Business Law Journal

The crux of the underlying civil case focused on the parties’ dispute about whether the defendant borrowers—Gustavo Anaya (“Anaya”), along with his wife and daughter & their family-run company, United Home Buyers of America, Inc. (“United Home”)—had fully satisfied their obligations owed under a consolidated promissory note issued by the plaintiff lenders, Mark Buchheim (“Mark”), his former wife, & their company Prima Impresa, LLC.

The two families had been working together since 2004. Under their arrangement, Mark provided Anaya with the funding used to purchase and remodel homes through loans that carried a 20% interest rate, while Anaya managed the remodeling. Once each project was finished, Anaya would repay Mark and sell the property.

In January 2017, the parties decided to move forward with a project on a home they called the “Rose” property in West Los Angeles. Mark provided Anaya with four separate loans in connection with the Rose property, each of which carried a 20% interest rate and in total had a combined $388,928 principal balance: (1) $25,000 used to secure the winning bid on the property (which was purchased at auction for $1,095,000); (2) $84,500 used for the down payment; (3) $102,428.04 used to secure a primary loan and construction loan from Trillion Capital Corporation; and (4) $176,999.96 used to assist with mortgage payments and construction costs.

In March 2017, the parties decided to consolidate the four loans Mark gave to Anaya for the Rose property with a separate loan Mark had previously given to Anaya in connection with a separate project the parties had already been working on—at a home the parties called the “Cleveland” property—before they purchased the Rose property. The Cleveland property loan similarly carried a 20% interest rate, and at the time of consolidation, had an outstanding balance of $36,000. The four Rose property loans and the Cleveland property loan were consolidated into a written, one-year promissory note with a total principal balance of $424,928. The promissory note also carried a 20% interest rate and had a scheduled balloon payoff of $509,913.60 due in March 2018.

After escrow closed on the Rose property, the parties’ relationship rapidly deteriorated due to clashing opinions about how to handle the remodel, and the project eventually came to a complete halt. By August 2017, Anaya stopped making payments on the loan issued by Trillion, and Trillion subsequently filed a notice of default on the Rose property in October 2017.

Following a heated negotiation process, the parties ultimately agreed that Mark would purchase the Rose property from Anaya. The parties’ written agreement concerning this transaction, which was signed in November 2017, also included a covenant that Mark would not sue Anaya in connection with any dispute relating to and/or arising from the transaction (e.g., the parties’ written promissory note). The deal closed in January 2018, with Mark buying the Rose property from Anaya for $1,550,000 through an unusual transaction structure – Mark secured a loan from Recovco Mortgage Management for $1,240,000, then transferred the $1,550,000 purchase price via cash in escrow to Chicago Title Company to obtain title. After escrow closed, Chicago Title wired Mark $471,381.46 to pay off the entirety of the parties’ written consolidated promissory note (plus the interest that had accrued to date). Mark eventually sold the Rose property after completing renovations in November 2018 for $2,018,000.

In February 2019, Mark commenced the underlying civil case against Anaya (as well as his wife, daughter, and United Home) asserting twelve total causes of action, including causes of action for breach of contract, fraud, and rescission of Mark’s covenant not to sue. Anaya moved for summary judgment on two grounds: first, that Mark had no recoverable damages because Anaya (through Chicago Title) had completely satisfied the obligations owed under the written promissory note, and second, that Mark’s suit was barred by his covenant not to sue. The trial court granted summary judgment in favor of Anaya on both grounds. However, because Anaya and United Home had a then-pending cross-complaint against Mark, the trial court entered final judgment only as to Anaya’s wife and daughter.

Mark appealed that partial judgment, and the Court of Appeal affirmed in an unpublished opinion (Buchheim I). Upon remittitur, Anaya and United Home dismissed their pending cross-complaint, and the trial court subsequently entered final judgment in their favor based on the same summary judgment motion that was affirmed in Buchheim I. Mark then appealed the final judgment in favor of Anaya and United Home.

In Buchheim, the Court of Appeal affirmed the final judgment in favor of Anaya and United Home on the grounds that the uncontroverted evidence demonstrated that Anaya had fully paid off the obligations owed under the written promissory note to Mark, and therefore, that Mark had no recoverable damages. The Court made specific note of various excerpts from Mark’s deposition testimony—submitted as evidence in support of Anaya’s summary judgment motion—which reflected Mark’s repeated admissions to having received the entirety of the $424,928 principal balance owed on the written promissory note, together with interest accrued thereon (for a total of $471,381.46), in the escrow transfer from Chicago Title.

Mark argued (to no avail) that because he received the total payment owed on the promissory note through the escrow process from Chicago Title rather than from Anaya himself, the debt on the promissory was paid with Mark’s own money. Therefore, according to Mark, Anaya had not yet satisfied his debt on the promissory note. As framed by the Court, “[Mark]’s belief was that I paid myself and so it was not you who paid me.”

The Court rejected this argument as illogical, holding that while the escrow transfer involved in Mark’s purchase of the Rose property from Anaya was unusual, the escrow transfer nonetheless fully cleared Anaya’s debt. The Court observed that this was the same as if Anaya had instead given Mark a discount on the purchase price of the Rose property equaling the amount Anaya owed under the written promissory note.

Moreover, the Court also found certain “unexplained and unelaborated assertion[s]” made by Mark and his former wife during their depositions to be similarly unpersuasive. The Court noted that these statements lacked foundation and chalked them up to being based presumably on Mark’s “fallacious I-paid-myself reasoning[.]” The Court made clear that where the undisputed evidence demonstrated that the escrow transfer satisfied Anaya’s debt in whole, neither Mark’s “fervent belief Anaya owed more” nor the “unexplained and fallacious declarations of personal conviction” made by Mark and his former wife created a genuine issue of fact sufficient to defeat summary judgment. In so ruling, the Court emphasized that its decision was not a credibility determination – which is forbidden at summary judgment – but rather a matter of procedural fairness: a party must explain the basis for its belief that the opposing side’s accounting does not add up. Accordingly, the Court upheld the trial court’s entry of final judgment in favor of Anaya and United Home.

In sum, the Court’s decision in Buchheim reinforces an important concept that is generally applicable in litigation, including cases involving financial matters. That is, in the words of the Court, summary judgment “is the time to put up or shut up[.]” Regardless of whether you are seeking or opposing summary judgment, it is absolutely critical to ensure that you not only have a thorough understanding of the facts you intend to rely on, but that you are also able to sufficiently demonstrate the basis for those facts.

For a thorough review of your potential claims and/or defenses in a threatened or pending lawsuit involving complex business matters, contact the authors or your usual counsel at Atkinson, Andelson, Loya, Ruud & Romo for assistance.

This AALRR publication is intended for informational purposes only and should not be relied upon in reaching a conclusion in a particular area of law. Applicability of the legal principles discussed may differ substantially in individual situations. Receipt of this or any other AALRR publication does not create an attorney-client relationship. The Firm is not responsible for inadvertent errors that may occur in the publishing process.

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