Party Discovery: CATHAY BANK, A CALIFORNIA BANKING CORPORATION VS. RAYMOND XIANG ZHANG et al

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SUPERIOR COURT OF CALIFORNIA
COUNTY OF SAN FRANCISCO

Document Scanning Lead Sheet
Nov-19-2012 3:52 pm

Case Number: CGC-10-500934
Filing Date: Nov-19-2012 3:50
Filed by: DENNIS TOYAMA

Juke Box: 001 Image: 03846016
MEMORANDUM OF POINTS AND AUTHORITIES

CATHAY BANK, A CALIFORNIA BANKING CORPORATION VS. RAYMOND
XIANG ZHANG et al
37

001003846016

Instructions:
Please place this sheet on top of the document to be scanned.Thomas M. Robins III (State Bar No. 054423)
trobins@frandzel.com

Kenneth N. Russak (State Bar No. 107283)
krussak@frandzel.com

Hanna B. Raanan (State Bar No. 261014)
hraanan@frandzel.com

FRANDZEL ROBINS BLOOM & CSATO, L.C.

6500 Wilshire Boulevard

Seventeenth Floor

Los Angeles, California 90048-4920

Telephone: (323) 852-1000

Facsimile: (323) 651-2577

Attorneys for Plaintiff and Cross-Defendant,
CATHAY BANK

F I

San IL. Suoerior Court
NOV 19 2012

CLERK OF THE COURT a

BY: ENNIS TOYAMA,
Deputy Clerk

SUPERIOR COURT OF CALIFORNIA

COUNTY OF SAN FRANCISCO, NORTHERN DISTRICT

CATHAY BANK, a California banking
corporation,

Plaintiff,
v.

RAYMOND XIANG KAI ZHANG, aka
RAYMOND KAI ZHANG, aka RAYMOND
ZHANG, aka XIANG KAI ZHANG, aka
XIANG ZHANG, aka ZHANG XIANG, an
individual; CINDY ZHANG, an individual;
DONG YING QUI, an individual; XIANG
KAI, LLC, a California limited liability
company ; RAY KAI, LLC, a California
limited liability company; ZHANGS, LLC,
California limited liability company; and
DOES 1 through 200, inclusive,

Defendants.

RAYMOND XIANG KAI ZHANG, an
individual, CINDY ZHANG, an individual;
DONG YING QUI, an individual; RAY KAI,
LLC, a California limited liability company;
and ZHANGS, LLC, a California limited
liability company,

Cross-Complainants,
v.

CATHAY BANK, a California banking
corporation; and DOES 201-230, Inclusive,

Cross-Defendants.

AND RELATED CROSS-ACTION
1108115.1 | 02300-0790

CASE No. CGC-10-500934

MEMORANDUM OF POINTS AND
AUTHORITIES OF PLAINTIFF AND
CROSS-DEFENDANT, CATHAY BANK,
IN OPPOSITION TO DEFENDANTS'
MOTION FOR SANCTIONS IN
CONNECTION WITH THE BANK'S
COMPLIANCE WITH THE COURT'S
ORDER ON DEFENDANTS! MOTION TO
COMPEL PRODUCTION OF
DOCUMENTS; DECLARATIONS OF
THOMAS M. ROBINS III AND
KENNETH N. RUSSAK

Date:
Time:
Dept:

Complaint Filed: June 22, 2010
Trial Date: December 3, 2012

November 29, 2012
9:00 a.m.
302/301

MEMORANDUM OF POINTS AND AUTHORITIES OF CATHAY BANK IN OPPOSITION TO
DEFENDANTS’ MOTION FOR SANCTIONS; ROBINS AND RUSSAK DECLARATIONSLOS ANGELES, CAUFORNIA S0048-4920
(323) 852-1000

FRANDZEL ROBINS BLOOM & CsaTo, L.C.
6500 WILSHIRE BOULEVARD, | 7TH FLOOR

Plaintiff and Cross-Defendant, Cathay Bank ("Bank"), respectfully submits the following
memorandum of points and authorities and argument in opposition to Defendants' motion for
sanctions with respect to the Bank's compliance with the order regarding the Bank's responses to
the first set of document requests.

A. Factual Overview.

1. Facts From the Bank's Point Of View

In October 2006 the Bank made Ray Kai LLC a $7.238 million loan to construct a 31-unit
mixed use development (30 residential condominiums and one retail unit) on MacArthur Blvd. in
Oakland, to mature May 1, 2008. The loan is governed by a Construction Loan Agreement
("CLA"), promissory note and deed of trust. The loan was guaranteed by Ray Kai's principals,
Raymond Zhang and his wife Cindy Zhang. Although the Zhangs have been permanent residents
in the U.S. since 1987 and Raymond a citizen since 1994, they claim they can speak and
understand little English and cannot read English. Zhang, through another entity, was to act as the
general contractor on the project.

From the inception of the loan there were a number of delays in the project, including a
delay in licensing the general contractor, a change of architects, a self-induced slowdown because
Zhang did not like where the market was headed, the need to move two power/telephone poles and
associated lines which interfered with the construction of the fourth level of the structure, and
toward the end, general nonaction by the borrower. At the loan's May 1, 2008 maturity, the
project was only approximately 50% complete.

The loan was extended six times to a final maturity of April 1, 2010, each documented
with an extension agreement that acknowledged the indebtedness and the nonexistence of any
defenses. The first — third extensions were short term to February 2009. In February 2009, the
Bank agreed to an eight-month extension to October 2009, subject to a condition that the borrower
pledge further collateral due to deteriorating market conditions. Accordingly, the Zhangs and a
third person (Dong Ying Qiu) provided a junior deed of trust on property they jointly owned
known as the Third Street property in San Francisco. The deed of trust was junior to a senior deed

of trust securing a loan the Bank had made to the Zhangs in August 2006 for the purchase of the
1108115.1 | 02300-0790

1
MEMORANDUM OF POINTS AND AUTHORITIES OF CATHAY BANK IN OPPOSITION TO
DEFENDANTS' MOTION FOR SANCTIONS; ROBINS AND RUSSAK DECLARATIONSFRANDZEL ROBINS BLOOM & CsatTo, L.C.
6500 WILSHIRE BOULEVARD, | 77H FLOOR
Los ANGELES, CALIFORNIA 90048-4920
(323) 852-1000

Third Street property.

When the February 2009 extension matured in October 2009, the project was
approximately 89% complete, and the amounts advanced totaled approximately $6.4 million. Per
Zhang, construction was expected to be completed by December 31, 2009. Zhang reported to the
Bank that he was in the process of seeking a hard money loan in the amount of $4 million to
partially refinance the project and that he was in escrow to sell two other properties, one on
Potrero Street in San Francisco and one on International Blvd. in Oakland, which, he claimed,
would result in net proceeds to the Bank of $1.7 million and $1.5 million, respectively. Zhang
also informed the Bank that Ray Kai was processing an EB-5 immigration program, had
purportedly lined up 20 immigrants in China at $500,000/person, and that if the program was
approved, the Bank would be paid down by $4 million within three — five months. Because of the
then-appraised value of the project ($4.41 million, bulk value), the Bank agreed to extend the loan
an additional four months to February 1, 2010, conditioned on Zhang agreeing to provide junior
trust deeds on Potrero and International in the amount of the expected sales proceeds, which
Zhang agreed to do. Because Zhang had no liquidity with which to replenish the interest reserve,
the Bank agreed to defer collection of interest until maturity.

The borrower failed to complete the project by February 1, 2010. Zhang submitted a
budget to complete of approximately $540,000, with a remaining loan balance undisbursed of
approximately $640,000. The Bank approved a sixth extension to April 1, 2010.

The loan matured with multiple items left to be completed. The purported sales of

International and Potrero never occurred, the EB-5 program never materialized nor did the $4

million hard money loan. The Branch transferred the loan to the Special Assets Department and in i
June 2010 the Bank filed this action and obtained the appointment of a receiver. Ray Kai filed |
bankruptcy. Ultimately, after it obtained relief from the automatic stay, the Bank nonjudicially

foreclosed on MacArthur with a credit bid of approximately $4 million. The Bank foreclosed j
itself out of the junior lien on the Third Street Property by nonjudicially foreclosing its senior lien. |
The senior lien on Potrero foreclosed out the Bank's junior position. The junior lien on |

International remains.
1108115.1 | 023000-0790 2 |

MEMORANDUM OF POINTS AND AUTHORITIES OF CATHAY BANK IN OPPOSITION TO
DEFENDANTS' MOTION FOR SANCTIONS; ROBINS AND RUSSAK DECLARATIONSLOS ANGELES, CALIFORNIA 90048-4920
(323) 852-1000

FRANDZEL ROBINS BLOOM & CSATO, L.C.
65OO WILSHIRE BOULEVARD, 1 7TH FLOOR

0 Oo IN DH KR YW NY

oe
_ oS

12

2. Defendants' Claims

The only person with substantive knowledge among the Defendants is Raymond Zhang,
who, along with his wife, are members of Ray Kai, the majority owners of the Third Street and
International Boulevard properties and the members of Zhangs, LLC, the owner of the Potrero
property. Defendants claim: (1) fraud in the inception of the loan, as to which Zhang claims the
Bank's loan officer, Nicholas Chung, promised Ray Kai a 30-month construction loan (18 months
for construction and 12 months to sell out the project)', (2) fraud in the Bank taking the junior lien
on the Third Street property’, (3) fraud in the Bank taking the junior liens on Potrero and
International, in that Zhang was allegedly promised that, in return for pledging same, the loan
would be extended for 18 months when, in fact, the Bank only extended it four months, and
(4) delayed construction funding from October 2009 through the extended maturity of April 1,
2010.

In an attempt to avoid the problem with Defendants’ claim based on the fact that the
written CLA and all extension agreements are totally contrary to what Zhang alleges he was
promised by Chung, Zhang claims he could hardly speak or understand any spoken English and
was totally illiterate when it came to reading documents in English, and that these alleged
promises were made orally by Chung in Zhang's native Cantonese language.

B. Discussion

This motion should be denied because it is utterly without merit. The ordered statement

was provided on the required date. Defendants nowhere claim prejudice because it was received

' Zhang has admitted in recent deposition testimony that he and the Bank's loan officer,
Nicholas Chung, never discussed what would happen if the project was not completed after 18
months, as was the case here, and that once the 18 months elapsed and the project was not
complete, he did not feel he was entitled to the remaining 12 months to sell out the project.

2 Depending upon which session of his deposition is looked at, Zhang claims that he and
his wife only signed an application to refinance the Bank's first deed of trust on that property so
that he could draw out $36,500 cash to pay the extension fee in connection with the February 26,
2009 extension and that the Bank took those signatures from the application and pasted them onto
a deed of trust which was then recorded in second position on the property in the full amount of
the construction loan.

1108115.1 | 023000-0790

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MEMORANDUM OF POINTS AND AUTHORITIES OF CATHAY BANK IN OPPOSITION TO
DEFENDANTS' MOTION FOR SANCTIONS; ROBINS AND RUSSAK DECLARATIONSFRANDZEL ROBINS BLOOM & CSATO, L.C.

6500 WILSHIRE BOULEVARD, | 77H FLOOR

LOS ANGELES, CALIFORNIA 90048-4920

(323) 852-1000

co OP IN DH PB WY

BPR YD YP YPN N NY DY ee ewe ee ee
Sooty nvr F YP NY SO we QA ARE DH AS

after 7:00 p.m. The motion admits the verification of the statement was received three business
days later. The motion articulates no prejudice whatsoever in connection with the timing
regarding the verification of the statement.
Moreover, the statement is fully compliant with the letter and spirit of the Order. The
Order requires that the Bank:
provide verification, under oath, . . . as follows:

1. Plaintiff has undertaken a reasonable, diligent search of
all emails in its possession, custody, or control, and has produced all
responsive emails and documents it has located;

2. Plaintiff has conducted a reasonable, diligent search for
all (a) accounting documents and (b) appraisal files within its
possession, custody or control that reference the subject properties
by name and/or loan number(s).

Defendants' argument in the motion that the order requires that the Bank perform a new
“reasonable, diligent search" (Motion, p. 4:12) is simply not true. The Order says no such thing.
The Order requires that the Bank verify that it "nas conducted a reasonable, diligent search . . ."
for the described materials. This requirement is in the past tense and cannot be tortured into a
requirement that the Bank conduct a new search and make a representation about the new search.
The Supplemental Statement states exactly what the Order required in {2 and 3, pp. 2:23 - p. 3:6,
with respect to emails and appraisals. As to "accounting records," the Supplemental Statement
represents and states:

Pursuant to the Court's Order dated October 26, 2012, the Plaintiff
supplements its production of documents and verifies as follows:

The Plaintiff renews its objection to the term "accounting
documents" as vague and ambiguous. Based upon discussions with
counsel for defendants, Plaintiff understands (1) that defendants
have requested "accountings" in order to ascertain the price at which
the subject properties were sold at foreclosure, the price at which the
properties were resold by Plaintiff after the foreclosure sales and
other facts relating to the acquisition by foreclosure and resale of the
subject properties; and (2) that production by Plaintiff of the files
maintained by the department of Plaintiff (sometimes referred to as
the "Real Estate Owned" or "REO" department) that handles
foreclosure sales and REO dispositions of foreclosed properties will
be sufficient for Defendants' present purposes. Those files and
records were produced on November 6, 2012 by delivery of aDVD
disk containing documents "bates stamped" beginning with "Cathay
1108115.1 | 023000-0790

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MEMORANDUM OF POINTS AND AUTHORITIES OF CATHAY BANK IN OPPOSITION TO
DEFENDANTS' MOTION FOR SANCTIONS; ROBINS AND RUSSAK DECLARATIONSLOS ANGELES, CALIFORNIA 90048-4920
(323) 852-1000

FRANDZEL ROBINS BLOOM & CsaTo, L.C.
6500 WILSHIRE BOULEVARD, | 7TH FLOOR

Co em IY DAH RF WY YY &

Bw NR YP Ye YN NN DY Be ewe ew ew ewe ee ee
ot AY FF YPN FF SGD we RA AA RAH TS

000100000." In addition, Plaintiff has made available for inspection
and Defendants have inspected the "Special Asset Department" or
"SAD" files maintained by the Bank in connection with the subject
loan, which may also contain relevant information. Plaintiff is
unaware of any accounting documents that specifically relate to the
subject foreclosure sales that are not contained in such files and
records,

Nowhere do any of the declarations filed in support of the motion deny or even remotely
suggest that the representations in the statement regarding the substance of the Bank's counsel's
discussion with counsel for Defendants described in that paragraph did not, in fact, occur or that
the paragraph does not accurately describe same. Nor do the declarations in support of the motion
deny receipt of the production of the "REO" and "SAD" department files, or defense counsel's
subsequent statements to the Bank's counsel expressing satisfaction with the documents produced.
The verified statement is, in fact, entirely correct, as set forth in the Declaration of Kenneth N.
Russak ("Russak Dec."), {{ 4-16. Mr. Russak describes the proceedings leading to the order, the
post-order discussions with counsel, production of the REO files and the contents of certain
documents within those files which show the price paid by the Bank at the foreclosure sale and the
price received by the Bank when the properties were resold. See also Declaration of Thomas M.
Robins III ("Robins Dec."), 2, with respect to similar discussions with lead counsel for
Defendants in connection with the PMK depositions that have occurred in this case.

The verified statement represents that (1) the post-foreclosure sale of the properties in
question were handled by the REO Department, (2) the prices for which the foreclosed properties
were sold would be within the REO Department files, and (3) the Bank has produced the entirety
of the REO Department files with respect to such properties, in addition to stating (4) there are no
other files known that would have such information. Defendants nowhere suggest how or in what
manner that representation is not fully compliant with the letter and spirit of the order's
requirement for a verification that a "reasonable diligent search" has been done for such records.
What more compliance can there be with respect to verifying that a "reasonable, diligent search"
has been performed than a representation that all files of the only department within the Bank

handling the sales that would have such information were produced? Defendants do not say.

Moreover, prior to filing this motion, Defendants deposed the head of the Bank's REO
1108115.1 | 023000-0790

5.
MEMORANDUM OF POINTS AND AUTHORITIES OF CATHAY BANK IN OPPOSITION TO
DEFENDANTS' MOTION FOR SANCTIONS; ROBINS AND RUSSAK DECLARATIONSFRANDZEL ROBINS BLOoM & CsATO, L.C.
6500 WILSHIRE BOULEVARD, | 7TH FLOOR
LOS ANGELES, CALIFORNIA 90048-4920
(323) 852-1000

© 2 YD DH BF BW NY He

bv N YY NY YH NY WY Dee a ae
ex aes SRESRCRARZEETTS oe

Dept who responded to all questions regarding the sales of the two parcels and the documents
produced. (Robins Dec., { 2.)

Further, Defendants cite no legal authority for the proposition that as a discovery sanction,
the Court has authority to order that the Bank submit to having Defendants come onto the Bank's
premises and conduct a forensic search of the Bank's computer system. To the extent Defendants
purport to base their request on Code of Civil Procedure § 2031.310 (one of the only two statutory
bases upon which the motion is brought), they have failed to comply with the requirement of that
section. Pursuant to § 2031.310(b), a motion under that section must: "(1) set forth specific facts
showing good cause justifying the discovery sought by the demand" and "(2) the motion shall be
accompanied by a meet and confer declaration under Section 2016.040." Further, the motion must
be accompanied by a separate statement under California Rule of Court 3.1345. None of these
requirements are met. Likewise, such relief is not among the list of categories of awardable
sanctions under Code of Civil Procedure § 2023.030, and Defendants do not pretend that it is.

Further, Defendants provide no factual basis even remotely justifying such a draconian

remedy. Ostensibly, the request seeks to gain access to the Bank's computer system to search for
email. However, the only manner in which the Order addresses email is the requirement of a
verified statement that a reasonable, diligent search had been made for same. The Bank fully
complied by making the required verified statement. Thus, there is no basis or reason to order
anything further because the Bank has fully complied with the Order as to email. Moreover,
Defendants nowhere suggest what search parameters they would have the Court impose, what
forensic expert they would have perform such work, what safeguards would be imposed against
violation of privacy rights of other customers of the Bank, how they would protect the Bank's
systems from such intrusion or any collateral damage that could occur from allowing access to a
third party, or how much of a bond they could afford to provide in order to protect the Bank from

any damage resulting from such intrusion.

1108115.1 | 23000-0790

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MEMORANDUM OF POINTS AND AUTHORITIES OF CATHAY BANK IN OPPOSITION TO
DEFENDANTS' MOTION FOR SANCTIONS; ROBINS AND RUSSAK DECLARATIONSLOS ANGELES, CALIFORNIA 90048-4920

FRANDZEL ROBINS BLOom & CsaTo, L.C.
6500 WiLsHIRE BOULEVARD, | 7TH FLOOR:

(323) 652-1000

_

0 Om ND HW FB WwW bw

10

Cc. Conclusion
For the foregoing reasons, the motion for sanctions should be denied, as should the request

to conduct an electronic search of the Bank's files.

DATED: November) Poa FRANDZEL ROBINS BLOOM
& CSATO, L.C.
THOMAS M. ROBINS
KENNETH N. RUSSAK

THOMAS M. ROBINS III
Attorneys for Plaintiff and Cross-Defendant,
CATHAY BANK

1108115.1 | 023000-0790

1
MEMORANDUM OF POINTS AND AUTHORITIES OF CATHAY BANK IN OPPOSITION TO
DEFENDANTS’ MOTION FOR SANCTIONS; ROBINS AND RUSSAK DECLARATIONSFRANDZEL ROBINS BLOOM & CsaTo, L.C.
6500 WitsHIRE BOULEVARD, 1 7TH FLOOR
LOS ANGELES, CALIFORNIA GO048-4920
(323) 852-1000

SOD mem IN DH BB WHY

DECLARATION OF THOMAS M. ROBINS TI

I, Thomas M. Robins III, declare:

1. Tam an attorney at law duly licensed to practice before all of the Courts of the State
of California and am a member of Frandzel Robins Bloom & Csato, L.C., attorneys of record for
the Bank. If called upon as a witness, I could and would competently testify to the following
matters based upon my own personal knowledge.

2. Ihave recently been added to the team representing the Bank in this case in
connection with the upcoming trial for December 3, 2012. One of my tasks was to address the
PMK deposition notice that had been served by Defendants, among which sought testimony with
respect to "the Bank's accounting records." Over several meet and confer sessions with
Mr. Chijeh Hu, lead counsel for Defendants, regarding what "accounting records" he was after, in
addition to telling me that the category had been drafted by one of his associates and he had "no
idea what that category meant or what it was intended to cover" Mr. Hu ultimately agreed that
what his clients were after were the prices at which the two properties at issue in this case which
were foreclosed upon by the Bank were sold following the Bank's acquiring title at the foreclosure
sales. Not only did J provide counsel with a copy of the respective Trustee's Deeds Upon Sale of
the two properties which show the balance owed at the time of the foreclosure sales but the
amount of the successful credit bid, but I also provided counsel with copies of the escrow closing
statements generated in connection with the subsequent sales to third parties by the REO
Department, which show the purchase prices and net proceeds to the Bank of each sale. Further,
on or about November 1, 2012, after the conclusion of the deposition of Greg Badura, head of the
Bank's Special Assets Department, I turned over to Mr. Russak, co-counsel for the Bank, two
disks I had received from the head of the REO Department purporting to be the entirety of the
REO Department's files regarding the two sales. I understand that the documents on such disks
were subsequently produced by Mr. Russak to counsel. On Friday, November 9, 2012, Mr. Hu
deposed three of the Bank's PMKs, including Gary Cook, the head of the REO Department, and he
fully and completely responded to all questions put to him by Mr. Hu on all subjects, including the

sale prices of the two properties received by the REO Department, and documents relating to those
1108115.1 | 23000-0790

8
MEMORANDUM OF POINTS AND AUTHORITIES OF CATHAY BANK IN OPPOSITION TO
DEFENDANTS' MOTION FOR SANCTIONS; ROBINS AND RUSSAK DECLARATIONS

|SOO WILSHIRE BOULEVARD, | 77H FLOOR
(323) 852-1000

FRANDZEL ROBINS BLOoM & CsaTo, L.C.
Los ANGELES, CALIFORNIA 90048-4920,

So Oe YN Dn PF Www

RB RP Ye NY N NN NY Be ew ew ee ee Re
onan YM FY NF SOD wMe A AAR BHR FS

sales.

I declare under penalty of perjury under the laws of the State of California that the

JV

foregoing is true and correct,
4

Executed this day of November, 2@12.

THOMAS M. ROBINS III

1108115.1 | 023000-0790

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MEMORANDUM OF POINTS AND AUTHORITIES OF CATHAY BANK IN OPPOSITION TO
DEFENDANTS' MOTION FOR SANCTIONS; ROBINS AND RUSSAK DECLARATIONSLOS ANGELES, CALIFORNIA 80048-4920,
(323) 852-1000

FRANDZEL ROBINS BLOOM & CsaTo, L.C.
6500 WILSHIRE BOULEVARD, 1 77H FLOOR

Declaration of Kenneth N. Russak

I, Kenneth N. Russak, declare:

1. Tam an attorney licensed to practice law in the State of California. I am a partner
in the law firm of Frandzel Robins Bloom & Csato, L.C.. I have personal knowledge of the facts
stated in this declaration and, if called upon to testify, could and would testify competently thereto
in a court of law.

2. Since April of 2011, I have been principally responsible for the representation of
Cathay Bank as the Plaintiff and Cross-Defendant in the above-captioned action. (Recently, my
partner Tom Robins has joined with me in that capacity and will be the lead trial lawyer in the trial
of this action.)

3. J attended the October 26, 2012 hearing and presented Cathay Bank's arguments in
opposition to the Cross-Complainants' motions to compel further responses to their first sets of
special interrogatories and requests for production of documents.

4. At that hearing, extensive arguments were presented about, among other things,
Cross-Complainants' argument that its request for documents concerning the various properties
encompassed an implied request for "accountings" of the foreclosure sales at issue in this case.
(The underlying document request did not specifically request "accountings" of any nature.) I
argued that the term "accountings" was ambiguous in the context of a financial institution such as
Cathay Bank if the term was meant to include some sort of formal accounting record of Cathay
Bank that specifically related to the foreclosure sales and/or re-sales at issue in this case. I
mentioned that I have had extensive experience representing banks and other financial institutions
in connection with defaulted commercial real estate loans and, as a result, had gained some
familiarity with how such lenders "account" for their foreclosure sales and re-sales. (Although I
did not detail my experience at the hearing, my primary practice area since my admission to the
California bar in 1982 has been the representation of banks, savings and loans and other
institutional lenders in connection with defaulted loans secured by real estate located in California,
as well as other states.) I explained that, based upon my experience, I understood that, when a

financial institution such as Cathay Bank forecloses on real estate, only certain limited data about
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10
MEMORANDUM OF POINTS AND AUTHORITIES OF CATHAY BANK IN OPPOSITION TO
DEFENDANTS' MOTION FOR SANCTIONS; ROBINS AND RUSSAK DECLARATIONSFRANOZEL ROBINS BLOoM & CsATOo, L.C.
6500 WILSHIRE BOULEVARD, | 77H FLOOR
LOS ANGELES, CALIFORNIA G0048-4920
(323) 852-1000

oO YN DH BF WY

Nb N NY N NY NO DY | Dm mee
oy A WA FF BH = SOD we AR DUH BF BW NHN & SO

the sale is entered into the institution's general ledger, reflecting the basic facts about the sale, such
as the price at which the property was sold and, if the bank acquired the property at that sale by
credit bid, an entry booking the acquisition of the property, typically at the credit bid amount. (A
general ledger is a chronological record of every discrete transaction affecting the subject
institution.) Similarly, | explained that, if the property was then resold by the bank for cash,
another entry in the bank's general ledger would be made showing the net sales proceeds received.
I then noted that these general ledger entries would be compiled together with all the other general
ledger entries of the institution in a process that resulted in the creation of the institution's
"financial statements" for a given period. As a result, the foreclosure sale and resale data would
be reflected indirectly in the institution's balance sheet, profit and loss statement and other
financial statements; but that, at least in my experience, no separately identifiable "accounting" of
the foreclosure sale would otherwise be made in the sense of something that an accountant might
compile into a financial statement that specifically reported the sale or resale.

5. I also argued that, presumably, Cross-Complainants wanted to know the amount of
the successful credit-bid prices at the foreclosure sales at issue and the prices at which Cathay
Bank subsequently sold the properties for cash to third party purchasers. I noted that that
information was readily available from the records available to the public in the official records of
the counties in which the properties are located, but that we could provide that information to
Cross-Complainants as well. I said that, if the Cross-Complainants wanted something other than
that sort of information, I'd need a more specific request, because, given my understanding of the
accounting practices of banks generally, I did not know what "accounting" of a foreclosure sale
might include, if Cross-Complainants were asking for some sort of accountant's report of the
nature that might be prepared by Cathay Bank's accounting department or outside accountants, as
Ms. McCuaig seemed to believe (without any reasoned argument, much less evidentiary support)
occurs in the ordinary course.

6. The Court nonetheless directed me to make an inquiry to determine whether such
“accountings” existed. After the hearing in a hallway discussion outside the courtroom, I asked

Ms. McCuaig to try to tell me in more detail what information Cross-Complainants were
1108115.1 | 023000-0790 lu

MEMORANDUM OF POINTS AND AUTHORITIES OF CATHAY BANK IN OPPOSITION TO
DEFENDANTS' MOTION FOR SANCTIONS; ROBINS AND RUSSAK DECLARATIONSFRANDZEL ROBINS BLOom & Csato, L.C.
6500 WILSHIRE BOULEVARD, | 7TH FLOOR
LOS ANGELES, CALIFORNIA 90048-4920

(323) 852-1000

oO QD HW BF YW NY

RB RB YP Ye YN N NY DY HY Be ew ee ee ee
ora F YP NF SEO wMP AAA RBH TS

interested in, because notwithstanding the Court's directive, I did not know what sort of document
Cross-Complainants thought might exist, what sort of information Cross-Complainants might
want or how to direct my client to make a meaningful search for such information or documents, if
what Cross-Complainants wanted something other than the foreclosure sale and resale price
information and the like summarized above. Ms. McCuaig told me that she did not know and that
the lead lawyer in her team, Mr. CJ Hu, would know the answers to those questions.

7. I understand that, on November 1, 2012, Mr. Hu took the deposition of a Cathay
Bank employee named Greg Badura. Mr. Badura is a head of the "Special Assets" (or problem
loan) department of Cathay Bank. Mr. Robins represented the witness and Cathay Bank in the
deposition. After that deposition, Mr. Robins told me that, during Mr. Badura's deposition,
Cathay Bank agreed to produce the files for the relevant properties, as identified by Mr. Hu, that
were maintained by the department of Cathay Bank that handles subsequent dispositions of
foreclosed real estate (sometimes referred to as the "Other Real Estate Owned" or "OREO"
department), He also told me that he had made arrangements with Gary Cook, the head of the
OREO department, to send over disks containing the files and that he would give them to me for
review, to arrange for Bates stamping and then to produce to Mr. Hu. I received the disks from
Mr. Robins late in the evening on Thursday, November 1, 2012. I commenced my review of those
documents the following day, Friday, November 2, 2012

8. The following Monday and Tuesday, November 5 and 6, 2012, I was again in the
Bay area taking the final two days of Cathay Bank’s deposition of Cross-Complainant Raymond
Zhang. Mr. Hu defended those depositions. In the evening after the Monday session, I spoke in
person with Mr. Hu and I told him of my concerns about the request for production of
"accounting" records and told him much the same things that I had argued in court and spoke
about with Ms. McCuaig after the hearing. We both noted that he would in a few days have the
files of the OREO department that Mr. Robins told him would be produced. I stated that those
files would have all of the source data about the foreclosure sales and subsequent re-sales of the
subject properties and that, presumably, he could from those documents determine that, contrary to

his earlier stated suspicions, Cathay Bank had not "made money" from the foreclosures but had,
1108115.1 | 02300-0790 12
MEMORANDUM OF POINTS AND AUTHORITIES OF CATHAY BANK IN OPPOSITION TO

DEFENDANTS' MOTION FOR SANCTIONS; ROBINS AND RUSSAK DECLARATIONSLOS ANGELES, CALIFORNIA SO048-4920
(323) 852-1000

FRANDZEL ROBINS BLOoM & CsaTo, L.C.
6500 WILSHIRE BOULEVARD, | 7TH FLOOR

CoO NY DH BF WN Ye

YN Ye Y YN YK HY Be Roe ee ee
eran FF BHF SF Ce DRE GQRETHRAS

instead, fallen several million dollars short of recovering even the principal sums it had loaned to
Cross-Complainants.

9. In that Monday evening conversation, Mr. Hu told me that that was the information
that he was looking for and that, after he received the documents, he would let me know if we had
satisfied his request for "accounting records.”

10. After completing the required review and arranging for the Bates numbering of the
documents, I had all files copied onto a single DVD and, during a break during the evening of the
Tuesday, November 6, 2012 session of Mr. Zhang’s deposition, I handed to Mr. Hua copy of the
disk containing all of the OREO documents delivered to us by Cathay Bank, without redaction or
withholding. By then, the documents had been electronically "Bates numbered" by one of our
service providers, beginning with Cathay 10000 and continuing sequentially to Cathay 11721, a
total of 1,721 pages of documents.

11. Several of the documents in the set I delivered to Mr. Hu on November 6, 2012
constitute or set forth "accountings" of either a foreclosure sale or a resale of the subject
properties. For example, Cathay 10327 is the first page of the "Trustee's Deed Upon Sale" for the
foreclosure sale of the MacArthur Street project and it sets forth the amount of the debt on the date
of the foreclosure sale and the amount of the successful (credit) bid by which Cathay Bank
acquired title to that project. Prominently displayed on the face page of that document is the

following:

Trustee Sale No. 10-01239-4 Loan No. 128300029C//MacArhurliFRBC 023000.0790 Title Order No. 7251 30564-DJ

TRUSTEE’S DEED UPON SALE
APN 023-0516-001-00

2) The amount of the unpaid debt t $8,194,893.40
3) The amount paid by the grantee at the trustee sale wa $4,003,592.40
4) The documentary transfer tax is. $0.00

A true copy of the entire document excerpted above is attached hereto as Exhibit 1.

12. Similarly, Cathay 10068 is the final closing statement for the post-foreclosure
1108115.1 | 02300-0790 B

MEMORANDUM OF POINTS AND AUTHORITIES OF CATHAY BANK IN OPPOSITION TO
DEFENDANTS' MOTION FOR SANCTIONS; ROBINS AND RUSSAK DECLARATIONSFRANDZEL ROBINS BLOOM & CSATO, L.C.

6500 WILSHIRE BOULEVARD, 17TH FLOOR

LOS ANGELES, CALIFORNIA 90048-4920

(323) 852-1000

_

oOo ND HW BF WD

Yb N YP YN YN NR NY DY ewe we ee ee ee
oy anVMr F YW NH =F DTD we A DAA BBW HH SF S

resale by Cathay Bank of the MacArthur construction project to a third party for cash. It presents

a detailed "accounting" of the sale, as follows:

SELLER FINAL CLOSING STATEMENT

SELLER: Cathay Bank
BUYER: American Liberty Investments, LLC, a California inited labiity company

PROPERTY: 1459 MacArthur BWd., Oakland, CA 94602

$ DEBITS $ CREDITS

Set tn 4,000,000.00
PRORATIONS/ ADJUSTMENTS:

Prepad County faves #34336 05 Semi-Annual from 5/24/2011 to 7,181.30
72011

Funds Pid by Buyer bo Seller outside of Esron 50,000.00

‘TITLE CHARGES:

hy Transfer Tex 60,000.00
"BSCROW CHARGES:

Escrow Fee Split 50/50 n550.00
5 ‘Qutside Courter/Spacial Messenger

COMMISSIONS:

5 Salling Brokers Commission to Infinity Investments 2.50% 100,000.00

NET PROCEEDS DUE SELLER $3,795,598.85

i $4,007,181.0 $4,007,181.30

ALS

SAVE THIS STATEMENT FOR INCOME TAX PURPOSES

A true copy of the document excerpted above is attached hereto as Exhibit 2. (From these two
documents alone, one can conclude that the $3,795,598.85 net cash paid to Cathay Bank when it
resold the MacArthur Construction Project didn't even come close to repaying the construction
loan debt of over $8 Million due to Cathay Bank when it foreclosed on the MacArthur project.)

13. Similarly, the documents labeled Cathay 11676 and Cathay 11634 set forth the
accountings of the foreclosure sale and subsequent resale of the so-called “Third Street Property.”
The Third Street property was encumbered by a first deed of trust in favor of Cathay Bank which
secured a loan made by Cathay Bank to fund the borrower’s purchase of that property (“Third
Street Acquisition Loan”). In addition, the Third Street property was encumbered by a junior
deed of trust in favor of Cathay Bank that pledged the Third Street property as additional collateral
for the MacArthur construction loan. On the date of the foreclosure sale, the unpaid balance of the

Third Street Acquisition Loan was $1,123,675.05, as shown by Cathay 11676 (Cathay Bank
1108115.1 | 02300-0790

MEMORANDUM OF POINTS AND AUTHORITIES OF CATHAY BANK IN OPPOSITION TO

DEFENDANTS' MOTION FOR SANCTIONS; ROBINS AND RUSSAK DECLARATIONSoS OD Om NY DH PB BW Ye

(323) 852-1000
ee
wn BRB Ww YD

LOS ANGELES, CALIFORNIA 90048-4920
n

6500 WILSHIRE BOULEVARD, I 7TH FLOOR

FRANDZEL ROBINS BLOOM & CsaTo, L.C.
N nN Ne N nN _ _
SR REBSRRRS ESET

Ny
oe

foreclosed only the senior deed of trust, insofar as the Third Street Property is concerned):

: Trustee Sale No. 10-01286-4 Loan No. 628500224/Xiang 2006/FRBC 023000.0790 Title
Order No. 726434198

TRUSTEE’S DEED UPON SALE

APN Block 5327, Lot 1; Block 5327 Lot 2; Block 5327, Lot 3
Property Address: 4900, 4908 and 4912- 3rd Street, aka 4900-4904, 4908-4910 and 4912-
4914 3rd Street, San Francisco, CA

The undersigned grantor declares:
1) The Grantee herein was the forectosing baneficiary.
2) The amount of the unpaid debt together with costs was. $1,231,675.05
3) The amount paid by the grantee at the trustee sale was $1,108,556.00
4) The documentary transfer tax is...... $0.00
5) Said property is in the City of San Francisco, San Francisco County

A true copy of the entire document, excerpted above, is attached hereto as Exhibit 3.
14. Cathay 11634, in turn, is an accounting of the resale of the Third Street Property. It
shows that Cathay Bank recovered only $805,481.34 in net cash from the subsequent resale of the

Third Street property.
SELLER FINAL CLOSING STATEMENT
aco Bos 160820106
Choe ‘noe Wireaen
‘Gosing nM 8207
fropenyAlieos: 4900-4914 drd Stet, San Prancac, CA
sae CATHY ADK, Clon baningCoporaton
ayer SE-BY, LLG a alloral mite ait compan
DEBIT CREDIT
roe Price "Wis,c00 0S
[Deen te toc (stad ve Ber veo 0000
|sear nom sere bape (Ropar Wey ‘o'n00 9

fa0ri 3013 Face fala by netver)
lave atock 8927, tot 008 30872 per eat
lara ‘leek 2027, Lot 002 6945.78. peryear
larx Block 8927, Lot 003, 30,790.36. pee year
tetas 2001/2012 taxes / year 8527.98

527.96 per yr / 365 + 577.95 per dep
Jr: 03716712 Taras 06/20/12 6877.95 pet dy 07 days) sans

pared aot Preration 3902.88

Joan Pranctao Tax Trearusee
Jona inet 2001/13 APH Block 5327, Lat OOF ss8.06
Janine 2012/12 ABR Bloc 6927, Let 002 3,329
Jane net 2011/12 APL Block 5927, La 009, 8395.23

THREAT] —“TTIOE
“Tar eater "aos sate]
sats seamoss | oa eae

|| A ttue copy of Cathay 11634 is attached hereto as Exhibit 4. In other words, not only did Cathay
1108115.1 | 23000-0790

15
MEMORANDUM OF POINTS AND AUTHORITIES OF CATHAY BANK IN OPPOSITION TO
DEFENDANTS' MOTION FOR SANCTIONS; ROBINS AND RUSSAK DECLARATIONSFRANDZEL ROBINS BLOOM & CsaTo, L.C.
6500 WILSHIRE BOULEVARD, | 77H FLOOR
LOS ANGELES, CALIFORNIA 90048-4920
(323) 852-1000

0 ON DWH BF BW NY

Yb NR YP Y YN NR NY DY Bee we we ew ewe eH ee eH
oranavr FF Vw NH FF FSBO wH RA A RBH NH BS

Bank fail to recover the amount of the Third Street Acquisition Loan, the Third Street property
contributed no value toward the recovery of the MacArthur construction loan.

15. The exhibits attached to this declaration are but four examples of the several
documents in the production of OREO that contain accountings of the foreclosure sales and the re-
sales of the subject collateral.

16. | On November 8, 2012, I represented the witness in Cross-Complainants' deposition
of Cathay Bank employee, Teresa Kneis-Andersen. Mr. Hu conducted the examination. The
deposition was conducted a few days before Cathay Bank's deadline for complying with the
subject orders. During a break in the deposition, I asked Mr. Hu whether he'd examined the
OREO documents and whether they were sufficient to comply with Cross-Complainant's request
for accounting documents. He told me that they were and, accordingly, I took no further action
with respect to the request for production of "accounting documents," other than to prepare and
serve the required supplemental response on Mr. Hu, which noted that the request for accounting
records had been satisfied pursuant to an agreement with counsel. I signed that document well
aware of and in full compliance with my ethical obligations as an officer of this Court and an
attorney licensed to practice law in the State of California.

//1
M11
//1
M11
1/1
//1
///
1/1
///
///
//1

///
1108115.1 | 023000-0790

16
MEMORANDUM OF POINTS AND AUTHORITIES OF CATHAY BANK IN OPPOSITION TO
DEFENDANTS' MOTION FOR SANCTIONS; ROBINS AND RUSSAK DECLARATIONSFRANDZEL ROBINS BLOoM & Csato, L.C.

6500 WILSHIRE BOULEVARD, | 7TH FLOOR

LOS ANGELES, CALIFORNIA S0048-4920

(323) 852-1000

oe IND

10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28

I declare under penalty of perjury under the laws of the State of California that the
foregoing is true and correct.

Executed this 18" Day of November 2012, at Los Angeles, California.

‘ 2

Kenneth N. Russak

1108110.3 | 023000-0790 8EXHIBIT 1RECORDING REQUESTED BY AND
WHEN RECORDED MAIL TO

WHEN RECORDED MAIL TO

ta .

WAL TAX STATEMENTS TO: 7ot1ee3473. 03/16/2011 0:28 PI
OFFICIAL RECORDS, OF ALAMEDA COUNTY
PATRICK 0°CI : 36.00

CATHAY BANK, a California Banking Comp. a RECORDING FEE

17432 Colima Road p \

Rowland Heights, CA 91748

PGS

Trustee Sale No. 10-01239-4 Loan No. 128300029C//MacArthurl/FRBC 023000.0790 Title Order No, 725130564-DJ
TRUSTEE’S DEED UPON SALE

APN 023-0516-001-00

The undersigned grantor declares:
1) The Grantee herein was the foreclosing beneficiary.
2) The amount of the unpaid debt together with costs was...
3) The amount paid by the grantee at the trustee sale wa:
4) The documentary transfer tax is..
5) Said property is in the city of Oaklan

$8,194,893.40
$4,003,592.40
$0.00

, Alameda County

FIDELITY NATIONAL TITLE COMPANY (herein called Trustee), as the duly appointed Trustee
under the Deed of Trust hereinafter described, does hereby grant and convey, but without covenant
or warranty, express or implied, to Cathay Bank, a California banking corp. (herein called Grantee),
all of its right, title and interest in and to that certain property situated in the County of Alameda,
State of Califomia, described as follows:

SEE "EXHIBIT A" ATTACHED HERETO AND MADE A PART HEREOF, TOGETHER WITH ALL
THAT CERTAIN PERSONAL PROPERTY, WHEREVER LOCATED, MORE PARTICULARLY
DESCRIBED IN “EXHIBIT B” ATTACHED HERETO AND MADE A PART HEREOF.

This conveyance is made pursuant to the powers conferred upon Trustee by that certain Deed of
Trust dated October 19, 2006 and executed by Ray Kai, LLC, a California limited liability company,
as Trustor, and recorded on October 27, 2006, as Instrument No. 2006402666 of official records of
Alameda County, California, and after fulfillment of the conditions specified in said Deed of Trust
authorizing this conveyance. .

Default occurred as set forth in a Notice of Default and Election to Sell which was recorded in the
Office of the Recorder of said County, and such default still existed at the time of sale.

All requirements of law regarding the mailing of copies of notices or the publication of a copy of the

Notice of Default or the personal delivery of the copy of the Notice of Default and the posting and
publication of copies of the Notice of a Sale have been complied with.

CATHY10327Trustee, in compliance with said Notice of Trustee's Sale and in exercise of its powers under said
Deed of Trust, sold the herein described property at public auction on March 10, 2011. Grantee,
being the highest bidder at said sale, became the purchaser of said property for the amount bid
being $ 4,003,592.40 in lawful money of the United States, or by credit bid if the Grantee was the
beneficiary of said Deed of Trust at the time of said Trustee's Sale.

Dated: March 10, 2014
FIDELITY NATIONAL TITLE COMPANY

ACino Noa

Lemes\sips, Authorized Signature

State of California }ss.
County of San Francisco }ss

On March 10, 2011 before me, Elida Rosado, Notary Public, personally appeared James Gips, who
proved to me on the basis of satisfactory evidence to be the person(s) whose name(s) is/are
subscribed to the within instrument and acknowledged to me that he/she/they executed the same in
his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the
person(s), or the entity upon behalf of which the person(s) acted, executed the instrument.

| certify under PENALTY OF PERJURY under the laws of the State of California that the foregoing
paragraph is true and correct.
WITNESS my hand and official seal.

Elida Rosado # 1882764
My Commission Expires March 14, 2014

CATHY10328EXHIBIT “A”

All that certain real. property situated.in the County of Alameda, State, of California, described as
follows:
Eaten

A-portion of Lots 13 through 21, Block “K“, New Map of Eastern Part of Lynn Homestead, in the City of
Oakland, County of Alameda, State of California, filed August 21, 1876, Map Book 4, Page 7, Alameda
County Records, described as follows:

Commencing'at the Northeasterly corner of said Lot 21;. thence along the Easterly tine of said:Lot 21
. 14° 14°25" W.; 62.66 feet, thence N; 73° 38 12" W., 73.17 feet; thence N, 60° 54” 30” W., 136,34
feet; thence N, 14° 14’ 25” E: 25.00 feet to Lie northerly line of said Lot 13; thence along the

northerly line of said Lofs 13 through 21, S, 75° 45! 35° E,, 204.91 feet tothe point of
commencement.

AP. No.:.023-0516-0601

2 Re,

CATHY10329EXHIBIT “B”
PERSONAL PROPERTY

T.S. No.: 10-01239-4
Trustors: RAY KAI, LLC
Property: 1459 MacArthur Boulevard, Oakland, CA

Capitalized terms not defined herein shail have the same. meaning as those in the Deed
of Trust.

All of Trustors’ Tight, title and interest in-and to that certain real property located in
Oakland, California (theLand’), together with all together with all existing or
subsequently erected or.affixed buildings and.improvements (collectively,
“improvements,” and together with the Land, collectively, the “Premises*)..Thé
Personalty (as hereinafter defined) and: the Premises are fefétred to-hérein Collectively

as the “Property”:

ay All of the estate, right, title, interest, claim, ‘demand, reversiori or remainder
whatsoever of Trustor in or to-the Land, either at law or In equity, in-possession
or expectancy, now or hereafter acquired;

b) All easements, rights, privileges, tenements, hereditaments and appurtenances
thereunto. belonging or in any way appertaining-to the Land;

¢)

All crops growing or to be grown on.the Land;

d) All development rights or credits.and alr: rights to:or over the Land;

All water and water tights of whatever kind or: ‘character, surface or underground,
appropriative, decreed, or vested (whether or not appurtenant to the Premises) or
otherwise used or useful in corinection with the Premises, and all'shares of stock
‘pertaining to such water or water rights, and all ‘royaltlas-and profits from ariy.
Such rights or shares of stock, ownership of which affects the Premises;

1) All minerals, oil, gas, and other hydrocarbon substances and rights thereto in, on,
under, or.upon.the Land, all as-extracted collateral and timber to be.cut, and.all
royalties and profits therefrom;

9) Any land lying in the bed of any streets, roads, highways, avenues, ways, alleys,
strips or gores of land in:front‘of or adjoining the Land or any part thereof; which
Trustor now owns or at anytime hereafter acquires, and ail adjacent tands within
enelosures or occupied by buildings parily situated on the Land;

h) All leases, Subleases, licenses, concessions or other agreements, written or
verbal, which grant a possessory interest in and to,-or the right to extract, mine,
reside in, sell or use-the Premises, or any part thereof, now or hereafter entered
into, and_all right, tile and interest of Trustof thereunder, including, without
limitation, cash or securities deposited thereunder to secure performance by the
lessees of their obligations thereunder (whether such cash or securities are to be
held until the expiration of the tens of subh leases or applied to one.or more of

&;

CATHY10330the installments of rent coming due Immediately prior to the expiration of such,
terms) (collectively, “Leases");

i) All existing and future Tents, issues, reveriues, income, proceeds, royalties,
profits, licanse fees, prepaid municipal and utility fees, bonds and other benefits
to which Trustor- or any other record title owner of the Property may now or
hereafter be entitled from or which are derived from the Property (collectively,
“Rents");

J) Any and all awards heretofore made. of-hereafter to be. made: by any
governmental authority to the present and.all subsequent owners of the Premises
with respect to any claims for. damages or injury, direct or consequential, to the
Premises, or any part thereof, as a result of the exercise of the right of eminent
domain, condemnation or other taking of the Land, or compensation for any
Conveyance in-lieu of condemnation, or the alteration of the grade of any street or
any other injury to or decrease of value of the Premises (collectively,

“Gondemnation Awards");

k) All. compensation, awards, proceeds, damages, claims, insurance recoveries,
rights-of action and payment-which: Trustor ‘ay receive-or to: Which Lender may
become entitled with respect tothe Pramises-in the event of any:damage or
‘injury to the Premises other than: by way of a paitial condemnation or other
partial taking of the Premises (collectively, ‘Damage: Awards”);

1) All proceeds arising fom-or by virtue of the sale, lease, grant of option or other
disposition of the Premises, and any room or space sales or rentals from the
Premises and other benefits paid or payable forusing, leasing, licensing,
Possessing, operating from or in, residing in, selling, mining, extracting or-
otherwise enjoying or using the Premises (co