Preview
1 Sarah Shapero (Bar No. 281748)
SHAPERO LAW FIRM
2 100 Pine St., Ste. 530
ELECTRONICALLY
3 San Francisco, CA 94111
Telephone: (415) 273-8892 FILED
Superior Court of California,
4 County of San Francisco
Victor Marquez 12/22/2023
5 INTELINK LAW GROUP, PC Clerk of the Court
Two Embarcadero Center, 8th Floor BY: RONNIE OTERO
6 Deputy Clerk
San Francisco, CA 94111
7 Telephone: (415)314-7831
8 Attorney for Plaintiff and Cross-Defendant,
EDUARDO PANIAGUA
9
10
11 SUPERIOR COURT OF THE STATE OF CALIFORNIA
12 FOR THE COUNTY OF SAN FRANCISCO
13 Eduardo Paniagua, an individual, Plaintiff, Case No.: CGC-18-571279
14 vs. PLAINTIFF’S REPLY TO
DEFENDANTS’ POST TRIAL
15
Milestone Financial, LLC, a California CLOSING BRIEF
16 corporation, Bear Bruin Ventures, Inc. a
California Corporation, William R. Stuart, an
17 individual, Carolyn Stuart, an individual, Zoe
Hamilton, an individual, and DOES 1-100,
18 inclusive, Defendants
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20
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PLAINTIFF’S REPLY TO DEFENDANTS’ CLOSING BRIEF
1 I. INTRODUCTION
2
In its Closing Brief, Defendants continue to miss the mark on the issues truly relevant to this
3
case. Instead, Defendants issue conclusory statements declaring that the Plaintiff has failed to
4
prove his claims. The evidence shows otherwise. Defendants issue conclusory statements that
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they need no license to operate their lending business and enter into the loan (“Loan”) with Mr.
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Paniagua. California law shows otherwise. Defendants acknowledged that requirement when
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they earlier asserted the “broker exemption” in California Financial Code Section 22057 for a
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broker arranged loan as part of their unsuccessful Motion to Compel Arbitration in this case. The
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record shows that the Loan was, in fact, not broker arranged and that Defendants made several
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misrepresentations to Plaintiff to induce him to enter into the Loan. Defendants make no effort to
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show that they have carried their burden of proving an exemption from the licensing
12
requirements, instead baldly asserting that no license was required. Where Plaintiff cites facts
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and authority, Defendants pound the table and attempt to deflect the Court’s attention towards
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purported contractual releases and equitable defenses – neither of which are available to
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Defendants. The purported settlement agreements are void because waivers are not permitted for
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statutory rights where such waivers undermine important public policy (i.e. licensing
17
requirements), or are explicitly barred by statute (Cal. Code Regs. tit. 10, § 1408 bars any waiver
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of the California Financial Law). It is also well settled law that a release obtained through fraud
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is invalid. A party guilty of fraud in its inducement cannot be absolved of the harms by any
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contract because the entire contract is voidable. As to usury, Multiple authorities conclude that
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Plaintiff could not waive his constitutional rights against usurious interest, including the Moon
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case where Milestone was defeated on this very issue.
23
Defendants again deflect by baldly asserting that all testimony by Plaintiff and his witnesses
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are uncredible; meanwhile, the Defendants were contradictory and evasive when asked about key
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issues such as the provenance of the broker fee to Mr. Ruffrage, the deviations from industry
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practice by Ms. Hamilton, and the ties between Milestone and MJF. Even so, the documentary
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evidence speaks for itself – no broker arranged the loan; the defendants uttered several
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1
PLAINTIFF’S REPLY TO DEFENDANTS’ CLOSING BRIEF
1
misrepresentations contradicted by their actions and the documents; and thereby committed
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multiple violations of California and federal law. The remedy of rescission is available to this
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Court based on its broad equitable power to effect substantial justice, even if the status quo cannot
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be exactly reproduced. Consequently, Plaintiff is entitled to recover, and this Court is empowered
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to grant, all actual, consequential, and punitive damages proved at trial caused by the wrongdoing
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of the Defendants.
7 II. PLAINTIFF HAS PROVED HIS CLAIMS AGAINST MILESTONE BY A
PREPONDERANCE OF THE EVIDENCE.
8
9 A. Defendant Milestone’s Claim that it Did Not Need a Broker’s License/MLO
Endorsement is Not Supported by Law.
10
Defendant Milestone boldly and inaccurately proclaims that consumer or non-consumer
11
lenders do not need a broker’s finance lender’s license or MLO Endorsement without citing any
12
authority for that proposition. (Defendants’ Closing Brief, pp. 9, ln. 27). The authority is clear -
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a brokers’ license, finance lender’s license, and MLO Endorsement are necessary for this
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transaction, as set forth in Plaintiff’s Closing Brief.
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The holding in Lagrisola v. North America Financial Corp., (Nov 3, 2023) 96 Cal.App.5th
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1178 is distinguishable. In that case, the borrower did not have standing under the UCL claim
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because the borrower did not find any of the loan terms unsatisfactory and did not allege any
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underlying misconduct, instead pleading a cause of action for violations of the California
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Financial Code, which the court determined had no private right of action. (Id. at 1188). Here,
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Plaintiff has established that the loan terms were unsatisfactory, namely, the interest rate charged
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on the loan of 11.95% (TE 36), and that the underlying misconduct of fraud and unfair business
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practices renders the Loan an illegal contract. As for Defendants’ claim that Mr. Ruffrage was
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Plaintiff’s agent – this does nothing to absolve the requirement that a licensed broker have
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arranged the Loan, which Plaintiff has established was not the case. By pursuing this argument
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over others, Defendants show they cannot refute that the only licensed broker in this saga, Mr.
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Fournier, did not arrange the Loan.
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B. Plaintiff Has Proven His Negligent and Intentional Misrepresentation Claims
28 and UCL Claims by a Preponderance of the Evidence.
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PLAINTIFF’S REPLY TO DEFENDANTS’ CLOSING BRIEF
1
As set forth fully in Plaintiffs’ closing brief, Plaintiffs have established by a
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preponderance of the evidence each element to support their intentional and negligent
3
misrepresentation claims, and thereby have established the UCL violation. Defendants do not
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address these individual misrepresentations in their closing brief, instead arguing that Plaintiff
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changed his theory at trial; however, a review of the First Amended Complaint shows that the
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causes of action for fraud and negligent misrepresentation, which incorporates paragraphs 1-35,
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broadly state that Defendant made numerous misrepresentations throughout loan origination.
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(FAC at ¶ 1-60). A complaint is a preliminary stage; it is well settled that theories may change
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(for either side) in reaction to facts uncovered as part of discovery and trial.
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C. Defendants Have No Affirmative Defenses That Bar Plaintiff’s
11 Misrepresentation Claims.
12 Plaintiff did not release any claims via the settlement agreements. Such agreements were
13 entered into based on misleading circumstances, misrepresentations, and fraud because Milestone
14 did not have the necessary license for a residential mortgage with Paniagua. Even were this not a
15 residential mortgage, the Defendants knew they were a finance lender without a license (belatedly
16 acquiring such licensure in 2018); they could not enter into any non-consumer loans with Paniagua
17 despite repeatedly representing their capacity to do so. As well, Defendants fraudulently
18 represented that it was a broker arranged transaction. Each misrepresentation as to their licensure
19 and the transaction being broker arranged occurred in 2014, and was repeated in the settlement
20 agreements in 2016 and 2017. “The fraud at issue here went to the very legality of the transactions
21 and thus, the misleading circumstances that existed and led to the entry into the agreements,
22 supports a conclusion, the agreements are void.” Duffens v. Valenti (2008) 161 Cal.App.4th 434,
23 456; see also McClain v. Octagon Plaza, LLC, (2008) 159 Cal. App. 4th 784, 794; citing 1 Witkin,
24 Summary of Cal. Law, supra, Contracts, § 304, p. 330 (contract waiver cannot absolve fraud in the
25 inducement because contract is void). Like they did in Moon, “Milestone contends that the
26 Settlement Agreement was not a loan or forbearance because the agreement said so. But the
27 substance of an agreement controls over its form.” Ghirardo v. Antonioli, 8 Cal. 4th 795, 799–800.
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PLAINTIFF’S REPLY TO DEFENDANTS’ CLOSING BRIEF
1
“It is well settled that the label used by the parties is not controlling.” In re Moon, 648 B.R. 73, 83
2
(B.A.P. 9th Cir. 2023)
3
Waivers are also barred by statute. “A finance company shall not require or permit a
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borrower to waive any statutory provision of the [California Finance Law] for his/her benefit…nor
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shall a finance company require or permit a borrower to waive any mandatory provision of [the
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California Code of Regulations].” Cal. Code Regs. tit. 10, § 1408; See also GMAC Com. Fin. LLC
7
v. Superior Ct., No. B166070, 2003 WL 21398319, at *4 (Cal. Ct. App. June 18, 2003)1; see also
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Pinela v. Neiman Marcus Grp., Inc., (2015) 238 Cal. App. 4th 227, 252 (statutory rights not
9
waivable).
10
Furthermore, Defendants’ estoppel arguments are void. “Equitable estoppel is a creature of
11
equity. The foundation of equity is good conscience. Equity will not aid one who acts
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unconscionably.” Butler Am., LLC v. Aviation Assurance Co., LLC, (2020) 55 Cal. App. 5th 136,
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144, 148. (quoting DeGarmo v. Goldman (1942) 19 Cal.2d 755, 764); see also Waters v. San Dimas
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Ready Mix Concrete, (1963) 222 Cal. App. 2d 380, 383 (equitable estoppel not available where
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contract is void). Even if estoppel was available to Defendants in the present case, Plaintiff did not
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claim that this was a commercial loan or that MJF was the broker - Defendants made these claims.
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Every document identifying MJF as the broker was drafted by Defendants, and Defendants admit
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that they never spoke to the broker and that the supposed broker was not involved in the transaction.
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Plaintiff cannot be estopped from claiming what Defendants’ admitted to.
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Lastly, Plaintiff’s claims are not time barred. First, Defendants entered into the original loan
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agreement in 2014, then an extension in 2016, then a second extention in 2017, and then purported
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to accelerate the loan and applied unlawful penalties and usurious interest once Plaintiff sought to
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payoff the loan in 2018. The instant action was brough in November of 2018. In any event, Plaintiff
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can also rely on the delayed discovery rule because he had no reason to know of Defendants
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misrepresentations and misconduct giving rise to the causes of action until he attempted to pay off
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the loan and was faced with excessive fees and charges impeding his ability to pay off the loan and
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1
Cited for relevance under the doctrines of law of this case.
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PLAINTIFF’S REPLY TO DEFENDANTS’ CLOSING BRIEF
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requiring further investigation. “Generally speaking, a cause of action accrues at ‘the time when
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the cause of action is complete with all its elements.’” Fox v. Ethicon Endo-Surgery, Inc., (2005)
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35 Cal. 4th 797, 806 (quoting Norgart v. Upjohn Co., (1999) 21 Cal. 4th 383, 397). However, in
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certain cases where there is concern that a plaintiff may lose her right to bring a cause of action
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before she realizes she has been injured, California courts have applied the “discovery rule.” See
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Perez Encinas v. AmerUs Life Ins. Co., 468 F. Supp. 2d 1127, 1134-35 (N.D. Cal. 2006). The
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discovery rule “postpones accrual of a cause of action until the plaintiff discovers, or has reason to
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discover, the cause of action.” Norgart, 21 Cal. 4th at 397. “[I]n actions where the rule applies, the
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limitations period does not accrue until the aggrieved party has notice of the facts constituting the
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injury.” E-Fab, Inc. v. Accts., Inc. Servs., (2007) 153 Cal. App. 4th 1308, 1318. Reasonable
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diligence in investigating a cause of action does not require a Plaintiff to research the licensure and
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disciplinary actions taken against a lender in order to find that the lender misrepresented that it was
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authorized to enter into a transaction.
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D. Plaintiff Has Established His Usury Claims by a Preponderance of the
15 Evidence.
16 Contrary to Defendant’s contention, the Broker exemption does not apply to exempt the
17 initial loan from usury laws because Marc Fournier did not arrange the loan. Mr. Fournier,
18 testified that he did not serve as Plaintiff’s broker and did not know of this Loan until he was
19 contacted as part of this litigation. Likewise, no record exists of any contact or communication
20 between Marc Fournier and Plaintiff, and Mr. Fournier testified that he never spoke with anyone
21 at Milestone regarding the Loan and had never even heard of or spoken to Mr. Paniagua.
22 (Declaration of Marc Fournier in lieu of Direct Testimony at ¶ 20). Mr. Fournier also testified
23 that he did not sign any of the Loan documents (TE 134, 44, 32, 41, 42, 33, 43) purportedly
24 executed by him. (Id. at ¶ 6-12). Mr. Fournier testified that he did not arrange, procure, negotiate
25 or have any involvement in the Loan. (Id. at ¶ 15). The only duties performed by MJF employees
26 were ministerial – they only filled out forms reflecting the deal terms they were given. Thus, the
27 evidence is clear that the loan at issue was not was “made or arranged by any person licensed as a
28 real estate broker by the State of California....” (Cal. Const., art. XV, § 1; see also Creative
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PLAINTIFF’S REPLY TO DEFENDANTS’ CLOSING BRIEF
1
Ventures, LLC v. Jim Ward & Assocs, 195 Cal.App. 4th at 1441-42; Gibbo v. Berger, 123 Cal.
2
App. 4th at 402–03 (citing Chapman v. Farr (1982) 132 Cal.App.3d 1021, 1026; Jones v. Kallman
3
(1988) 199 Cal.App.3d 131; Del Mar v. Caspe, supra, 222 Cal.App.3d at p. 1328,). Any recitals
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in the documents to the contrary may be disregarded in the face of evidence to the contrary. Here,
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since the broker exemption does not apply to the case at hand, the 11.95% interest rate in the
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initial loan was usurious under California law.
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Defendants also claim that MJF represented that it was Plaintiffs’ broker, however, it was
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Milestone, Hamilton and Stuart who identified and misrepresented MJF as Plaintiffs’ broker. It is
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undisputed that no one in this transaction spoke with Mr. Fournier, including Ms. Hamilton.
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Only Mr. Fournier was authorized to act as a broker for MJF. Id. (citing Bus. & Prof. Code, §§
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10158, 10211.) It is unrefuted that Mr. Fournier did not take any action to arrange, negotiate or
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solicit the Loan. In fact, Mr. Paniagua testified that he thought that MJF was part of Milestone.
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Defendants also claim that Milestone reasonably relied on representations that there was a broker,
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but this is a red herring. They could not reasonably rely on anything in the documents when they
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were the ones who created this phantom broker in order to try to bypass the usury and licensing
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restrictions.
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Lastly, Defendants argue that Plaintiff is estopped from claiming that MJF was not his
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broker. Throughout this litigation, Plaintiff has always maintained that MJF was not his broker
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and that he was defrauded. By its very nature, fraud involves deception, which is a bar to
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equitable treatment.
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1. Usury Claims Cannot be Released or Waived.
22
It is well settled law that a borrower cannot waive usury claims by signing an agreement
23
with a unilateral general release because such a holding would be contrary to public policy and
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the parties did not intend that the release would waive a usury claim, rather the sole purpose of
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the forbearance agreement was to extend the loan. Hardwick v. Wilcox (Cal. App. 1st Dist.
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2017), 11 Cal. App. 5th 975. Therefore, none of Plaintiff’s usury claims are released and he is
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entitled to a return of all interest paid from the inception of the loan.
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PLAINTIFF’S REPLY TO DEFENDANTS’ CLOSING BRIEF
1 2. Even if the Court Found that the Original Loan was Broker-Arranged,
Which it was Not, the Settlement Agreements Were Also Required to be
2 Broker-Arranged Which They Indisputably Were Not.
3 In the case at hand, the Broker Exemption does not apply to either extension, or
4 Settlement Agreement. Regarding extensions, “where the transaction is between borrower and
5 lender, each acting on his own behalf, and there is no third party licensed real estate broker acting
6 for compensation as intermediary, the loan is not "arranged" by a broker within the usury law.”
7 Winnett v. Roberts (1986) 179 Cal.App.3d 909, 920–921; followed by Stickel v. Harris (1987)
8 196 Cal.App.3d 575, 583–584 and Gibbo v. Berger (2004) 123 Cal.App.4th 396, 402, fn. 3. In
9 Milestone Fin., LLC v. Moon (In re Moon), (US Bankruptcy Appellate Panel for the Ninth
10 Circuit, January 18, 2023) 648 B.R. 73, the Appellate Panel determined that the exact settlement
11 agreements at issue here (which dropped the interest rate to 10.75%) were not broker arranged
12 and were subject to California usury laws. (Id. at 26). The Appellate Panel distinguished the
13 Ghirardo and DCM Partners cases cited by Defendants because they are limited to credit sales,
14 not forbearances. (Id.) Therefore, at a minimum, Plaintiffs are entitled to recover all of the
15 interest paid under the First and Second Extension Agreement.
16 Furthermore, the default interest charged by Milestone is actionable. It is the public
17 policy of California that liquidated damages bear a “reasonable relationship” to the actual
18 damages that the parties anticipate would flow from breach; conversely, if the liquidated damages
19 clause fails to so conform, it will be construed as an unenforceable “penalty.” Garrett v. Coast &
20 Southern Fed. Sav. & Loan Assn. (1973) 9 Cal.3d 731, 739. The Supreme Court in Garrett held,
21 “a charge for the late payment of a loan installment which is measured against the unpaid balance
22 of the loan must be deemed to be punitive in character.” Garrett, supra, 9 Cal.3d at p. 740. In sum,
23 “liquidated damages in the form of a penalty assessed during the lifetime of a partially matured
24 note against the entire outstanding loan amount are unlawful penalties.” Honchariw v. FJM
25 Private Mortgage Fund, LLC (2022) 83 Cal.App.5th 893, 905. Defendant has provided no
26 evidence that the default interest charged here bears any reasonable relationship to the damages
27 suffered because of the default and, thus, any default interest paid by Plaintiffs must also be
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PLAINTIFF’S REPLY TO DEFENDANTS’ CLOSING BRIEF
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returned. Plaintiffs are entitled to treble damages for the interest paid in April 2018 in the amount
2
of $60,607.38.
3
3. Milestone’s Late Fees Were Improper.
4
As part of the payoff in 2018, Defendants charged Plaintiffs a 10% acceleration penalty
5
equal to $50,508.59. Defendants argue that this was permitted by Calif. Civil Code §1671. The
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seminal case under this statute is Ridgely v. Topa Thrift and Loan Assoc. (1998) 17 Cal.4th 970.
7
In that case, the Court stated:
8 A liquidated damages clause will generally be considered unreasonable, and
hence unenforceable under section 1671(b), if it bears no reasonable relationship
9 to the range of actual damages that the parties could have anticipated would flow
10 from a breach. The amount set as liquidated damages "must represent the result of
a reasonable endeavor by the parties to estimate a fair average compensation for
11 any loss that may be sustained." (Garrett v. Coast & Southern Fed. Sav. & Loan
Assn., supra, 9 Cal.3d at p. 739 (hereafter Garrett).) In the absence of such
12 relationship, a contractual clause purporting to predetermine damages, "must be
construed as a penalty." (Ibid.)" A penalty provision operates to compel
13 performance of an act [citation] and usually becomes effective only in the event
14 of default [citation] upon which a forfeiture is compelled without regard to the
damages sustained by the party aggrieved by the breach [citation]. The
15 characteristic feature of a penalty is its lack of proportional relation to the
damages which may actually flow from failure to perform under a contract.
16 [Citations.]" (Ibid.)
17
In short, "[a]n amount disproportionate to the anticipated damages is termed a
18 'penalty.' A contractual provision imposing a 'penalty' is ineffective, and the
wronged party can collect only the actual damages sustained."(Perdue v. Crocker
19 National Bank (1985) 38 Cal.3d 913, 931.”
20
Ridgely v. Topa Thrift and Loan Assoc., supra at 977.
21
The present Milestone penalty is almost identical. The “liquidated damage fee” or
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“acceleration penalty” is an additional late fee; one that is imposed solely because Paniagua had
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defaulted on some prior monthly payments. Because the Loan was one month delinquent in
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March 2018, they were charged an additional $50,000.00 at payoff one month later. The
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$50,508.59 was wholly disproportional to any damages that the lender might suffer when the loan
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was accelerated, and then not paid in full immediately. By statute, the only damages for the
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failure to pay money is interest. Calif. Civil Code §3302. When a loan is not paid at maturity, the
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PLAINTIFF’S REPLY TO DEFENDANTS’ CLOSING BRIEF
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calculation of damages is simple; apply the contract rate of interest to the principal for the time
2
the amount remains unpaid. Thus, because the $500,000 loan was not paid in March 2018 but was
3
paid the following month, the lender would be able to collect damages equal to the contract rate
4
of interest on $500,000 for April 2018. As the Bankruptcy Court found in the Moon case, the
5
lender suffered no damages, because this was an interest only loan that was not due to be paid
6
until a year later. The amount charged, $50,508.59, is “wholly disproportionate” to any actual
7
damages that might be suffered, which in this case is zero. Milestone has tried to justify the
8
penalty on the basis that if the lender had received the full payment in March, it could lend the
9
money out again and earn a loan fee (which is consequential damages). Hadley v. Baxendale
10
(1854) 156 Eng.Rep. 145. The only allowable damages for not paying the $500,000 early was the
11
interest on that amount, but the lender was collecting that anyway. Piling an additional
12
$50,508.59 penalty on top of that is wholly disproportionate to the amount of actual damages, and
13
is illegal.
14
E. Defendants’ Testimony Demonstrates a Lack of Credibility.
15
Defendants’ testimony and their documents contradict each other. Ms. Hamilton was
16
clearly negotiating with Mr. Ruffrage long before any supposed broker was involved. (TE 18).
17
To cover herself, she sends an unsolicited letter to her co-conspirator, Mr. Ciavarelli, falsely
18
reciting an inquiry from MJF. (TE 29). Mr. Stuart and Ms. Hamilton contradict each other about
19
the source of the referral fee to Mr. Ruffrage, each blaming the other.
20
Mr. Stuart names Mr. Ciavarelli as the “loan agent” in documents presumably because he
21
knew Mr. Ciavarelli would cooperate with the scheme. (TE 33). Mr. Stuart was evasive when
22
asked why Milestone obtained a finance lender license, stating it was the “better” license for them
23
while desperately trying to avoid acknowledging that Milestone needs one to do its business. Mr.
24
Stuart noted payments that were not made on the loan, specifically, that no payments were made
25
after the signing of the Second Extension Agreement in January 2017 until July 6, 2017 but
26
Milestone’s own Quickbooks ledger indicated that this was inaccurate and that payments were
27
received before July 6, 2017. (TE 140).
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PLAINTIFF’S REPLY TO DEFENDANTS’ CLOSING BRIEF
1
Ms. Hamilton failed to explain several inconsistencies and deviations from industry
2
practices, and was evasive when pressed on why she had to send the 1003 loan application to MJF
3
(a document MJF should have had), whether she could provide any details on a purported
4
conversation with Mr. Fournier where he informed Milestone he did not authorize another loan,
5
and admitted that she directed Mr. Paniagua to sign and backdate loan documents in violation of
6
several California laws. (Testimony of Zoe Hamilton, October 26, 2023, pp. 52).
7
Defendants also testified that they had no communication with Ms. Raychel Cooke outside
8
of this matter, but public records show Ms. Cooke received a loan from Milestone mere months
9
before this transaction and years later. (Plaintiff’s RJN). Defendants failed to produce Ms. Cooke
10
at trial so she could be cross-examined on why she was using her personal email address for MJF
11
business and whether she was indebted to or influenced by Milestone via the several loans she
12
had taken out with them over the years. Each of the defendants and Mr. Ciavarelli purport to
13
remember minute details of this Loan across an admittedly long history and large amount of
14
loans, implying an economic motive to protect each other.
15
F. Cross-Plaintiffs Are Not Entitled to Recover on Their Indemnity Claim.
16
Cross-Plaintiffs argue that they are entitled to recover attorneys fees for Asturias’ claims
17
under the contractual indemnity provision contained in the two Settlement Agreements.
18
However, Asturias’ claims in the original complaint were based on her being a borrower at loan
19
origination and being misled at origination of the loan. When the loan originated, there was no
20
indemnity agreement in the loan documents and the supposed indemnity agreements were not
21
entered into until years after origination of the loan.
22
23
DATED: December 22, 2023 Respectfully submitted,
24
SHAPERO LAW FIRM
25
26 /s/ Sarah Shapero
______________________
27 Sarah Shapero
Attorneys for Plaintiff
28 EDUARDO PANIAGUA
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PLAINTIFF’S REPLY TO DEFENDANTS’ CLOSING BRIEF