Moore, et al. v. First Bank of San Luis Obispo; Thomas J. Sherman; Lynn W. Lyon; Reese T. Davies, et al.
Published: Nov. 1, 1997 | Result Date: Oct. 7, 1997 | Filing Date: Jan. 1, 1900 |Case number: DUM0001572 – $0
Judge
Court
San Luis Obispo Superior
Attorneys
Plaintiff
J. Mark Moore
(Gallo LLP)
Defendant
Experts
Defendant
John R. Britt
(technical)
Facts
In the 1980s, the claimants, four married couples, decided to become involved in real estate development in the San Luis Obispo area. Using a corporate structure, the claimants purchased from the Southern Pacific Railroad some parcels of land on which tracks, now abandoned, had been located. The claimants obtained financing from respondent First Bank of San Luis Obispo (First Bank) for the acquisition and preliminary development of their contemplated condominium project. The loans made by First Bank were secured by a series of trust deeds on the railroad development parcels. In 1990, hazardous waste was discovered on the railroad parcels, causing substantial delay and unforeseen development expense and holding costs. In the meantime, the real estate market declined substantially, placing the entire financial viability of the project at risk. By May 1991, the contamination had been removed, but the claimants remained unable to secure financing to complete the project allegedly because of a lack of equity. At this point, respondent First Bank agreed to a series of "home equity" credit lines secured by the claimants' homes. Amounts drawn down by claimants on the home equity credit lines would automatically be used to reduced the debt owed to First Bank by their corporation. The desired result was that the record debt of the corporation and its condominium project would be reduced, thereby purportedly making the project more attractive to a construction lender. A point in dispute was whether First Bank also agreed to reconvey deeds of trust, and thereby clear title to the condominium parcels to the extent that old debts were paid off by the new equity credit line advances. The claimants, who claimed they were then unrepresented by counsel, agreed to the proposal, and First Bank documented the equity credit lines as "consumer loans." According to First Bank, it then made "advances" to the claimants on paper only and correspondingly reduced the debt balance of the claimants' corporation. Ultimately, the implementation of this plan failed to attract a construction lender, and in late 1993, First Bank foreclosed on the development parcels. The claimants brought an action against the Southern Pacific Railroad to recoup losses they asserted were causally related to the railroad's failure to disclose contamination on the development parcels. First Bank was given a lien on any recovery obtained from the railroad. In early 1995, the railroad obtained judgment in its favor on statute of limitations grounds. First Bank then commenced nonjudicial foreclosure proceedings against the claimants' homes under the deeds of trust which secured the equity credit lines. The claimants brought a superior court action, seeking to enjoin First Bank's foreclosure. Respondent First Bank, seeking to recover approximately $650,000, responded with a cross-complaint for judicial foreclosure and for a judgment in the amount of any post-foreclosure deficiency and seeking damages based on fraud, unfair business practices, violation of RICO and breach of contract theories of recovery. First Bank petitioned for arbitration which was granted. The claimants brought this action against defendants alleging fraud, cancellation of written instruments, injunctive relief, unfair business practices, violations of RICO and breach of contract theories of recovery.
Settlement Discussions
The claimants made a settlement offer in the amount of $50,000, in return for reconveyance of all the subject deeds of trust. Respondents rejected the offer.
Damages
The claimants sought injunctive relief, declaratory relief and cancellation of instruments and damages under contract and tort theories, including RICO.
Result
Respondent was ordered to release claimants from all obligations and reconvey deeds of trust. First Bank was awarded nothing on its cross-complaint.
Other Information
The award was rendered approximately one year and seven months after the case was filed. ARBITRATION: An arbitration was held on July 20-22, 1997, before Robert M. Shafton, Steven O. Weise and Joseph T. Lynyak, III, of American Arbitration Association (AAA), resulting in the reported award. At the outset of arbitration, claimants waived damages under contract and tort theories, including RICO, and dismissed all individual respondents. Following closing arguments, respondent requested that the parties be allowed to submit supplemental briefs. In their supplemental brief, the claimants requested an award of punitive damages based on the evidence adduced at arbitration. Respondent objected, claiming that the right to recover such damages had been waived at the outset of arbitration. The arbitrators ultimately declined to award punitive damages. POST TRIAL MOTIONS: Per defendant, following the arbitration award, the claimants petitioned the Superior Court of San Luis Obispo, claiming they were the prevailing parties in the arbitration and should be awarded attorney fees. The respondents petitioned to confirm the award. The court denied the claimants' petition and granted respondents' petition, ruling that "judicial intervention in the arbitration process should be minimized, otherwise the speedy resolution of grievances by private mechanisms will be greatly undermined."
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