Facts

Fornia Hospitality Group, LLC ("Fornia") is a California limited liability company that was formed for the purpose of acquiring a hotel property and business. Two members of Fornia settled the case prior to the lawsuit. The other Fornia members were Jatinder K. Shante and Bhupinder S. Shante.

Ultimately, Fornia purchased a 115-room Ramada Inn hotel and the underlying real property located in Merced, California (Hotel Property), and it became a Ramada Inn franchisee. Fornia believed that Merced was a rapidly growing city, and that the Hotel Property was an excellent business opportunity. In order to finance the purchase of the Hotel Property, Fornia obtained a first loan from a bank, and a second loan through a United States Small Business Administration (SBA) program in the amount of $1.347 million. The SBA loan was secured by a second deed of trust on the Hotel Property, and the personal guarantees of the members of Fornia.

During the last several months of 2006, the hotel business performed as expected, but by early 2007, new hotels were entering the Merced market which hurt Fornia's business. In late 2007, a little over one year after the Hotel Property was purchased, the United States entered a recession. The combined forces of increased competition and the recession were devastating to Fornia's hotel business. By late 2008, Fornia could no longer make payments on either the bank loan or the SBA loan. As a result, the holder of the bank loan foreclosed, and Fornia lost title to the Hotel Property on January 29, 2010.

Years after losing ownership of the Hotel Property, Mr. & Mrs. Shante were notified in writing that the entire outstanding balance of the SBA Loan was due and payable, but they, and their two partners, were unable to satisfy the obligation. For a number of years, Mrs. Shante, who worked as a teacher, had her wages garnished by the SBA. Later, the SBA note was assigned to plaintiff which filed suit against defendants on January 25, 2019. In their Summary Judgment motion, defendants contended that the applicable statute of limitations was six years from the time the SBA accelerated the obligation and demanded full and complete payment. Defendants further contended that since the acceleration/demand was sent to defendants more than six years before the complaint was filed, the lawsuit was barred by the Statute of Limitations.

PLAINTIFF'S CONTENTIONS: Plaintiff contended that the statute of limitations and been tolled by virtue of the fact that the SBA had been garnishing one of the defendant's wages for a significant period of time, and that, therefore, the SBA was not obligated to file suit earlier than it did. Plaintiff further argued that an important policy issue was at stake since, it argued, the SBA needs to be able to have the time and opportunity to sell and assign its notes to third parties.

DEFENDANT'S CONTENTIONS: Defendants contended that although it is true that payments made by a debtor to a creditor can extend the statute of limitations, that did not apply in this case because the payments received by the SBA, through the garnishment process against defendant, were not voluntary, and that only voluntary payments made by the debtor would cause the statute of limitations to be tolled. Defendants asserted that the payments did not even come defendant. Instead, as defendants argued, the payments came from defendant's employer.

Damages

Plaintiff sought damages of approximately $1.4 million, plus interest.

Result

Summary Judgment granted in favor of defendants, and affirmed by Court of Appeal.

Other Information

Plaintiff filed an appeal on May 10, 2021, and the Court of Appeal affirmed the trial court's ruling on July 26, 2023. The Court of Appeal decision became final on Aug. 25, 2023. Defendants were awarded attorney fees after the summary judgment of $63,828.63, and were awarded costs on appeal and, therefore, will seek additional attorney fees.