMORANDUM OF POINTS AND AUTHORITIES DECLARATION OF MARK J. WARFEL FILED SEPARTELY [CAL. RULES OF COURT, RULE 3.1700] DATE: TIME: DEPT:
OCTOBER 20, 2017 9:00 AM C-73
COMPLAINT FILED: FEB. 4, 2016 DATE OF VERDICT: AUGUST 29, 2017 [HON. JOEL R. WOHLFIEL
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1 TARGET MORTGAGE, INC., AND NILDA MEG’S NOTICE OF INTENTION AND MOTION AND MOTION TO VACATE AND ENTER DIFFERENT JUDGMENT
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TO ALL PARTIES AND THEIR RESPECTIVE ATTORNEYS OF RECORD: NOTICE IS HEREBY GIVEN that Defendants and cross-complainants, TARGET
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MORTGAGE, INC. and NILDA ANN MARIE MEG (collectively, TARGET), on the date
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and time set forth above, or as soon thereafter as the matter may be heard in
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Department C-73 of the above-entitled court, located at 300 W. Broadway, San Diego,
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California, intend to and will move this court for an order to set aside and vacate the
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judgment rendered/entered herein on August 29, 2017, and to enter a new and different
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judgment. This motion will be made pursuant to Code Civ. Proc. §663 on the grounds
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that the legal basis for the decision is not consistent with or supported by the facts, and
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said error materially affects the substantial rights of the defendants: The plaintiffs were
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erroneously found to be the real parties in interest despite the undisputed evidence
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that two of the commercial loans, which lowered the interest rate being paid by 2 and
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2.5%, were made to SB 32nd Street Apartments, a California LLC, and not to the
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plaintiffs (mere co-managers of the LLC), and the third loan was secured by the
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Tennyson property owned one-half by an irrevocable trust that received half of the loan
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proceeds, and the other half by the plaintiffs’ living trust. This Motion will be based upon this Notice, upon the Memorandum of Points
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and Authorities and upon the Declaration of Mark J. Warfel filed herewith, and all
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exhibits appended thereto; upon the records and files of the Court in this action; and
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upon such further evidence and argument as may be presented prior to or at the time
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of the hearing on the within motion.
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Dated:
September 8, 2017 LAW OFFICES OF MARK J. WARFEL
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_______________________________ Mark J. Warfel Attorneys for Defendants and crosscomplainants, TARGET MORTGAGE, INC. and NILDA ANN MARIE MEG 1 TARGET MORTGAGE, INC., AND NILDA MEG’S NOTICE OF INTENTION AND MOTION AND MOTION TO VACATE AND ENTER DIFFERENT JUDGMENT
TABLE OF CONTENTS
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Page
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I.
Brief statements of facts and procedural history………………….
II.
The court may vacate the judgment and enter a
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4 5 6
different judgment……………………………………………………...
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7 8
III.
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The Court’s finding that the plaintiffs are the real parties in interest with regard to loans secured by the Kansas and
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Tennyson properties is inconsistent with the facts and
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contrary to law because the borrower is a non-party –
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SB 32nd Street Apartments, LLC -- and the co-owner of the
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Elliott property, the Survivor’s Trust, is a non-party……………….
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IV.
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The moving parties timely filed and served their notice of intention to file a motion to vacate the judgment……………………
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Conclusion………………………………………………………………
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V.
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i TARGET MORTGAGE, INC., AND NILDA MEG’S NOTICE OF INTENTION AND MOTION AND MOTION TO VACATE AND ENTER DIFFERENT JUDGMENT
TABLE OF AUTHORITIES
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Page
2 3
CASES
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Common Cause of Calif. v. Board of Supervisors of Los Angeles County (1989) 49 Cal.3d 432, 438…………………………………
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County of Alameda v. Carleson (1971) 5 Cal. 3d 730, 738……………………………………………………
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Dongxiao Yue v. MSC Software Corp. (N.D.Cal. July 15, 2016, No. 15-cv-05526-PJH) 2016 U.S.Dist.LEXIS 92445……………..
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Gantman v. United Pac. Ins. Co. (1991) 232 Cal.App.3d 1560…………………………………………………
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Jasmine Networks, Inc. v. Sup.Ct. (Marvell Semiconductor, Inc.) (2009) 180 Cal.App.4th 980, 991……….…………………………
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Jones v. H. F. Ahmanson & Co. (1969) 1 Cal.3d 93…………………………………………………………...
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Marshall v. Pasadena Unified School Dist. (2004) 119 Cal.App.4th 1241, 1251……………………………………….
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Nelson v Anderson (1999) 72 Cal.App.4th 111, 124……………………………………………
8, 10
Paclink Communications Internat. v. Superior Court (2001) 90 Cal.App.4th 958………………………………………………….
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Rialto Citizens for Responsible Growth v. City of Rialto (2012) 208 Cal.App.4th 899, 912………………………………………….
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Shapiro v. Prudential Property & Casualty Co. (1st Dist. 1997) 52 Cal. App. 4th 722, 730………………………………………….
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Simac Design, Inc. v. Alciati (1st Dist. 1979) 92 Cal. App. 3d 146, 153 ………………………………………….
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7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22
Statutes 23
Code Civil Procedure 24
§ 367 …………………………………………………………………
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§ 369 …………………………………………………………………
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§ 430.80…………………………………………………………………
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§ 663 …………………………………………………………………
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ii TARGET MORTGAGE, INC., AND NILDA MEG’S NOTICE OF INTENTION AND MOTION AND MOTION TO VACATE AND ENTER DIFFERENT JUDGMENT
TABLE OF AUTHORITIES (Cont’d.)
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Page
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663a …………………………………………………………………
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Corporation Code
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§17001(x) ……………………………………………………………
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§1703.01……………………………………………………………..
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§ 17701.05……………………………………………………………..
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§ 17703.01……………………………………………………………..
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§17703.04……………………………………………………………..
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§17703.08……………………………………………………………..
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§ 17709.02……………………………………………………………..
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iii TARGET MORTGAGE, INC., AND NILDA MEG’S NOTICE OF INTENTION AND MOTION AND MOTION TO VACATE AND ENTER DIFFERENT JUDGMENT
MEMORANDUM OF POINTS AND AUTHORITIES
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I.
Brief statements of facts and procedural history.
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The plaintiffs are John Hage and Bonnie Hage, individually, as co-trustees of
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their Family Trust, and as co-managers of the SB 32nd Street Apartments, LLC. Many
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of the documents they served in this matter referred to them only in their individual
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capacity. Warfel Decl. Ex. 1.
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James Osborn and John Hage spoke by phone virtually every day for more than
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a year prior to Target’s involvement. SOD 26:11-12. Hage knew that Osborn had been
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convicted of 76 counts of financial fraud. Warfel Decl., Ex. 2, Statement of Decision
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(SOD) 26:21-23. John Hage’s Family Trust purchased a residence on Savoy Street in
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October of 2013 with payments of $9,500 per month, 9.9% interest, and a balloon
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payment in three years. Complaint ¶ 17, SOD 26:17-18.
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The SB 32nd Street Apartments LLC (the LLC) purchased rental property on
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Tennyson Street in July of 2013, borrowing $511,000 at 5.25% interest with a 30-year
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loan. SOD 26:1-4. The LLC refinanced in October of 2013, lowering the interest rate to
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5%. Complaint ¶¶ 13-14. The same month the LLC obtained a cash-out loan of
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$375,000 secured by its rental property on Kansas Street - a negative amortization loan
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at 9.9% per year, all due and payable in three years. In February of 2014, the LLC
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obtained a second loan for $100,000 cash out secured by its Kansas property at
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10.99% interest, due in two and a half years. Complaint ¶¶ 18-19, Warfel Decl. Ex. 3.
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The Hages Family Trust owned a half-interest in rental property on Elliott Street.
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SOD, 32:17-18, Warfel Decl., Ex. 4-6. In March of 2014, the Family Trust and a
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Survivor’s Trust of 1981 pulled a total of $130,000 in cash out at a 9% interest rate, on a
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loan brokered by Got Mortgage. Warfel Decl., Ex. 4, 5.
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Later that summer, the LLC, and the co-owners of Ellioitt, attempted through Got
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Mortgage to refinance the commercial loans and pull as much cash as possible out of
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the Kansas and Elliott properties, and to refinance the Tennyson property. When Got
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Mortgage could not do so, it referred the borrowers to Target. 1 TARGET MORTGAGE, INC., AND NILDA MEG’S NOTICE OF INTENTION AND MOTION AND MOTION TO VACATE AND ENTER DIFFERENT JUDGMENT
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Target successfully brokered the loans to Velocity Commercial Capital, who sold
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to the borrowers 30-year loans at 7.99% interest, allowing the borrowers to pull a total of
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$705,000 in cash out while eliminating the balloon payment. Warfel Decl., Exs. 6-8.
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This lowered the interest rate as well as giving those entities significant cash, which
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they claimed would be used for investments. “The refinance rate resulted in a lower
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interest rate.” SOD 25:10.
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The LLC falsely told Target that the interest on the prior Tennyson property
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loans was 10%, rather than 5%. When the falsehood was discovered upon receipt of
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the loan payoff demand, Target unilaterally canceled the loan. Later that same day,
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John Hage, who had been consulting with his personal CPA and the law firm of Higgs
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Fletcher and Mack throughout the loan process, stated that the LLC needed at least
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$50,000 to repay a personal loan made to it by Hage, to avoid compromising his future
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complex 1031 tax exchange, and to avoid piercing the corporate veil. Target, as it was
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obligated to do, relayed the request to Velocity. Velocity then offered a commercial
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loan to the LLC at 7.99%, with $52,000 in cash out. After its managers wrote out in
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their own handwriting that they understood the interest rate would be increasing, the
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LLC accepted the loans. Warfel Decl. Exs, 9-12.
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John Hage testified that he understood the rate, terms, and cost of all loans
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brokered by Target, and is not claiming that any terms were misrepresented. Warfel
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Decl. Ex. 11. He was acting as a co-manager of the LLC at the time.
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Target and Meg pointed out to Judge Wohlfeil that it if anyone had standing to
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complain about loans that reduced the prior interest rates by 2 and 2.5% and put
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$705,000 in the pockets of the LLC and Trust it was the LLC and Trust that received the
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loans – not the managers who siphoned off over $700,000 for their own purposes,
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including an elaborate scheme to transfer $669,000 to James Osborn, a man they knew
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had been convicted of 76 counts of financial fraud. Judge Joel Wohlfeil found
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otherwise, in a decision that is contrary to the facts and well-established California law.
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SOD 42:7-10. 2 TARGET MORTGAGE, INC., AND NILDA MEG’S NOTICE OF INTENTION AND MOTION AND MOTION TO VACATE AND ENTER DIFFERENT JUDGMENT
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It is undisputed that the Hages were co-managers of the LLC. E-mails and other
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documents at trial showed that during the loan process and prior to the loans being
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accepted, the Hages admitted they obtained legal services from Higgs, Fletcher and
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Mack to obtain legal advice about adding Bonnie Hage as a co-manager of the LLC. In
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other words, the Hages received extensive legal services from Higgs, Fletcher & Mack
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prior to accepting the loans on behalf of the borrowers for the express purpose of
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ensuring that they would never have any liability for repaying the loans if their scheme
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went wrong. Warfel Decl., Ex. 10.
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The scheme, John Hage admitted, was to give checks of hundreds of thousands
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of dollars to third parties, including a pawn shop, so that the third parties could cash the
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checks and give cash to James Osborn, the convicted con man who testified he spoke
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daily with John Hage. John Hage admitted that he and Osborn agreed that Osborn
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would hold the money in trust for John Hage, even depositing the money into an
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account for the benefit of the Hages to make it easier for the Hages to qualify for a loan
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on their personal residence. John Hage admitted that for his services Osborn would
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keep 60% of the money, with 40% eventually to be rebated back to John Hage. Warfel
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Decl., Ex. 13. This scheme Judge Wohlfeil said constituted “unreasonable judgment” by
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John Hage, but nonetheless Judge Joel Wohlfeil found John Hage to be blameless.
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SOD 39:17. Bonnie Hage admitted she knew money was being given to James
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Osborn, though she did not know the exact amount or every detail. She, too, was found
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blameless.
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As its co-managers, Bonnie Hage and John Hage owed fiduciary duties to the
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LLC. By finding that the individuals, rather than the LLC, were the real parties in
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interest, Judge Wohlfeil made it impossible to take into account their breach of those
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duties. Judge Joel Wohlfeil’s bizarre holding that it was the manager of the LLC, rather
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than the LLC itself, that could sue for loans taken out by the LLC made it legally
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impossible to apportion fault to John Hage who in the year after the Target brokered
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loans were obtained by the LLC wrote personal checks of over $300,000 to third parties, 3 TARGET MORTGAGE, INC., AND NILDA MEG’S NOTICE OF INTENTION AND MOTION AND MOTION TO VACATE AND ENTER DIFFERENT JUDGMENT
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including pawn shops, with the specific intention that those funds be paid over to the
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unlicensed convicted felon, James Osborn. By leaving the LLC out of the equation,
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Judge Wohlfeil made it impossible to apportion damages based on Bonnie Hage’s
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admission that she did not rely on James Osborn in signing the loan documents, and
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her admission that she had ample opportunity to obtain legal advice from Higgs,
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Fletcher & Mack prior to accepting the loans on behalf of the LLC, and could have
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stopped the loans from going forward had she only sought the proper advice from her
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lawyers whom she was consulting at the time. SOD 32:10-11. Nor could Judge
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Wohlfeil apportion damages based on Bonnie Hage’s admission that though she
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intended to bind the corporation such that it would accept the benefits and burdens of
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the loans, she nonetheless failed to read the loan documents or discuss the advisability
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of the loans while she was consulting with Higgs Fletcher & Mack during the loan
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process. SOD 32.
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Nor could Judge Wohlfeil apportion damages for the breach of fiduciary duty to
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the LLC based on the intentional concealment from Target by John Hage of his intent to
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pay half of the loan proceeds to a convicted felon, while claiming the loans were for
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investments by the LLC. Warfel Decl. Ex. 13. By not forcing the LLC to sue if it felt
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damaged by the lower interest rate cash-out loans, Judge Wohlfeil could not take into
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account the fact that prior to their loans being referred to Target, John Hage and Bonnie
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Hage had already given $300,000 to the convicted felon James Osborn from loan
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proceeds previously borrowed at 9.9% interest, with rapidly approaching balloon
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payments, despite knowing he was a con man convicted of 76 counts of financial fraud.
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Judge Wohlfeil’s decision not to require the LLC to sue if it felt it was damaged by the
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loans prevented the Judge from apportioning to the Hages any blame for buying a
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million dollar home shortly after retirement with a hard money loan at 10% interest, and
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a balloon payment due in three years, increasing their debt service by $9,500 per
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month, which they admitted was the primary motivation for causing the LLC to seek
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cash-out loans. 4 TARGET MORTGAGE, INC., AND NILDA MEG’S NOTICE OF INTENTION AND MOTION AND MOTION TO VACATE AND ENTER DIFFERENT JUDGMENT
By refusing to force the LLC to sue, Judge Wohlfeil made it impossible for him to
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consider the breach of fiduciary duty by John Hage to the LLC based on John Hage’s
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38 years as a relationship manager, who advised high net worth individuals and who
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was responsible for assisting in obtaining commercial loans for his clients, a man who
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was acting as a paid professional trustee of other family trusts at the time, and who
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testified that he fully understood the rate, terms, and conditions of the loans, and who
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had been warned repeatedly not to associate with the convicted felon James Osborn,
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yet stubbornly continued to pay him hundreds of thousands of dollars, even going so far
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as to write checks to pawn shops and strangers who would cash the check and funnel
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the cash to James Osborn – and even after the security personnel at his own US Bank
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branch refused to give him any more cashier’s checks made payable to James Osborn.
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The decision prevented Judge Wohlfeil from acknowledging that in breach of his
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fiduciary duties John Hage had a scheme to pull money from the LLC he was
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managing, give the money to someone he knew had been convicted of 76 counts of
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financial fraud, who would then funnel 40% of the money back into John Hage’s hands,
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all while John Hage and Bonnie Hage consulted with their legal team at Higgs, Fletcher
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& Mack regarding the affairs of the LLC. In short, by permitting the improper party to act as plaintiff, Judge Joel Wohlfeil
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legally prevented himself from properly evaluating the egregious exercise of
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unreasonable judgment by the Hages. This lapse also allowed Judge Wohlfeil to accept
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testimony as to the personal finances of the Hages, while hearing no testimony
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regarding the financial affairs of the actual borrowers. Judge Wohlfeil found that the
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Hages personally, not the LLC or the irrevocable trust, might have trouble making the
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additional monthly payment of $6,200 on their $1.2 million in loans, of which $705,000
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was cashed out and in their pocket – money the borrowers claimed was going to be
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invested, not given away to third parties to give to a con man who would then give it
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back to the Hages personally.
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/// 5 TARGET MORTGAGE, INC., AND NILDA MEG’S NOTICE OF INTENTION AND MOTION AND MOTION TO VACATE AND ENTER DIFFERENT JUDGMENT
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This refusal to acknowledge that the real party in interest on the commercial
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loans secured by the Kansas and Tennyson properties is the LLC that borrowed the
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money, and the irrevocable trust that received half the loan proceeds and owns one-half
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of the Elliott property, should be reversed, and judgment entered in favor of Target and
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Meg as to the loans. It is the LLC that has standing to sue, not its managers.
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II.
The court may vacate the judgment and enter a different judgment. A judgment or decree, when based upon a decision by the court, or the special verdict of a jury, may, upon motion of the party aggrieved, be set aside and vacated by the same court, and another and different judgment entered, for either of the following causes, materially affecting the substantial rights of a party and entitling the party to a different judgment: 1. Incorrect or erroneous legal basis for the decision, not consistent with or not supported by the facts; and in such case when the judgment is set aside, the statement of decision shall be amended and corrected.
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Code Civ. Proc., §663. 14
A motion to vacate may be made whenever the trial judge draws an incorrect 15
legal conclusion or renders an erroneous judgment on the facts found by it to exist. 16
County of Alameda v. Carleson (1971) 5 Cal. 3d 730, 738. A motion to vacate under 17
Code Civ. Proc. §663 is a remedy to be used when a trial court draws incorrect 18
conclusions of law or renders an erroneous judgment based upon uncontroverted 19
evidence. A motion to vacate under Section 663 is speedier and less expensive than an 20
appeal, and is distinguished from a motion for a new trial, to be used when, e.g., the 21
evidence is insufficient to support the findings or verdict. Simac Design, Inc. v. Alciati, 22
92 Cal. App. 3d 146, 153 (1st Dist. 1979). 23
A motion to vacate under Code Civ. Proc. §663 may be treated as a motion for 24
new trial. In Shapiro v. Prudential Property & Casualty Co. (1st Dist. 1997) 52 Cal. App. 25
4th 722, 730, the trial judge properly ordered new trial on damages, rather than vacating 26
and correcting judgment based on the jury's verdict where it was not clear whether the 27
jury misapplied the law in calculating the amount of damages. 28
6 TARGET MORTGAGE, INC., AND NILDA MEG’S NOTICE OF INTENTION AND MOTION AND MOTION TO VACATE AND ENTER DIFFERENT JUDGMENT
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As shown in the attached Declaration of Mark J. Warfel, and Exhibits thereto,
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Judge Wohlfeil, erroneously ruled that the real party in interest is not the SB 32nd Street
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Apartments, LLC, or the irrevocable Survivor’s Trust of 1981, but instead the co-
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manager of the LLC and the other co-owner of the Elliott Street property. Judge
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Wohlfeil’s ruling is contrary to the admitted facts and California law, and must be
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reversed.
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These defendants are therefore entitled to an Order Setting Aside and vacating
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the Judgment August 29, 2017, and entry of a different Judgment reflecting the
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plaintiffs’ lack of standing to sue on the loans secured by the Kansas and Ellison
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properties, and their mere half-ownership of the Tennyson property. Submitted
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herewith is the proposed Judgment reflecting correction of the errors.
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III.
The Court’s finding that the plaintiffs are the real parties in interest
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with regard to loans secured by the Kansas and Tennyson properties is
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inconsistent with the facts and contrary to law because the borrower is a non-
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party – SB 32nd Street Apartments, LLC, and the co-owner of the Elliott property,
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the Survivor’s Trust, is a non-party.
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In the Statement of Decision (SOD) of July 6, 2017, at page 42, lines 15-16, this
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court, the Honorable Joel R. Wohlfeil, found that “John and Bonnie Hage are real
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parties in interest.” John and Bonnie Hage, however, sued in their capacity as
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individuals, and as co-managers of the SB 32nd Street Apartments, LLC. Warfel Decl.,
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Ex. 1, Complaint and other captions. During the trial, Target Mortgage and Nilda Meg
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objected that the Hages were not the proper plaintiffs. SOD 42:7-10
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The court found that the plaintiffs relied on the broker’s representations that they
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would not act negligently, and would uphold their fiduciary duties. SOD, page 42, lines
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13-15. But since the plaintiffs did not borrow any money, they cannot be said to have
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relied on any such representations individually. The allegation that the duty to the
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borrower by the loan broker was owed instead to John Hage and Bonnie Hage
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personally, as a member, manager, or shareholder of the SB 32nd Street Apartments, 7 TARGET MORTGAGE, INC., AND NILDA MEG’S NOTICE OF INTENTION AND MOTION AND MOTION TO VACATE AND ENTER DIFFERENT JUDGMENT
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LLC, simply ignores the obvious fact that the plaintiffs’ claim does not originate in
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circumstances independent of their status as a member of the SB 32nd Street
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Apartments, LLC, and the claim therefore cannot be deemed personal. Nelson v
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Anderson (1999) 72 Cal.App.4th 111, 124. But for their status as a member of the
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LLC, the Hages could not have been injured by the loans obtained by that LLC. The
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Hages created the LLC to limit their liability incident to owning certain rental properties;
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there is no policy reason to permit them to enjoy the benefits of that limitation without
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accepting the concomitant burdens it entails, especially where it prejudices the
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defendants.
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The owners of an LLC are called members. See Corp Code, §17001(x). A
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member is not personally liable for any contract, tort, or other obligation of the LLC by
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being a member. Corp Code, §17703.04(a). Further, the Act specifically permits
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members to manage the business and affairs of an LLC (Corp Code, §1703.01(b)) and
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states that persons acting as managers of an LLC will not be liable for any contract, tort,
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or other obligation of the LLC by being a manager. Corp Code, § 17703.04(a). The LLC
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must also indemnity the manager for any such liability incurred. Corp Code, §
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17704.08. It was the LLC that was the borrower, not its co-managers.
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No action shall be instituted or maintained in right of any . . .
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limited liability company by any member of the limited liability
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company unless both of the following conditions exist:
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(1) The plaintiff alleges in the complaint that the plaintiff was
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a member of record, or beneficiary, at the time of the
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transaction or any part of the transaction of which the plaintiff
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complains, or that the plaintiff’s interest later devolved upon
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the plaintiff by operation of law from a member who was a
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member at the time of the transaction or any part of the
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transaction complained of. Any member who does not meet
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these requirements may nevertheless be allowed in the 8 TARGET MORTGAGE, INC., AND NILDA MEG’S NOTICE OF INTENTION AND MOTION AND MOTION TO VACATE AND ENTER DIFFERENT JUDGMENT
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discretion of the court to maintain the action on a preliminary
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showing to and determination by the court, by motion and
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after a hearing at which the court shall consider any
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evidence, by affidavit or testimony, as it deems material, of
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all of the following:
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(A) There is a strong prima facie case in favor of the claim
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asserted on behalf of the limited liability company.
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(B) No other similar action has been or is likely to be
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instituted.
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(C) The plaintiff acquired the interest before there was
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disclosure to the public or to the plaintiff of the wrongdoing of
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which plaintiff complains.
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(D) Unless the action can be maintained, the defendant may
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retain a gain derived from defendant’s willful breach of a
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fiduciary duty.
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(E) The requested relief will not result in unjust enrichment
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of the limited liability company or any member of the limited
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liability company.
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(2) The plaintiff alleges in the complaint with particularity the
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plaintiff’s efforts to secure from the managers the action the
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plaintiff desires or the reasons for not making that effort, and
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alleges further that the plaintiff has either informed the
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limited liability company or the managers in writing of the
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ultimate facts of each cause of action against each
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defendant or delivered to the limited liability company or the
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managers a true copy of the complaint that the plaintiff
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proposes to file.
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Corp Code § 17709.02(a). 9 TARGET MORTGAGE, INC., AND NILDA MEG’S NOTICE OF INTENTION AND MOTION AND MOTION TO VACATE AND ENTER DIFFERENT JUDGMENT
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The complaint is devoid of such allegations. Therefore, the members could not bring suit on its behalf. The economic “damages” awarded by this court consists entirely of the costs
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incurred by the LLC relating to obtaining the loans, plus the interest on the entire
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principal balance borrowed by the LLC. In other words, the LLC will earn less profit,
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and so less will be available to its members. John Hage’s exercise of “unreasonable
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judgment” in taking the loans also allegedly created emotional distress in John Hage.
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As the court found in Nelson v. Anderson,
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Shareholders own neither the property nor the earnings of
10
the corporation. (Miller v. McColgan (1941) 17 Cal. 2d 432,
11
436.) Shareholders own only stock, from which their income
12
is derived upon the liquidation of assets or the declaration of
13
dividends by the directors. (Id., at pp. 436-437.) Nelson had
14
no ownership interest in the profits of Lonan and cannot
15
have been deprived of them. The nature of Nelson's proof
16
establishes that any injury was to the corporation; and since
17
she neither alleged nor proved the breach of a duty owing to
18
her personally, her emotional distress and the loss of her
19
investment were incidental to the injury to the corporation.
20 21
Nelson v. Anderson (1999) 72 Cal.App.4th 111, 126. The Hages can no more sue for loans taken out by the LLC than the LLC can
22
sue for the exercise of unreasonable judgment by the Hages in their personal affairs –
23
such as insisting on buying a million dollar property with loan payments of $9,500 per
24
month shortly after retirement, which might cause them to shift financial risk to the LLC.
25
Every action must be prosecuted in the name of the real party in interest. Code
26
Civ. Proc., § 367. “(C)ontentions based on a lack of standing involve jurisdictional
27
challenges and may be raised at any time in the proceeding. Common Cause of Calif.
28
v. Board of Supervisors of Los Angeles County (1989) 49 Cal.3d 432, 438 (lack of 10 TARGET MORTGAGE, INC., AND NILDA MEG’S NOTICE OF INTENTION AND MOTION AND MOTION TO VACATE AND ENTER DIFFERENT JUDGMENT
1
standing can even be raised for the first time on appeal); Rialto Citizens for Responsible
2
Growth v. City of Rialto (2012) 208 Cal.App.4th 899, 912. This is because standing to
3
sue affects the right to relief and goes to the existence of a cause of action against the
4
defendant. See Code Civ. Proc., § 430.80; Marshall v. Pasadena Unified School Dist.
5
(2004) 119 Cal.App.4th 1241, 1251.
6
"Generally, 'the person possessing the right sued upon by
7
reason of the substantive law is the real party in interest.'
8
[Citations.]" (Del Mar Beach Club Owners Assn. v. Imperial
9
Contracting Co. (1981) 123 Cal.App.3d 898, 906.) It follows
10
that "[s]omeone who is not a party to [a] contract has no
11
standing to enforce the contract or to recover extra-contract
12
damages for wrongful withholding of benefits to the
13
contracting party." (Hatchwell v. Blue Shield of California
14
(1988) 198 Cal.App.3d 1027, 1034.) . . .
15
. . . . A contract in the corporate name "binds the corporation,
16
and the corporation acquires rights thereunder whether the
17
contract is executed or wholly or in part executory." (Corp.
18
Code, § 7141, subd. (b).) Correspondingly, a member of a
19
nonprofit corporation "is not, as such, personally liable for
20
the debts, liabilities, or obligations of the corporation." (Corp.
21
Code, § 7350, subd. (a).)
22
corporation is prohibited from instituting or maintaining an
23
action in the right of the corporation unless the action is a
24
derivative suit. (Corp. Code, § 7710.)
25
A member of a nonprofit
Gantman v. United Pac. Ins. Co. (1991) 232 Cal.App.3d 1560, 1566-1567.
26
It is the person who owns or holds title to the claim or property involved, as
27
opposed to others who may be interested or benefited by the litigation, that has the right
28
to sue under the substantive law, and who is therefore the real party in interest. 11 TARGET MORTGAGE, INC., AND NILDA MEG’S NOTICE OF INTENTION AND MOTION AND MOTION TO VACATE AND ENTER DIFFERENT JUDGMENT
1
Jasmine Networks, Inc. v. Sup.Ct. (Marvell Semiconductor, Inc.) (2009) 180 Cal.App.4th
2
980, 991. Here, the plaintiffs are seeking to recover damages that another entity, the
3
borrower, allegedly suffered for breach of duties owed to the borrower by its loan
4
broker. They also seek damages for a loan whose proceeds were paid one-half to an
5
unrelated co-owner of the Elliott property.
6
Claims for injury or damage to a corporation or its property belong to the
7
corporation, not to its stockholders, officers, or managers. They have no standing to
8
sue for such wrongs even if the value of their stock is diminished. The loss suffered by
9
the stockholder is deemed incidental to the wrong suffered by the corporation. As the
10
Supreme Court succinctly put the test:
11
The individual wrong necessary to support a suit by a
12
shareholder need not be unique to that plaintiff.
13
injury may affect a substantial number of shareholders. If the
14
injury is not incidental to an injury to the corporation, an
15
individual cause of action exists.
16 17
The same
Jones v. H. F. Ahmanson & Co. (1969) 1 Cal.3d 93, 107-108. Here, it is the borrower that incurred the cost of the loan and must pay the
18
interest on the loan principal – and this was the basis on which damages were
19
calculated. Any damages, including emotional distress, are incident to these costs.
20
The principles of derivative lawsuits applicable to corporations likewise apply to
21
limited liability companies. Paclink Communications Internat. v. Superior Court (2001)
22
90 Cal.App.4th 958, 960. In Paclink, the court held that a member of a limited liability
23
company cannot sue individually for fraudulent transfer of the company’s assets. The
24
entity is the real party in interest. Id. 90 Cal.App.4th 958, 964-965.
25
Under CRULLCA (effective January 1, 2014), an LLC has all the powers of a
26
natural person in carrying out its business activities, including the power to sue, be
27
sued, complain, and defend any action, arbitration, or proceeding, whether judicial,
28
administrative, or otherwise, in its own name, subject to any limitations contained in the 12 TARGET MORTGAGE, INC., AND NILDA MEG’S NOTICE OF INTENTION AND MOTION AND MOTION TO VACATE AND ENTER DIFFERENT JUDGMENT
1
articles of organization, and to compliance with CRULLCA and any other applicable
2
laws. Corp. Code § 17701.05(b). An LLC may a party to legal proceedings.
3
Under current law, every manager is an agent of the LLC and may sign on behalf
4
of the LLC, executing pleadings on its behalf, for example. Corp Code, § 17703.01.
5
This does not mean that the manager has standing to sue, only that the manager may
6
execute pleadings on behalf of an LLC that has sued. It is still the LLC, not the
7
manager, who was the borrower – who had a contract with the defendant loan broker.
8
Federal courts applying California law to contract and tort claims based on a
9
contractual relationship between a defendant and an LLC come to the same conclusion:
10
"A person who is not a party to a contract does not have
11
standing either to seek its enforcement or to bring tort claims
12
based on the contractual relationship." Ambers v. Wells
13
Fargo Bank, N.A., 13-cv-03940-NC, 2014 U.S. Dist. LEXIS
14
28291, 2014 WL 883752, at *4 (N.D. Cal. Mar. 3, 2014)
15
(emphasis added). See also PacLink Communications
16
Internat., Inc. v. Superior Court, 90 Cal. App. 4th 958, 965,
17
109 Cal. Rptr. 2d 436 (2001) ("Because members of the LLC
18
hold no direct ownership interest in the company's assets,
19
the members cannot be directly injured when the company is
20
improperly deprived of those assets."); Lombardi v. Pleasure
21
Cove Resort Asset Mgmt. Grp., No. C 05-05219 RS, 2006
22
U.S. Dist. LEXIS 41393, 2006 WL 1709723, at *2 (N.D. Cal.
23
June 21, 2006) ("Under California law that governs the LLC,
24
Petty's status as member of the LLC does not give him any
25
legal interest in the property of the LLC.") (citation omitted).
26
Dongxiao Yue v. MSC Software Corp. (N.D.Cal. July 15, 2016, No. 15-cv-05526-PJH)
27
2016 U.S.Dist.LEXIS 92445, at *7.
28
. . . [A] limited liability company organized under this title 13 TARGET MORTGAGE, INC., AND NILDA MEG’S NOTICE OF INTENTION AND MOTION AND MOTION TO VACATE AND ENTER DIFFERENT JUDGMENT
1
shall have all the powers of a natural person in carrying out
2
its business activities, including, without limitation, the power
3
to
4
***
5
(b) Sue, be sued, complain, and defend any action,
6
arbitration, or proceeding, whether judicial, administrative, or
7
otherwise, in its own name.
8 9
Corp Code § 17701.05. No damages for any loans to the SB 32nd Street Apartments LLC may be
10
awarded to the plaintiffs, nor any damages derived therefrom, such as the emotional
11
distress of its members.
12
With regard to the Elliott Street property and its co-owner, the irrevocable
13
Survivor’s Trust of 1981, only its trustee can sue. Code Civ. Proc. § 369(a)(2). The
14
Trustee is not named as a plaintiff. The Hages cannot, as individuals, recover damages
15
allegedly suffered by an irrevocable trust – only the Trustee of that trust may do so.
16 17 18 19
This egregious error in judgment must be reversed, and judgment entered on behalf of Target and Meg. IV.
The moving parties timely filed and served their notice of intention to
file a motion to vacate the judgment.
20
A party intending to make a motion to set aside and vacate a 21
judgment, as described in Section 663, shall file with the 22
clerk and serve upon the adverse party a notice of his or her 23
intention, designating the grounds upon which the motion will 24
be made, and specifying the particulars in which the legal 25
basis for the decision is not consistent with or supported by 26
the facts, or in which the judgment or decree is not 27
consistent with the special verdict, either: 28
14 TARGET MORTGAGE, INC., AND NILDA MEG’S NOTICE OF INTENTION AND MOTION AND MOTION TO VACATE AND ENTER DIFFERENT JUDGMENT
1
***
2
(2) Within 15 days of the date of mailing of notice of
3
entry of judgment by the clerk of the court pursuant to
4
Section 664.5, or service upon him or her by any party of
5
written notice of entry of judgment, or within 180 days after
6
the entry of judgment, whichever is earliest.
7
Code Civ. Proc. §663a(a). As shown in the attached Declaration of Mark J. Warfel, filed and served
8 9
herewith, and the conformed Notice of Intention and the Proof of Service attached
10
thereto, these moving parties timely filed and served the Notice of Intention to Move For
11
An Order Vacating The Judgment entered on August 29, 2017, fully designating the
12
grounds upon which the motion is made and specifying the particulars in which the legal
13
basis for the decision is not consistent with or supported by the facts.
14
V.
Conclusion.
15
The judgment should be vacated and a new and different judgment entered in
16
favor of Target and Meg, to redress the egregious error in fact and law, namely the idea
17
that the manager of an LLC has standing to sue on behalf of the LLC, and the co-owner
18
of property securing a commercial loan can recover damages on behalf of the other co-
19
owner. Respectfully submitted,
20 21 22
DATED:
SEPTEMBER 8, 2017 LAW OFFICES OF MARK J. WARFEL
23 24 25 26
_______________________________ Mark J. Warfel Attorneys for Defendants and crosscomplainants, TARGET MORTGAGE, INC. and NILDA ANN MARIE MEG
27 28
15 TARGET MORTGAGE, INC., AND NILDA MEG’S NOTICE OF INTENTION AND MOTION AND MOTION TO VACATE AND ENTER DIFFERENT JUDGMENT
PROOF OF SERVICE STATE OF CALIFORNIA, COUNTY OF LOS ANGELES 2 3
I am employed in the county of Los Angeles, State of California. I am over the age of 18 and not a party to the within action; my business address is: 234 E. Foothill Blvd., Arcadia, CA 91006-2508.
4
s 6
7
On September 11, 2017, I served the foregoing document(s) described as on party(ies) and/or counsel(s) for the party(ies) in this action:
TARGET MORTGAGE, INC., AND NILDA MEG'S NOTICE OF INTENTION AND MOTION TO VACATE AND ENTER DIFFERENT JUDGMENT; MEMORANDUM OF POINTS AND AUTHORITIES
8
9
10 11 12
By causing such document(s) to be delivered to the office of the addressee(s) via e-service to the party(ies) named by the court's e-service on 9/8/17:
Philip Samoris, Esq., Higgs Fletcher & Mack LLP via e-service agreement with SDSC
13 14
18
19
20 21
22 23
24 25
26 27
28
I declare under penalty of perjury under the laws of the State of California that the above is true and correct. Executed on September 11, 2017, at Arcadia, California.