United States District Court, D. Arizona
ORDER
DOUGLAS L. RAYES UNITED STATES DISTRICT JUDGE
At
issue is Plaintiff's motion to dismiss Defendants'
counterclaims, which is fully briefed. (Docs. 71, 74, 77.)
Defendants' request for oral argument is denied because
the issues are adequately briefed, and oral argument will not
help the Court resolve the motion. See Fed. R. Civ.
P. 78(b); LRCiv. 7.2(f); Lake at Las Vegas Investors
Grp., Inc. v. Pac. Malibu Dev., 933 F.2d 724, 729 (9th
Cir. 1991). For the following reasons, Plaintiff's motion
is granted, and Defendants' counterclaims are dismissed.
I.
Background
Defendants
are the guarantors of a $4 million loan made by Plaintiff to
non-party G Companies Management, LLC (“GCM”).
The loan was secured by property owned by GCM (“the
Property”) and by Defendants' guaranties. After GCM
defaulted on the loan, Plaintiff acquired the Property at a
trustee's sale for a credit bid of $315, 000. Plaintiff
then notified Defendants that it intended to file a lawsuit
against them to enforce the guaranties and recover the
deficiency.
Instead
of proceeding with the lawsuit, however, the parties entered
into a Forbearance Agreement, under which Plaintiff agreed,
among other things, to delay suit and partially waive default
interest. In exchange, Defendants agreed, among other things,
(1) to waive any defenses to Plaintiff's collection of
the deficiency under Arizona's anti-deficiency laws and,
in the event they defaulted on the terms of the Forbearance
Agreement, (2) to consent to the filing of a pre-prepared
lawsuit and to the filing of a Stipulated Motion for Entry of
Judgment and Order of Judgment, both of which were attached
to the Forbearance Agreement. The waiver provision added:
“For sake of clarity, Guarantors agree to admit all of
the allegations of the Lawsuit, waive any defenses thereto,
and consent to the entry of judgment against them upon
Guarantor's breach [of] their obligations . . . as set
forth in this Agreement.” (Doc. 9-2 at 28.)
Defendants
eventually defaulted, leading Plaintiff to file the
stipulated lawsuit, Stipulated Motion for Entry of Judgment,
and stipulated Order of Judgment referenced in the
Forbearance Agreement. Magistrate Judge Fine issued a report
and recommendation (“R&R”) recommending that
the Court deny the stipulated motion without prejudice.
Plaintiff objected to the R&R, but before the Court could
rule on the objections Plaintiff moved to stay the case while
the parties pursued an out-of-court resolution of their
dispute. The Court obliged and stayed the matter for three
months.
Plaintiff
moved to reactivate the case when the parties were unable to
resolve the matter. The Court held a telephonic conference to
discuss the motion in June 2017, during which only counsel
for Plaintiff appeared. Counsel for Plaintiff confirmed that
Defendants had not been formally served. The Court therefore
granted the motion to reactivate the case but ordered that
Plaintiff serve Defendants within 60 days. Before the
expiration of this 60-day service deadline, however, the
Court inadvertently issued an order sustaining
Plaintiff's objections to the R&R and granting the
Stipulated Motion for Entry of Judgment in a modified form.
Defendants then moved to vacate the judgment pursuant to
Federal Rule of Civil Procedure 60. The Court granted the
motion after concluding that it lacked personal jurisdiction
to enter a judgment against Defendants until they had been
properly served.
Plaintiff
has since served Defendants. Instead of admitting all
allegations, waiving all defenses, and consenting to the
entry of judgment as contemplated by the Forbearance
Agreement, Defendants filed an answer and brought
counterclaims for restitution, unjust enrichment, and fraud
in the inducement. The thrust of Defendants counterclaims is
that Defendants are not liable to Plaintiff for any amounts
(and are, in fact, entitled to recover amounts previously
paid) because their guaranties were procured by fraud.
Specifically, Defendants allege that Plaintiff did not
actually expect GCM to repay the loan, that Plaintiff knew
the Property was not worth much, and consequently Plaintiff
lured Defendants into a false sense of security that they
never would be called upon to fulfill their guaranties
because, if GCM were to default, the sale of the Property
would be more than adequate to satisfy the loan.
Unsurprisingly,
Plaintiff now moves to dismiss the counterclaims, principally
because Defendants waived their rights to challenge their
guaranties or the allegations against them in this lawsuit
when they entered into the Forbearance Agreement. Plaintiff
also argues, in the alternative, that Defendants have not
adequately alleged fraud under Federal Rule of Civil
Procedure 9(b). The Court does not address this alternative
argument because it concludes that the Forbearance Agreement
precludes Defendants from challenging their guaranties.
II.
Discussion
The
Court should dismiss counterclaims that are not based on a
cognizable legal theory or that are not pled with enough
factual detail to state a plausible entitlement to relief
under an otherwise cognizable legal theory. See Ashcroft
v. Iqbal, 556 U.S. 662, 678 (2009); Balistreri v.
Pacifica Police Dep't, 901 F.2d 696, 699 (9th Cir.
1988). Here, Plaintiff's primary argument is that
Defendants counterclaims are not cognizable because
Defendants waived their right to challenge the enforceability
of their guaranties or to otherwise dispute the allegations
against them in this lawsuit when they entered into the
Forbearance Agreement. The Court agrees.
A
forbearance agreement of the type entered into by the parties
is essentially a pre-litigation settlement of an impending
legal dispute, which the Court may enforce. See W. All.
Bank v. Jefferson, 698 Fed. App'x 914, 914 (9th Cir.
2017). Indeed, the Court was prepared to enforce the
Forbearance Agreement and enter the stipulated judgment once
it obtained jurisdiction over Defendants through proper
service of process. But for Defendants' disregard of
their waivers, this litigation probably would have long since
been over.
Defendants
argue that the Court should not enforce the waivers in the
Forbearance Agreement and, instead, should permit them to
challenge their guaranties and the allegations against them
for four reasons (some of which at times blend together in
the briefing): (1) the Forbearance Agreement itself was
procured by fraud; (2) the waiver is insufficiently specific
to waive a fraud in the inducement claim; (3) the guaranties
are so substantively and procedurally unconscionable that the
unconscionability permeates the entire transaction, including
the Forbearance Agreement, rendering it unenforceable; and
(4) the Forbearance Agreement has already been satisfied
because the statute of repose for collecting a deficiency has
expired. None of these arguments are persuasive.
First,
Defendants' contention that they were fraudulently
induced into signing the Forbearance Agreement by
misrepresentations about the Property's value is
meritless. The allegations in the counterclaims make clear
that Defendants entered into the Forbearance Agreement after
they knew that the Property, allegedly represented to be
worth between $10 million and $27 million, fetched a meager
$315, 000 at auction. When they entered into the Forbearance
Agreement, Defendants knew or should have known that
Plaintiff, GCM, and/or their agents might have misrepresented
the value of the Property. Perceived fraud in the inducement
of the guaranties does not allow the Defendants to
avoid their obligations and waivers under the separately
...