1 2 3 4 5
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 Attorneys for Defendants and cross-complainants, TARGET MORTGAGE, INC. and NILDA ANN MARIE MEG
6 7 8
SUPERIOR COURT OF THE STATE OF CALIFORNIA FOR THE COUNTY OF SAN DIEGO
9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26
CASE: 37-2016-00003885-CU-FR-CTL JOHN SCOFIELD HAGE and BONNIE GRACE HAGE, individually and as TRUSTEES OF THE J. SCOFIELD AND BONNIE GRACE FAMILY TRUST and Co-Managers of SB 32nd STREET APARTMENTS, LLC, a California Limited Liability Company,
) ) ) ) ) ) ) ) ) ) Plaintiffs, ) ) vs. ) ) GOTMORTGAGE.COM, a ) California corporation; JAMES ) M. OSBORN, Jr., an individual; ) TARGET MORTGAGE, INC., a ) California corporation; ANDREA ) HAEWON PARK, an individual; ) THOMAS IPING LO, an ) individual; NILDA ANN MARIE ) MEG, an individual, et al. ) ) Defendants. ) ___________________________) and related cross-actions. )
NOTICE AND MEMORANDUM IN SUPPORT OF TARGET MORTGAGE, INC., AND NILDA MEG’S MOTION FOR NEW TRIAL SUPPORTING DECLARATION OF MARK WARFEL FILED SEPARATELY [C.C.P. § 657 ET SEQ.; § 662] DEPT:
C-73
LAST TRIAL DATE: JUNE 29, 2017 DATE OF VERDICT: AUGUST 29, 2017 [HON. JOEL R. WOHLFIEL]
27
TO ALL PARTIES, AND THEIR RESPECTIVE ATTORNEYS OF RECORD: 28
1 NOTICE; MEMORANDUM IN SUPPORT
1
HAVING PREVIOUSLY GIVEN NOTICE OF INTENT TO DO SO, NOTICE IS
2
HEREBY GIVEN that Defendants TARGET MORTGAGE, INC. and NILDA ANN MARIE
3
MEG hereby move this Honorable Court, the Honorable Joel Wohlfeil presiding,
4
pursuant to Code of Civil Procedure, section 657, et seq., for a new trial and an order
5
vacating the Judgment rendered on August 29, 2017, and for a new and further trial on
6
the issue of (1) damages and (2) the affirmative defense of consent.
7
The motion is based on the following statutory grounds, which materially affected
8
the substantial rights of the moving party: Insufficiency of the evidence to justify the
9
verdict or other decision, and the verdict or other decision is against law, in that
10
1.
The uncontradicted evidence is that the loans brokered by Target
11
Mortgage secured by the Kansas and Elliott properties reduced the damages caused by
12
the existing loans in that the interest rate was reduced from 10% and 10.5% to 7.99%,
13
and eliminated the two-year balloon payment resulting from the existing loans;
14
2.
The uncontradicted evidence is that the Target-brokered loan secured by
15
the Tennyson property was made for legal and accounting reasons after the borrowers
16
consulted with their lawyers at Higgs Fletcher & Mack (HFM), and after Target canceled
17
the loan John Hage insisted on refinancing with a $50,000 cash out with full knowledge
18
the interest rate would increase by 2%;
19
3.
The uncontradicted evidence is that the damages alleged by the plaintiffs
20
were incidental to their ownership interest in the borrowers or were incurred by an
21
irrevocable trust in which they were mere beneficiaries, and were thus contrary to
22
California law;
23
4.
The uncontradicted evidence is that the plaintiffs admitted they knew and
24
understood the loan terms and costs, executed numerous documents so stating, and
25
consented to the commercial loans they requested Target broker for them; and
26
5.
The uncontradicted evidence is that the plaintiffs knew that James Osborn
27
was prohibited from engaging in activities that required a loan license and had been
28
convicted of financial fraud felonies, yet independently hired him and paid him hundreds
2 NOTICE; MEMORANDUM IN SUPPORT
1
of thousands of dollars to assist them, thereby knowingly consenting to his involvement
2
in obtaining loans on their behalf. This motion is based on affidavits and/or the minutes of the court, or both, and
3 4
the court’s decision and ruling.
5
Dated:
6
September 14, 2017 LAW OFFICES OF MARK J. WARFEL
7 8 9 10
_______________________________ Mark J. Warfel Attorneys for Defendants and crosscomplainants, TARGET MORTGAGE, INC. and NILDA ANN MARIE MEG
11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28
3 NOTICE; MEMORANDUM IN SUPPORT
TABLE OF CONTENTS Page
I.
Brief statement of facts and procedural history…………..............
1
A.
The loan to the LLC secured by the Kansas property that lowers the interest rate on the existing $475,000 loans, converts interest only loans with balloon payments to a 30-year amortized loan, and adds $159,000 to the balance sheet of the LLC………..…………………………..…..……….
3
The loan to the Hage Family Trust and 1981 Survivor’s Trust secured by the Elliott property that lowers the interest rate on the existing $130,000 loan, converts an interest only loan with a balloon payment to a 30-year amortized loan, and adds $247,338 to the balance sheet of the irrevocable 1981 Survivor’s Trust and the $247,338 to the balance sheet of the Hage Family Trust…………………………..…
8
The loan to the LLC secured by the Tennyson property, canceled by Target to save the LLC money, revived at the insistence of the borrower to repay a $50,000 personal loan from John Hage, retain a complex 1031 exchange, and avoid piercing the corporate veil, all of which had nothing to do with Osborn……………………………………………………….....….
9
II.
The court may grant a new trial on all or some issues in the case
11
A.
The damages awarded were excessive as to the Kansas and Elliott loans that lowered the interest rate on the existing loans, since the court held Target liable for 100% of the interest on the loans - even the existing loan balances, and monies not paid to Osborn, and the borrowers had a duty to mitigate any damage from the Elliott loan by partially repaying the loan, selling, or refinancing..
12
B.
C.
i
TABLE OF CONTENTS (Cont’d.) Page B.
C.
D.
III.
There is insufficient evidence to justify the decision in that the uncontradicted evidence establishes John Hage, after consulting with Higgs Fletcher & Mack (HFM) during the loan process, insisted on a $52,000 cash out loan secured by the Tennyson property with an increased interest rate to enable the LLC to repay a personal loan from Hage, avoid stifling a complex 1031 tax free exchange, and avoid piercing the corporate veil – not to give money to Osborn
12
The decision was against the law, warranting a new trial, in that it is the borrower, not its managers or beneficial owners, that has standing to complain about loans that lower its interest rate and put cash on its balance sheet, and the borrowers are the LLC as to the Kansas and Tennyson properties, and the 1981 Trust as to one-half of the Elliott property………………………………………….
13
There was an error in law warranting a new trial in that the plaintiffs with full knowledge of Osborn’s flaws consented to, insisted upon, Osborn’s involvement, such as it was, in the entire loan process, and the borrowers consented to the f loans with knowledge of the rate, terms, and costs..................... …..
14
Conclusion………………………………………………………….
15
ii
MEMORANDUM OF POINTS AND AUTHORITIES
1 2
I.
Brief statement of facts and procedural history.
3
Judge Joel Wohlfeil made egregious errors by failing to recognize the
4
implications of plaintiff John Hage’s admission he understood and consented to the
5
commercial loan rates, terms, and costs prior to the borrowers accepting the
6
commercial loans, and Hage’s insistence on James Osborn’s involvement, such as it
7
was, in the loan process. Informed consent to the loans and to Osborn’s involvement
8
prevents the plaintiffs from complaining about that to which they consented.
9
The commercial loans in question lowered the interest rate on loans previously
10
obtained through GotMortgage (GM), Osborn’s employer, converted $475,000 in
11
interest only loans with rapidly approaching balloon payments to 30-year amortized
12
loans, and added $705,000 in cash to the balance sheet of the borrowing entities.
13
Judge Wohlfeil ruled the broker that helped the borrowing entities obtain the
14
loans must pay two beneficiaries of the family trust that owns the borrower LLC 100% of
15
the initial loan costs, PLUS 100% of the interest on the loans for 30-years – that is,
16
100% of the refinanced prior loan balances, and 100% of the $705,000 in cash out
17
received by the borrowers. There was no attempt to trace loan proceeds, but Hage paid
18
third parties $329,000 with personal checks so they could funnel cash to Osborn, who
19
was then supposed to deposit the monies into an account in Hage’s name to help Hage
20
qualify to refinance the loan on his personal residence.
21
The LLC sold one property and paid off one loan within 18 months of obtaining
22
the cash, but Judge Wohlfeil ruled the LLC and trusts had no duty to mitigate damages
23
by selling or refinancing the other two properties. The new loans carried a 3%
24
prepayment penalty for the first three years on any amounts over 20% of the loan
25
balance repaid in any one year (i.e. 3% of 80% of the loan balance, or 2.4%). The
26
annual interest on the loans is 7.99%. Judge Wohlfeil ruled the borrowers did not have
27
to incur a prepayment penalty of about $25,000 to eliminate future damages of 7.99% a
28
year for 30 years – a total of $1.2 million. The damages are excessive.
1 NOTICE; MEMORANDUM IN SUPPORT
Judge Wohlfeil ruled that money could not have been given away had it not been
1 2
borrowed in the first place, and that there was no need to trace the funds from the
3
borrowers into account out of which the funds were paid. The Hages gave away
4
$329,000, and Judge Joel Wohlfeil awarded judgment to the plaintiff of $1.2 million –
5
enough to immediately pay off the loans. 1 Judge Wohlfeil recognized Target, the loan broker, is not responsible for the
6 7
payments to third parties by the 38-year former bank executive and San Diego socialite
8
John Scofield Hage, of Point Loma. The third parties cashed the checks and gave the
9
cleaned cash to Osborn. Hage was warned by US Bank and others several times to
10
avoid Osborn. Judge Wohlfeil ruled that this scheme constituted “unreasonable
11
judgment” by Hage. Judge Wohlfeil’s decision converts this “unreasonable judgment”
12
into a risky but shrewd investment with an ROI of 400% - less costs, hidden and
13
otherwise. Hage, ruled Judge Wohlfeil, did not launder money, was not at fault. In his zeal to defend John Hage’s honor, Judge Wohlfeil even made Target pay
14 15
the loan costs and 30 years of interest on an unrelated loan to the LLC, insisted upon by
16
Hage after obtaining legal advice from his attorneys at Higgs Fletcher & Mack (HFM) –
17
the prominent law firm located a block from the courtroom that also represented Hage in
18
this lawsuit and no doubt received more in legal fees than Osborn was paid. The LLC
19
refinanced the third property to obtain $50,000 in cash, and Hage testified the LLC
20
needed the proceeds to repay a personal loan from Hage to avoid legal and tax
21
problems with a 1031 tax free exchange and issues that Hage believed could result in
22
piercing the veil of the LLC. Target initially canceled the loan, but Hage insisted, and
23
hand wrote a note to the lender that the LLC would agree to pay 2% higher interest on
24
its prior loan balance if the lender would refinance and give the LLC the $50,000 it
25
needed. The LLC got the $50,000 to pay Hage, and thanks to Judge Wohlfeil John
26
Hage will also receive 2% of the entire amount refinanced for 30 years, $560,000 x 2%
27 28
1
Because of a $500,000 credit, Target will have to pay approximately $700,000. Target receives the $500,000 credit regardless of the amount of damages.
2 NOTICE; MEMORANDUM IN SUPPORT
1
x 30 years = $336,000, converted to present value – quite a windfall for Hage. The
2
LLC, not Hage, remains obligated on the loan. This cannot stand. Target and its
3
designated broker, Nilda Meg, are entitled to a new trial.
4
A.
The loan to the LLC secured by the Kansas property that lowers the
5
interest rate on the existing $475,000 loans, converts interest only loans with
6
balloon payments to a 30-year amortized loan, and adds $159,000 to the balance
7
sheet of the LLC.
8 9
SB 32nd Street Apartments LLC (the LLC) obtained two loans secured by its property on Kansas Street through GotMortgage (hereinafter GM), the entity that
10
employed James Osborn (Osborn). The first loan in October 2013 for $375,000, at
11
9.9% interest, interest-only, all due October 2016. Complaint, ¶ 18. $218,000 of the
12
loan proceeds was applied towards the purchase of the Hage’s residence. Exhibits
13
179, 182. The second loan in February 2014 for $100,000, 10.99% interest only with a
14
balloon payment in 2016. Total loans - $475,000. Exhibit 196.
15
In October 2014, the LLC paid off both loans with a 30-year loan from Velocity
16
Commercial Capital brokered by Target Mortgage lowering the interest to 7.99%, with
17
$159,000 cash out, for a total loan of $661,500.
18
The LLC is owned by a Hage Family trust. John Hage and Bonnie Hage are trust
19
beneficiaries, and received income they could use for living expenses, including monthly
20
dues to the San Diego Country Club and a $9,500 payment on a $900,000, 9.99%
21
interest-only loan with a 2016 balloon payment secured by their Savoy Street residence.
22
The Hage’s expert testified that prior to October 2014 the Hages’ monthly debt
23
service exceeded their income. Since meeting him in July 2013, and prior to the LLC
24
receiving the October 2014 loan, Hage had gave Osborn cashier’s checks of about
25
$300,000. Hage testified he knew Osborn had been convicted of 76 counts of financial
26
fraud, was unlicensed and been ordered to cease and desist from engaging in actions
27
that require a loan license. Hage admitted that Osborn induced Hage to take out a
28
$900,000 loan to purchase his Savoy residence, by promising $100,000 in kickbacks on
3 NOTICE; MEMORANDUM IN SUPPORT
1
future GM loans. Hage and Osborn spoke daily, and though Hage knew it was wrong to
2
pay loan fees to an unlicensed person, did just that over a two-year period, from July
3
2013 to September 2015.
4
Starting a year prior to the Target loans, Hage ultimately gave more than
5
$600,000 to Osborn for what Hage said was advance loan fees to GM, though he also
6
claimed much of the cash funneled through third parties to Osborn was to be held by
7
Osborn for Hage’s benefit. Hage claimed he gave money to Osborn, whom he knew
8
was employed at GM, so Osborn could open a bank account with PNC Bank to benefit
9
Hage. The idea was that the PNC Bank account would show on Hage’s balance sheet
10
when he applied for what he expected to be a 3% 30-year loan from PNC Bank to
11
refinance the $900,000 loan secured by the Savoy residence, a loan to be brokered by
12
GM. Hage expected to receive loan rebates on the PNC bank loan equal to 40% of the
13
$650,000 he ultimately paid to Osborn, or almost $250,000, while Osborn would keep a
14
portion. Hage could not explain why the cash would look better on his balance sheet
15
after passing through third parties’ hands, being converted to cash and anonymously
16
funneled to Osborn, who would then redeposit the money into a Hage account.
17
During the two years he was funneling cash to Osborn, Hage testified he did so
18
because he thought the PNC loan was “right around the corner” and going to close at
19
any time. But the 38-year commercial banking executive also testified he never saw or
20
signed a loan application with PNC Bank, and in 38 years had never heard of anyone
21
obtaining a loan without first applying. Hage never opened a bank account for anyone
22
without the participation of that person, yet claimed he believed funneling cash to
23
Osborn to be deposited into a PNC Bank account Hage hadn’t opened would make it
24
easier to qualify to refinance Hage’s home. Nothing prevented him from opening an
25
account at PNC Bank and directly depositing funds there, and Hage never saw a bank
26
statement, made no inquiries to PNC Bank, and didn’t list the phantom account on his
27
loan applications. This is the alleged felonious scheme that Judge Wohlfeil ruled could
28
not have been carried out if only Target, the loan broker, had been more careful. Judge
4 NOTICE; MEMORANDUM IN SUPPORT
1
Wohlfeil also ruled that Hage had no responsibility for it. A blameless victim would not
2
have kept secret such a scheme, would not be routing cash through third persons
3
before depositing it into his own account.
4
Hage kept meticulous track of all expenses, even postage stamps, and kept a
5
running total of all monies paid to Osborn. Hage, a professional trustee and former
6
Senior bank executive, stated he was a self-employed “real estate investor” on the loan
7
application. Warfel Decl. Ex. , Ex. 228, 229. Judge Wohlfeil ruled Hage was not trying
8
to launder money through Osborn, that Hage did nothing wrong.
9
In short, Hage claimed to have paid Osborn $650,000 in advance loan fees over
10
a two-year period to refinance the $900,000 mortgage on his residence, and kept it a
11
secret from his advisors at Higgs Fletcher & Mack (HFM), his CPA, lender, and loan
12
broker – yet had no responsibility for his actions. Hage could think of no way that
13
Target could have known he had given Osborn money, or that he intended to give
14
money to Osborn in the future. Both Hage and Osborn testified they kept the scheme a
15
secret from Target. Hage admitted that prior to seeking loans through Target the
16
scheme was already in place.
17
Target should not have brokered the commercial loan, ruled Judge Joel Wohlfeil,
18
even though the manager of the LLC admitted he understood the loan terms, rate, and
19
cost, was a professional trustee, and had more than 38 years of banking experience,
20
including serving as Senior Vice President and Regional Manager regarding commercial
21
business portfolios, and was receiving legal advice from HFM.
22
The Hage’s expert testified that by the time the Hages were introduced to Target,
23
the Hages had to sell properties or take cash out to manage their personal cash flow.
24
They were supposedly in dire straits prior to the Target loans to the LLC.
25
What happened after the LLC received $159,000 from the loan? The LLC made
26
every payment on time until it decided to sell the property, and John Hage transferred
27
more than $329,000 from his personal bank account to James Osborn. The LLC and
28
Trust also kept the other commercial properties, and never missed a payment.
5 NOTICE; MEMORANDUM IN SUPPORT
Shortly after the loans closed, US Bank security personnel warned John Hage
1 2
that Osborn was a convicted felon. In a meeting between its security personnel and
3
John Hage, US Bank insisted that no more cashier’s checks be paid to Osborn. At that
4
point, the borrowers still had the loan proceeds, and could have repaid the $705,000 in
5
cash out at a minimal expense. Instead of returning the money, and to avoid further objections from US Bank,
6 7
John Hage over the next year wrote checks drawn on his personal account to third
8
parties totaling $329,000. Those third parties, including Newport Watch & Jewelry,
9
cashed the checks and gave the cash to Osborn. Ex. 329. Because John Hage had
10
been warned in February 2014 that Osborn was a convicted felon, unlicensed, and a
11
con artist, and warned again in October 2014 prior to writing any personal checks,
12
Judge Wohlfeil held that Target was not responsible for the money given to third parties
13
to give to Osborn. This is a sensible and obvious result. Judge Joel Wohlfeil then ruled that the loans would not have occurred but for the
14 15
“negotiations” engaged in by Osborn2, and that but for Target “making its license
16
available,” Osborn would not have been able to feloniously manipulate the Hages. Hage
17
gave $300,000 to Osborn prior to Target’s involvement, the entire plan having been
18
hatched the year before. Hage paid Osborn to find loans from any broker, and through
19
GM gave Osborn access to his financial information. Osborn never stepped foot in
20
Target’s offices, knew nothing of Target’s loan programs and procedures, and had no
21
contact with the lender. At Hage’s insistence, Osborn was copied on a few e-mails
22
between Hage and Target, though Hage sent all documents directly to Target. The
23
PNC Bank scheme and the monies paid to Osborn were kept hidden from Target by
24
both Hage and Osborn. There was no testimony a lower interest rate, better terms, or
25 26 27 2
28
The borrowers first attempted to obtain the loans from GM, which turned them down. Osborn, working as a GM employee, then referred the loans to Target. Thomas Lo, GM’s designated broker, even released the property appraisals to Target to keep the borrowers’ costs as low as possible.
6 NOTICE; MEMORANDUM IN SUPPORT
1
lower cost for the borrower could have been obtained, or that Osborn had any affect on
2
the rate, terms, or cost of the loans made by Velocity Commercial Capital. Judge Wohlfeil ruled that despite Hage’s awareness that Osborn was unlicensed
3 4
and never informing Target, despite Osborn being employed by GM, Target should
5
have investigated Osborn, discovered he was unlicensed, then prevented the LLC from
6
borrowing money on the off chance the beneficiary of its owner might give money away. Osborn was an employee of Got Mortgage. Hage spoke with Osborn daily for
7 8
years, knew he was a GM employee, thought GM was holding the money he paid to
9
Osborn, was warned twice by financial institutions to have nothing to do with Osborn,
10
gave Osborn $300,000 prior to the loans, devised a detailed plan to get money to
11
Osborn through third parties, keeping it secret from his advisors at Higgs Fletcher &
12
Mack (HFM), the lender and the loan broker. Judge Wohlfeil ruled that but for Target
13
having brokered the loan Osborn would not have received any money from the Hages It is utter nonsense that Target and its broker, Meg, are not responsible for the
14 15
monies Hage secretly funneled to Osborn, but at the same time must pay 100% of the
16
interest on ALL money borrowed for the next 30 years or until the property is sold, plus
17
pay all the loan costs. In a move taken straight out of Quantum Mechanic’s Theory, Judge Joel Wohlfeil
18 19
ruled that even though the broker is not responsible for the commercial borrower giving
20
its money to a known felon, it is responsible for the cost of the loans, plus the interest
21
on the loans for the next 30 years or until the property was sold, including even 100% of
22
the interest on the $475,000 in existing loans paid off on better terms and at a reduced
23
interest rate, $216,000 of which was used to purchase the Hages’ residence. Its not
24
Target’s fault Hage gave $329,000 to Osborn, but the Hages’ damages are $1.2 million
25
(the total amount borrowed for all purposes) because, according to Judge Joel Wohlfeil,
26
Hage couldn’t have given it away if Target hadn’t broker loans to the LLC and the two
27
trusts.
28
7 NOTICE; MEMORANDUM IN SUPPORT
The plaintiffs’ own expert witness testified that this calculation ignores the loans
1 2
that already encumbered the property, and this would make sense only if (1) 100% of
3
the money borrowed against the Kansas property was for the sole purpose of being
4
given to James Osborn, (2) the property was owned free and clear at the time of the
5
loan, and (3) it was somehow the fault of Target and Meg. Despite these qualifiers
6
obviously not being true, Judge Joel Wohlfeil ruled the damages’ calculation was
7
“uncontradicted” and adopted it in its entirety. As it turns out, the LLC sold the Kansas property within two years, and prior to
8 9
the trial. The absurd damage calculation was limited on this loan to about two years of
10
interest, plus loan costs. Rather than rule the other properties could also have been
11
sold or refinanced to mitigate damages, Judge Wohlfeil decided the Hages were entitled
12
to a huge windfall, as will be shown below.
13
B.
The loan to the Hage Family Trust and 1981 Survivor’s Trust secured
14
by the Elliott property that lowers the interest rate on the existing $130,000 loan,
15
converts an interest only loan with a balloon payment to 30-year amortized loan,
16
and adds $247,338 to the balance sheet of the irrevocable 1981 Survivor’s Trust
17
and the $247,338 to the balance sheet of the Hage Family Trust.
18
On March 13, 2014, the Hage Family Trust and 1981 Survivor’s Trust obtained a
19
loan brokered by GM secured by their co-owned property on Elliott Street, taking
20
$130,000 in cash out at 9% interest, balloon payment due in 2016. Ex. 716, 722.
21
In October of 2014, the co-owners refinanced into a 30-year loan from Velocity
22
Commercial Capital brokered by Target Mortgage reducing the interest to 7.99%, while
23
adding $494,676.34 to their balance sheets, $247,338 to the Hage Family Trust and
24
$247,338 to the 1981 Survivor’s Trust. Total loan: $644,000. Warfel Decl., Ex. 265, 716.
25
Every loan payment was made on time, the borrowers still own the property, and
26
the Hages still have their country club membership. The following year, John Hage
27
wrote $329,000 in checks to various third parties to cash and funnel money to Osborn,
28
as discussed above, all from his personal account.
8 NOTICE; MEMORANDUM IN SUPPORT
1
Based on the same flawed reasoning applied to the LLC’s loans secured by the
2
Kansas property, Judge Joel Wohlfeil ruled that Target and its designated broker Meg
3
are responsible for 100% of the loan costs, and 100% of the interest on the loan for 30
4
years, including interest on the $130,000 previously borrowed at 9%. This includes the
5
cash out to the irrevocable 1981 Survivor’s Trust, not a party to the lawsuit, and the
6
money that went to the Family Trust, of which the Hages are co-trustees. Target is
7
responsible for 30 years of interest on the loan balance even if the trusts sell the
8
property tomorrow. $494,000 in cash was added to the balance sheet of the two trusts,
9
while a maximum of $329,000 was funneled to Osborn over the following year, leaving
10
at least $165,000 in the borrowers’ pockets. Target pays 30 years of interest on that.
11
The note contained a 3% pre-payment penalty for any amounts over 20% of the
12
loan paid back in each of the first three years, so $125,000 or so can be repaid without
13
penalty each year. Even repaying the entire loan the first year would have resulted in
14
penalties of 3% of 80% of $644,000, or $15,456. This would eliminate any cash flow
15
problem and all interest incurred. The borrowers can legally pay back any of the cash
16
out money they don’t want at any time, and avoid interest. Instead, the borrowers
17
choose to keep the money, Target pays the interest, and Hage gets $1.2 million. Judge Wohlfeil did not explain the connection between the interest on the cash
18 19
out not paid to Osborn and the damages. The plaintiffs made no attempt to trace the
20
loan proceeds to the personal account on which checks to third parties were drawn.
21
Nor did Judge Wohlfeil attempt to explain how reducing the interest rate on a prior loan
22
balance by 2% constitutes “damage” to the borrower. The plaintiffs’ own expert testified
23
the loans “reduced the damages” the Hages incurred from the GM loans (even
24
assuming all the money borrowed had been given to Osborn).
25
C.
The loan to the LLC secured by the Tennyson property, canceled by
26
Target to save the LLC money, revived at the insistence of the borrower to repay
27
a $50,000 personal loan from John Hage, retain a complex 1031 exchange, and
28
avoid piercing the corporate veil, all of which had nothing to do with Osborn.
9 NOTICE; MEMORANDUM IN SUPPORT
1
The LLC purchased the Tennyson property in 2013 for $730,000, and took out a
2
loan of $511,000 at 5.25%, then in October of 2013 refinanced into a 5% 30-year
3
amortized loan. By July of 2014, the property appraised at $825,000.
4
The meticulous John Hage inexplicably misrepresented to Target that the loan on
5
Tennyson was at 10% interest, and claimed the LLC wanted to refinance to lower the
6
rate. Target matched the LLC with a lender, Velocity Commercial Capital, that offered
7
to refinance the loan at 7.99%, what appeared to be a 2% rate reduction, no cash out.
8 9 10 11
During the loan process, John Hage met with his attorneys at Higgs Fletcher & Mack (HFM) and HFM even prepared documents adding Bonnie Hage as a co-manager of the LLC. Hage also met with the CPA working on his 100-page 2013 tax returns. After Velocity Commercial Capital approved the loan, Target received a loan
12
payoff demand from the prior lender and at that time discovered the interest rate was
13
5%, not 10%. Target immediately e-mailed Velocity to cancel the loan because it was
14
looking out for the borrower’s best interests. After Target canceled, Hage vehemently
15
insisted the LLC wanted to refinance anyway and demanded Target find out if the
16
lender would allow the LLC to take $50,000 cash out. Cash out is considered a “benefit
17
to the borrower” and if a commercial borrower shows a need for the cash a lender may
18
approve a loan that carries a higher interest rate. For 38 years, Hage arranged
19
commercial loans for customers of the banks he was employed by. John Hage testified
20
the LLC wanted this money was to repay a personal loan from Hage. Hage met with his
21
lawyers at HFM during the loan process to add Bonnie Hage as co-manager of the LLC,
22
and believed that repaying this loan was necessary to avoid disturbing a complex 1031
23
tax free property exchange, and to avoid piercing the corporate veil of the LLC.
24
With 38 years of experience arranging commercial loans, Hage knew Target had
25
a fiduciary duty to pass his request on to the lender. Velocity Commercial Capital
26
notified Target it would approve a loan at 7.99% interest, with approximately $50,000
27
cash out (less loan costs), and insisted the co-managers of the LLC, John and Bonnie
28
Hage, hand-write a letter stating they understood the LLC would be obtaining cash and
10 NOTICE; MEMORANDUM IN SUPPORT
1
the 5% interest rate on the current loan being refinanced would increase. After the
2
Hages wrote, signed and delivered the letter, the Velocity approved the loan. There was no testimony as to what the LLC did with the money. The LLC still
3 4
owns the property, and never missed a payment. The plaintiff’s expert testified that since the loan refinanced was essentially a
5 6
purchase money loan the original loan could not have been taken out to give cash to
7
Osborn. If, and only if, one assumed the $50,000 cash out was borrowed to be given to
8
Osborn could it be considered as “damages”. If it was, the 2% increase in interest rate
9
could be tied to the scheme to give cash to Osborn. Hage wanted a loan at any cost
10
based on his understanding of the legal and tax implications after meeting with HFM.
11
Two percent of $560,000 for 30 years, even discounted to present value, is a hefty sum
12
to pay Hage for lying about the interest rate, and for the “damages” to make sense,
13
Hage must have lied about the reason the LLC wanted the loan in the first place. Despite John Hage’s admission that the cash out was decided at the last minute
14 15
based on legal and tax reasons after he had consulted with his HFM legal team and
16
added a co-manager to the LLC, Judge Wohlfeil ruled otherwise. There was no
17
testimony that $50,000 cash out from this loan was intended to go to, or ever went to,
18
James Osborn. There was no evidence Osborn had anything whatsoever to do with
19
this loan. A new trial is required to do justice to the loan broker.
20
II.
The court may grant a new trial on all or some issues in the case.
21
The verdict may be vacated . . . and a new or further trial granted on all or
22
part of the issues . . . for any of the following causes, materially affecting
23
the substantial rights of such party:
24
5. Excessive or inadequate damages.
25
6. Insufficiency of the evidence to justify the verdict or other decision, or
26
the verdict or other decision is against law.
27
Code Civ. Proc., §657.
28
11 NOTICE; MEMORANDUM IN SUPPORT
1
A.
The damages awarded were excessive as to the Kansas and Elliott loans
2
that lowered the interest rate on the existing loans, since the court held Target
3
liable for 100% of the interest on the loans - even the existing loan balances and
4
monies not paid to Osborn, and the borrowers had a duty to mitigate any damage
5
from the Elliott loan by partially repaying the loan, selling or refinancing. "Insufficiency of the evidence as ground for a new trial means the insufficiency
6 7
that arises in the mind of the trial judge when he weighs the conflicting evidence and
8
finds that which supports the verdict and judgment weighs, in his opinion, less than that
9
which is opposed to it." Musgrove v. Ambrose Properties (2nd Dist. 1978) 87 Cal. App.
10
3d 44, 55. For the reasons set forth above, damages calculated on prior loans with
11
higher rates, proceeds not proven to have been passed to Osborn, and damages which
12
could have been mitigated, are improper, and a new trial should be granted.
13
B.
14
uncontradicted evidence establishes John Hage, after consulting with Higgs
15
Fletcher & Mack (HFM) during the loan process, insisted on a $52,000 cash out
16
loan secured by the Tennyson property with an increased interest rate to enable
17
the LLC to repay a personal loan to Hage, avoid stifling a complex 1031 tax free
18
exchange, and avoid piercing the corporate veil - not to give money to Osborn.
19
"Insufficiency of the evidence as ground for a new trial means the insufficiency
There is insufficient evidence to justify the decision in that the
20
that arises in the mind of the trial judge when he weighs the conflicting evidence and
21
finds that which supports the verdict and judgment weighs, in his opinion, less than that
22
which is opposed to it." Musgrove v. Ambrose Properties (2nd Dist. 1978) 87 Cal. App.
23
3d 44, 55. Hage admits this loan was for legal and tax reasons, not to benefit Osborn.
24
No evidence was admitted that any of the $52,000 went to Osborn. If it did, Hage lied
25
about the reason for the loan, and has Unclean Hands. A new trial is needed.
26
///
27
///
28
///
12 NOTICE; MEMORANDUM IN SUPPORT
1
C.
2
borrower, not its managers or beneficial owners, that has standing to complain
3
about loans that lower its interest rate and put cash on its balance sheet, and the
4
borrowers are the LLC as to the Kansas and Tennyson properties, and the 1981
5
Trust as to one-half of the Elliott property.
6
The decision was against the law, warranting a new trial, in that it is the
"The granting of a new trial on the ground the verdict is against law is authorized
7
where there is no substantial evidence to sustain the verdict." Musgrove v. Ambrose
8
Properties, Id. At 48. "[W]here the ground under consideration is that the original
9
judgment is 'against the law,' the area of judicial action generally is not one involving
10
discretion. The initial choice of the trial court challenged by a motion on this ground was
11
either right or wrong, and this is the nature of the evaluation which must be made in
12
passing upon a motion for a new trial where 'against the law' is the ground." Hoffman-
13
Haag v. Transamerica Ins. Co. (4th Dist. 1991) 1 Cal. App. 4th 10, 15.
14
The moving parties incorporate by this reference their Memorandum of Points
15
and Authorities in their motion to vacate the judgment filed September 12, 2017. The
16
Hages are not the real party in interest since their damages arise solely because of their
17
relationship to the LLC. Their claim does not originate in circumstances independent of
18
their status as a member of the SB 32nd Street Apartments, LLC so the claim cannot be
19
deemed personal. Nelson v Anderson (1999) 72 Cal.App.4th 111, 124, 126; Gantman
20
v. United Pac. Ins. Co. (1991) 232 Cal.App.3d 1560, 1566-1567; Code Civ. Proc. § 367.
21
The 1981 Trust did not sue but incurred half the loan costs and half the benefits.
22
As it now stands, the individuals receive a windfall 400% return on the money
23
they gave to Osborn, while the borrowers must still pay loans on which the individuals
24
have no obligation. Allowing the individuals to sue also prevents the court from
25
considering the Hages’ breach of duty to the LLC arising from the entire scheme. There
26
was no testimony that the 1981 Trust was harmed in any way, or that any of the loan
27
proceeds it received went to Hage individually, or to Osborn.
28
13 NOTICE; MEMORANDUM IN SUPPORT
1
D.
There was an error in law warranting a new trial in that the plaintiffs with
2
full knowledge of Osborn’s flaws consented to, insisted upon, Osborn’s
3
involvement, such as it was, in the entire loan process, and the borrowers
4
consented to the loans with knowledge of their rate, terms, and costs.
5
The cesti’s Informed consent is a complete defense to most
6
charges of breach of fiduciary duty.
7
When the fiduciary makes full disclosure of all the material
8
circumstances which might affect the cesti’s decision and action or
9
inaction in connection with a specified transaction, and having had this
10
disclosure, the cesti gives consent, acts, or refrains from acting, then
11
the fiduciary is thereby insulated from all charges of breach of fiduciary
12
duty in connection with the transaction. This is the rule developed in
13
the many cases discussed in Sections 3:5 (fiduciary opportunities),
14
3:14 (duty of preference), and 3:15 (fiduciary scrutiny) above. See also
15
Williams v. Lockwood (1917) 175 Cal. 598, 166 P. 587, discussed at
16
Section 1:13 above, for an early example of this scrutiny; Pryorv.
17
Bistline (1963)215 Cal.App.2d 437, 30 C.R. 376; Estate of McLellan
18
(1936) 8 Cal.2d 49; Stanley v. Richmond (1995) 35 Cal.App.4th 1070,
19
41 C.R.2d 768, in which a lawyer required a client's informed consent
20
to continued employment after conflict arose; Moore v. Regents of UC
21
(1990) 51 Cal.3d 120, 271 Cal.Rptr. 146 (physician's duty to obtain
22
patient's informed consent): Lessing v. Gibbons (1935) 6 Cal.App.2d
23
598, Blevin v. Mayfield (1961) 189 Cal.App.2d 649, 11 C.R. 882, and
24
Buehlerv. Sbardellati (1995) 34 Cal.App.4th 1527, 41 C.R.2d 104, all
25
involving client consent to an attorney's representation of potentially
26
conflicting interests.
27
Chodos, The Law of Fiduciary Duties, 2nd Ed. Section 3.38.
28
14 NOTICE; MEMORANDUM IN SUPPORT
1
John Hage understood the loan rate, terms, and costs. John Hage knew Osborn
2
was unlicensed, and a felon, and paid him to arrange loans on his behalf. He is the one
3
who insisted on Osborn’s involvement, such as it was, in the loan process. He fully
4
consented to the loans with full knowledge of Osborn’s flaws.
5
Osborn’s only involvement in the loans was the referral, plus being copied on
6
some of the e-mails between the Hages and Target. He was not present at the loan
7
signing, did not take the application, never set foot in Target’s offices, never
8
communicated with the lender, knew nothing of Target’s loan programs or procedures,
9
and didn’t get involved in underwriting even while employed at GM. But even if he had
10
done all these things, Hage was paying him to obtain loans for Hage, insisted he be
11
involved, and was intimately aware of Osborn’s criminal background, unlicensed status,
12
and that Hage planned to give hundreds of thousands of dollars to Osborn. Why would
13
Target warning Hage about Osborn have made more impact on Hage than the warnings
14
from his lender and US Bank? According to Hage, despite these warnings he never
15
even brought the matter to the attention of his long-time legal advisors at HFM.
16
III.
Conclusion The loan terms were fully understood, and Hage kept the scheme to pay Osborn
17 18
secret. The loans could be repaid or eliminated at any time by the borrowers. Paying
19
the Hages four times what they chose to give away is irrational. Paying them anything
20
based on loans taken out by others is even worse. A new trial will allow logic to be
21
restored, and justice to prevail.
22
Dated:
September 14, 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 NOTICE; MEMORANDUM IN SUPPORT
PROOF OF SERVICE STATE OF CALIFORNIA, COUNTY OF LOS ANGELES
1 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 5 6
On September 18, 2017, I served the foregoing document(s) described as on party(ies) and/or counsel(s) for the party(ies) in this action:
NOTICE AND MEMORANDUM IN SUPPORT OF TARGET MORTGAGE, INC., AND NILDA MEG’S MOTION FOR NEW TRIAL
7 8 9
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 9/18/17:
Grant, Miles
miles@grantlawyers.com
10 11 12 13
Holland, Lori Kessler, Alexander Lesli Miller
hollandl@higgslaw.com aj@grantlawyers.com millerl@higgslaw.com
14 15
Lodovice, Barbara
lodoviceb@higgslaw.com
16
Lupo, Erin
erin@grantlawyers.com
17
Meguerditchian, Desiree
foothill.lg@gmail.com
Rahil Swigart
swigart@higgslaw.com
18 19 20 21 22
via e-service agreement with SDSC I declare under penalty of perjury under the laws of the State of California that the above is true and correct. Executed on September 18, 2017, at Arcadia, California.
23 24 25 26 27 28
_____________________________ MARK WARFEL