Rincon EV Realty LLC v. CP III Rincon Towers, Inc.
8 Cal. App. 5th 1
| Cal. Ct. App. | 2017Background
- In 2007 plaintiffs (Rincon entities) borrowed $110M from Bear Stearns secured by a deed of trust on a San Francisco apartment complex; loan documents contained New York choice-of-law clauses and broad predispute jury-waiver provisions.
- After Bear Stearns collapsed, the Rincon loan passed to the Maiden Lane Trust (created by FRBNY); CP III (a Carmel Partners entity) later acquired the loan and bought the Property at a nonjudicial foreclosure sale in October 2010.
- Plaintiffs sued CP III and related defendants asserting legal claims (breach of contract, fraud, slander of title, UTSA) and equitable claims (to set aside the foreclosure, UCL, accounting); the trial court tried the case without a jury and entered judgment for defendants.
- Plaintiffs appealed, arguing (inter alia) the trial court wrongly struck their jury demand, discovery rulings by the discovery referee were improper, the UCL ruling was erroneous, the foreclosure was void for lack of ownership/assignment issues, and sale irregularities required setting aside the sale.
- The Court of Appeal held the trial court erred in striking plaintiffs’ jury demand (New York waivers unenforceable in California forum) and reversed as to the legal claims for which plaintiffs had sought a jury; the court affirmed dismissal of the equitable claims and rejected plaintiffs’ discovery and sale-voiding arguments.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Enforceability of predispute contractual jury waivers | Jury waivers in loan documents are unenforceable because California law (Cal. Const. art I §16; CCP §631) forbids predispute waivers and California has a materially greater interest | Choice-of-law clauses select New York, where predispute jury waivers are enforceable; Nedlloyd framework favors enforcing parties’ choice | Court: California policy against predispute judicial jury waivers is fundamental; forum (California) has materially greater interest; jury waivers unenforceable; striking jury demand reversible as to legal claims |
| Scope of reversal/remedy after wrongful denial of jury | All claims should be retried (including equitable) because jury right was denied | Equitable claims are not jury-triable; denial of jury on legal claims does not require reversal of equitable determinations | Court: Denial of jury is structural error requiring reversal as to legal claims where jury demanded (breach, fraud, slander, UTSA); equitable claims affirmed; court may determine order of trial issues on remand |
| Discovery: Whether FRBNY and its employees are ‘‘managing agents’’ subject to party deposition notices | FRBNY and employees exercised control and thus should be treated as party agents and compelled to appear | FRBNY and employees are nonparties; subpoena process required; plaintiffs failed to show FRBNY could be compelled to cause employees to attend | Court: Referee and trial court did not abuse discretion; plaintiffs failed to show managing-agent factors (notably ability to compel attendance) |
| Discovery: Bank of America privilege/log and crime-fraud exception re: allonge(s) | Emails on BofA privilege log (and attachments) concerning an allonge showing assignment to PWR17 should be produced; crime-fraud exception applies | BofA shared common interest; many documents privileged and production by others did not waive privilege; no sufficient showing for crime-fraud review | Court: Deferred or upheld referee rulings; even assuming some error, plaintiffs failed to show prejudice—no reasonable probability outcome would differ |
| Validity of assignment/securitization (ownership of Note) and authority to foreclose | Bear Stearns assigned the Note to PWR17 (per an allonge), so subsequent transfers to Maiden Lane/CP III were invalid and foreclosure void | Evidence shows no assignment to PWR17 (trust records, trustee declaration); the PWR17 allonge was clerical/error corrected; Bear Stearns assigned loan to Maiden Lane | Court: Substantial evidence supports trial court finding PWR17 never owned the loan; CP III owned the Note and had authority to foreclose |
| Setting aside foreclosure for sale irregularities / suppression of bidding | Defendants used tactics (late motion to expunge lis pendens, failing to respond to prospective bidders, inflated amounts in notices) to discourage bidders and depress price, making sale voidable | No substantial evidence of willful oppression or fraudulent suppression; plaintiffs themselves recorded lis pendens; alleged notice inaccuracies not shown to be part of suppression scheme | Court: Plaintiffs failed to prove illegal/fraudulent/willfully oppressive sale or prejudice; trial court did not err in denying equitable relief to set aside sale |
Key Cases Cited
- Nedlloyd Lines B.V. v. Superior Court, 3 Cal.4th 459 (Cal. 1992) (adopts Restatement §187 framework for enforcing contractual choice-of-law clauses)
- Grafton Partners v. Superior Court, 36 Cal.4th 944 (Cal. 2005) (California constitutional/statutory scheme forbids enforcement of predispute judicial jury-waivers; waiver methods are for Legislature)
- Waters v. Superior Court, 58 Cal.2d 885 (Cal. 1962) (defines "managing agent" for pretrial discovery purposes)
- Costco Wholesale Corp. v. Superior Court, 47 Cal.4th 725 (Cal. 2009) (procedures for in camera review and privilege disputes)
- Lona v. Citibank, N.A., 202 Cal.App.4th 89 (Cal. Ct. App. 2011) (elements and burden to set aside a nonjudicial foreclosure sale)
- Melendrez v. D & I Investment, Inc., 127 Cal.App.4th 1238 (Cal. Ct. App. 2005) (presumption of regularity for nonjudicial foreclosure sales; prejudice and procedural irregularity required to set aside)