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SUPERIOR COURT OF CALIFORNIA
COUNTY OF SAN FRANCISCO
Document Scanning Lead Sheet
Jun-14-2011 8:14 am
Case Number: CGC-10-500934
Filing Date: Jun-14-2011 8:13
Juke Box: 001 Image: 03240301
CROSS COMPLAINT
CATHAY BANK, A CALIFORNIA BANKING CORPORATION VS. RAYMOND XIANG ZHANC
00103240301
Instructions:
Please place this sheet on top of the document to be scanned.The Schinner Law Group
96 Jessie Street
San Francisco, CA 94105
Tel (415) 369-9050 Fax (415) 369-9053
Michael G. Schinner (SBN 142363)
Quinn J. Chevalier (SBN 255934)
THE SCHINNER LAW GROUP
96 Jessie St.
San Francisco, CA 94105
Tel: (415) 369-9050
Fax: (415) 369-9053
Attomeys for Cross-Complainants
SUPERIOR COURT OF CALIFORNIA
COUNTY OF SAN FRANCISCO
CATHAY BANK, a California banking Case No. CGC-10-500934
corporation,
wo. SECOND AMENDED
Plaintiff, CROSS-COMPLAINT FOR:
v. (1) BREACH OF FIDUCIARY
DUTY
RAYMOND XIANG KAI ZHANG, et al.,
Q) BREACH OF THE
Defendants. IMPLIED COVENANT OF
GOOD FAITH AND FAIR
DEALING
RAYMOND ZHANG, an individual; CINDY
ZHANG, an individual, ZHANGS, LLC, a (3) VIOLATION OF
California limited liability company; and RAI CALIFORNIA’S UNFAIR
KAI, LLC, a California limited liability COMPETITION LAW (Bus.
company, & Prof. Code § 17200 et seq.)
Cross-Complainants, (4) UNJUST ENRICHMENT
ve
CATHAY BANK, a California banking
corporation; and DOES 201-240, inclusive,
Cross-Defendants.
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SECOND AMENDED CROSS-COMPLAINT
Case No. CGC-10-500934CA 94105
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Cross-complainants allege as follows:
THE PARTIES
1 Cross-defendant Cathay Bank is, and at all times relevant to these allegations was,
a corporation organized under the laws of the State of California.
2. Cross-complainant Raymond Zhang and Cindy Zhang (collectively, the “Zhangs”)
are, and at all times relevant to these allegations were, individuals residing in San Francisco
County, California.
3. Cross-complainant ZHANGS, LLC (““Zhangs LLC”) is, and at all times relevant
to these allegations was, a California limited liability company with its principal place of
business in San Francisco County, California.
4. Cross-complainant RAI KAI, LLC (“Rai Kai LLC”) is, and at all times relevant to
these allegations was, a California limited liability company with its principal place of business
in San Francisco County, California
5. Cross-complainants do not know the names and capacities of the cross-defendants
sued as Does 201 through 230, inclusive. Cross-complainants will seek leave of court to amend
this cross-complaint to allege their true names and capacities when they become known.
6. At all times relevant to these allegations, each cross-defendant was the agent or
employee of each and all other cross-defendants and was acting in the course of such agency or
employment.
GENERAL ALLEGATIONS
The Construction Loan
7. Until recently, Rai Kai LLC owned the real property located at 1459 MacArthur
Boulevard in Oakland, California (“1459 MacArthur”). Partially constructed on 1459 MacArthur
is an unfinished 30-unit condominium and 1-unit commercial development (the “Construction
Project”). The Construction Project is about 95% finished.
8. On or about October 19, 2006, Rai Kai LLC and creditor Cathay Bank entered
into a Construction Loan Agreement and Promissory Note (collectively, the “Construction
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SECOND AMENDED CROSS-COMPLAINT
Case No. CGC-10-500934San Francisco, CA 94105
Tel (415) 369-9050 Fax (415) 369-9053
The Schinner Law Group
96 Jessie Street
Loan”), A true and correct copy of the Construction Loan Agreement is attached to plaintiff
Cathay Bank’s verified complaint (filed on June 22, 2010) as Exhibit 10, and is incorporated into
this cross-complaint by reference. A true and correct copy of the Promissory Note is
incorporated into the Construction Loan Agreement as an exhibit. The Construction Loan
required that Cathay Bank was to loan up to $7,238,000 to Rai Kai LLC so that Rai Kai LLC
could finance the continued construction of the Construction Project.
9. 1459 MacArthur serves as security for Rai Kai LLC’s repayment obligations
under the Construction Loan.
10. The Construction Loan was to mature on “May 1, 2008, or the first day of the
month after the eighteenth month following recordation of the Deed of Trust, whichever is later.”
Page 1 of the promissory note. The later of these dates tumed out to be May L, 2008.
11. The Construction Loan provided that Rai Kai LLC was to make monthly interest
payments through to this original maturity date, at which point the balance of the unpaid
principal and interest on all dispersed funds would be due. See Section II.C. of the Promissory
Note.
Default on the Construction Loan by Rai Kai LLC
12. Rai Kai LLC defaulted on its obligation to pay the entire unpaid principal by the
Original Maturity Date.
Extensions of the Maturity Date (1st, 2nd, and 3rd)
13. Onor about June 4, 2008, Rai Kai LLC and Cathay Bank entered into an
Extension of Maturity Date Agreement (the “First Extension Agreement”). A true and correct
copy of the First Extension Agreement is attached to plaintiff Cathay Bank’s verified complaint
(filed on June 22, 2010) as Exhibit 16, and is incorporated into this cross-complaint by reference.
The First Extension Agreement provided that the maturity date of the Construction Loan would
be extended to July 1, 2008.
14. On or about September 12, 2008, Rai Kai LLC and Cathay Bank entered into
another Extension of Maturity Date Agreement (the “Second Extension Agreement”). A true and
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Case No. CGC-10-500934g
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correct copy of the Second Extension Agreement is attached to plaintiff Cathay Bank’s verified
complaint (filed on June 22, 2010) as Exhibit 16, and is incorporated into this cross-complaint by
reference. The Second Extension Agreement provided that the maturity date would be extended
to October 1, 2008.
15. On or about December 18, 2008, Rai Kai LLC and Cathay Bank entered into
another Extension of Maturity Date Agreement (the “Third Extension Agreement”). A true and
correct copy of the Third Extension Agreement is attached to plaintiff Cathay Bank’s verified
complaint (filed on June 22, 2010) as Exhibit 16, and is incorporated into this cross-complaint by
reference. The Third Extension Agreement provided that the maturity date would be extended to
February 1, 2009.
Extensions of the Maturity Date (4th, 5th, and 6th) and Cross-Collateralization of
the Construction Loan
16. On or about February 26, 2009, Rai Kai LLC and Cathay Bank entered into a
Loan Modification and Extension Agreement (the “Fourth Extension Agreement”). A true and
correct copy of the Fourth Extension Agreement is attached to plaintiff Cathay Bank’s verified
complaint (filed on June 22, 2010) as Exhibit 17, and is incorporated into this cross-complaint by
reference. The Fourth Extension Agreement provided that the maturity date would be extended
to October 1, 2009
17. Under the terms of the Fourth Extension Agreement, Cathay Bank required that
Rai Kai LLC provide additional collateral as consideration for further extending the maturity
date. Rai Kai LLC arranged for a third party to provide additional collateral.
18. The Zhangs and an individual named Dong Ying Qiu were the sole owners of the
real property located at 4900-4914 Third Street in San Francisco, California (“4900 Third
Street”). They executed a deed of trust against 4900 Third Street in favor of Cathay Bank as
called for by the Fourth Extension Agreement. A true and correct copy of this deed of trust is
attached to plaintiff Cathay Bank’s notice of lodgment (filed on May 26, 2011) as Exhibit 1, and
is incorporated into this cross-complaint by reference.
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SECOND AMENDED CROSS-COMPLAINT
Case No. CGC-10-500934The Schinner Law Group
96 Jessie Street
San Francisco, CA 94105
Tel (415) 369-9050 Fax (415) 369-9053
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19. On or about December 3, 2009, Rai Kai LLC and Cathay Bank entered into
another Loan Modification and Extension Agreement (the “Fifth Extension Agreement”). A true
and correct copy of the Fifth Extension Agreement is attached to plaintiff Cathay Bank’s verified
complaint (filed on June 22, 2010) as Exhibit 18, and is incorporated into this cross-complaint by
reference. The Fifth Extension Agreement provided that the maturity date would be extended to
February 1, 2010.
20. Under the terms of the Fifth Extension Agreement, Cathay Bank again required
that Rai Kai LLC provide additional collateral as consideration for further extending the maturity
date. Rai Kai LLC arranged for third parties to provide additional real property collateral.
21. First, the Zhangs were the sole owners of the real property located at 229-255
International Boulevard in Oakland, California (“229 International”). Second, ZHANGS, LLC
(“Zhangs LLC”) was the sole owner of the real property located at 480 Potrero Avenue in San
Francisco, California (“480 Potrero”). These owners executed deeds of trust against their
respective properties in favor of Cathay Bank as called for by the Fifth Extension Agreement. A
true and correct copy of each of these deeds of trust are attached to plaintiff Cathay Bank’s
verified complaint (filed on June 22, 2010) as Exhibit 21 and Exhibit 22, and are incorporated
into this cross-complaint by reference.
22. Onor about February 4, 2010, Rai Kai LLC and Cathay Bank entered into another
Loan Modification and Extension Agreement (the “Sixth Extension Agreement”). A true and
correct copy of the Sixth Extension Agreement is attached to plaintiff Cathay Bank’s verified
complaint (filed on June 22, 2010) as Exhibit 19, and is incorporated into this cross-complaint by
reference. The Sixth Extension Agreement provided that the maturity date would be extended to
April 1, 2010, Cathay Bank did not require additional collateral for this agreement.
23. Both Raymond Zhang and Cindy Zhang have a limited proficiency in reading and
writing English. With rare exceptions, they negotiated all contracts with Cathay Bank by using
spoken Cantonese. However, all contract documents were prepared by Cathay Bank in English
only.
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Case No. CGC-10-500934g
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Cathay Bank’s True Motives
24. Cathay Bank’s true motives were this: The collapse of the real estate market
coincided with Rai Kai LLC’s original default on the Construction Loan and the subsequent
negotiations of extensions of the maturity date. With the collapse of the market, Cathay Bank
knew that the Construction Loan was under-secured by having just 1459 MacArthur as collateral.
If Cathay Bank foreclosed on just 1459 MacArthur when Rai Kai LLC defaulted, it would have
taken a significant loss. Therefore, Cathay Bank offered Rai Kai LLC a series of six extensions,
two of which were contingent on Rai Kai LLC arranging for additional properties to be used as
cross-collateral for the Construction Loan.
25. Through course of performance, Cathay Bank knew, or reasonably should have
known, that Rai Kai LLC did not have the ability to timely meet its obligations under the
Construction Loan or any of the First-through-Sixth Extension Agreements, nor was Rai Kai
LLC likely to acquire such ability during the relevant time frame. Nevertheless, Cathay Bank
offered or agreed to extend the Construction Loan’s maturity date in exchange for receiving
additional collateral as security on the Construction Loan.
26. The result is that, after the execution of the Fourth and Fifth Extension
Agreements, the Construction Loan was secured by three additional real properties -- 4900 Third
Street, 229 International, and 480 Potrero -- instead of just the original single real property.
Therefore, Cathay Bank’s financial position was drastically improved. At the same time, Cathay
Bank knew, or reasonably should have known, that Rai Kai LLC was doomed to continue to
default on the Construction Loan and the First-through-Sixth Extension Agreements, thereby
making a foreclosure on all four real properties inevitable.
27. Cathay Bank used misrepresentations and the pretense of good-faith loan
negotiations to induce or accept the offer of cross-claimants and Rai Kai LLC into executing the
First-through-Sixth Extension Agreements and the deeds of trust against the cross-collateralized
properties.
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SECOND AMENDED CROSS-COMPLAINT
Case No. CGC-10-50093496 Jessie Street
San Francisco, CA 94105
Tel (415) 369-9050 Fax (415) 369-9053
‘The Schinner Law Group
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FIRST CAUSE OF ACTION:
BREACH OF FIDUCIARY DUTY
(All cross-complainants against Cathay Bank and Does 201-210, inclusive)
28. Cross-complainants incorporate the allegations of the paragraphs alleged above as
though fully set forth in this paragraph.
29. Rai Kai LLC put its faith, confidence, and trust in Cathay Bank through course of
its negotiation of the Construction Loan and the First-through-Sixth Extension Agreements. Rai
Kai LLC was always in a position of inequality, dependence, weakness, or lack of knowledge in
that Raymond Zhang and Cindy Zhang have a limited proficiency in reading and writing English,
the language in which all contract documents were drafted. For example, they both relied almost
entirely on Cathay Bank’s officers to speak to them in Cantonese as opposed to English. Finally,
Cathay Bank exercised dominion, control, or influence over Rai Kai LLC’s affairs in that it
influenced Rai Kai LLC and the other cross-complainants into pledging the additional cross-
collateral properties despite Cathay Bank knowing that Rai Kai LLC was certain to fail on its
new obligations. Therefore, for these and other reasons, a fiduciary relationship existed between
Cathay Bank and at least cross-complainant Rai Kai LLC.
30. Cross-complainants seek relief against Cathay Bank for the harm that this breach
has caused them.
SECOND CAUSE OF ACTION:
BREACH OF IMPLIED COVENANT OF GOOD FAITH AND FAIR DEALING
(All cross-complainants against Cathay Bank and Does 211-220, inclusive)
31. Cross-complainants incorporate the allegations of the paragraphs alleged above as
though fully set forth in this paragraph.
32. By law, the covenant of good faith and fair dealing is implied in the First-through-
Sixth Extension Agreements. Cathay Bank breached this covenant when it, among other things,
began foreclosure proceedings on the three cross-collateralized properties.
33. Cross-complainants were harmed by this breach because it resulted in Cathay
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SECOND AMENDED CROSS-COMPLAINT
Case No. CGC-10-500934San Francisco, CA 94105
‘Tet (415) 369-9050 Fax (415) 369-9053
The Schinner Law Group
96 Jessie Street
1] Bank noticing its intent to foreclose on the cross-collateralized properties due to Rai Kai LLC’s
default on the Construction Loan and First-through-Sixth Extension Agreements.
| 34. Cross-complainants seek relief against Cathay Bank for the harm that this breach
has caused them.
THIRD CAUSE OF ACTION:
2
3
4
5
6 VIOLATION OF CALIFORNIA’S UNFAIR COMPETITION LAW
7 (Bus. & Prof. Code § 17200 et seq.)
8 (All cross-complainants against Cathay Bank and Does 221-230, inclusive)
9 35. Cross-complainants incorporate the allegations of the paragraphs alleged above as
10 | though fully set forth in this paragraph.
11 36. Cathay Bank violated California’s Unfair Competition Law (Bus. & Prof. Code
12 | § 17200 et seq.) because (a) Cathay Bank was a corporation performing business acts or practices
13] when it entered into the Construction Loan and the First-through-Sixth Extension Agreements,
14] and (b) Cathay Bank acted unlawfully, unfairly, or fraudulently in its execution and performance
15 || of the First-through-Sixth Extension Agreements.
16 37. Cross-complainants were harmed by this statutory violation because it resulted in
17| Cathay Bank unfairly or unlawfully acquiring liens on the three cross-collateralized properties,
18] and because Cathay Bank has begun foreclosure proceedings on each of these properties.
19 38. Cross-complainants seek relief against Cathay Bank for the harm that this
20] statutory violation has caused them.
21 FOURTH CAUSE OF ACTION:
22 UNJUST ENRICHMENT
23 | (All cross-complainants against Cathay Bank and Does 231-240, inclusive)
24 39. Cross-complainants incorporate the allegations of the paragraphs alleged above as
25|| though fully set forth in this paragraph.
26 40. Cathay Bank knew, or reasonably should have known, that Rai Kai LLC was not
27] going to be able to meet its obligations under the First-through-Sixth Extension Agreements and
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that further defaults were inevitable. Despite this, Cathay Bank offered to extend the
Construction Loan’s maturity date if a series of additional real properties were pledged as cross-
collateral. These additional properties were pledged to Cathay Bank as called for the Fourth and
Fifth Extension Agreements.
41. The creation of the liens against these cross-collateralized properties constitutes an
unjust enrichment in favor of Cathay Bank.
42. Cross-complainants seek relief against Cathay Bank for the harm that this unjust
enrichment has caused them.
PRAYER FOR RELIEF
Cross-complainants seek judgment as follows:
(1) — On the first cause of action:
a. For compensatory damages in an amount to be proven at trial, but in no event
less than the jurisdictional minimum required of this Court.
b. For punitive damages.
c. Foran order voiding, rescinding, or otherwise negating the transactions that
resulted in Cathay Bank acquiring security interests in the cross-collateralized
properties for the Construction Loan. Namely, Cathay Bank’s security
interests in 4900 Third Street, 229 International, and 480 Potrero.
(2) On the second cause of action:
a. For compensatory damages in an amount to be proven at trial, but in no event
less than the jurisdictional minimum required of this Court.
b. For an order voiding, rescinding, or otherwise negating the transactions that
resulted in Cathay Bank acquiring security interests in the cross-collateralized
properties for the Construction Loan. Namely, Cathay Bank’s security
interests in 4900 Third Street, 229 International, and 480 Potrero.
(3) On the third cause of action:
a. For an order voiding, rescinding, or otherwise negating the transactions that
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SECOND AMENDED CROSS-COMPLAINT
Case No, CGC-10-500934The Schinner Law Group
96 Jessie Street
San Francisco, CA 94105
Tel (415) 369-9080 Fax (415) 369-9053
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resulted in Cathay Bank acquiring security interests in the cross-collateralized
properties for the Construction Loan. Namely, Cathay Bank’s security
interests in 4900 Third Street, 229 International, and 480 Potrero.
(4) On the fourth cause of action:
a. For restitution in the form of an order voiding, rescinding, or otherwise
negating the transactions that resulted in Cathay Bank acquiring security
interests in the cross-collateralized properties for the Construction Loan.
Namely, Cathay Bank’s security interests in 4900 Third Street, 229
International, and 480 Potrero.
(5) Onall causes of action:
a. For reimbursement of costs incurred in bringing this action.
b. For reimbursement of attorney fees in an amount determined by the Court to
be reasonable.
c. For such further relief as the Court deems proper.
Attorneys for Cross-Complainants
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SECOND AMENDED CROSS-COMPLAINT
Case No. CGC-10-500934
Preview
DAC SUPERIOR COURT OF CALIFORNIA COUNTY OF SAN FRANCISCO Document Scanning Lead Sheet Jun-14-2011 8:14 am Case Number: CGC-10-500934 Filing Date: Jun-14-2011 8:13 Juke Box: 001 Image: 03240301 CROSS COMPLAINT CATHAY BANK, A CALIFORNIA BANKING CORPORATION VS. RAYMOND XIANG ZHANC 00103240301 Instructions: Please place this sheet on top of the document to be scanned.The Schinner Law Group 96 Jessie Street San Francisco, CA 94105 Tel (415) 369-9050 Fax (415) 369-9053 Michael G. Schinner (SBN 142363) Quinn J. Chevalier (SBN 255934) THE SCHINNER LAW GROUP 96 Jessie St. San Francisco, CA 94105 Tel: (415) 369-9050 Fax: (415) 369-9053 Attomeys for Cross-Complainants SUPERIOR COURT OF CALIFORNIA COUNTY OF SAN FRANCISCO CATHAY BANK, a California banking Case No. CGC-10-500934 corporation, wo. SECOND AMENDED Plaintiff, CROSS-COMPLAINT FOR: v. (1) BREACH OF FIDUCIARY DUTY RAYMOND XIANG KAI ZHANG, et al., Q) BREACH OF THE Defendants. IMPLIED COVENANT OF GOOD FAITH AND FAIR DEALING RAYMOND ZHANG, an individual; CINDY ZHANG, an individual, ZHANGS, LLC, a (3) VIOLATION OF California limited liability company; and RAI CALIFORNIA’S UNFAIR KAI, LLC, a California limited liability COMPETITION LAW (Bus. company, & Prof. Code § 17200 et seq.) Cross-Complainants, (4) UNJUST ENRICHMENT ve CATHAY BANK, a California banking corporation; and DOES 201-240, inclusive, Cross-Defendants. Mt Wt MI Ml ut 1 SECOND AMENDED CROSS-COMPLAINT Case No. CGC-10-500934CA 94105 Tel (415) 369-9050 Fax (415) 369-9053 _ Ce nN KD HW F&F WN ea i a i a oOo 7m DT DH F&F WHY KS SCS 20 Cross-complainants allege as follows: THE PARTIES 1 Cross-defendant Cathay Bank is, and at all times relevant to these allegations was, a corporation organized under the laws of the State of California. 2. Cross-complainant Raymond Zhang and Cindy Zhang (collectively, the “Zhangs”) are, and at all times relevant to these allegations were, individuals residing in San Francisco County, California. 3. Cross-complainant ZHANGS, LLC (““Zhangs LLC”) is, and at all times relevant to these allegations was, a California limited liability company with its principal place of business in San Francisco County, California. 4. Cross-complainant RAI KAI, LLC (“Rai Kai LLC”) is, and at all times relevant to these allegations was, a California limited liability company with its principal place of business in San Francisco County, California 5. Cross-complainants do not know the names and capacities of the cross-defendants sued as Does 201 through 230, inclusive. Cross-complainants will seek leave of court to amend this cross-complaint to allege their true names and capacities when they become known. 6. At all times relevant to these allegations, each cross-defendant was the agent or employee of each and all other cross-defendants and was acting in the course of such agency or employment. GENERAL ALLEGATIONS The Construction Loan 7. Until recently, Rai Kai LLC owned the real property located at 1459 MacArthur Boulevard in Oakland, California (“1459 MacArthur”). Partially constructed on 1459 MacArthur is an unfinished 30-unit condominium and 1-unit commercial development (the “Construction Project”). The Construction Project is about 95% finished. 8. On or about October 19, 2006, Rai Kai LLC and creditor Cathay Bank entered into a Construction Loan Agreement and Promissory Note (collectively, the “Construction 2 SECOND AMENDED CROSS-COMPLAINT Case No. CGC-10-500934San Francisco, CA 94105 Tel (415) 369-9050 Fax (415) 369-9053 The Schinner Law Group 96 Jessie Street Loan”), A true and correct copy of the Construction Loan Agreement is attached to plaintiff Cathay Bank’s verified complaint (filed on June 22, 2010) as Exhibit 10, and is incorporated into this cross-complaint by reference. A true and correct copy of the Promissory Note is incorporated into the Construction Loan Agreement as an exhibit. The Construction Loan required that Cathay Bank was to loan up to $7,238,000 to Rai Kai LLC so that Rai Kai LLC could finance the continued construction of the Construction Project. 9. 1459 MacArthur serves as security for Rai Kai LLC’s repayment obligations under the Construction Loan. 10. The Construction Loan was to mature on “May 1, 2008, or the first day of the month after the eighteenth month following recordation of the Deed of Trust, whichever is later.” Page 1 of the promissory note. The later of these dates tumed out to be May L, 2008. 11. The Construction Loan provided that Rai Kai LLC was to make monthly interest payments through to this original maturity date, at which point the balance of the unpaid principal and interest on all dispersed funds would be due. See Section II.C. of the Promissory Note. Default on the Construction Loan by Rai Kai LLC 12. Rai Kai LLC defaulted on its obligation to pay the entire unpaid principal by the Original Maturity Date. Extensions of the Maturity Date (1st, 2nd, and 3rd) 13. Onor about June 4, 2008, Rai Kai LLC and Cathay Bank entered into an Extension of Maturity Date Agreement (the “First Extension Agreement”). A true and correct copy of the First Extension Agreement is attached to plaintiff Cathay Bank’s verified complaint (filed on June 22, 2010) as Exhibit 16, and is incorporated into this cross-complaint by reference. The First Extension Agreement provided that the maturity date of the Construction Loan would be extended to July 1, 2008. 14. On or about September 12, 2008, Rai Kai LLC and Cathay Bank entered into another Extension of Maturity Date Agreement (the “Second Extension Agreement”). A true and 3 SECOND AMENDED CROSS-COMPLAINT Case No. CGC-10-500934g & ? 3S oO Fa nae AESs rose b228 43a greg A de aS: 3 z correct copy of the Second Extension Agreement is attached to plaintiff Cathay Bank’s verified complaint (filed on June 22, 2010) as Exhibit 16, and is incorporated into this cross-complaint by reference. The Second Extension Agreement provided that the maturity date would be extended to October 1, 2008. 15. On or about December 18, 2008, Rai Kai LLC and Cathay Bank entered into another Extension of Maturity Date Agreement (the “Third Extension Agreement”). A true and correct copy of the Third Extension Agreement is attached to plaintiff Cathay Bank’s verified complaint (filed on June 22, 2010) as Exhibit 16, and is incorporated into this cross-complaint by reference. The Third Extension Agreement provided that the maturity date would be extended to February 1, 2009. Extensions of the Maturity Date (4th, 5th, and 6th) and Cross-Collateralization of the Construction Loan 16. On or about February 26, 2009, Rai Kai LLC and Cathay Bank entered into a Loan Modification and Extension Agreement (the “Fourth Extension Agreement”). A true and correct copy of the Fourth Extension Agreement is attached to plaintiff Cathay Bank’s verified complaint (filed on June 22, 2010) as Exhibit 17, and is incorporated into this cross-complaint by reference. The Fourth Extension Agreement provided that the maturity date would be extended to October 1, 2009 17. Under the terms of the Fourth Extension Agreement, Cathay Bank required that Rai Kai LLC provide additional collateral as consideration for further extending the maturity date. Rai Kai LLC arranged for a third party to provide additional collateral. 18. The Zhangs and an individual named Dong Ying Qiu were the sole owners of the real property located at 4900-4914 Third Street in San Francisco, California (“4900 Third Street”). They executed a deed of trust against 4900 Third Street in favor of Cathay Bank as called for by the Fourth Extension Agreement. A true and correct copy of this deed of trust is attached to plaintiff Cathay Bank’s notice of lodgment (filed on May 26, 2011) as Exhibit 1, and is incorporated into this cross-complaint by reference. 4 SECOND AMENDED CROSS-COMPLAINT Case No. CGC-10-500934The Schinner Law Group 96 Jessie Street San Francisco, CA 94105 Tel (415) 369-9050 Fax (415) 369-9053 com NAH FF WN HY Ny NM NY NY NY NY NY NY NY Be ee Be Fe Fe Ee ee oN A A FB HN | SF oO wm IY DA FF WN KH SD £ 19. On or about December 3, 2009, Rai Kai LLC and Cathay Bank entered into another Loan Modification and Extension Agreement (the “Fifth Extension Agreement”). A true and correct copy of the Fifth Extension Agreement is attached to plaintiff Cathay Bank’s verified complaint (filed on June 22, 2010) as Exhibit 18, and is incorporated into this cross-complaint by reference. The Fifth Extension Agreement provided that the maturity date would be extended to February 1, 2010. 20. Under the terms of the Fifth Extension Agreement, Cathay Bank again required that Rai Kai LLC provide additional collateral as consideration for further extending the maturity date. Rai Kai LLC arranged for third parties to provide additional real property collateral. 21. First, the Zhangs were the sole owners of the real property located at 229-255 International Boulevard in Oakland, California (“229 International”). Second, ZHANGS, LLC (“Zhangs LLC”) was the sole owner of the real property located at 480 Potrero Avenue in San Francisco, California (“480 Potrero”). These owners executed deeds of trust against their respective properties in favor of Cathay Bank as called for by the Fifth Extension Agreement. A true and correct copy of each of these deeds of trust are attached to plaintiff Cathay Bank’s verified complaint (filed on June 22, 2010) as Exhibit 21 and Exhibit 22, and are incorporated into this cross-complaint by reference. 22. Onor about February 4, 2010, Rai Kai LLC and Cathay Bank entered into another Loan Modification and Extension Agreement (the “Sixth Extension Agreement”). A true and correct copy of the Sixth Extension Agreement is attached to plaintiff Cathay Bank’s verified complaint (filed on June 22, 2010) as Exhibit 19, and is incorporated into this cross-complaint by reference. The Sixth Extension Agreement provided that the maturity date would be extended to April 1, 2010, Cathay Bank did not require additional collateral for this agreement. 23. Both Raymond Zhang and Cindy Zhang have a limited proficiency in reading and writing English. With rare exceptions, they negotiated all contracts with Cathay Bank by using spoken Cantonese. However, all contract documents were prepared by Cathay Bank in English only. 5 SECOND AMENDED CROSS-COMPLAINT Case No. CGC-10-500934g = $ : 38 O_3e Bice Ags 1oce ides pu a a & = oD & —_ ow oN KD NW FF WN ee = Oo 12 Cathay Bank’s True Motives 24. Cathay Bank’s true motives were this: The collapse of the real estate market coincided with Rai Kai LLC’s original default on the Construction Loan and the subsequent negotiations of extensions of the maturity date. With the collapse of the market, Cathay Bank knew that the Construction Loan was under-secured by having just 1459 MacArthur as collateral. If Cathay Bank foreclosed on just 1459 MacArthur when Rai Kai LLC defaulted, it would have taken a significant loss. Therefore, Cathay Bank offered Rai Kai LLC a series of six extensions, two of which were contingent on Rai Kai LLC arranging for additional properties to be used as cross-collateral for the Construction Loan. 25. Through course of performance, Cathay Bank knew, or reasonably should have known, that Rai Kai LLC did not have the ability to timely meet its obligations under the Construction Loan or any of the First-through-Sixth Extension Agreements, nor was Rai Kai LLC likely to acquire such ability during the relevant time frame. Nevertheless, Cathay Bank offered or agreed to extend the Construction Loan’s maturity date in exchange for receiving additional collateral as security on the Construction Loan. 26. The result is that, after the execution of the Fourth and Fifth Extension Agreements, the Construction Loan was secured by three additional real properties -- 4900 Third Street, 229 International, and 480 Potrero -- instead of just the original single real property. Therefore, Cathay Bank’s financial position was drastically improved. At the same time, Cathay Bank knew, or reasonably should have known, that Rai Kai LLC was doomed to continue to default on the Construction Loan and the First-through-Sixth Extension Agreements, thereby making a foreclosure on all four real properties inevitable. 27. Cathay Bank used misrepresentations and the pretense of good-faith loan negotiations to induce or accept the offer of cross-claimants and Rai Kai LLC into executing the First-through-Sixth Extension Agreements and the deeds of trust against the cross-collateralized properties. Mt 6 SECOND AMENDED CROSS-COMPLAINT Case No. CGC-10-50093496 Jessie Street San Francisco, CA 94105 Tel (415) 369-9050 Fax (415) 369-9053 ‘The Schinner Law Group - Co worn Hw F&F WY N NbN HNN NHK KN HS — Be Be eB Se eB ee oN AA BB wWwNH |= GO we AN HHA BF WwW NY YK SS FIRST CAUSE OF ACTION: BREACH OF FIDUCIARY DUTY (All cross-complainants against Cathay Bank and Does 201-210, inclusive) 28. Cross-complainants incorporate the allegations of the paragraphs alleged above as though fully set forth in this paragraph. 29. Rai Kai LLC put its faith, confidence, and trust in Cathay Bank through course of its negotiation of the Construction Loan and the First-through-Sixth Extension Agreements. Rai Kai LLC was always in a position of inequality, dependence, weakness, or lack of knowledge in that Raymond Zhang and Cindy Zhang have a limited proficiency in reading and writing English, the language in which all contract documents were drafted. For example, they both relied almost entirely on Cathay Bank’s officers to speak to them in Cantonese as opposed to English. Finally, Cathay Bank exercised dominion, control, or influence over Rai Kai LLC’s affairs in that it influenced Rai Kai LLC and the other cross-complainants into pledging the additional cross- collateral properties despite Cathay Bank knowing that Rai Kai LLC was certain to fail on its new obligations. Therefore, for these and other reasons, a fiduciary relationship existed between Cathay Bank and at least cross-complainant Rai Kai LLC. 30. Cross-complainants seek relief against Cathay Bank for the harm that this breach has caused them. SECOND CAUSE OF ACTION: BREACH OF IMPLIED COVENANT OF GOOD FAITH AND FAIR DEALING (All cross-complainants against Cathay Bank and Does 211-220, inclusive) 31. Cross-complainants incorporate the allegations of the paragraphs alleged above as though fully set forth in this paragraph. 32. By law, the covenant of good faith and fair dealing is implied in the First-through- Sixth Extension Agreements. Cathay Bank breached this covenant when it, among other things, began foreclosure proceedings on the three cross-collateralized properties. 33. Cross-complainants were harmed by this breach because it resulted in Cathay 7 SECOND AMENDED CROSS-COMPLAINT Case No. CGC-10-500934San Francisco, CA 94105 ‘Tet (415) 369-9050 Fax (415) 369-9053 The Schinner Law Group 96 Jessie Street 1] Bank noticing its intent to foreclose on the cross-collateralized properties due to Rai Kai LLC’s default on the Construction Loan and First-through-Sixth Extension Agreements. | 34. Cross-complainants seek relief against Cathay Bank for the harm that this breach has caused them. THIRD CAUSE OF ACTION: 2 3 4 5 6 VIOLATION OF CALIFORNIA’S UNFAIR COMPETITION LAW 7 (Bus. & Prof. Code § 17200 et seq.) 8 (All cross-complainants against Cathay Bank and Does 221-230, inclusive) 9 35. Cross-complainants incorporate the allegations of the paragraphs alleged above as 10 | though fully set forth in this paragraph. 11 36. Cathay Bank violated California’s Unfair Competition Law (Bus. & Prof. Code 12 | § 17200 et seq.) because (a) Cathay Bank was a corporation performing business acts or practices 13] when it entered into the Construction Loan and the First-through-Sixth Extension Agreements, 14] and (b) Cathay Bank acted unlawfully, unfairly, or fraudulently in its execution and performance 15 || of the First-through-Sixth Extension Agreements. 16 37. Cross-complainants were harmed by this statutory violation because it resulted in 17| Cathay Bank unfairly or unlawfully acquiring liens on the three cross-collateralized properties, 18] and because Cathay Bank has begun foreclosure proceedings on each of these properties. 19 38. Cross-complainants seek relief against Cathay Bank for the harm that this 20] statutory violation has caused them. 21 FOURTH CAUSE OF ACTION: 22 UNJUST ENRICHMENT 23 | (All cross-complainants against Cathay Bank and Does 231-240, inclusive) 24 39. Cross-complainants incorporate the allegations of the paragraphs alleged above as 25|| though fully set forth in this paragraph. 26 40. Cathay Bank knew, or reasonably should have known, that Rai Kai LLC was not 27] going to be able to meet its obligations under the First-through-Sixth Extension Agreements and 28 8 SECOND AMENDED CROSS-COMPLAINT Case No. CGC-10-500934g . & 3 38 Cae RBES 5a 8 gge go38 Soke ares 2 && ed so & co RW DW FF WN NM NM KN KH NY BD Re er iS an vA FF WYN |= SD BO Oo IW KDW FF WO N | GS 28 that further defaults were inevitable. Despite this, Cathay Bank offered to extend the Construction Loan’s maturity date if a series of additional real properties were pledged as cross- collateral. These additional properties were pledged to Cathay Bank as called for the Fourth and Fifth Extension Agreements. 41. The creation of the liens against these cross-collateralized properties constitutes an unjust enrichment in favor of Cathay Bank. 42. Cross-complainants seek relief against Cathay Bank for the harm that this unjust enrichment has caused them. PRAYER FOR RELIEF Cross-complainants seek judgment as follows: (1) — On the first cause of action: a. For compensatory damages in an amount to be proven at trial, but in no event less than the jurisdictional minimum required of this Court. b. For punitive damages. c. Foran order voiding, rescinding, or otherwise negating the transactions that resulted in Cathay Bank acquiring security interests in the cross-collateralized properties for the Construction Loan. Namely, Cathay Bank’s security interests in 4900 Third Street, 229 International, and 480 Potrero. (2) On the second cause of action: a. For compensatory damages in an amount to be proven at trial, but in no event less than the jurisdictional minimum required of this Court. b. For an order voiding, rescinding, or otherwise negating the transactions that resulted in Cathay Bank acquiring security interests in the cross-collateralized properties for the Construction Loan. Namely, Cathay Bank’s security interests in 4900 Third Street, 229 International, and 480 Potrero. (3) On the third cause of action: a. For an order voiding, rescinding, or otherwise negating the transactions that 9 SECOND AMENDED CROSS-COMPLAINT Case No, CGC-10-500934The Schinner Law Group 96 Jessie Street San Francisco, CA 94105 Tel (415) 369-9080 Fax (415) 369-9053 Cw Hy DM FF Ww NY Se ee no FF Oo 13 14 is| 16 17] Date: June 14, 2011 18 19 20 21 22 23 24 25 26 27 28 resulted in Cathay Bank acquiring security interests in the cross-collateralized properties for the Construction Loan. Namely, Cathay Bank’s security interests in 4900 Third Street, 229 International, and 480 Potrero. (4) On the fourth cause of action: a. For restitution in the form of an order voiding, rescinding, or otherwise negating the transactions that resulted in Cathay Bank acquiring security interests in the cross-collateralized properties for the Construction Loan. Namely, Cathay Bank’s security interests in 4900 Third Street, 229 International, and 480 Potrero. (5) Onall causes of action: a. For reimbursement of costs incurred in bringing this action. b. For reimbursement of attorney fees in an amount determined by the Court to be reasonable. c. For such further relief as the Court deems proper. Attorneys for Cross-Complainants 10 SECOND AMENDED CROSS-COMPLAINT Case No. CGC-10-500934