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California Bank & Trust v. Shilo Inn, Seaside East, LLC

United States District Court, D. Oregon

March 6, 2015

CALIFORNIA BANK & TRUST, as assignee of the Federal Deposit Insurance Corporation, as receiver for Vineyard Bank, a California banking corporation, Plaintiff,
SHILO INN, SEASIDE EAST, LLC, an Oregon limited liability company, and MARK S. HEMSTREET, an Oregon resident, Defendants.

Eric D. Lansverk, Joseph A.G. Sakay, HILLIS CLARK MARTIN & PETERSON, Seattle, WA.

Hal Mark Mersel, Ren R. Hayhurst, BRYAN CAVE LLP, Irvine, CA., Attorneys for Plaintiff.

Sherrie D. Martinelli Charles R. Markley GREENE & MARKLEY, P.C. Portland, OR., Attorneys for Defendants.


MARCO A. HERNNDEZ, District Judge.

Plaintiff California Bank & Trust ("CB&T") brings this summary judgment motion under Federal Rule of Civil Procedure 56(a), Local Rule 56-1, the terms of the loan documents, and applicable California law. CB&T moves for partial summary judgment on its third cause of action for judicial foreclosure of CB&T's liens and security interests and for a judgment against Defendants Shilo Inn, Seaside East, LLC ("Shilo Seaside"); Shilo Inn, Newberg, LLC ("Shilo Newberg"); Shilo Inn, Rose Garden, LLC ("Shilo Rose Garden"); and Mark S. Hemstreet ("Hemstreet") (collectively, "Defendants") for the deficiency on the indebtedness after completion of the foreclosure sales. CB&T also moves for summary judgment on Defendants' counterclaims. The Court grants CB&T's motion. The Court also grants CB&T's and Defendants' requests for judicial notice pursuant to rule 201 of the Federal Rules of Evidence.


I. History of the Case Prior to Proceedings in this Court

This case is about Defendants' default on loans originally made in 2005 and 2006 by Vineyard Bank.[1] CB&T acquired the loans in September 2009, by agreement with the FDIC, as receiver for Vineyard. Ventura Decl. Ex. 6, 20, 28. The loans are evidenced, in part, by several documents including Promissory Notes, Deeds of Trust, Business Loan Agreements, and Commercial Security Agreements, (collectively and along with the First and Second Loan Amendments, "Loan Documents"). Id. Exs. 1-5, 15-19, 24-27.

Defendants defaulted on the Notes and Deeds of Trust in or about September 2009 by failing to make the monthly payments due under the Loan Documents. In November 2010, Defendants and CB&T entered into a First Amendment to Deeds of Trust, Promissory Notes, and other Loan Documents. Id. Exs. 7, 21, 29, 33. Under the terms of the First Amendment, the loans were cross-defaulted with six loans made to other Shilo borrowers and a personal line of credit previously made to Mark Hemstreet ("Hemstreet Loan"). Defendants also agreed to grant CB&T a security interest in the properties to secure the Hemstreet Loan. Each of the Defendants and Hemstreet entered into a separate First Amendment of their respective loan on similar terms (collectively, the "First Amendments").

Defendants defaulted on both monetary and non-monetary obligations under the First Amendments. Defendants failed to make the monthly payments due beginning on December 1, 2010. In addition, Shilo Rose Garden failed to execute a second priority deed of trust to secure the Hemstreet Loan as required by the First Amendment.

In June 2011, Defendants and CB&T executed the Forbearance and Second Amendment to Deeds of Trust and Other Loan Documents (collectively, "Second Amendments"). By October and November 2011, Defendants were in default on the Second Amendments. The monetary and non-monetary defaults under the Second Amendments included the following: failure to pay monthly interest payments on their respective loans; failure to deliver Monthly Sales Reports; failure to satisfy the Post-Closing Obligations required by Section 2(c) of the Second Amendments; and failure to comply with the provisions of Section 2(d)(ii)(A) requiring the entry of at least two Purchase Agreements by September 30, 2011.

On or about November 10, 2011, CB&T notified Defendants of the above-referenced defaults. Ventura Decl. Ex. 9. Defendants failed to cure both the monetary and non-monetary defaults. Additional defaults under the loans occurred when Defendants failed to comply with Section 2(d)(ii)(B) requiring Defendants to have entered into purchase agreements for four properties, and Section 2(d)(iv)(A) requiring the closing of at least two sales by December 31, 2011.

II. Initial Proceedings in this Court

On March 21, 2012, CB&T commenced the present judicial foreclosure actions in this Court against Shilo Seaside, Shilo Rose Garden, and Shilo Newberg (collectively, "Shilo").[2] CB&T also named Mr. Hemstreet as a defendant in relation to a personal line of credit. In the complaint, CB&T sought: (1) the appointment of a receiver to protect its interest in the rents collected by Shilo and an injunction to prevent Shilo and Hemstreet from interfering with the receiver's duties; (2) an accounting of receipts, rents, income, and profits collected by Shilo; and (3) a judicial foreclosure of CB&T's liens and security interests in the Shilo property.

On May 11, 2012, this Court issued an Order stating that, while CB&T was entitled to the appointment of a receiver, equity required CB&T to provide Defendants with a payoff amount within seven days and an opportunity for Defendants to render the payoff amount within fourteen days thereafter. Order, [38]. If Defendants timely paid the payoff amount, CB&T's motion for the appointment of a receiver and injunction would be moot; however, if Defendants failed to timely pay the amount due, then the Court would appoint a receiver. Id.

Between May 17 and June 14, 2012, CB&T provided Defendants with the payoff amount for each of the properties, including claimed attorneys' fees and punitive default interest. Defendants disputed the claimed attorneys' fees. The Court ordered Defendants to pay all sums due except the disputed fees, which would be addressed by the Court at a later date. Defendants made the payment to CB&T, with the exception of outstanding attorneys' fees and expenses, thereby avoiding the appointment of a receiver in this case.[3]

On June 15, 2012, CB&T notified Defendants that additional defaults would occur if they did not satisfy the monetary and non-monetary obligations in the Second Amendments by the expiration of the forbearance period. Ventura Decl. Ex. 10-11. The forbearance period provided for under the Second Amendments expired on June 30, 2012, at which time additional defaults occurred. These additional defaults included the failure to comply with Section 2(d)(ii)(c) requiring Defendants to have entered into purchase agreements for five properties and Section 2(d)(iv)(B) and (C) requiring Defendants to have closed all five sales. After Defendants failed to cure the defaults by the expiration of the forbearance period, CB&T exercised its rights to accelerate the balance owed on the loans. Prior to acceleration, the loans were set to mature on December 31, 2013.

In July 2012, CB&T notified Defendants of existing defaults on their loans. Ventura Decl. Ex. 12. CB&T contended that, while Defendants' payoff payments or "reinstatement payments" had addressed the monetary defaults under the loans up until that point, Defendants still had outstanding non-monetary defaults stemming from the failure to comply with various terms of the First and Second Amendments to the loans.

On October 1, 2012, this Court entered an Order granting Plaintiff leave to supplement its complaint to reflect the following factual allegations:

(1) Plaintiff reminded Defendants in a letter on June 15, 2012, that further events of default would exist under the loan documents if required actions were not completed by the end of the "Forbearance Period" (as defined in the Second Amendment), which was set to expire on June 30, 2012;
(2) Pursuant to Sections 2(d)(iv) and (v) of the Second Amendment, "Selling Borrowers" were required to have sold the "Sale Properties" on or before June 30, 2012 to pay down the outstanding balances (as all such terms are defined in the Second Amendments) of the loans;
(3) "Post-Closing Obligations" (as defined in the Hemstreet First Amendment) were to be satisfied no later than August 17, 2011 pursuant to Section 2(c) of the Second Amendment;
(4) Defendants failed to take the required actions by June 30, 2012 and August 17, 2011;
(5) Defendants failed to fully comply with each of the terms, conditions, and covenants contained in Section 2 of the Second Amendment, thereby materially breaching their loan obligations pursuant to Section 7 of the Second Amendment;
(6) Shilo Inn was not in full compliance with the obligations under the Second Amendment; and,
(7) All obligations under Defendants' loan documents had fully "matured" and consequently the entire outstanding indebtedness were due and owing in full.

Pl.'s Mot. File Supp. Compl. Ex. 1, ΒΆΒΆ 48-55. Plaintiff's Verified Supplemental Complaint was filed with the Court on December 6, 2012.

III. The Settlement Agreement

On or about January 28, 2013, the parties entered into a Settlement and Release Agreement ("Settlement Agreement"). Ventura Decl. Ex. 13. Under the Settlement Agreement, CB&T agreed to forbear from foreclosing on its deeds of trust and to accept a discounted payoff of the loans if Defendants made the discounted payoff on or before April 30, 2013, the "Loan Payoff Date." In exchange, Defendants agreed to release any potential claims against CB&T.

IV. Defendants' Bankruptcy Proceedings

On May 2, 2013, Defendants filed a Notice of Automatic Stay based on the corporate Defendants' filing of Chapter 11 petitions in the U.S. Bankruptcy Court for the Central District of California ("Bankruptcy Court"). On May 24, 2013, this Court dismissed this action in its entirety, without prejudice to the rights of the parties to reopen proceedings if the Bankruptcy Court did not resolve the dispute.

Since the bankruptcy filing, Defendants have made Court-ordered monthly adequate protection payments to CB&T equal to approximately 5% per annum of the principal balance due. However, Defendants have failed to cure the various non-monetary and monetary defaults described above. After acceleration of the loans, Defendants failed to pay all amounts due and owing. Even if the loans had not been accelerated, the loans would be due and owing in full, as they would have matured by their own terms on December 31, 2013.

On May 21, 2014, the Bankruptcy Court issued an Order Granting the Motion for Relief from the Automatic Stay, allowing Plaintiff to enforce its remedies to foreclose upon and obtain possession of each property in accordance with applicable bankruptcy law so long as Defendants did not ...

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