Nowaid v. American Capital Group

Background

In September 2022, Ali Nowaid obtained a business loan from American Capital Group, LLC. The loan was secured by a deed of trust on an income-producing investment property and matured on October 1, 2024. Breeze Capital Group, LLC, to which Nowaid assigned his rights, attempted to obtain replacement financing before maturity.

Plaintiffs alleged that American Capital interfered with those efforts by failing to provide a timely payoff demand, causing the loan to pass maturity and triggering a $76,900 balloon late fee. Plaintiffs did not pay the remaining loan balance, although they attempted to make installment payments that American Capital rejected. American Capital began foreclosure proceedings in March 2025. Plaintiffs then sued for breach of the implied covenant of good faith and fair dealing, violation of California Civil Code Section 1671, and violation of California’s Unfair Competition Law.

The court had previously entered a preliminary injunction barring American Capital from conducting a trustee’s sale. American Capital moved for summary judgment on all claims and moved to dissolve or modify the injunction.

Evidentiary Issues

The court overruled Plaintiffs’ objections to a September 20, 2024 payoff demand because its contents could be presented through admissible trial testimony. The court denied as moot Plaintiffs’ objections to an email from CV3 Financial Services and an email chain from Top Escrow because it did not rely on those documents. The court granted Plaintiffs’ unopposed request for judicial notice of two official Alameda County Recorder records.

Implied-Covenant Claim

The court granted summary judgment for American Capital on the claim that it breached the implied covenant of good faith and fair dealing. Plaintiffs advanced three theories: that American Capital withheld a payoff demand before maturity, added an excessive balloon fee after maturity, and refused post-maturity installment payments.

The court found that unrebutted evidence showed American Capital issued a payoff demand dated September 20, 2024, for $782,145.35, effective through October 18, 2024, without the balloon late charge. Plaintiffs did not identify evidence creating a genuine dispute about whether the demand was timely sent. The court therefore rejected the theory that American Capital prevented Plaintiffs from obtaining new financing before maturity.

The court also rejected the other two theories because the implied covenant cannot add duties beyond the loan agreement. The agreement expressly provided for the balloon late charge and required all unpaid principal and interest to be paid in full at maturity. The covenant could not prohibit conduct the agreement expressly allowed.

California Civil Code Section 1671 Claim

The court denied summary judgment as to Plaintiffs’ request for declaratory relief under California Civil Code Section 1671. That statute generally permits a liquidated-damages provision unless the party challenging it shows that it was unreasonable when the contract was made. The court compared the loan’s $76,900 balloon late fee with its 10-percent fee for ordinary missed installments, which would be about $713 on a $7,132 installment. Relying on California authority, the court concluded that the record did not justify summary judgment on whether the balloon fee was an unenforceable penalty.

The court granted summary judgment on Plaintiffs’ requests for monetary and injunctive relief under Section 1671. Plaintiffs had not paid the liquidated-damages fee, shown monetary harm caused by it, or shown that they could pay the loan without the fee or would otherwise face irreparable harm. The court held that declaratory relief concerning the provision’s validity remained available.

Unfair Competition Law Claim

The court granted summary judgment on Plaintiffs’ Unfair Competition Law claim because Plaintiffs lacked standing. A plaintiff must show an economic injury caused by the alleged unfair business practice. The court found that the earlier payoff-delay theory was contradicted by the evidence showing that American Capital sent a payoff demand before maturity. Plaintiffs offered no additional evidence that American Capital prevented them from paying off the loan.

The court also found no evidence that the balloon fee caused Plaintiffs to lose money or property. Plaintiffs had not paid the fee, had not shown that it caused the foreclosure threat, and had not shown that the property would be lost because of the fee rather than because the underlying principal and interest remained unpaid. The court therefore concluded that Plaintiffs lacked the required causal connection between the challenged conduct and an economic injury.

Preliminary Injunction and Disposition

Because the preliminary injunction had been based on the likelihood of success on the Unfair Competition Law claim, and because the court granted summary judgment on that claim, the court found no remaining basis for the injunction. The court dissolved the preliminary injunction entered on September 2, 2025. It denied as moot American Capital’s separate motion to dissolve or modify the injunction.

In conclusion, American Capital’s motion for summary judgment was denied as to Plaintiffs’ Section 1671 claim for declaratory relief and granted in all other respects. The court vacated the existing case schedule and ordered the parties to file a proposed schedule by October 26, 2026, including a proposed timeline for further court-sponsored mediation.