Facts

Plaintiff Cameron Pointe, LLC was the borrower of a construction loan for the development of infrastructure on what was to be a multi-million dollar commercial project in Kern County. During the underwriting process, defendant East West Bank obtained an appraisal, which valued the property at $9.1 million in October 2006.

After the loan originated in January 2007, real estate values in the region declined significantly. An appraisal obtained by the bank in July 2008 showed that the value of the property that secured the loan and on which the project was to be built had declined to $3.570 million.

Based on the decline in value, coupled with the lack of progress on construction of the project, the bank declined to make further advances after the loan's initial maturity date of June 2008. At that time, the outstanding loan balance was slightly over $3 million. Instead, the bank agreed to extend the June 2008 maturity date of the loan for two years, to give the borrower time to secure alternative financing to complete construction or sell the property.

During the two-year extension period, no further funding was provided, and the project stagnated. When the extension expired in 2010, the bank demanded repayment and commenced a non-judicial foreclosure proceeding. Three days later, Cameron Pointe and its owner, Mike Torabi, filed a $50-million fraud and breach of contract complaint.

During the course of the litigation, the Court denied Plaintiff's applications for temporary restraining order and preliminary injunction.

The bank secured dismissal of several causes of action through demurrer, and disposed of the remaining claims on summary judgment.

PLAINTIFF'S CONTENTIONS:
Plaintiff's Third Amended Complaint which included 12 causes of action, included allegations of fraud, breach of contract, breach of the covenant of good faith and fair dealing, interference with contract, and negligence.

Plaintiff claimed that the bank committed fraud in inducing Plaintiff to enter into the loan in the first place by concealing the fact that the purportedly independent appraiser was producing intentionally skewed appraisals to suit the bank's target valuations.

Plaintiff also contend that despite its specific requests that the bank reveal how much it would cost the Plaintiff to release its various parcels of land from the loan collateral pool, the bank concealed at least $3.4 million of that "release price" from Plaintiff. Plaintiff contended the bank calculated the requested price but "deleted" or "hid" the data by manipulating a spreadsheet.
Plaintiff also claimed for conversion of various items of personal property that remained when the bank completed its non-judicial foreclosure.

Plaintiff alleged that the bank breached the loan agreement by deciding not to make any further advances 18 months after the loan was originated.

Plaintiff alleged conspiracy between the bank's loan officer, its senior management, and its outside appraiser to manipulate the property by first inflating and then deflating the appraised value for the bank's own benefit.

Plaintiff also alleged that after Plaintiff executed and initialed all pages of the deed of trust on the property that secured the loan, the bank added an additional parcel as security that Plaintiff did not intend to pledge as collateral for the loan.

Plaintiff maintained that the bank fraudulently concealed the release price for one of the parcels of real property pledged as collateral for the loan, claiming that it had not been determined, when in reality, the bank already knew the release price for that parcel. Plaintiff claimed the bank fraudulently induced them to enter into a two-year extension agreement, which the bank fraudulently backdated to prevent its auditors, KPMG, from detecting fraudulent accounting practices in rating the quality of the bank's assets.

The breach of contract claim was based on the allegation that the bank did not fully fund the entire $7.19 million loan commitment, and unreasonably delayed the disbursement of the loan proceeds for the portion of the loan that it did fund.

As a result of these delays, Plaintiff claimed that numerous mechanics' liens were recorded on the property and construction was delayed. In turn, Plaintiff lost three purchase agreements and a letter of intent from prospective purchasers of parcels on the project.

DEFENDANT'S CONTENTIONS:
The bank denied any wrongdoing. Once it became clear that Cameron Pointe, LLC was not making satisfactory progress on the project and that the property's value had declined significantly by mid-2008, the bank was no longer willing to continue to disburse additional loan funds, which by that time had exceeded $3 million. The borrower failed to complete construction, and that failure, coupled with the steep downturn in the real estate market, doomed the construction project. The bank claimed that Cameron Pointe, LLC and its principals were unwilling to shoulder responsibility themselves, and instead sought to place the blame on the bank and its outside appraiser. After the bank demanded repayment and filed a notice of default on the property when the extension period expired in 2010, Plaintiffs responded within days by filing suit.

Damages

Plaintiffs claimed damages of over $50 million.

Result

The Court entered judgment in favor of East West Bank after granting its Motion for Summary Judgment, including an award of $1.1 million in attorney's fees.

Other Information

FILING DATE: Aug. 5, 2010.