Recent Developments Affecting Insolvency and Commercial Finance in California and the Ninth Circuit - Part 2

JurisdictionCalifornia,United States
AuthorUzzi O. Raanan, Hon. Meredith Jury, Everett L. Green, Monique D. Jewett-Brewster, Dean T. Wrby, Jr., Adam A. Lewis, and Corey R. Weber
CitationVol. 2021 No. 1
Publication year2021
Recent Developments Affecting Insolvency and Commercial Finance in California and the Ninth Circuit - Part 2

Uzzi O. Raanan, Hon. Meredith Jury, Everett L. Green, Monique D. Jewett-Brewster, Dean T. Wrby, Jr., Adam A. Lewis, and Corey R. Weber

Uzzi Raanan is an insolvency law attorney at Danning, Gill, Israel & Krasnoff, LLP. He represents creditors and debtors, creditor committees, court-appointed receivers, and bankruptcy trustees, with regard to out-of-court insolvencies, business bankruptcy pre-planning, filing, and litigation, and commercial law disputes. He is the BLS representative to and Secretary of the CLA Board of Representatives, former Chair of the BLS, and past co-Chair of the Insolvency Law Committee.

Hon. Meredith Jury (Ret.) served as a Bankruptcy Judge for the Central District of California from 1997-2018. She was simultaneously a member of the Bankruptcy Appellate Panel for the Ninth Circuit from 2007-2017, serving as chief from 2015-17. Prior to taking the bench her practice was primarily complex civil litigation, for her entire career at Best Best & Krieger in Riverside, Since retirement she does pro bono bankruptcy mediations and consumer appellate work, represents victims of elder abuse for Inland Counties Legal Services, and leads the ad hoc group of BLS authors who write the Westlaw Commercial Finance Newsletter.

Everett L. Green currently serves as a senior trial attorney for the U.S. Department of Justice, Office of the U.S. Trustee and specializes in bankruptcy matters. He clerked for the Honorable Jack B. Schmetterer in the U.S. Bankruptcy Court in the Northern District of Illinois. He currently serves as a Vice-Chair of the Executive Committee of the Business Law Section of the California Lawyers' Association and is a member on the Small Business Reorganization Task Force of the U.S. Bankruptcy Court for the Central District of California.

Monique D. Jewett-Brewster is a shareholder with the law firm of Hopkins & Carley in San Jose, and co-chairs the firm's Financial Institutions and Creditors Rights practice group. Monique represents creditors in business bankruptcy cases nationwide. She also represents lenders in commercial loan workouts and restructurings. Monique served as the 2018-19 Chair of the CLA's Business Law Section.

Dean T. Kirby, Jr. of Kirby & McGuinn represents lenders, creditors, and fiduciaries in bankruptcy, foreclosure, commercial collection, and receivership matters. He is certified by the American Board of Certification in the field of Creditor Rights and by the Board of Specialization of the State Bar of California in the field of Bankruptcy. Dean is a member of the Commercial Transactions Committee of the Business Law Section of the California Lawyers Association.

Adam A. Lewis is senior counsel at Morrison Foerster, where he has practiced since graduating from law school in 1979. His practice covers the entire range of issues in bankruptcy matters. Adam has represented debtors, creditors, bidders, contract counterparties, and other interested parties in such diverse areas as telecommunications, agriculture, intellectual property, high technology, energy, construction, asset-based finance, and real estate.

Corey R. Weber is a partner at Brutzkus Gubner, where he handles bankruptcy, business and commercial litigation. Corey received his law degree from the University of Southern California Law School and his MBA from the University of Notre Dame. He is the Immediate Past Chair of the California Lawyers Association Business Law Section, serves as a member of the Business Law Section Executive Committee and is a member of the Board of Directors of the Ninth Judicial Circuit Historical Society.

This article contains brief summaries of important judicial decisions affecting insolvency and commercial finance law, published by California and Ninth Circuit federal courts from the latter part of 2019 through October 2020. It includes editorial comments authored by members of the Insolvency Law Committee (ILC) and Commercial Transactions Committee (CTC) of the Business Law Section of the California Lawyers Association.

I. Secured Transactions in Real Property/Foreclosures

1. The common law contract principle of unilateral mistake of fact will not save a trust deed buyer at a nonjudicial foreclosure sale from grossly overpaying for the property because he mistakenly thought the trust deed he was purchasing was in the first priority position based on information in a private software application, when public records and a title report he had ordered both showed the trust deed was junior to a first trust deed. Matson v. S.B.S. Trust Deed Network, 46 Cal. App. 5th 33 (2020).

[Page 39]

Comment: Matthew Matson purchased the property subject to a deed of trust at a nonjudicial foreclosure sale, "as is," with no warranties. After the auction closed, he learned that the foreclosing trust deed was in the second position, rather than the first as he had thought. He initiated a lawsuit based on unilateral mistake, which was unsuccessful. This has to be the right result, and should not have been a close question for the appellate court. I believe the court chose to publish because the concept of rescission due to unilateral mistake has rarely been analyzed in recent case law.

The policy behind the decision is clear: courts cannot upend the public policy supporting the quick, inexpensive nonjudicial foreclosure remedy set forth in detailed statutes when the procedures were flawlessly followed and only the negligence of the bidder at auction caused him to pay too much—way too much. The authorized credit bid was a flat amount of $71,000, deemed by the beneficiary to be the protectible value of its junior lien. Matson knew that more than $400,000 was owed on that lien. He had one last opportunity to wake up and recognize that something was flawed in his thinking when the trustee stopped overbidding immediately and only other parties drove up the price. Yet he ignored that obvious sign and, despite disclaimers and lack of warranty, dove ahead, seeking a windfall. I am tempted to say he got what he deserved for his carelessness. Courts do not exist to bail us out from our foolishness. The key to the court's decision is that plaintiff had a legal duty to investigate the conditions of the sale. When he failed in that duty, unilateral mistake provided no relief. (Hon. Meredith Jury.)

2. The expiration of the statute of limitations on a judicial foreclosure action barred the senior lienholder's subsequent quiet title action to terminate the junior lien where the senior lienholder failed to name the junior lienholder in its judicial foreclosure action, through mistake. Robin v Crowell, 55 Cal. App. 5th 727 (2020).

Comment: This ruling highlights the importance of obtaining a title search report, usually in the form of a litigation guarantee, before commencing a judicial foreclosure action. Plaintiffs seem to have relied on the note maker's representation that the junior lien was placed in error, and perhaps let their guard down by failing to obtain a litigation guarantee prior to filing their action to foreclose. While plaintiffs' reliance on the note maker's promise not to encumber the property while plaintiffs' loan was outstanding may not have been...

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