Cal. Bank & Trust v. Lawlor CA4/3
222 Cal. App. 4th 625
| Cal. Ct. App. | 2013Background
- California Bank & Trust (assignee of Alliance Bank via FDIC) sued borrowers Cartwright Properties and Heritage Orcas and guarantors (David Lawlor, Jerry & Joanne Smith, Covenant Management, Heritage Capital) to enforce commercial guaranties after nonjudicial foreclosures left unpaid loan balances.
- Alliance had made loans to Cartwright (2004, 2006) and Heritage Orcas (2008); defendants signed separate guaranties and later refused to pay after defaults and foreclosures; California B&T purchased foreclosed property by credit bid leaving deficiencies.
- California B&T moved for summary adjudication on breach of guaranty to obtain deficiency judgments; defendants did not dispute signing guaranties or deficiency amounts but asserted the guaranties were "sham" and that they were actually primary obligors entitled to antideficiency protection.
- Trial court granted summary adjudication, excluding defendants’ sham-guaranty theory because it was not pleaded as an affirmative defense and sustaining evidentiary objections to defendants’ proffered declarations; judgments entered for California B&T.
- On appeal, the court affirmed: defendants failed to preserve or present admissible evidence creating a triable issue that the guaranties were shams or that Alliance structured loans to circumvent antideficiency statutes.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether guarantors are liable for deficiencies after nonjudicial foreclosure | California B&T: guaranties are valid; defendants breached them and owe deficiencies | Defendants: guaranties are "sham" — they were actually primary obligors entitled to antideficiency protection | Held for California B&T: defendants failed to raise triable issue of sham guaranty; summary adjudication proper |
| Whether the sham-guaranty defense could be considered where not pleaded as affirmative defense | California B&T: defense waived if not pleaded; summary adjudication may proceed | Defendants: should be considered despite pleading omission | Held for California B&T: defendants waived the unpleaded defense; trial court properly refused to consider it |
| Whether evidence submitted created triable issue on lack of legal separation between guarantors and borrowers | California B&T: offered undisputed loan, guaranty, default, foreclosure, deficiency evidence | Defendants: ownership/control of borrower entities and bank’s reliance on their financials show no real separation | Held for California B&T: defendants’ evidence was inadmissible or insufficient to show lack of legal separation or lender-driven structuring to evade antideficiency law |
| Whether lender structured transactions to subvert antideficiency statutes | California B&T: no evidence lender required entity-forming or structuring to recharacterize obligors | Defendants: formation and timing of entities, and bank’s financial inquiries, indicate subversion | Held for California B&T: no evidence lender required or used structuring to cast principals as guarantors; River Bank-type facts absent |
Key Cases Cited
- Cadle Co. II v. Harvey, 83 Cal.App.4th 927 (discusses effect of antideficiency statutes on guarantors)
- Torrey Pines Bank v. Hoffman, 231 Cal.App.3d 308 (sham guaranty where trust and guarantors effectively identical)
- Talbott v. Hustwit, 164 Cal.App.4th 148 (trust arrangement provided sufficient separation; guarantors were true guarantors)
- River Bank America v. Diller, 38 Cal.App.4th 1400 (triable issue where lender required entity-structure creating potential sham guaranties)
- Valinda Builders, Inc. v. Bissner, 230 Cal.App.2d 106 (no legal separation when principals remained primary obligors despite forming corporation)
- Roberts v. Graves, 269 Cal.App.2d 410 (distinguishing facts when parties agreed to substitute corporate obligor, making individual a true guarantor)