Najarian Holdings LLC v. CoreVest American Finance Lender LLC

Background

Najarian Capital LLC and Najarian Holdings LLC bought, renovated, and resold residential properties. Both entities were owned and managed by Zareh Najarian. CoreVest American Finance Lender LLC was the successor to CAF Lending, LLC, which had provided the plaintiffs with revolving credit facilities.

The 2014 loan agreements created separate $5 million revolving credit facilities. The property-specific advances were secured by liens on the properties purchased with the loan proceeds. When an advance was paid off, the lender’s servicer sent a payoff statement that included a $250 document-processing and lien-release fee. The plaintiffs paid that fee on hundreds of advances from 2014 through 2017.

The loan documents also required late charges. For late monthly interest payments, the borrowers owed a charge equal to 10 percent of the unpaid amount after a 15-day period. For an advance that was not repaid at maturity, the documents imposed a default interest rate equal to the original interest rate plus 12 percent, subject to the highest rate permitted by law.

In 2015, Najarian Holdings and Mr. Najarian signed an amendment containing a broad release of claims against CAF and its successors. The release covered claims connected with the loans, advances, and loan documents. The court had previously dismissed the plaintiffs’ fraud, negligent-misrepresentation, and unfair-competition claims with prejudice, while allowing contract and good-faith-and-fair-dealing claims to proceed to the extent they were not duplicative.

Motions and Issues

CoreVest moved for summary judgment on the remaining claims. The plaintiffs moved for partial summary judgment on CoreVest’s liability. The court considered three issues: whether the 2015 release barred the claims, whether the loan documents authorized the $250 release fees, and whether the late charges were unenforceable penalties under California law.

Court’s Analysis

The court held that the 2015 release was clear and applied to both plaintiffs. Although Najarian argued that Mr. Najarian did not understand the release’s effect and had not consulted counsel, the court found that his subjective understanding could not overcome the agreement’s unambiguous language. The court also found that Najarian Capital was an affiliate of Najarian Holdings because the entities were under common control and had other close connections described in the evidence. The release therefore provided a complete defense to the remaining claims, which were based solely on the 2014 loan documents.

The court separately ruled on the merits of the release-fee claim. Although the loan documents did not specifically label a fee as a “release fee,” they required the borrowers to pay costs and expenses related to the loan documents and property-specific advances. The court found that lien-release and related administrative costs fell within those provisions. It rejected the plaintiffs’ narrower interpretation, finding that limiting the cost provisions to the $5 million credit facilities would produce an unreasonable result because the actual costs arose from the individual advances and properties.

The court also rejected the challenge to the late charges. Under California law, a liquidated-damages provision is generally unenforceable when it has no reasonable relationship to the damages that could have been anticipated when the contract was made. CoreVest presented evidence that late payments caused losses from the lender’s inability to use its money, higher third-party funding costs, increased investment risk, and additional personnel and account-management expenses. The court found that the plaintiffs offered no evidence showing that the charges were unreasonable. It also found that the default interest rate for unpaid mature advances fit within California law and that the law did not require the specific negotiation or investigation the plaintiffs claimed was necessary.

Disposition

The court granted CoreVest’s motion for summary judgment as to all of the plaintiffs’ remaining claims. It denied the plaintiffs’ motion for partial summary judgment. The opinion states that the release barred the claims and that the claims also failed on the merits.