GemCap Lending, LLC v. Quarles & Brady, LLP et al

Filing 161

ORDER by Judge Ronald S.W. Lew: The Court GRANTS Defendants' Motion for Summary Judgment 116 and DENIES Plaintiff's Motion for Partial Summary Judgment 120 . Additionally, the Court DENIES Defendants' Motion to Strike Stanley W. Lam port's Expert Report 114 , DENIES AS MOOT Plaintiff's Motion to Strike Robert L. Kehr's Expert Report 113 , and DENIES AS MOOT Defendants' Motion to Strike Portions of Douglas E. Johnston, Jr.'s Expert Report 115 . SEE ORDER FOR FURTHER AND COMPLETE DETAILS. (jre)

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1 2 O 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 CENTRAL DISTRICT OF CALIFORNIA 10 11 12 GemCap Lending, LLC, 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 ) ) ) Plaintiff, ) ) ) v. ) ) ) Quarles & Brady, LLP, James ) Gatziolis, and Does 1 ) through 10, inclusive, ) ) ) Defendants. ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) 28 /// 1 CV 14-07937-RSWL-Ex ORDER re: 1. Defendants Quarles & Brady LLP and James Gatziolis’ Motion for Summary Judgment or Partial Summary Judgment [116]; 2. Plaintiff GemCap Lending I, LLC’s Motion for Partial Summary Judgment[120]; 3. Plaintiff’s Motion to Strike Robert L. Kehr’s Expert Report [113]; 4. Defendants’ Motion to Strike Stanley W. Lamport’s Expert Report [114]; 5. Defendants’ Motion to Strike Portions of Douglas E. Johnston, Jr.’s Expert Report [115] 1 Currently before Court are the following Motions: 2 (1) Defendants Quarles & Brady LLP and James Gatziolis’ 3 Motion for Summary Judgment or Partial Summary Judgment 4 [116]; and (2) Plaintiff GemCap Lending I, LLC’s Motion 5 for Partial Summary Judgment [120].1 Defendants’ Motion 6 arises out of Plaintiff’s action against Defendants for 7 professional malpractice, intentional 8 misrepresentation, negligent misrepresentation, and 9 concealment under California law. Plaintiff’s Motion 10 relates to the latter three causes of action only. 11 Having reviewed all papers submitted pertaining to 12 these Motions, the Court NOW FINDS AND RULES AS 13 FOLLOWS: the Court GRANTS Defendants’ Motion. The 14 Court DENIES Plaintiff’s Motion. 15 I. BACKGROUND 16 A. Factual Background2 17 18 19 20 21 22 23 24 25 26 27 28 1 Also before the Court are: (1) Plaintiff’s Motion to Strike Robert L. Kehr’s Expert Report [113]; (2) Defendants’ Motion to Strike Stanley W. Lamport’s Expert Report [114]; and (3) Defendants’ Motion to Strike Portions of Douglas E. Johnston, Jr.’s Expert Report [115]. The Court NOW FINDS AND RULES AS FOLLOWS: the Court DENIES all three of these Motions to Strike. See infra Part II.B.3. 2 The Court makes the following factual findings, and additionally, adopts Defendants’ proposed factual findings [117] as true. See Anderson v. Liberty Lobby, 477 U.S. 242, 250 (1986) (“There is no requirement that the trial judge make findings of fact [when granting summary judgment because] the threshold inquiry [is whether] there are any genuine factual issues.”); Taybron v. City & Cty. of San Francisco, 341 F.3d 957, 959 n.2 (9th Cir. 2003); C.D. Cal. R. 56-3 (“[T]he Court may assume that the material facts as claimed and adequately supported by the moving party are admitted to exist.”). To the extent Defendants describe or comment on exhibits, the Court only considers the exhibits themselves. See, e.g., Defs.’ Statement of Undisputed 2 1 1. Parties and Relevant Non-Parties 2 Plaintiff GemCap Lending I, LLC (“Plaintiff”) is a 3 Delaware LLC with its principal place of business in 4 Malibu, California. 5 No. 76. Third Am. Compl. (“TAC”) ¶ 1, ECF Plaintiff is a commercial-asset based lender. 6 Decl. of David Ellis in Supp. of Pl.’s Mot. (“D. Ellis 7 Decl.”) ¶ 13, ECF No. 120-12. In making loans, 8 Plaintiff considers the value of a pledged asset that 9 can be liquidated to pay off a debt in the event of 10 default. Id. ¶ 3; Decl. of Richard Ellis in Supp. of 11 Pl.’s Mot. (“R. Ellis Mot. Decl.”) ¶ 3, ECF No. 120-10. 12 If a borrower defaults, Plaintiff liquidates the 13 collateral to pay its lenders. Pl.’s Statement of 14 Undisputed Facts (“Pl.’s SUF”) ¶ 6, ECF No. 136-1. 15 Defendant Quarles & Brady LLP (“Quarles & Brady”) 16 is a Wisconsin limited liability partnership. TAC ¶ 2. 17 Defendant James Gatziolis (“Gatziolis”) is an Illinois 18 citizen and a partner at Quarles & Brady. 19 Id. ¶ 3. Non-party Crop USA Insurance Agency, Inc. and Crop 20 USA Insurance Services, Inc. (collectively, “Crop USA”) 21 is an insurance agency, as well as an intermediary 22 general agent, that enters into contracts with 23 insurance companies to sell farm insurance policies. 24 Pl.’s SUF ¶¶ 10-11; Pl.’s Suppl. Statement of 25 Undisputed Facts (“Pl.’s SSUF”) ¶¶ 1-2, ECF No. 143-2. 26 27 Facts (“Defs.’ SUF”) ¶ 27, ECF No. 117. Plaintiff’s other 28 disputes as to Defendants’ proposed facts are not on point. e.g., Pl.’s Response to Defs.’ SUF ¶ 6, ECF No. 143-2. 3 See, 1 Crop USA retained Quarles & Brady to help it secure 2 loans from Plaintiff. Decl. of R. John Taylor in Supp. 3 of Pl.’s Mot. (“Taylor Mot. Decl.”) ¶ 9, ECF No. 120-6. 4 Crop USA does not transact directly with farmers, 5 the insurance policy holders, but rather enters into 6 contracts with other insurance agencies, “sub-agents,” 7 to sell crop insurance policies. Pl.’s SUF ¶ 13. Crop 8 USA then pays a portion of the commissions received to 9 its sub-agents for selling insurance policies directly 10 to the farmers (“Sub-Agent Commissions”). Id. ¶ 14. 11 In 2011, Crop USA had a contract with Diversified Crop 12 Insurance Company (“Diversified”). Id. ¶ 12. This 13 contract involved the sale of insurance and 14 corresponding commissions. Taylor Mot. Decl., Ex. B at 15 10-21. 16 2. 17 On November 23, 2011, Plaintiff entered into a Loan 2011 Loan and Loan Agreement 18 and Security Agreement (“Loan Agreement”) with Crop USA 19 in connection with a $5,000,000 revolving loan (the 20 “Loan”). TAC ¶ 13, Ex. 1. The Loan was structured as 21 follows: Crop USA would deposit its collateral into a 22 lockbox account (the “Lockbox”), which Plaintiff could 23 take in event of a default. 24 Pl.’s SUF ¶¶ 19-22. As security for the Loan, Crop USA pledged all of 25 its property and assets to Plaintiff (the 26 “Collateral”). TAC ¶ 16. Paragraph 5.1 of the Loan 27 Agreement makes pledging of this security an essential 28 condition of the Loan. Taylor Mot. Decl., Ex. C (“Loan 4 1 Agmt.”) at 36-37. The Collateral includes “Accounts,” 2 id., encompassing “Contract Receivables,” id. § 1.3, or 3 “all of the right, title and interest” of Crop USA to 4 “commissions otherwise payable under a Sales Agent 5 Agreement,” id. § 1.34. 6 In Paragraph 5.4 of the Loan Agreement, Crop USA 7 represents that the Collateral for the Loan belongs to 8 Crop USA “free and clear of all Liens (including any 9 claim of infringement) except those in Lender's favor.” 10 Id. at 38. Paragraph 8.24 of the Loan Agreement 11 obligates Crop USA to provide Plaintiff with “true, 12 accurate and complete” representations and warranties 13 in connection with the Loan. Id. at 50. 14 3. 15 In order for Plaintiff to approve the Loan, the First Legal Opinion Letter 16 Loan Agreement required Crop USA to give Plaintiff a 17 written legal opinion that shall be “acceptable to” 18 Plaintiff, the lender. Id. at 41. On November 23, 19 2011, Defendants sent Plaintiff a legal opinion letter 20 (“2011 Opinion Letter”). Decl. of Douglas A. Fretty in 21 Supp. of Defs.’ Mot. (“Fretty Mot. Decl.”), Ex. 3, ECF 22 No. 118-3. Therein, Defendants made the following 23 statements: (1) they reviewed various Loan transaction 24 documents; (2) they assumed the Collateral was valid 25 and enforceable; (3) Plaintiff has rights in the 26 property and a security interest; (4) they were unaware 27 of any facts which would suggest that specific 28 representations in the Loan Agreement were untrue or 5 1 inaccurate; and (5) they were unaware of any pending 2 suits or investigations against Crop USA before a court 3 or governmental authority that might adversely affect 4 the validity of any Loan document. 5 Id. In the 2011 Opinion Letter, Defendants did not 6 disclose that Crop USA was subject to multiple pending 7 lawsuits. At the time, Crop USA was subject to at 8 least two lawsuits. Defs.’ SUF ¶ 18. These lawsuits 9 were filed by Reed Taylor, the brother of Crop USA’s 10 president R. John Taylor (“Taylor”) and by Donna 11 Taylor, Reed Taylor’s ex-wife (the “Litigation”). TAC 12 ¶ 29; see also Decl. of R. John Taylor in Supp. of 13 Pl.’s Opp’n (“Taylor Opp’n Decl.”) ¶ 34. Defendants 14 allegedly represented Crop USA in the Litigation. 15 Taylor Opp’n Decl. ¶ 36. The Litigation included 16 claims against Crop USA for breach of contract, 17 engaging in fraudulent activities, breaching fiduciary 18 duties of loyalty, and commingling assets, among other 19 things. Fretty Mot. Decl., Ex. 22 at 109-20. 20 Plaintiff alleges that the Litigation has jeopardized 21 Crop USA’s license status, financial viability, and 22 thus, its ability to repay the Loan. 23 TAC ¶ 29. Defendants allegedly were also representing AIA 24 Insurance, Inc. and AIA Insurance Services Corporation 25 (collectively, “AIA”), Taylor’s other insurance 26 company, in various lawsuits filed by Reed and Donna 27 Taylor, regarding AIA’s alleged fraudulent business 28 practices. TAC ¶ 30. Plaintiff avers that these 6 1 lawsuits too might adversely affect Crop USA’s ability 2 to repay the Loan and are material to its Collateral. 3 Id. ¶ 31. 4 Defendants also allegedly did not disclose facts 5 regarding Crop USA’s financial condition. Id. ¶ 32. 6 In 2008, Crop USA could not fulfill its government 7 requirements to sell crop insurance and thus sold its 8 assets to Hudson Insurance Company, its largest 9 creditor. Id. Plaintiff alleges that Defendants 10 represented Crop USA in the asset sale and were thus 11 aware of Crop USA’s fragile financial status. Id. 12 According to Plaintiff, as Crop USA’s agents, 13 Defendants entered into a written agreement with Hudson 14 Insurance Group, to negotiate disputes between Crop USA 15 and Clearwater Insurance Company. Id. 16 4. 17 Pursuant to section 1.11 of the Loan Agreement, Borrower’s Disclosure Schedule 18 Crop USA was required to disclose to Plaintiff material 19 facts regarding its business operations, assets, and 20 contractual obligations in a borrower’s disclosure 21 schedule (“Disclosure Schedule”). 22 31, 37, 47, 49. Loan Agmt. 24, 27, Specifically, Crop USA was obligated 23 to share (1) contracts that would materially and 24 adversely affect the Collateral or its liabilities and 25 financial condition; and (2) all payments made to 26 “affiliates,” which were expressly prohibited without 27 Plaintiff’s approval. 28 Id.; TAC ¶ 33a-b. On January 1, 2009, Crop USA entered into an 7 1 administrative agreement with its “affiliate,” AIA (the 2 “Administrative Agreement”). Pl.’s SUF ¶¶ 32, 35. 3 Reed Taylor was AIA’s majority shareholder. 4 ¶ 41. Id. Pursuant to the Administrative Agreement, Crop 5 USA would “pay and account for attorney’s fees” 6 incurred in defending lawsuits against AIA. 7 ¶ 36. Id. On November 22, 2011, Defendants sent Plaintiff 8 the Disclosure Schedule, which did not disclose the 9 Administrative Agreement. Taylor Mot. Decl., Ex. E at 10 79, 81. 11 5. 12 On February 3, 2013, Plaintiff agreed to amend the Second Legal Opinion Letter 13 Loan and increased the Loan from $5,000,000 to 14 $10,000,00 (“Amended Loan”). TAC ¶ 35, Ex. 4. 15 Defendants prepared a second legal opinion letter 16 (“2013 Opinion Letter”) on February 4, 2013. 17 118-11. ECF No. Defendants made similar statements as in the 18 2011 Opinion Letter, including “we know of no facts 19 which lead us to believe such factual matters are 20 untrue or inaccurate.” Id. at 6. Plaintiff alleges 21 that Defendants failed to disclose the Litigation, the 22 2008 asset sale to Hudson Insurance Company, and Crop 23 USA’s general financial instability, just as it had in 24 the 2011 Opinion Letter. 25 TAC ¶¶ 39, 41-44. Before close of the original Loan Agreement in 26 2011, Crop USA allegedly gave Plaintiff its standard 27 sub-agent agreement, which required all commission 28 payments from the crop insurance company, CGB 8 1 Diversified Services, Inc., dba Diversified Crop 2 Insurance (“Diversified”), be paid directly to Crop 3 USA. Id. ¶ 46b. Plaintiff avers, in turn, Crop USA 4 would pay the sub-agents. Id. Plaintiff claims these 5 commissions were part of the Collateral. Id. Both the 6 Loan Agreement and amended Loan Agreement required the 7 commission payments to be deposited into a lockbox 8 account that Plaintiff monitored. 9 Loan Agmt. 61. Defendants apparently knew, but did not disclose, 10 that Crop USA modified a standard sub-agent agreement 11 in connection with the Green Leaf reinsurance concept 12 (“Green Leaf Agreement”). TAC ¶ 46b. The Green Leaf 13 Agreement apparently sent commission payments directly 14 from Diversified to the sub-agents, rather than into 15 the Lockbox as intended. Id. Defendants also 16 apparently prepared, at Taylor’s request, a private 17 placement memorandum for Green Leaf that disclosed the 18 Litigation and its adverse consequences. 19 Decl., Ex. 23 at 93-94. Fretty Mot. Defendants also allegedly 20 billed Crop USA $125,000 in attorneys’ fees for the 21 Green Leaf project, violating the Loan Agreement’s 22 requirement for Plaintiff’s approval for affiliate 23 payments. TAC ¶ 47. 24 B. Procedural Background 25 Plaintiff filed its Third Amended Complaint (the 26 “TAC”) on December 29, 2016 [76]. On July 31, 2017, 27 Plaintiff filed its Motion for Partial Summary Judgment 28 (“Plaintiff’s Motion”) [120], and Defendants filed 9 1 their Motion for Summary Judgment or Partial Summary 2 Judgment (“Defendants’ Motion”) [116]. On August 22, 3 2017, Plaintiff timely filed its Opposition to 4 Defendants’ Motion (“Plaintiff’s Opposition”) [141], 5 and Defendants timely filed their Opposition to 6 Plaintiff’s Motion (“Defendants’ Opposition”) [139]. 7 Plaintiff’s Reply in Support of its Motion 8 (“Plaintiff’s Reply”) [156] and Defendants’ Reply in 9 Support of their Motion (“Defendants’ Reply”) [150] 10 were timely filed on August 29, 2017. 11 II. DISCUSSION 12 A. Legal Standard 13 1. 14 Federal Rule of Civil Procedure 56 states that a Summary Judgment 15 “court shall grant summary judgment” when the movant 16 “shows that there is no genuine dispute as to any 17 material fact and the movant is entitled to judgment as 18 a matter of law.” The party moving for summary 19 judgment has the initial burden of proof to show “no 20 genuine dispute as to any material fact.” Id.; see In 21 re Oracle Corp. Securities Litigation, 627 F.3d 376, 22 387 (9th Cir. 2010). “A party asserting that a fact 23 cannot be . . . genuinely disputed must support the 24 assertion by: citing to particular materials in the 25 record, including . . . stipulations.” 26 56(c)(1)(A). Fed. R. Civ. P. “In determining any motion for summary 27 judgment . . ., the Court may assume that the material 28 facts as claimed and adequately supported by the moving 10 1 party are admitted to exist without controversy except 2 to the extent that such material facts are (a) included 3 in the ‘Statement of Genuine Disputes’ and 4 (b) controverted by declaration or other written 5 evidence filed in opposition to the motion.” C.D. Cal. 6 R. 56-3. 7 Where the non-moving party bears the burden of 8 proof at trial, the moving party need only prove that 9 there is an absence of evidence to support the non10 moving party’s case. 11 387. In re Oracle Corp., 627 F.3d at If the moving party meets this burden, the burden 12 then shifts to the non-moving party to produce 13 admissible evidence showing a triable issue of fact. 14 Id.; Nissan Fire & Marine Ins. Co. v. Fritz Cos., 210 15 F.3d 1099, 1102-03 (9th Cir. 2000); see Fed. R. Civ. P. 16 56(a). 17 2. 18 Federal Rule of Civil Procedure 56(g) authorizes Partial Summary Judgment 19 courts to grant partial summary judgment to limit the 20 issues to be tried in a case. State Farm Fire & Cas. 21 Co. v. Geary, 699 F. Supp. 756, 759 (N.D. Cal. 1987) 22 (citing Lies v. Farrell Lines, Inc., 641 F.2d 765, 769 23 n.3 (9th Cir. 1981)). Absent a specific statute 24 authorizing otherwise, a partial summary judgment under 25 Rule 56(g) is not a final judgment but rather an 26 interlocutory summary adjudication or a pre-trial 27 order, neither of which is appealable prior to the 28 entry of a final judgment in the case. 11 Wynn v. 1 Reconstruction Fin. Corp., 212 F.2d 953, 956 (9th Cir. 2 1954). 3 B. Analysis 4 1. 5 6 7 Requests for Judicial Notice a. Defendants’ First Request for Judicial Notice is GRANTED A court “may judicially notice a fact that is not 8 subject to reasonable dispute because it: (1) is 9 generally known . . .; or (2) can be accurately and 10 readily determined from sources whose accuracy cannot 11 reasonably be questioned.” Fed. R. Evid. 201(b). A 12 court “must” take judicial notice “if a party requests 13 it and the court is supplied with the necessary 14 information.” 15 Fed. R. Evid. 201(c)(2). Defendants ask the Court to take judicial notice of 16 the following (“Defendants’ First RJN”): (1) an order 17 entered by the U.S. District Court of the Central 18 District of California, Honorable S. James Otero, in 19 the matter of GemCap Lending I, LLC v. Crop USA 20 Insurance Agency, Inc., et al.; (2) the docket in the 21 matter of Reed Taylor v. AIA Services Corp., et al., 22 Case No. CV-2007-0000208 from Nez Perce County, Idaho; 23 and (3) the docket in the matter of Donna Taylor, et 24 al. v. Hawley Troxell Ennis & Hawley LLP, et al., Case 25 No. 1:10-cv-00404 from the U.S. District Court of 26 Idaho, Honorable Candy W. Dale. Defs.’ Req. for Jud. 27 Ntc. in Supp. of Defs.’ Mot. (“Defs.’ First RJN”) 2:528 23, Exs. 1-3, ECF No. 119. Plaintiff does not oppose 12 1 Defendants’ First RJN. 2 Per Federal Rule of Evidence 201, “a court may take 3 judicial notice of ‘matters of public record.’” Lee v. 4 City of Los Angeles, 250 F.3d 668, 689 (9th Cir. 2001) 5 (citing Mack v. South Bay Beer Distrib., 798 F.2d 1279, 6 1282 (9th Cir. 1986)). Because the District Courts’ 7 order and docket are public records, the first and 8 third exhibits are appropriate for judicial notice. 9 See, e.g., Irvin v. Madrid, No. CV-16-1198-DMG(JEMx), 10 2016 WL 9132877, at *1 (C.D. Cal. Dec. 8, 2016). 11 A court may also “take judicial notice of the 12 existence of another court’s opinion or of the filing 13 of pleadings in related proceedings; the Court may not, 14 however, accept as true the facts found or alleged in 15 such documents.” Peel v. BrooksAmerica Mortg. Corp., 16 788 F. Supp. 2d 1149, 1158 (C.D. Cal. 2011)(emphasis 17 added)(citations omitted). Because the second exhibit 18 contains only a copy of the docket and not the rulings, 19 the Court can take judicial notice of it. Thus, the 20 Court GRANTS Defendants’ First RJN in its entirety 21 [119]. 22 23 24 b. Defendants’ Second Request for Judicial Notice is GRANTED Additionally, Defendants seek judicial notice 25 (“Defendants’ Second RJN”) of two orders entered by the 26 U.S. District Court of the Central District of 27 California, Honorable S. James Otero, in the matter of 28 GemCap Lending I, LLC v. Crop USA Insurance Agency, 13 1 Inc., et al., namely, (1) the Order Granting in Part 2 and Denying in Part Defendant CGB Diversified Services, 3 Inc.’s Motion to Dismiss Plaintiff’s Second Amended 4 Complaint under FRCP 12(b)(6) and 9(b); and (2) the 5 Order Granting Defendant CGB Diversified Services, 6 Inc.’s Motion for Summary Judgment as to All Claims. 7 Defs.’ Req. for Jud. Ntc. in Supp. of Defs.’ Opp’n 8 (“Defs.’ Second RJN”) 2:5-21, Exs. 1-2, ECF No. 140. 9 Plaintiff did not oppose Defendants’ Second RJN. 10 Like in Defendants’ First RJN, these two District 11 Court orders are matters of public record. 12 Accordingly, the Court GRANTS Defendants’ Second RJN in 13 its entirety [140]. 14 c. Plaintiff’s First Request for Judicial 15 Notice is GRANTED in part and DENIED in 16 part 17 In support of its Opposition, Plaintiff requests 18 judicial notice of the following (“Plaintiff’s First 19 RJN”): (1) Defendants’ Motion to Dismiss the Second 20 Amended Complaint [25]; (2) Plaintiff’s Opposition to 21 the Motion to Dismiss [30]; (3) Defendants’ Reply in 22 Support of the Motion to Dismiss [32]; (4) the Court’s 23 Order Denying the Motion to Dismiss [36]; 24 (5) Plaintiff’s Motion for Partial Summary Judgment 25 [120-1]; and (6) the Polk County, Iowa Court ruling and 26 order in the matter of Church Crop Insurance Services, 27 Inc., v. GemCap Lending I, LLC, Case No. EQCE077193. 28 Pl.’s Req. for Jud. Ntc. in Supp. of Pl.’s Opp’n 14 1 (“Pl.’s First RJN”), 2:13-3:3, Exs. Y, Z, AA, BB, CC, 2 and DD, ECF No. 141-12. 3 Because “it is well established that a court can 4 take judicial notice of its own files and records under 5 Rule 201,” Gerritsen v. Warner Bros. Ent’mt Inc., 112 6 F. Supp. 3d 1011, 1034 (C.D. Cal. 2015), the Court 7 GRANTS Plaintiff’s First RJN as to the first five 8 exhibits [141-12]. 9 As discussed, while a court may judicially notice 10 the existence of another court’s opinion, it cannot 11 “accept as true the facts found or alleged in such 12 documents.” Peel, 788 F. Supp. 2d at 1158. Plaintiff 13 seeks judicial notice of the Iowa court’s decision in 14 Church Crop, not to its existence but as to its factual 15 holdings. See Pl.’s Mot. for Summ. J. (“Pl.’s Mot.”) 16 9:9-23, ECF No. 120-1 (“Quarles’ Opinion Letters are 17 Judicially Declared False.”). The Court can consider 18 Church Crop as persuasive authority, but “to the extent 19 [Plaintiff] seek[s] to cite that case in support of 20 [its] arguments, judicial notice is also unnecessary: 21 the Court can, and will consider the reasoning of that 22 ruling for whatever persuasive value it may have.” 23 Diversified Capital Inv., Inc. v. Sprint Commc’ns, 24 Inc., No. 15-cv-03796-HSG, 2016 WL 2988864, at *5 (N.D. 25 Cal. May 24, 2016). Therefore, the Court DENIES 26 Plaintiff’s First RJN as to the sixth exhibit [141-12].3 27 28 3 Because the Court denies Plaintiff’s First RJN as to this Iowa court ruling, it is unnecessary to address Defendants’ 15 1 In sum, the Court GRANTS Plaintiff’s First RJN as 2 to the five docket entries in the instant case, but 3 DENIES Plaintiff’s First RJN as to the Church Crop 4 opinion [141-12]. 5 d. 6 7 Plaintiff’s Second Request for Judicial Notice is GRANTED In connection with its Reply, Plaintiff requests 8 judicial notice (“Plaintiff’s Second RJN”) of 9 Defendants’ Reply in Support of Defendants’ Motion to 10 Strike Expert Report of Stanley W. Lamport [132]. 11 No. 156-6. ECF Because courts “may take judicial notice of 12 court filings and other matters of public records,” 13 Reyn’s Pasta Bella, LLC v. Visa USA, Inc., 442 F.3d 14 741, 746 n.6 (9th Cir. 2006) (citation omitted), the 15 Court GRANTS Plaintiff’s Second RJN [156-6]. 16 2. 17 Evidentiary Objections a. Plaintiff’s Objections to Documents 18 Produced by Cohen Tauber and the Green 19 Leaf Direction to Pay Are OVERRULED 20 Plaintiff objects to the following documents that 21 Adam Stein of Cohen Tauber Spievack & Wagner P.C. 22 (“Cohen Tauber”)4 produced during discovery: (1) an 23 email attachment, “Form of Opinion of Counsel to 24 Borrowers and Guarantors,” dated November 8, 2011 [11825 26 hearsay objection and Plaintiff’s response. 27 28 Defs.’ Reply in Supp. of Defs.’ Mot. (“Defs.’ Reply”) 20 n.6, ECF No. 150; Pl.’s Reply in Supp. of Pl.’s Mot. (“Pl.’s Reply”) 12 n.4, ECF No. 156. 4 Cohen Tauber represented Plaintiff in the Loan transactions. Defs.’ SUF ¶¶ 3, 10. 16 1 5]; (2) an email attachment, “Certificate of Officer of 2 AIA Services Corporation and AIA Insurance, Inc.” [1183 18]; and (3) an email attachment of a lien and 4 litigation report dated January 30, 2013 [118-24, 1185 25] (collectively, the “Stein emails”). Pl.’s Objs. to 6 Fretty Mot. Decl. ¶¶ 1-6, ECF No. 141-14. 7 Additionally, Plaintiff objects to the document 8 entitled, “Irrevocable Order and Direction to Pay, to 9 Green Leaf . . . from Crop USA” [118-30] (“Green Leaf 10 Direction to Pay”). Id. ¶¶ 11-12. The grounds for 11 each objection are identical: hearsay, lack of personal 12 knowledge/foundation, improper “expert” testimony of 13 non-expert, improper authentication, and improper 14 speculation. Id. ¶¶ 1-6, 11-12. Plaintiff also 15 objected to the first Stein email attachment of “Form 16 of Opinion” and the Green Leaf Direction to Pay on 17 relevance grounds. 18 Id. ¶¶ 1-2, 11-12. The Court OVERRULES Plaintiff’s foregoing 19 objections because they “are boilerplate and devoid of 20 any specific argument or analysis as to why any 21 particular exhibit or assertion in a declaration should 22 be excluded.” United States v. HIV Cat Canyon, Inc., 23 213 F. Supp. 3d 1249, 1257 (C.D. Cal. 2016); see also 24 Stonefire Grill, Inc. v. FGF Brands, Inc., 987 F. Supp. 25 2d 1023, 1033 (C.D. Cal. 2013)(refusing to “scrutinize 26 each objection and give a full analysis of identical 27 objections”); Amaretto Ranch Breedables v. Ozimals, 28 Inc., 907 F. Supp. 2d 1080, 1081 (N.D. Cal. 2012) 17 1 (“This Court need not address boilerplate evidentiary 2 objections.” (citation omitted)); Capitol Records, LLC 3 v. BlueBeat, Inc., 765 F. Supp. 2d 1198, 1200 n.1 (C.D. 4 Cal. 2010)(noting that “it is often unnecessary and 5 impractical” to scrutinize “boilerplate recitations of 6 evidentiary principles or blanket objections” (citation 7 omitted)). 8 However, even assuming Plaintiff properly developed 9 its evidentiary objections, the foregoing evidence is 10 nevertheless admissible. For instance, Defendants 11 introduced this evidence to show Plaintiff was on 12 notice of the allegedly omitted information and, as 13 such, could not have reasonably relied on Defendants’ 14 alleged misrepresentations or concealment. Defs.’ Mot. 15 for Summ. J. (“Defs.’ Mot.”) 2:23-25, 5:1-3, 17:25-27, 16 25:7-11, ECF No. 116. Because Defendants did not offer 17 the evidence for the truth of the matter asserted, it 18 is not hearsay. See Entous v. Viacom Int’l, Inc., 151 19 F. Supp. 2d 1150, 1157 n.5 (recognizing the non-hearsay 20 purpose of showing the state of plaintiff’s knowledge). 21 Moreover, Defendants properly authenticated each 22 piece of evidence. For example, each email was 23 uniquely addressed by Cohen Tauber, was produced by the 24 attorney who received or sent the email, and contained 25 identifiable matters related to the loan at issue. See 26 Del Campo v. Am. Corrective Serv., Inc., 718 F. Supp. 27 2d 1116, 1123 n.10 (N.D. Cal. June 3, 2010)(finding 28 plaintiff’s documents properly authenticated after 18 1 plaintiff “attested to their authenticity” and 2 defendants failed to “specify any reason to doubt the 3 authenticity of documents that they themselves produced 4 in discovery”); Brown v. Wireless Networks, Inc., No. 5 C-07-4301-EDL, 2008 WL 4937827, at *4 (N.D. Cal. Nov. 6 17, 2008)(holding that the “e-mails are authenticated 7 because of their distinctive characteristics,” such as 8 their signature blocks and contents). 9 Based on the foregoing, the Court OVERRULES 10 Plaintiff’s objections to the Stein emails and the 11 Green Leaf Directive to Pay. 12 b. 13 14 Plaintiff’s Objections to Expert Reports Are OVERRULED Plaintiff objects to the Initial Expert Report of 15 Arthur Norman Field (“Field”) [118-27] in its entirety 16 on the following grounds: hearsay, lack of personal 17 knowledge/foundation, improper opinion testimony, 18 improper “expert” testimony of non-expert, improper 19 authentication, improper speculation, and relevance. 20 Pl.’s Objs. to Fretty Mot. Decl. ¶¶ 7-8. Plaintiff 21 also objects to the Expert Report of its own expert, 22 Stanley W. Lamport (“Lamport”) [118-28] on the 23 following grounds: hearsay, lack of personal 24 knowledge/foundation, improper authentication, and 25 improper speculation. 26 Id. ¶¶ 9-10. As discussed, the Court need not scrutinize each 27 boilerplate objection. 28 at 1257. HIV Cat Canyon, 213 F. Supp. 3d Despite that, the Court turns to the merits 19 1 of Plaintiff’s objections that both expert reports are 2 improper “expert” testimony of non-experts. “To be 3 admissible, expert testimony must (1) address an issue 4 beyond the common knowledge of the average layman, 5 (2) be presented by a witness having sufficient 6 expertise, and (3) assert a reasonable opinion given 7 the state of the pertinent art or scientific 8 knowledge.” United States v. Vallejo, 237 F.3d 1008, 9 1019 (9th Cir. 2001). 10 First, both experts discuss the scope of the duty 11 an attorney owes when providing an opinion letter, 12 which is beyond the common knowledge of the average 13 layman. See Vaxiion Therapeutics, Inc. v. Foley & 14 Lardner LLP, 593 F. Supp. 2d 1153, 1165 (S.D. Cal. 15 2008)(“In a legal malpractice action, expert testimony 16 is required to establish . . . the propriety of the 17 particular conduct by the practitioner in particular 18 circumstances.”). Namely, Field asserts that the 19 lawyer must believe the opinion letter “is correct, 20 prepared in accordance with customary practice and is 21 fair, objective and not misleading.”5 Field Report 23- 22 23 24 25 26 27 28 5 Additionally, Field notes the “four corners” approach in construing opinion letters, meaning that parties cannot characterize the opinion as stating anything not explicit in it or provided by custom. Fretty Mot. Decl., Ex. 26 (“Field Report”) at 14 (citing Prudential Ins. Co. v. Dewey, Ballantine, Bushby, Palmer & Wood, 605 N.E.2d 318 (N.Y. 1992)). Neither Defendants nor Field cite to California authority for the “four corners” approach. See Pl.’s Opp’n to Defs.’ Mot. (“Pl.’s Opp’n”) 9:26-27, ECF No. 141. Nevertheless, the admissibility of the Field Report is unaffected because it meets the Ninth Circuit’s criteria for expert testimony. See Vallejo, 237 F.3d 20 1 24 (citing Restatement of Law Governing Lawyers § 95). 2 On the other hand, Lamport claims that an attorney 3 drafting an opinion letter “is subject to the same 4 duties and liabilities that extend to other agents” of 5 the client. Fretty Mot. Decl., Ex. 27 (“Lamport 6 Report”) at 5. He explains that the attorney must also 7 reveal any known doubts about the client’s or the 8 attorney’s representations. 9 Id. at 6, 8. Second, Field and Lamport both are sufficiently 10 knowledgeable in connection with attorney duties. For 11 instance, Field has experience in receiving and 12 providing third party opinions, co-authored a three13 volume treatise on third party opinions, chaired the 14 three principal national legal opinion letter groups, 15 and has been qualified as an expert witness within the 16 past four years. Field Report 2-3. Moreover, Lamport 17 has been qualified as an expert on lawyer conflicts of 18 interest in numerous California courts, served on the 19 Commission for the Revision of the California Rules of 20 Professional Conduct and as a special adviser to the 21 State Bar in issuing formal ethics opinions, and was 22 the contributing author of Matthew Bender’s Attorney 23 Ethics Handbook. 24 Lamport Report 1-2. Third, their opinions are reasonable. Both experts 25 26 at 1019. 27 28 Indeed, Field otherwise relies on California authorities and national standards, and the Court considers the Field Report as to such assertions. See, e.g., Field Report 11 (discussing the TriBar Opinion Committee, which the California Bar recognizes as the “national standard setter”), 22 (citing a California Bar Report). 21 1 reviewed various documents filed in this case, 2 including the operative Complaint, deposition 3 transcripts, and Loan documents. 4 Lamport Report, Ex. C. Field Report 3-4; Thereafter, they formulated 5 opinions on the scope of Defendants’ duty, if any, and 6 whether Defendants breached their duty. See Vallejo, 7 237 F.3d at 1020 (finding reliable the expert’s opinion 8 based on extensive review of relevant records). 9 Because the expert opinions are admissible under 10 the three prongs of the Vallejo standard, the Court 11 OVERRULES Plaintiff’s objections to the Field Report 12 and the Lamport Report. See also infra Part II.B.3 13 (denying Defendants’ Motion to Strike the Lamport 14 Report). 15 16 17 c. Plaintiff’s Objections to the Declaration of James Gatziolis Are OVERRULED Plaintiff objects to parts of the Declaration of 18 James Gatziolis (“Gatziolis Declaration”) [139-13], 19 which Defendants filed in support of their Opposition 20 to Plaintiff’s Motion. Pl.’s Objs. to Decl. of James 21 Gatziolis (“Pl.’s Objs. to Gatziolis Decl.”) ¶¶ 1-3, 22 ECF No. 156-5. 23 First, Plaintiff objects to Gatziolis’ statements 24 that (1) “no one discussed the 2009 Administrative 25 Agreement with me in the 2011 or 2013 time periods to 26 cause me to remember its existence”; (2) he “had never 27 seen a copy of the 2009 Administrative Agreement” at 28 the time of the Loan transactions; (3) he did not know 22 1 “whether the Administrative Agreement was still in 2 effect” at the time of the Loan transactions; and 3 (4) he never “considered . . . whether the 2009 4 Administrative Agreement [was a] ‘Material Contract.’” 5 Decl. of James Gatziolis (“Gatziolis Decl.”) ¶ 4, ECF 6 No. 139-13. Plaintiff contends that these statements 7 are irrelevant; speculative; prejudicial, confusing, 8 and misleading; and not credible due to a prior 9 inconsistent statement. Since Plaintiff fails to state 10 the reason for every objection, the Court need only 11 rule on Plaintiff’s argument that this is irrelevant 12 and a sham affidavit.6 See HIV Cat Canyon, 213 F. Supp. 13 3d at 1257. 14 Plaintiff emphasizes that the “relevant fact is 15 that . . . Gatziolis heard or knew” of, not discussed, 16 the Administrative Agreement. 17 Decl. ¶ 1. Pl.’s Objs. to Gatziolis However, Gatziolis suggests that he did not 18 remember the Administrative Agreement or believe it was 19 pertinent because he had not discussed it with anyone 20 at the time Plaintiff entered into the Loan with Crop 21 USA. Gatziolis Decl. ¶ 4. That distinction is 22 relevant to whether Gatziolis knowingly concealed the 23 Administrative Agreement when he drafted the opinion 24 6 Nevertheless, the statements speculative 25 Gatziolis qualifies the statements, are not knowledge . .because “To my . .” 26 Fed. R. Evid. 402. Furthermore, any risk of undue prejudice, 27 28 confusion of issues, or misleading the jury does not substantially outweigh the probative value of the statements. Fed. R. Evid. 403. The evidence clearly demonstrates Gatziolis’ state of mind at the time of the opinion letters. Accordingly, Plaintiff’s objections are OVERRULED. 23 1 letters, or misrepresented his current knowledge as to 2 it. Thus, it is relevant, so the Court OVERRULES the 3 objection. 4 The Ninth Circuit employs the sham affidavit rule 5 to prevent a party from creating an issue of fact 6 through an affidavit that contradicts the party’s prior 7 deposition testimony. Yeager v. Bowlin, 693 F.3d 1076, 8 1080 (9th Cir. 2012)(citations omitted). But this rule 9 should be applied cautiously as it is in tension with 10 the prohibition against credibility determinations in 11 summary judgment rulings. Id. (citation omitted). In 12 order to strike an affidavit under this rule, the 13 “court must make a factual determination that the 14 contradiction is a sham, and the ‘inconsistency between 15 a party’s deposition testimony and subsequent affidavit 16 must be clear and unambiguous.’” Id. (citation 17 omitted). 18 In his deposition, Gatziolis testified that he had 19 heard of the Administrative Agreement before he 20 prepared the 2011 Opinion Letter. 21 Decl., Ex. J at 13:15-19. Steinman Opp’n The Gatziolis Declaration 22 does not contradict that testimony because in it, 23 Gatziolis merely asserts he had not discussed or 24 considered it concurrently with the Loan transactions. 25 Accordingly, there is no “clear and unambiguous” 26 inconsistency such that the Court would find a sham 27 contradiction. The Court hereby OVERRULES Plaintiff’s 28 sham affidavit objection. 24 1 In his Declaration, Gatziolis attests that he did 2 not state that he had worked on a prior crop insurance 3 loan and that he actually had not worked on one at the 4 time of the July 19 meeting. Gatziolis Decl. ¶ 5. He 5 also explained why he allegedly did not deny the 6 statements Lander attributed to him after receiving the 7 letter or at his deposition. 8 counsel would respond). Id. ¶ 6 (believing other Plaintiff objects to each 9 assertion pursuant to the sham affidavit rule. 10 Objs. to Gatziolis Decl. ¶¶ 2-3. Pl.’s The Court does not 11 find that these are sham Declarations because Gatziolis 12 explains the supposed contradiction between his earlier 13 testimony that the letter accurately captured the 14 meeting and this affidavit that the specific sentences 15 attributed to Gatziolis are incorrect. See Gatziolis 16 Decl. ¶ 6 (“I did not recall that allegation from Mr. 17 Lander’s letter at the time of my deposition.”). Thus, 18 Plaintiff’s objections are OVERRULED. 19 d. Plaintiff’s Objections to the Declaration 20 of Douglas A. Fretty in Support of 21 Defendants’ Opposition Are SUSTAINED in 22 Part and OVERRULED in Part 23 Plaintiff objects to the following exhibits of the 24 Declaration of Douglas A. Fretty filed in Support of 25 Defendants’ Opposition (“Fretty Opposition 26 Declaration”): (1) Plaintiff’s internal memorandum 27 regarding the Loan [147]; (2) Richard Ellis’ deposition 28 transcript [139-5]; (3) an email from Crop USA to 25 1 Plaintiff regarding “Cash Disbursements” made the week 2 of October 19, 2012 [139-6]; and (4) an email from Crop 3 USA to Plaintiff regarding disbursements made the week 4 of November 16, 2012 [139-7]. ECF No. 156-5. As in 5 Plaintiff’s other objections, Plaintiff fails to 6 provide more than mere boilerplate recitations of the 7 Federal Rules of Evidence, e.g., hearsay, lack of 8 personal knowledge, improper authentication, best 9 evidence rule, irrelevant, and improper legal 10 conclusion. Although the Court need not rule on each 11 individually, the Court finds that most of the 12 objections lack merit. 13 First, Plaintiff’s internal memorandum is not 14 hearsay because it is a statement made by and offered 15 against an opposing party. It is also not hearsay as 16 Defendants present it as evidence that Plaintiff was on 17 notice about the commission structure. Defs.’ Opp’n to 18 Pl.’s Mot. (“Defs.’ Opp’n”) 8:16-20, ECF No. 139. 19 There is no evidence the declarant lacked personal 20 knowledge as to the content, especially when accounting 21 for the specific details reflected in it. It was 22 properly authenticated because Plaintiff admits that it 23 is its own memorandum. See Pl.’s Reply 24:20-22. 24 Finally, the best evidence rule is not violated because 25 the memorandum itself is offered. Thus, the Court 26 OVERRULES these objections to the internal memorandum. 27 Second, the Court SUSTAINS Plaintiff’s objection to 28 Fretty’s statement about Richard Ellis’ deposition. 26 1 The Court only relies on the transcript itself under 2 the best evidence rule. 3 Third, the emails from Crop USA to Plaintiff 4 regarding Crop USA’s “Cash Disbursements” are not 5 hearsay because Defendants offer them for the non6 hearsay purpose of notice. Indeed, the emails to 7 Plaintiff are relevant in that they disclosed Crop 8 USA’s payments of legal fees to Crop USA’s and AIA’s 9 counsel in the Litigation, arguably revealing to 10 Plaintiff that there was an administrative agreement 11 with AIA and ongoing Litigation. 12 9:5. Defs.’ Opp’n 8:25- There is no evidence of lack of personal 13 knowledge, and the exhibits were properly authenticated 14 in Richard Ellis’ deposition. Fretty Opp’n Decl., Ex. 15 5 (“R. Ellis Dep.”) 297:13-298:24. As such, 16 Plaintiff’s objections to these exhibits are OVERRULED. 17 e. Defendants’ Objections to Plaintiff’s 18 Evidence Are SUSTAINED in Part and 19 OVERRULED in Part 20 In response to Plaintiff’s Motion, Defendants 21 object to portions of the Declaration of Todd M. Lander 22 in Support of Plaintiff’s Motion (“Lander Motion 23 Declaration”) [120-8] and its exhibits [120-9], the 24 Declaration of Richard Ellis in Support of Plaintiff’s 25 Motion (“Richard Ellis Motion Declaration”) [120-10], 26 the Declaration of David Ellis (“David Ellis 27 Declaration”) [120-12], and the Declaration of Peter 28 Steinman in Support of Plaintiff’s Motion (“Steinman 27 1 Motion Declaration”) exhibits [120-14]. 2 15. ECF No. 139- In response to Plaintiff’s Opposition, Defendants 3 object to portions of the Declaration of R. John Taylor 4 (“Taylor Declaration”) [141-1], the Declaration of 5 Peter Steinman in Support of Plaintiff’s Opposition 6 (“Steinman Opposition Declaration”) exhibits [141-5], 7 the Declaration of Richard Ellis in Support of 8 Plaintiff’s Opposition (“Richard Ellis Opposition 9 Declaration”) [141-6], and the Declaration of Todd M. 10 Lander in Support of Plaintiff’s Opposition(“Lander 11 Opposition Declaration") [141-9] and its exhibits [14112 10]. ECF No. 153. The Court addresses these together 13 because much of the evidence and corresponding 14 objections are the same. 15 Many of the objections are based on the declarants’ 16 lack of competence to testify to what a deponent 17 testified to, see Clark v. County of Tulare, 755 F. 18 Supp. 2d 1075, 1084 (E.D. Cal. 2010), and the best 19 evidence rule, see Fed. R. Evid. 1003. The Court 20 SUSTAINS each of these objections and hereby relies 21 solely on the documents themselves as opposed to the 22 declarants’ quotations of and commentary on the 23 documents. Defs.’ Objs. to Pl.’s Evid. in Supp. of 24 Pl.’s Mot. (“Defs.’ Objs. to Pl.’s Mot.”) ¶¶ 2-4, 6, 825 13, 15, 19, 21-26, 28, ECF No. 139-15; Defs.’s Objs. to 26 Pl.’s Evid. in Supp. of Pl.’s Opp’n (“Defs.’ Objs. to 27 Pl.’s Opp’n”) ¶¶ 3-5, 8, 10, 16-21, 23, 44-46, ECF No. 28 153. 28 1 On hearsay grounds, Defendants object to the Lander 2 Motion Declaration and Lander Opposition Declaration's 3 references to a July 24, 2013 letter from Todd M. 4 Lander (“Lander”) of Cohen Tauber to Gatziolis and the 5 letter itself. Defs.’ Objs. to Pl.’s Mot. ¶¶ 1, 5; 6 Defs.’ Objs. to Pl.’s Opp’n ¶¶ 43, 47. As to the 7 references in the Lander Motion Declaration and Lander 8 Opposition Declaration, the Court SUSTAINS Defendants’ 9 objections because they quote a letter that is an out10 of-court statement offered for the truth of the matter 11 asserted—what the letter says. 12 Fed. R. Evid. 801, 802. On the other hand, the letter itself falls under 13 the hearsay exemption for opposing party statements. 14 Fed. R. Evid. 801(2)(B) (a statement that the opposing 15 “party manifested that it adopted or believed to be 16 true” is not hearsay). Lander wrote to Gatziolis 17 purporting to recount Gatziolis’ statements at their 18 July 19 meeting. Lander Mot. Decl., Ex. H at 10-11. 19 Specifically, Lander wrote that Gatziolis indicated 20 that “based on personal experience in another crop 21 insurance matter where a lender failed economically, 22 [Gatziolis] believed that Diversified was obligated” to 23 pay commissions to the sub-agents “irrespective of the 24 status of the GemCap-Crop loan.” Id. at 10. Gatziolis 25 responded by saying he took a “quick look” at the 26 letter without refuting any of its contents, Lander 27 Mot. Decl., Ex. I at 13, and later testified that while 28 he did not “remember [the letter] that well,” he 29 1 thought Lander “did capture the July 19 meeting 2 relatively accurately,” Steinman Mot. Decl., Ex. J at 3 28:17-29:9. In his Declaration, Gatziolis asserts that 4 “Lander’s statement was misleading,” but he “did not 5 see a reason to respond” to the letter because other 6 counsel was responsible for responding. 7 Decl. ¶ 6. Gatziolis The Court is not persuaded given that 8 Lander attributed this statement directly to Gatziolis, 9 and a person in his position would have likely 10 responded to it given that he responded at all. Thus, 11 the Court OVERRULES Defendants’ objections to the 12 admission of the letter.7 Defs.’ Objs. to Pl.’s Mot. 13 ¶ 5; Defs.’ Objs. to Pl.’s Opp’n ¶ 47. 14 Additionally, Defendants object to the Richard 15 Ellis Motion Declaration and David Ellis Declaration’s 16 characterization of Gatziolis’s aforementioned 17 statements at the July 19 meeting. 18 Pl.’s Mot. ¶¶ 7, 20. Defs.’ Objs. to Because the characterization 19 lacks foundation, this objection is SUSTAINED. See 20 Medina v. Multaler, Inc., 547 F. Supp. 2d 1099, 1105 21 n.8 (C.D. Cal. 2007)(without factual support, an 22 opinion is inadmissible). 23 Defendants also object to a few of the Richard 24 Ellis Motion Declaration and David Ellis Declaration’s 25 purported legal arguments. Defs.’ Objs. to Pl.’s Mot. 26 27 28 7 The Court additionally agrees with Plaintiff that California’s litigation privilege does not apply to this business meeting where Crop USA merely sought to devise a plan to satisfy the Loan in the face of default. Pl.’s Reply 17:18-20. 30 1 ¶¶ 14, 16, 18, 27-31; Defs.’ Objs. to Pl.’s Opp’n 2 ¶¶ 22, 24, 26. 3 declarations. Legal arguments are inappropriate in See King Cty. v. Rasmussen, 299 F.3d 4 1077, 1082 (9th Cir. 2002)(“Declarations, which are 5 supposed to ‘set forth facts as would be admissible in 6 evidence,’ should not be used to make an end-run around 7 the page limitations of Rule 7 by including legal 8 arguments outside of the briefs.” (citing Fed. R. Civ. 9 P. 56(c)). These objections are thus SUSTAINED. 10 However, the statement, “[Diversified] refused to pay 11 the Gross Commissions to [Plaintiff],” is not a legal 12 argument but a fact. See Defs.’ Objs. to Pl.’s Mot. 13 ¶ 17; Defs.’ Objs. to Pl.’s Opp’n ¶ 25. As such, the 14 objection to this statement is OVERRULED. 15 Attached to the Steinman Motion Declaration is 16 Taylor’s deposition in the matter of GemCap Lending I, 17 LLC v. Crop USA Insurance Agency, Inc., et al., Case 18 No. 2:23-cv-5504). Steinman Mot. Decl., Ex. M. The 19 Court agrees with Defendants that this testimony is 20 inadmissible hearsay because Defendants were not 21 parties to the case and Plaintiff did not have the same 22 motive to cross-examine Taylor that Defendants would on 23 the subject matter. Hub v. Sun Valley Co., 682 F.2d 24 776, 778 (9th Cir. 1982). Indeed, Plaintiff would be 25 motivated by the desire to reclaim the unpaid balance 26 on the Loan, and Defendants would be motivated to avoid 27 liability. Therefore, Defendants’ objection to this 28 testimony is SUSTAINED. Defs.’ Objs. to Pl.’s Mot. 31 1 ¶ 32; Defs.’ Objs. to Pl.’s Opp’n ¶ 6. 2 Defendants object to the Steinman Motion 3 Declaration Exhibit P, containing deposition testimony 4 of their expert, Field. Defs.’ Objs. to Pl.’s Mot. 5 ¶ 33; Defs.’ Objs. to Pl.’s Opp’n ¶ 7. Field testified 6 that “a stream of commissions coming from insurance 7 companies, some of which would have been paid on to 8 agents,” was the Collateral to be deposited in the 9 Lockbox. Steinman Mot. Decl., Ex. P at 63:2-6. Field 10 then said that his understanding was that Gross 11 Commissions were part of that Collateral. 12 10. Id. at 63:7- Defendants claim that it is hearsay as an 13 inadmissible statement of fact by an expert witness. 14 However, Field was testifying to his understanding of 15 the Collateral. Because his understanding is important 16 to the determination of reliability of his expert 17 opinion, this objection is OVERRULED. 18 As discussed above, the Court denied Plaintiff’s 19 Request for Judicial Notice of the Church Crop order. 20 Accordingly, Defendants’ objections to this order are 21 SUSTAINED. Defs.’ Objs. to Pl.’s Mot. ¶ 34; Defs.’ 22 Objs. to Pl.’s Opp’n ¶¶ 2, 48; Steinman Mot. Decl., Ex. 23 R. 24 Defendants object to a few statements in the Taylor 25 Declaration and Richard Ellis Opposition Declaration on 26 the grounds of lack of personal knowledge. 27 Objs. to Pl.’s Opp’n ¶¶ 1, 9, 15. Defs.’ For instance, Taylor 28 asserted, “As counsel, Gatziolis knew of the insurer’s 32 1 position in 2008.” Taylor Opp’n Decl. ¶ 16. Richard 2 Ellis said that, “unbeknownst to [Plaintiff], this 3 pledge structure (i.e., Gross Commissions as 4 collateral) was identical to the failed pledge 5 structure in a prior crop insurance matter handled by 6 borrower Crop USA’s counsel, Defendants.” 7 Opp’n Decl. ¶ 24. R. Ellis As to these statements, Defendants’ 8 objections are SUSTAINED because the declarants lacked 9 foundation. Nevertheless, Richard Ellis also declared 10 that “unknown to [Plaintiff], multiple lawsuits had 11 been initiated against Crop USA.” 12 ¶ 11. R. Ellis Opp’n Decl. Defendants’ corresponding objection is OVERRULED 13 because Richard Ellis, as co-president of Plaintiff, 14 has personal knowledge of the Litigation and what 15 Plaintiff knew of it. 16 Finally, Defendants make several objections to the 17 Richard Ellis Opposition Declaration—namely, statements 18 about Richard Ellis’ alleged telephone conversation 19 with Gatziolis—arguing that it is a sham affidavit. 20 Defs.’ Objs. to Pl.’s Opp’n ¶¶ 11-14. Defendants claim 21 this Declaration is the first time Richard Ellis 22 mentioned the statements he attributed to Gatziolis. 23 Id. ¶ 11. Moreover, they argue Richard Ellis has not 24 offered a “credible explanation as to how his 25 recollection was refreshed.” Id. (citing Yeager, 693 26 F.3d at 1080). 27 As discussed, in order to strike a declaration 28 under the sham affidavit rule, the Court must find that 33 1 a clear and unambiguous inconsistency, making the 2 contradiction with former testimony a sham. 3 Yeager, 693 F.3d at 1080. See In Plaintiff’s interrogatory 4 responses, Plaintiff lists what due diligence it 5 conducted in preparation for the Loan. Fretty Mot. 6 Decl., Ex. 25 at 8-9 (response to interrogatory five). 7 Plaintiff answered that Gatziolis advised Richard Ellis 8 by phone that the Litigation “had been definitively 9 decided and/or settled, or was imminently to be finally 10 decided and/or settled,” in Taylor and Crop USA’s favor 11 and “would have no impact on . . . the [C]ollateral,” 12 telling Plaintiff “not to worry about it.” Id. at 8. 13 That response is consistent with Richard Ellis’ 14 Declaration, and Defendants do not contest the accuracy 15 of that response. Defs.’ SUF ¶ 32. Moreover, contrary 16 to Defendants’ position, Richard Ellis was not “vague 17 and evasive” in his deposition testimony. 18 to Pl.’s Opp’n ¶ 11. Defs.’ Objs. Rather, Richard Ellis apparently 19 answered counsel’s questions to the best of his 20 understanding. See, e.g., Defs.’ Reply, Ex. 8 at 59:9- 21 10 (“I don’t know how to answer that question.”). 22 Because Richard Ellis testified that Gatziolis 23 portrayed the Litigation to mainly concern AIA and 24 Taylor, not Crop USA, the Court does not find his 25 Declaration to be a sham. See id. at 61:18-22. 26 such, Defendants’ objection is OVERRULED. 27 /// 28 /// 34 As 1 f. Defendants’ Objections to the Declaration 2 of Melvin Gilbert Are SUSTAINED in part 3 and OVERRULED in part 4 Defendants object to many parts of the Declaration 5 of Melvin Gilbert (“Gilbert Declaration”) [141-8]. 6 Primarily, the objections are based on lack of personal 7 knowledge and hearsay because Melvin Gilbert’s 8 (“Gilbert”) statements include “alleged ‘information’ 9 that Gilbert was allegedly ‘recently’ told,” and 10 Gilbert fails to reveal the source of such information. 11 Defs.’ Objs. to Pl.’s Opp’n 22 n.1. The Court agrees 12 with Defendants and SUSTAINS these objections. Id. 13 ¶¶ 27, 31, 34, 36-38, 40-42; see Beyene v. Coleman Sec. 14 Servs., Inc., 854 F.2d 1179, 1183 (9th Cir. 1988) 15 (excluding an exhibit as hearsay on summary judgment). 16 Relying on the Best Evidence Rule, Defendants 17 object to some of Gilbert’s descriptions of the 18 contents of the Loan documents. Id. ¶¶ 29, 33, 35, 39. 19 These objections are SUSTAINED, and the Court will only 20 consider the documents themselves for their content. 21 Finally, like in some of their objections to the 22 Richard Ellis Opposition Declaration, Defendants object 23 to Gilbert’s assertions about Richard Ellis’ telephone 24 call with Gatziolis on the basis of the sham affidavit 25 rule. Id. ¶¶ 28, 30, 32. As for the Richard Ellis 26 Opposition Declaration, the Court finds no clear and 27 unambiguous inconsistency, which would render the 28 contradiction a sham. See Yeager, 693 F.3d at 1080. 35 1 Instead, the Court finds Gilbert’s deposition testimony 2 to be entirely consistent with his declaration. At his 3 deposition, Gilbert explained that Gatziolis told 4 Richard Ellis on the phone that the Litigation would 5 not negatively impact the Collateral. 6 Ex. 9 at 77:15-78:20. 7 confirms this. 8 No. 141-8. 9 3. Defs.’ Reply, In his Declaration, Gilbert Decl. of Melvin Gilbert ¶¶ 13-15, ECF Defendants’ objections are thus OVERRULED. The Court DENIES as MOOT Plaintiff’s Motion to 10 Strike Expert Robert L. Kehr’s Report [113], 11 DENIES Defendants’ Motion to Strike Expert 12 Stanley W. Lamport’s Report [114], and DENIES 13 as MOOT Defendants’ Motion to Strike Portions 14 of Expert Douglas E. Johnston, Jr.’s Report 15 [115] 16 Because the Court grants summary judgment in favor 17 of Defendants without relying on either of the 18 corresponding expert reports, the Court DENIES the 19 following Motions as MOOT: (1) Plaintiff’s Motion to 20 Strike Defendants’ Expert Robert L. Kehr’s “Rebuttal” 21 Witness Report and Preclude Kehr from Offering Any 22 Expert Testimony [113]; and (2) Defendants’ Motion to 23 Strike Portions of the Expert Report of Douglas E. 24 Johnston, Jr. [115]. 25 As for Defendants’ Motion to Strike the Expert 26 Report of Stanley W. Lamport [114], the Court turns to 27 the merits because the parties discuss the Lamport 28 Report in their summary judgment papers. 36 See Defs.’ 1 Mot. 9:1-3, 10:4-7, 22 n.4; Defs.’ Opp’n 8:9-11, 13:172 20, 13 n.4; Defs.’ Reply 13 n.4; Pl.’s Reply 3 n.3; see 3 also supra Part II.B.2.b (overruling Plaintiff’s 4 objections to the Lamport Report). 5 An expert witness cannot render an opinion as to a 6 legal conclusion, as “instructing the jury as to the 7 applicable law is the distinct and exclusive province 8 of the court.” Nationwide Transp. Fin. v. Cass Info. 9 Sys., Inc., 523 F.3d 1051, 1058 (9th Cir. 10 2008)(citation omitted). Lamport’s expert testimony 11 sets forth various California Model Rules of 12 Professional Conduct, cases, statutes, and restatement 13 sections setting forth the duties owed between the 14 borrower’s counsel and the lender. See generally Mot. 15 to Strike Lamport Report, Ex. 2 at 4-8, ECF No. 114-3. 16 An expert’s interpretations of statutes and regulations 17 and whether a party violated those laws are “statements 18 of the law and legal conclusions” that “should be 19 excluded.” Willard v. Foremost Ins. Co., EDCV 13-0262 20 JGB (DTBx), 2014 WL 12589331, at *3 (C.D. Cal. May 9, 21 2014). To the extent that Lamport offers statements of 22 law that the parties rely upon in their respective 23 Summary Judgment Motions, the Court may consider them 24 in determining the applicable duty owed, a question of 25 law for the Court to resolve. The Court does not, 26 however, consider Lamport’s ultimate conclusions 27 regarding Defendants’ duty of care in its analysis for 28 the cross-Motions for Summary Judgment. 37 1 Defendants’ arguments that Lamport improperly 2 testifies as to their “knowledge, intent, and state[s] 3 of mind” are not well-taken. 4 Report 8:11-12. Mot. to Strike Lamport Defendants rely on Siring v. Oregon 5 State Board of Higher Education ex rel. Eastern Oregon 6 University, 927 F. Supp. 2d 1069, 1077 (D. Or. 2013), 7 which stated that an expert witness could not opine as 8 to a specific motive or subjective state of mind 9 underpinning a party’s or witness’s decisions. See 10 also M.H. v. Cnty. of Alameda, Case No. 11 11–cv–02868–JST, 2015 WL 54400, at *2 (N.D. Cal. Jan. 12 2, 2015)(“[E]xperts cannot testify as to Defendants’ 13 actual, subjective states of mind.”). Here, Lamport 14 repeatedly opines regarding what Defendants “knew or 15 should have known” about various doubts that would 16 affect the Loan and Loan Agreement. 17 to Strike Lamport Report, Ex. 2. See generally Mot. In Alameda, the court 18 explained that testimony about what defendants knew or 19 should have known is permissible regarding the relevant 20 standard of care in law enforcement. 21 *2. 2015 WL 54400, at Here too, the Court finds that Lamport’s opinions 22 regarding what Defendants knew or should have known is 23 not a legal conclusion about their subjective mindset, 24 but rather shows how their conduct did not align with 25 the relevant standard of care for legal opinion 26 writing. 27 Similarly, the Court disagrees that Lamport 28 improperly applies his self-provided legal standards to 38 1 factual findings to conclude that Defendants breached a 2 duty owed to Plaintiff. 3 10:7-12. Mot. to Strike Lamport Report Expert witnesses are not expressly prohibited 4 from rendering opinions on whether a defendant met the 5 relevant standard of care. See Iorio v. Allianz Life 6 Ins. Co. of N. Am., 2010 WL 11508761, at *9 (S.D. Cal. 7 Jan. 27, 2010)(expert opinions regarding whether 8 defendant deviated from standard of care were relevant 9 to issues in the case); Vaxiion Therapeutics, 593 F. 10 Supp. 2d at 1165 (“In a legal malpractice action, 11 expert testimony is required to establish . . . the 12 propriety of the particular conduct by the practitioner 13 in particular circumstances.”). Moreover, Defendants’ 14 own standard-of-care expert, Field, expressly offers 15 conclusions as to whether Defendants satisfied the 16 requisite standard of care. 17 Lastly, Defendants attack Lamport’s qualifications 18 regarding customary practice in drafting legal opinion 19 letters. Mot. to Strike Lamport Report 11:27-28. 20 Defendants conclusively argue that Lamport lacks 21 specific expertise in preparing or assessing opinion 22 letters, and that his experience is only in 23 professional ethics. Id. at 11:27-12:2. Lamport’s 24 experience is well-suited for articulating the 25 requisite standard-of-care in a legal malpractice 26 claim, and Defendants do not clearly set forth the key 27 qualifications he lacks to opine on opinion letters, 28 beyond the fact that his background is in professional 39 1 ethics. Accordingly, the Court DENIES Defendants’ 2 Motion to Strike the Lamport Report [114]. 3 4. The Court GRANTS Defendants’ Motion for Summary 4 Judgment [116] and DENIES Plaintiff’s Motion 5 for Partial Summary Judgment [120-1] 6 The Court turns to the merits of the parties’ 7 respective Motions for Summary Judgment [116, 120-1]. 8 Defendants seek summary judgment in their favor as to 9 all four of Plaintiff’s causes of action. Defs.’ Mot. 10 9:6-20, 25:27-28; Defs.’ Reply 25:7-11, 25:5-16. 11 Plaintiff seeks partial summary judgment as to the 12 following elements of the second, third, and fourth 13 claims (intentional misrepresentation, negligent 14 misrepresentation, and concealment): (1) duty, 15 (2) breach, and (3) justifiable reliance.8 Pl.’s Mot. 16 1:18-22, 25:21-22; Pl.’s Reply 1:2-4. 17 In its TAC, Plaintiff alleges the following causes 18 of action: (a) professional malpractice; 19 (b) intentional misrepresentation; (c) negligent 20 misrepresentation; and (d) concealment. TAC ¶¶ 61-90. 21 The Court discusses each in turn. 22 23 24 25 26 27 28 8 As discussed below, the former two elements are only part of Plaintiff’s professional malpractice claim, not the claims for which Plaintiff seeks summary judgment. See also Pl.’s Reply 2:6-7 (“[T]here is no ‘standard of care’ analysis with the [intentional misrepresentation, negligent misrepresentation, and concealment claims], since these are not based on professional negligence.”). Because the Court finds that summary judgment is appropriate for Defendants on all claims, this discrepancy is immaterial. 40 1 2 a. Professional Malpractice The first issue is whether, as a matter of law, 3 Defendants committed professional malpractice. The 4 elements of a professional malpractice9 claim are 5 “(1) the duty of the professional to use such skill, 6 prudence, and diligence as other members of his 7 profession commonly possess and exercise; (2) a breach 8 of that duty; (3) a proximate causal connection between 9 the negligent conduct and the resulting injury; and 10 (4) actual loss or damage resulting from the 11 professional’s negligence.” Vaxiion Therapeutics, 593 12 F. Supp. 2d at 1165 (quoting Osornio v. Weingarten, 29 13 Cal. Rptr. 3d 246, 254 (Ct. App. 2007)). 14 15 i. Duty An attorney issuing “a legal opinion intended to 16 secure benefit for the client” must use due care, “or 17 the attorneys who do not act carefully will have 18 breached a duty owed to those they attempted or 19 expected to influence on behalf of their clients.” 20 Roberts v. Ball, Hunt, Hart, Brown & Baerwitz, 128 Cal. 21 Rptr. 901, 906 (Ct. App. 1976); see Osornio, 21 Cal. 22 Rptr. at 259-60. Additionally, a defendant, 23 professional or otherwise, always owes a duty not to 24 25 26 27 28 9 Plaintiff sometimes refers to its professional malpractice claim as legal malpractice. See, e.g., Pl.’s Opp’n at 9:11-12. Legal malpractice is a kind of professional malpractice. See Neel v. Magana, Olney, Levy, Cathcart & Gelfand, 491 P.2d 421, 432 (Cal. 1971)(in bank)(“A similar but possibly longer absolute limit may be desirable in actions for legal malpractice . . . or indeed in all actions for professional malpractice.”). 41 1 defraud others. Vega v. Jones, Day, Reavis & Pogue, 17 2 Cal. Rptr. 3d 26, 34 (Ct. App. 2004)(“Jones Day did 3 have the same duty others have “‘not to defraud 4 another, even if that other is an attorney negotiating 5 at arm’s length.’” (citation omitted)); Jackson v. 6 Rogers & Wells, 258 Cal. Rptr. 454, 459 (Ct. App. 7 1989)(“[T]he fact [that an attorney committed fraud in 8 dealing with a third party] in the capacity of attorney 9 for a client does not relieve him of liability.”). 10 Thus, a duty of disclosure exists if “the defendant 11 makes representations but does not disclose facts which 12 materially qualify the facts disclosed, or which render 13 his disclosure likely to mislead.” Linear Tech. Corp. 14 v. Applied Materials, Inc., 61 Cal. Rptr. 3d 221, 2 15 (Ct. App. 2007); see also Goodman, 556 P.2d at 745; 16 Neel v. Magana, Olney, Levy, Cathcart & Gelfand, 491 17 P.2d 421, 429 (Cal. 1971)(in bank). 18 For instance, in Vega, the defendant law firm 19 argued that because it owed no duty to disclose the 20 suppressed transaction to the adverse party in the 21 merger, it was not liable for concealment. 22 Rptr. 3d at 33. 17 Cal. However, because the defendant 23 “specifically undertook to disclose the transaction” in 24 the first place, the Court said it was “not at liberty 25 to conceal a material term.” Id. In the context of 26 opinion letters, the Roberts court held that the 27 defendant law “firm had a duty to reveal to plaintiff 28 [its] doubt as to the status of the partnership as a 42 1 general partnership, since the firm knew that 2 disclosure of this doubt might well be determinative of 3 plaintiff’s decision to make loans to [the firm’s 4 client].” 128 Cal. Rptr. at 906. “Even though 5 defendants may have believed there was a general 6 partnership in spite of the claims of some of the 7 general partners”—and even though the plaintiff did not 8 allege the opinion was incorrect—the defendants could 9 be liable for negligent misrepresentation. Id. While 10 these cases are based on misrepresentation causes of 11 action, they are pertinent to Plaintiff’s professional 12 malpractice claim because Plaintiff alleges breach by 13 way of misrepresentation.10 14 TAC ¶¶ 63-64, 66. Plaintiff’s expert witness, Lamport, explains that 15 the foregoing duties do not conflict with the lawyer’s 16 10 The California standard is largely consistent with 17 Defendants’ contention that their duties to Plaintiff are limited 18 by the information Defendants provided in the Opinion Letters, or 19 20 21 22 23 24 25 26 27 28 their “four corners.” Defs.’ Mot. 11:16-20 (citing Field & Smith, Legal Opinions in Business Transactions at § 3:32 (Prac. Law Inst. 3d ed. 2014); Prudential Ins., 80 N.Y. 2d at 385-86). After all, Plaintiff was not Defendants’ client, but the adverse party in the Loan transactions. Id. at 11:4-11. As such, although Defendants owed no duty to speak, they could not make misrepresentations through their voluntary disclosures. But contrary to the “four corners” limitation, Defendants can be liable for any misrepresentation—whether or not in the Opinion Letters—just as any other individual would be. Vega, 17 Cal. Rptr. 3d at 34. On the other hand, Plaintiff’s suggestion that Defendants owed a duty of “full and fair disclosure” of all facts within their knowledge relating to the statements in the Opinion Letters is overbroad compared to California law. See Pl.’s Mot. 10:2-4, 12:24-25. Notwithstanding that this language arises from a California case, it did not involve opinion letters, and, regardless, is limited to situations where the defendant undertakes to speak on the matter. See Rogers v. Warden, 125 P.2d 7, 9 (Cal. 1942)(“If he speaks at all, he must make a full and fair disclosure.” (emphasis added)). 43 1 duty to the client because the lawyer must not engage 2 in fraudulent conduct or advance the client’s fraud by 3 not disclosing information. Lamport Report 4-5. 4 Defendants’ expert witness, Field, adds that lawyers’ 5 liability in the context of third-party opinions—as 6 with any duty of care analysis—is linked to customary 7 practice standards. 8 Field Report 5, 11. In sum, Defendants owed Plaintiff a general duty of 9 care in providing the Opinion Letters as well as a duty 10 to disclose facts that materially qualify the 11 representations Defendants made. 12 13 ii. Breach Plaintiff points to a number of alleged breaches 14 Defendants made in the Opinion Letters and Disclosure 15 Schedule. The Court addresses each in turn and finds 16 that Plaintiff fails to raise a genuine issue of 17 material fact. Fed. R. Evid. 56. Plaintiff’s only 18 dispute with the following discussion is based on 19 Plaintiff’s mischaracterization of the language in 20 Defendants’ Opinion Letters and Gatziolis’ statements 21 memorialized in Lander’s letter. 22 arguments. But these are merely Based on the actual documents themselves 23 and as a matter of law—law which Plaintiff 24 misconstrues—no reasonable juror could find in 25 Plaintiff’s favor. 26 27 28 (1) Plaintiff’s Ability to Collect Gross Commissions from Diversified Plaintiff argues that Defendants concealed their 44 1 doubts that Diversified might pay Crop USA’s sub-agents 2 instead of Plaintiff in the event of default.11 3 Mot. 13:23-26. Pl.’s Plaintiff alleges that Gatziolis knew 4 Diversified would do so from his “‘personal experience’ 5 in ‘another crop insurance matter,’” which Gatziolis 6 revealed at his July 19 meeting with Cohen Tauber, 7 Plaintiff’s counsel in the Loan transactions. 8 Lander Mot. Decl., Ex. H at 10. Id.; According to 9 Plaintiff, Defendants breached their duty by concealing 10 this doubt while asserting in the Opinion Letters’ 11 “Knowledge Qualifier” paragraphs that Defendants knew 12 of no facts to lead them to believe that the factual 13 matters in the Loan documents were untrue or 14 inaccurate. ECF No. 118-3 (“2011 Opinion Letter”) at 15 6; ECF No. 118-11 (“2013 Opinion Letter”) at 7. 16 Defendants counter that Plaintiff misconstrues both the 17 “Knowledge Qualifier” as well as Gatziolis’ alleged 18 19 20 21 22 23 24 25 26 27 28 11 Because Plaintiff did not plead this theory in its TAC, Defendants argue that Plaintiff is barred from seeking summary judgment on it. Defs.’ Opp’n 14:27; see IV Solutions, Inc. v. Conn. Gen. Life Ins. Co., No. CV-13-9026, 2015 WL 12843822, at *14 (C.D. Cal. Jan. 29, 2015)(“Allowing a plaintiff . . . to allege one theory, but then pursue relief on an entirely different theory at summary judgment and trial, is inconsistent with the Federal Rules.”); see also Coleman v. Quaker Oats Co., 232 F.3d 1271, 1292 (9th Cir. 2000). In its TAC, Plaintiff alleges that Crop USA overstated its borrowing base by including commissions that Diversified paid directly to certain sub-agents, not into the Lockbox. Defs.’ Opp’n 14:21-25; TAC ¶¶ 46(b), 48, 53. Contrary to Plaintiff’s contention that its references to “Collateral” encompass this new theory, Pl.’s Reply 15:11-12, the TAC’s only mention of what might happen in the event of default is that Plaintiff might need a loan workout to get paid, TAC ¶ 53. Nevertheless, summary judgment for Defendants on this theory is warranted on the merits. 45 1 remarks at the July 19 meeting.12 Defs.’ Opp’n 17:21- 2 28, 21:9-10. 3 The “Knowledge Qualifier” paragraph states in 4 relevant part: 5 6 7 8 9 10 Wherever we indicate that our opinion with respect to the existence or absence of facts is based on our knowledge, our opinion is based solely on (i) the current actual knowledge of the attorneys currently with our firm who have represented [Crop USA] and (ii) the representations and warranties of said parties contained in the Loan Documents; we have made no independent investigation as to such factual matters. However, we know of no facts which lead us to believe such factual matters are untrue or inaccurate. 11 2011 Opinion Letter 5; see also 2013 Opinion Letter 6 12 (same except as to “Amended Loan Documents”). 13 By its terms, the “Knowledge Qualifier” only 14 applies to statements in the Opinion Letters where 15 Defendants indicate their own knowledge as to a 16 particular subject matter. Defs.’ Opp’n 21:23-25. 17 Because Plaintiff fails to point to any reference of 18 “knowledge” regarding Plaintiff’s ability to collect 19 Gross Commissions from Diversified, these paragraphs 20 are no basis to hold Defendants liable. 21 Moreover, Plaintiff’s interpretation of Gatziolis’ 22 statements at the July 19 meeting fare no better. The 23 24 12 Despite that Defendants dispute 25 the statements Lander attributes to him that Gatziolis ever said in his letter, Gatziolis 26 Decl. ¶¶ 4-6, the Court finds no genuine dispute of material 27 28 fact, Fed. R. Evid. 56. If Gatziolis made those remarks, Defendants are still entitled to summary judgment because—as discussed below—the remarks do not support a finding that Defendants breached their duty or made any misrepresentation or concealment. 46 1 statements appear to represent Gatziolis’ opinion in 2 July 2013 that Diversified might pay commissions to its 3 sub-agents rather than the Lockbox if Plaintiff 4 foreclosed on the Loan. Defs.’ Opp’n 17:21-24; Lander 5 Mot. Decl., Ex. H at 10-11. These July 2013 statements 6 do not represent Defendants’ subjective knowledge in 7 November 2011 and February 2013 that Plaintiff was 8 lending against commissions that Crop USA ultimately 9 owed to sub-agents. 10 6:4-6. Defs.’ Opp’n 17:25-28; Pl.’s Mot. Indeed, Gatziolis testified that his 11 understanding of the Collateral was consistent with the 12 definition in the Loan Agreement, “[a]ll of the assets 13 of CropUSA.” 14 Fretty Opp’n Decl., Ex. 8 at 305:20-22. Based on the foregoing, the Court finds Defendants 15 did not conceal doubts as to Plaintiff’s ability to 16 collect under the Loan and did not make any 17 misrepresentation through the “Knowledge Qualifier.” 18 (2) Crop USA’s Rights and Title to 19 20 Gross Commissions In the Opinion Letters, Defendants opined that 21 “[t]he provisions of the Loan Agreement create a valid 22 security interest in favor of [Plaintiff] in the 23 respective rights, title and interests of [Crop USA] in 24 and to all Collateral in which a security interest may 25 be created under Article 9 of the [California] Uniform 26 Commercial Code.” 27 5. 2011 Opinion Letter 4; 2013 Opinion This paragraph “does not encompass or address the 28 priority of any lien or security interest granted or 47 1 created pursuant to any of the Loan Documents.” 2011 2 Opinion Letter 8; see also 2013 Opinion Letter 10 (same 3 except as to “the perfection of or the priority of any 4 lien” and “Amended Loan Documents”). 5 Plaintiff argues Defendants meant a valid security 6 interest in the Gross Commissions, which would be a 7 misrepresentation because Gatziolis concurrently 8 believed that Diversified would not honor Crop USA’s 9 pledge of Gross Commissions. Pl.’s Mot. 15:13-17. In 10 support of this argument, Plaintiff relies on an Iowa 11 state court decision in Plaintiff’s lawsuit against one 12 of Crop USA’s sub-agents where the Iowa court found 13 that “Crop USA lacked ‘rights’ in the commissions owed 14 to [the sub-agent] within the meaning of the California 15 UCC.” Id. at 6:18-19. The Iowa court thus ruled 16 Plaintiff could not collect those commissions from the 17 sub-agent. Defs.’ Opp’n 19 n.5. As a preliminary 18 matter, this Court is not bound by that court’s ruling. 19 Additionally, at issue in this case is Defendants’ 20 opinion that Plaintiff had a valid security interest in 21 the Collateral, not in the commissions belonging to 22 that sub-agent. 23 Neither the Loan documents nor Opinion Letters 24 mention “gross commissions.” 25 Pl.’s Reply 11:20-23. Defs.’ Opp’n 16:4-12; Instead, Crop USA pledged 26 “Collateral,” which is defined as “[a]ll of the assets 27 of CropUSA.” Defs.’ Mot. 16:2-3. Although Plaintiff 28 notes that the definition includes “all of the right, 48 1 title and interest of [Crop USA] in and 2 to . . . commissions” under any “Sales Agent 3 Agreement,” the key terms are that Crop USA must still 4 have the “right, title and interest” to those 5 commissions. See Loan § 1.34. If Crop USA did not 6 have rights to the Sub-Agent Commissions—as Plaintiff 7 describes the Iowa state court holding—then those 8 commissions are not encompassed in the Collateral or 9 Plaintiff’s security interest. Inasmuch as Plaintiff 10 alleges that Crop USA overstated its borrowing base by 11 including commissions that were not payable to 12 Plaintiff’s Lockbox, TAC ¶ 46(b), Plaintiff has failed 13 to produce any evidence showing that Defendants were 14 aware of this or made any representations on the 15 matter, Defs.’ Mot. 18:4-9. Finally, Defendants did 16 not opine as to Plaintiff’s priority to the Collateral. 17 2011 Opinion Letter 8; 2013 Opinion Letter 10; see also 18 Defs.’ Reply 18:16-23. 19 As a result, the Court finds Defendants did not 20 breach their duty in this manner because they did not 21 make any misrepresentation about Plaintiff’s security 22 interest in the Collateral. 23 (3) Consent Required to Pledge Gross 24 Commissions 25 In the Opinion Letters, Defendants concluded, 26 “Neither the execution and delivery of the Transaction 27 Documents by [Crop USA] nor the consummation of the 28 transactions contemplated by the Loan Documents, 49 1 requires an exemption, consent, approval or 2 authorization of . . . any other Person.” 3 Letter 5; 2013 Opinion Letter 5. 2011 Opinion Plaintiff argues this 4 was a misrepresentation—and accordingly, a breach of 5 Defendants’ duty to Plaintiff—since Crop USA only had 6 title to the Net Commissions, not the Gross 7 Commissions—and would need the sub-agents’ consent to 8 pledge the Gross Commissions. Pl.’s Mot. 17:7-12. 9 Because Gatziolis believed that Diversified was 10 obligated to pay a portion of the Gross Commissions to 11 sub-agents, Defendants, at a minimum, had doubts about 12 Crop USA’s ability to pledge the Gross Commissions.13 13 Id. at 17:9-13. Moreover, Plaintiff contends that the 14 fact that Diversified was allegedly obligated to pay 15 commissions to sub-agents even if Plaintiff declared a 16 default meant that the sub-agents had to consent to the 17 pledge agreement. 18 Pl.’s Opp’n 22:24-27. Defendants counter that in the Loan, Crop USA 19 pledged all of its assets, i.e., the Collateral. 20 Defs.’ Opp’n 18:27-28. Crop USA did not need the sub- 21 agents’ consent to this Loan transaction, and Crop 22 USA’s ownership rights in the commissions flowing 23 through the Lockbox do not retroactively change that. 24 13 25 26 27 28 Like for Plaintiff’s Gross Commissions theory, Defendants purport that this Consent theory is unpled and unwarranted for summary judgment. Defs.’ Opp’n 18:21-25; see IV Solutions, 2015 WL 12843822, at *14. Citing TAC paragraph 56, Plaintiff argues it already alleged this theory. Pl.’s Reply 18:1-2. However, the Court finds no mention of “consent” or any allegation that could be interpreted as such. Regardless, Plaintiff fails to meet its burden on this theory. 50 1 Id. at 18:28-19:5. Defendants argue that Plaintiff 2 conflates “consent to the transaction, on the one hand, 3 and an ultimate right to be paid commissions by Crop 4 [USA], on the other.” Defs.’ Reply 19:11-14. Further, 5 Defendants dismiss Plaintiff’s reliance on the Iowa 6 state court ruling because it “nowhere holds that [the 7 sub-agent’s] ‘consent’ was at issue.” Defs.’ Opp’n 19 8 n.5; see also Defs.’ Reply 20:13-19. 9 The Court agrees that under the express language in 10 the Opinion Letters, Defendants opined only to consent 11 to the Loan transactions, not to any occurrence after 12 the fact. Therefore, Plaintiff’s argument that 13 Defendants misrepresented the consent needed to pledge 14 Gross Commissions fails. Because Plaintiff has not 15 established anyone’s consent was needed to pledge the 16 Collateral or enter into the Loan Agreement, the Court 17 holds that Defendants made no misrepresentation or 18 concealment. 19 20 (4) Borrower’s Disclosure Schedule Plaintiff also points to a number of alleged 21 misrepresentations made in Crop USA’s Disclosure 22 Schedule. As an initial matter, the language in the 23 Opinion Letters does not indicate that Defendants 24 ratified Crop USA’s Disclosure Schedule. Cf. Shafer v. 25 Berger, Kahn, Shafton, Moss, Figler, Simon & Gladstone, 26 131 Cal. Rptr. 2d 777, 789 (Ct. App. 2003)(“A 27 misrepresentation can occur through direct statement or 28 through affirmation of a misrepresentation of another, 51 1 as when a lawyer knowingly affirms a client’s false or 2 misleading statement.” (citation omitted)). 3 First, as discussed, the “Knowledge Qualifier” 4 paragraphs only applied to the portions of the Opinion 5 Letters where Defendants represented their knowledge on 6 the particular issue. Because Plaintiff fails to 7 establish that any of those portions relate to Crop 8 USA’s Disclosure Schedule—and more importantly, to the 9 sections Plaintiff alleges were fraudulent—Plaintiff 10 cannot rely on the “Knowledge Qualifier” as the basis 11 of Defendants’ liability. 12 See Pl.’s Mot. 17:19-21. Second, Plaintiff affords undue weight to the 13 “assumptions” Defendants make in the Opinion Letters. 14 See id. In each opinion letter, Defendants “assumed,” 15 “[f]or the purposes of this opinion,” that (1) the 16 Collateral exists, and Crop USA and Taylor have rights 17 or title to it, (2) all statements in the Loan 18 Documents are true, and (3) all parties complied with 19 any requirement of good faith. 2011 Opinion Letter 3- 20 4; 2013 Opinion Letter 3-4; see also TAC ¶¶ 27(b)-(d), 21 39(b)-(d). Under customary opinion letter practice, 22 “stated assumptions . . . shift to the opinion 23 recipient the responsibility for confirming the assumed 24 facts for itself or taking the risk that what is 25 assumed might turn out to be untrue.” 26 § 2.3.14 TriBar II Report According to Defendants’ expert, Field, use of 27 28 14 The State Bar of California recognizes the TriBar Opinion Committee as “the de facto national standard setter for opinion 52 1 assumptions informs the recipient that no diligence has 2 been done; the recipient only takes solace in the fact 3 that the assumption will not be used if the opinion 4 giver knows it is or likely is false. 5 Field Report 21. Additionally, Defendants argue that the statements 6 in the Disclosure Schedule are not actionable as to 7 Defendants under the agent’s immunity rule. 8 Mot. 14:17-21. Defs.’ The agent’s immunity rule absolves an 9 attorney from liability for the client’s own 10 representations. Berg & Berg Enters., LLC v. Sherwood 11 Partners, Inc., 32 Cal. Rptr. 3d 325, 335 (Ct. App. 12 2005). The two exceptions to this rule are where: 13 (1) the attorney breaches an independent duty to the 14 plaintiff; or (2) the attorney’s acts surpass the 15 performance of the duty to the client and are done for 16 the attorney’s personal financial gain. 17 omitted). Id. (citations As discussed, Defendants owed an independent 18 duty not to defraud Plaintiff; thus, the agent’s 19 immunity rule is inapplicable. However, Plaintiff 20 fails to establish a breach of this duty. 21 Plaintiff fails to show that Defendants owed 22 Plaintiff a duty for the Disclosure Schedule—unlike the 23 Opinion Letters—other than the duty not to defraud 24 others. Because Defendants made no representations in 25 or as to Crop USA’s disclosures, there was no breach. 26 Nor did Defendants sign the Disclosure Schedule or act 27 28 practice.” Field Report 11. 53 1 in any manner beyond their duty to Crop USA for their 2 own personal gain. Although Defendants billed Crop USA 3 for “preparation of disclosure schedules,” Crop USA, 4 not Defendants, made the statements inside the 5 Disclosure Schedule. Janus Capital Grp., Inc. v. First 6 Derivative Traders, 564 U.S. 135, 142 (2011)(“One who 7 prepares or publishes a statement on behalf of another 8 is not its maker.”). 9 (5) Administrative Agreements as 10 11 Material Contracts In the Loan Agreement, Crop USA did not disclose 12 its Administrative Agreement with AIA, under which Crop 13 USA was obligated to pay AIA’s legal expenses. 14 Loan Agmt. § 10.10. See Plaintiff claims that this was a 15 “Material Contract,”15 so Crop USA needed to disclose it 16 pursuant to the Disclosure Schedule’s terms. 17 Mot. 19:5-8. Pl.’s Specifically, the Administrative 18 Agreement requires Crop USA to “pay and account for 19 attorney’s fees incurred relating to defense of 20 lawsuits filed against AIA.” 21 § 4(g), ECF No. 120-7. Administrative Agreement Plaintiff asserts that clause 22 makes it a “Material Contract” because Crop USA would 23 15 A “Material Contract” is defined as “any 24 contract . . . to which [Crop USA] is a party as to which the 25 breach, nonperformance, cancellation or failure to 26 27 28 renew . . . could have a Material Adverse Effect . . . on (a) the Business . . . assets, liabilities, [or] financial condition . . . , (e) the value of the Collateral or the rights of [Plaintiff] therein, [or] (h) the timely payment of the principal of or interest on the Loan(s).” Loan Agmt. § 1.83. The Loan specifies that “[a]ll determinations of materiality shall be made by [Plaintiff] in its reasonable judgment.” Id. 54 1 incur legal fees impacting its financial condition and 2 rights to the Collateral if it breached the agreement. 3 Pl.’s Mot. 20:2-5. Defendants counter that the 4 materiality of this agreement is disputed because 5 Taylor was not sure what impact a breach would have, 6 but “Crop [USA] would have continued on.” Defs.’ Opp’n 7 23:3-6 (citing Taylor Dep. 91:1-10, ECF No. 139-2). 8 Because Defendants billed Crop USA for “preparation 9 of disclosure schedules” on November 21, 2011 (two days 10 before the Loan closed), Pl.’s SUF ¶ 52, Plaintiff 11 claims that Defendants knew of this nondisclosure, 12 particularly because Gatziolis had already heard of the 13 Administrative Agreement, Pl.’s Mot. 19:9-13. Merely 14 because Defendants prepared the Disclosure Schedule 15 does not mean that they advised Crop USA as to what to 16 include, Defs.’ Opp’n 20:26-27, but they may still be 17 held liable for any corresponding reliance on the 18 nondisclosure in the Opinion Letters. Moreover, when 19 Gatziolis represented Crop USA in an asset purchase 20 agreement with Hudson Insurance Company in 2008, Crop 21 USA disclosed a prior iteration of the Administrative 22 Agreement as a Material Contract. 23 25. Pl.’s Reply 21:19- Although Defendants made no representation in the 24 Disclosure Schedule, Defendants could still be liable 25 for making an assumption in the Opinion Letters that 26 was incompatible with this nondisclosure. Pl.’s Opp’n 27 18:21-26; see 2011 Opinion Letter 3 (assuming that “all 28 statements, representations and warranties made in the 55 1 Loan Documents . . . are true and correct”); 2013 2 Opinion Letter 4 (same except as to “Amended Loan 3 Documents”). 4 On the other hand, Defendants argue that Plaintiff 5 has not presented evidence that Gatziolis knew about 6 the legal fees provision or whether the Administrative 7 Agreement was still in effect at the time of the Loan 8 transactions. Defs.’ Opp’n 6:24-7:1. Gatziolis 9 attested he had never seen the Administrative Agreement 10 and did not discuss it with anyone to cause him to 11 remember it at the time of the Loan. 12 ¶ 4. Gatziolis Decl. Plaintiff’s only rebuttal is that Gatziolis had 13 “heard of” the Administrative Agreement before the 14 Loan, but that does not establish he remembered it or 15 knew it should be disclosed. See Pl.’s Mot. 19:9-13. 16 Thus, even assuming this was a “Material Contract,” 17 Defendants did not breach their duty to Plaintiff by 18 not revealing it if they were unaware of it or its 19 materiality.16 20 21 22 (6) Failure to Disclose Payments to 23 24 Affiliates Gatziolis testified that AIA and Crop USA were 25 affiliates as defined under the Loan Agreement. 26 27 28 16 Notably, under customary opinion letter practice, an attorney does not have a duty to investigate. Glazer, FitzGibbon & Weise, On Legal Opinions § (Aspen 3d ed. 2008). 56 1 Gatziolis Dep. 436:11-19, ECF No. 120-14. And as 2 discussed, under the Administrative Agreement, Crop USA 3 was obligated to pay AIA’s legal fees. Finally, the 4 Disclosure Schedule required Crop USA to list all 5 affiliates to whom payments could be made under the 6 Loan Agreement. Loan Agmt. § 10.10. Despite the 7 foregoing, Plaintiff argues that Defendants failed to 8 disclose to Plaintiff that Crop USA would pay AIA. 9 Pl.’s Mot. 20:25-28; Pl.’s Reply 23: 11-13. 10 Defendants respond by asserting that (1) to the 11 extent Crop USA made legal payments to AIA’s counsel, 12 AIA was obligated to reimburse Crop USA and (2) any 13 payments were not “Payments to Affiliates,” but rather, 14 expenses posted to an account merely noting the 15 expenses as “due from” AIA. Defs.’ Opp’n 23:19-28. 16 Moreover, as discussed, Plaintiff has proferred no 17 evidence showing that Defendants even knew about this 18 clause of the Administrative Agreement. Thus, 19 Defendants did not breach their duty. 20 21 (7) Litigation Paragraph In the Opinion Letters, Defendants advised, “[T]o 22 our knowledge, there [is] no [lawsuit] pending or 23 threatened against [Crop USA] that (a) asserts the 24 invalidity of any Loan Document, (b) seeks to prevent 25 the consummation of any of the transactions [therein], 26 [or] (c) . . . might (i) adversely affect the validity 27 or enforceability of any Loan Document . . . .” 2011 28 Opinion Letter 5; 2013 Opinion Letter 5 (same except as 57 1 to “Amended Loan Documents”). Because Defendants 2 represented their “knowledge” in this paragraph, the 3 “Knowledge Qualifier” applies, meaning that Defendants 4 would be liable if they knew any facts to the contrary. 5 Defendants argue that this paragraph was accurate 6 in that the only pending cases against Crop USA during 7 the Loan were the John Reed and Donna Taylor cases, 8 which did not seek any ruling related to “the validity 9 or enforceability” of the Loan.17 Defs.’ Mot. 19:16-22. 10 Plaintiff construes the paragraph differently to mean 11 that no litigation was pending that might adversely 12 “impair the collateral.” 13 16. Pl.’s Opp’n 14:18-19, 24:15- An adverse ruling in either aforementioned case 14 might have impaired the Collateral because Crop USA 15 would be subjected to “significant monetary damages.” 16 ECF No. 118-23 at 61. 17 The Opinion Letters expressly refer to the 18 “validity or enforceability of the Loan Documents,” not 19 Crop USA’s financial resources or the Collateral it 20 pledged to Plaintiff. Whether or not Crop USA paid 21 “significant monetary damages” does not have any effect 22 on the validity of the Loan and Plaintiff’s ability to 23 enforce it. See, e.g., Seymour v. Hull & Moreland 24 25 26 27 28 17 Plaintiff contests that those were the only two pending cases against Crop USA. Pl.’s Opp’n 14:20-21. However, Plaintiff fails to provide any evidence of other cases. See Pl.’s SSUF ¶¶ 75-76. Even so, the Green Leaf memorandum provided to Plaintiff lists other cases that had been filed against Crop USA, so Plaintiff was on notice of those. Fretty Mot. Decl., Ex. 23 at 93-94; see also Defs.’ SUF ¶¶ 18-31. 58 1 Eng’g, 605 F.2d 1105, 1113 (9th Cir. 1979) (noting that 2 plaintiffs had “a judgment for several thousand dollars 3 against an insolvent defendant”). Therefore, 4 Defendants did not breach their duty by making a 5 misrepresentation or concealing any litigation as 6 defined in this part of the Opinion Letters. 7 (8) Gatziolis’ Statements During a 8 9 Conference Call with Richard Ellis In a conference call between Gatziolis and Richard 10 Ellis prior to the 2011 Opinion Letter, Gatziolis 11 advised that the Litigation “had been . . . or was 12 imminently to be finally decided and/or settled, in 13 favor of John Taylor and Crop USA, and that the 14 litigation would have no impact on [the Loan] or the 15 collateral securing that loan, and ‘not to worry about 16 it.’” Fretty Mot. Decl., Ex. 25 at 8. Defendants 17 argue that this is not a factual representation, but a 18 “‘prediction’ that the pending litigation would be 19 resolved in [Crop USA’s] favor.” Defs.’ Mot. 13:7-8. 20 Opinions of future events are not actionable as 21 misrepresentations. Neu-Visions Sports, Inc. v. 22 Soren/McAdam/Bartells, 103 Cal. Rptr. 2d 159, 163 (Ct. 23 App. 2000)(citations omitted). In response, Plaintiff 24 focuses on its reliance on these statements, but fails 25 to rebut that they are not misrepresentations at the 26 outset. Pl.’s Opp’n 5:23-28, 24:15-20. In conclusion, 27 Gatziolis’ statements during the conference call are no 28 basis for Defendants’ alleged breach. 59 1 /// 2 3 iii. Causation As with other negligence causes of action, in 4 transactional malpractice cases, the plaintiff must 5 “establish causation by showing either (1) but for the 6 negligence, the harm would not have occurred, or 7 (2) the negligence was a concurrent independent cause 8 of the harm.” 9 2003). Viner v. Sweet, 70 P.3d 1046, 1051 (Cal. Thus, to prevail on the causation element, 10 Plaintiff needs to prove that had Defendants not made 11 the alleged misrepresentations and concealment, 12 Plaintiff would not have proceeded with the Loan. 13 TAC ¶ 67. See Essentially, Plaintiff needs to show it 14 reasonably relied on Defendants’ actions. OCM 15 Principal Opportunities Fund v. CIBC World Mkts. Corp., 16 68 Cal. Rptr. 3d 828, 855 (Ct. App. 2007). 17 Additionally, Defendants must have proximately caused 18 Plaintiff’s harm. 19 Id. at 860-61 (citation omitted). “Reasonable reliance, judged ‘in light of the 20 plaintiff’s intelligence and experience,’ remains the 21 standard in fraudulent misrepresentation actions, and 22 California courts . . . take [this standard] quite 23 seriously.” Atari Corp. v. Ernst & Whinney, 981 F.2d 24 1025, 1031 (9th Cir. 1992). If the plaintiff possesses 25 facts demonstrating that the representations are 26 “patently and obviously false,” reliance is “manifestly 27 unreasonable,” and the misrepresentations were not the 28 cause of the plaintiff’s injury. 60 Id. 1 Because the Opinion Letters state that no one other 2 than the lender shall be entitled to rely on them, 3 Plaintiff claims its reliance as the lender was 4 justified. Pl.’s Mot. 23:17-25; see also 2011 Opinion 5 Letter 10; 2013 Opinion Letter 11. Moreover, Gatziolis 6 testified that Defendants knew Plaintiff would rely on 7 the Opinion Letters. 8 76:17-22. Steinman Mot. Decl., Ex. Q at Finally, in a law firm brochure, Defendants 9 represent that they are “a group of highly skilled 10 attorneys,” providing “sophisticated legal services to 11 clients.” 12 T at 97-98. Pl.’s Mot. 25:6-8; Steinman Mot. Decl., Ex. Based on the foregoing, Plaintiff argues 13 “there was nothing that was so ‘patently and obviously 14 false’ to alert [Plaintiff] that [Defendants] lacked 15 the requisite ‘skill and knowledge’ to write an 16 accurate and honest opinion letter.” Pl.’s Mot. 25:12- 17 14. 18 Regardless of whether reliance arguably would have 19 been justified, Defendants point out that, in the 20 instant case, Plaintiff could not have relied on any 21 alleged omissions because Plaintiff had actual 22 knowledge of the Litigation. Defs.’ Mot. 24:14-18. 23 Plaintiff received reports and a warning from Crop USA 24 that the Litigation was ongoing. Defs.’ SUF ¶¶ 22-24, 25 28-30; Fretty Mot. Decl., Ex. 23 at 93-94. Although 26 Plaintiff asserts that the impact of the Litigation, 27 not the Litigation itself, should have been disclosed, 28 Plaintiff’s “intelligence and experience” as a lender 61 1 makes it unreasonable for Plaintiff to have entered 2 into the Loan—whilst knowing about the Litigation—on a 3 belief that the Litigation would have no impact on Crop 4 USA’s finances. This is particularly true because the 5 Green Leaf memorandum, which Plaintiff received, 6 expressed that Crop USA might owe “significant monetary 7 damages.” 8 Fretty Mot. Decl., Ex. 23 at 61. Furthermore, in an internal memorandum circulated 9 in July 2012, Plaintiff recognized that Crop USA was 10 paying over 90% of its commissions from Diversified 11 back to sub-agents. Defs.’ Opp’n 24:21-25; Fretty 12 Opp’n Decl., Ex. 2 at 2. Yet Plaintiff increased Crop 13 USA’s borrowing amount to $8 million eight days after 14 issuing the memorandum and to $10 million in February 15 2013. Id. at 24:27-25:1. Plaintiff’s knowledge as 16 such conflicts with its alleged interpretation that the 17 Collateral included Sub-Agent Commissions, so Plaintiff 18 could not have reasonably—let alone actually—relied on 19 that interpretation. In its Reply, Plaintiff sidesteps 20 this point by asserting its reliance on Defendants’ 21 alleged statements that “no consent” was required for 22 Crop USA to pledge the “Gross Commissions.” 23 Reply 24:20-25:1. Pl.’s But as discussed, the Opinion 24 Letters only discussed consent as to Collateral, which 25 did not mean “Gross Commissions.” Therefore, Plaintiff 26 fails to rebut this issue. 27 Contrary to Plaintiff’s argument that Defendants 28 need to prove their “statements were ‘obviously 62 1 false,’” Pl.’s Reply 25:10-11, Plaintiff needed to show 2 that its reliance was justified as the party with the 3 burden at trial. Moreover, if Plaintiff’s 4 interpretation of the statements was “obviously false,” 5 then it would be unreasonable for Plaintiff to rely on 6 that interpretation, regardless of the falsity of the 7 statements. Here, it was unreasonable for Plaintiff to 8 rely on its interpretation of the Opinion Letters due 9 to the notice it had to the contrary. See also Hadland 10 v. NN Inv’rs Life Ins. Co., 30 Cal. Rptr. 2d 88, 95 11 (Ct. App. 1994)(holding that reliance on 12 representations conflicting with “the express 13 provisions of the written contract” was “unjustified as 14 a matter of law”). In sum, Defendants were neither the 15 “but for” nor proximate cause of Plaintiff’s harm. 16 Accordingly, the Court GRANTS Defendants’ Motion as 17 to Plaintiff’s professional malpractice claim.18 18 19 b. Intentional Misrepresentation The next issue is whether Defendants made any 20 intentional misrepresentation as a matter of law. To 21 establish intentional misrepresentation, the claimant 22 must prove the following: “(1) a misrepresentation; 23 (2) knowledge of falsity; (3) intent to induce 24 reliance; (4) actual and justifiable reliance; and 25 (5) resulting damage.” Cisco Sys., Inc. v. 26 27 28 18 The parties do not discuss, and the Court need not rule on, damages because Defendants satisfied their burden that no reasonable juror could find for Plaintiff on either the breach or causation elements. In re Oracle Corp., 627 F.3d at 387. 63 1 STMicroelectronics, Inc., 77 F. Supp. 3d 887, 897 (N.D. 2 Cal. Dec. 29, 2014)(citing Lazar v. Sup. Ct., 909 P.2d 3 981 (Cal. 1996)). 4 As discussed, Plaintiff fails to establish any 5 misrepresentation by Defendants inside or outside the 6 Opinion Letters. See supra Part II.B.4.a.ii. 7 Therefore, Defendants had no knowledge of any alleged 8 falsity or intent to induce Plaintiff’s reliance on 9 that falsity. Moreover, similar to the causation 10 element of professional malpractice, Plaintiff did not 11 actually or justifiably rely on any of the 12 representations. As a result, the Court GRANTS 13 Defendants’ Motion and DENIES Plaintiff’s Motion as to 14 Plaintiff’s intentional misrepresentation cause of 15 action. 16 17 c. Negligent Misrepresentation Next, the Court must decide, as a matter of law, 18 whether Defendants made a negligent misrepresentation. 19 The elements of negligent misrepresentation are the 20 same as of intentional misrepresentation, other than 21 that the former requires “a misrepresentation of fact 22 by a person who has no reasonable grounds for believing 23 it to be true,” as opposed to “knowledge of falsity.” 24 Cisco Sys., 77 F. Supp. 3d at 897. Additionally, under 25 California law, “‘omissions’ or nondisclosures cannot 26 give rise to liability for negligent 27 misrepresentation.” 28 Id. (citation omitted). As discussed, Defendants made no affirmative 64 1 misrepresentations. See supra Part II.C.4.a.ii. 2 Therefore, even assuming Defendants omitted information 3 from Plaintiff, they would not be liable for negligent 4 misrepresentation. See supra Part II.B.4.a.ii. The 5 reasonableness of their belief in the truth of their 6 statements is of no significance because there was no 7 misrepresentation. As a result, the Court GRANTS 8 Defendants’ Motion and DENIES Plaintiff’s Motion for 9 the negligent misrepresentation claim. 10 11 d. Concealment The final issue is whether Plaintiff showed 12 concealment as a matter of law. A concealment cause of 13 action requires proof of the following elements: 14 (1) concealment of a material fact; (2) duty to 15 disclose the fact; (3) intent to defraud; (4) the 16 plaintiff was unaware of the fact and would have acted 17 differently if the plaintiff knew; and (5) resulting 18 damage. Falk v. Gen. Motors Corp., 496 F. Supp. 2d 19 1088, 1097 (N.D. Cal. 2007)(quoting Lovejoy v. AT&T 20 Corp., 14 Cal. Rptr. 3d 117 (Ct. App. 2004)). 21 As discussed, Defendants did not conceal or 22 suppress any material fact in breach of a duty. 23 supra Part II.B.4.a.ii. See Additionally, Plaintiff has 24 not shown fraudulent intent, and Defendants have proved 25 that Plaintiff was aware of all allegedly concealed 26 facts. Thus, the Court GRANTS Defendants’ Motion and 27 DENIES Plaintiff’s Motion as to the concealment cause 28 of action. 65 III. CONCLUSION 1 2 Thus, the Court GRANTS Defendants’ Motion for 3 Summary Judgment [116] and DENIES Plaintiff’s Motion 4 for Partial Summary Judgment [120]. Additionally, the 5 Court DENIES Defendants’ Motion to Strike Stanley W. 6 Lamport’s Expert Report [114], DENIES AS MOOT 7 Plaintiff’s Motion to Strike Robert L. Kehr’s Expert 8 Report [113], and DENIES AS MOOT Defendants’ Motion to 9 Strike Portions of Douglas E. Johnston, Jr.’s Expert 10 Report [115]. 11 IT IS SO ORDERED. 12 13 DATED: September 13, 2017 s/ RONALD S.W. LEW 14 HONORABLE RONALD S.W. LEW senior U.S. District Judge 15 16 17 18 19 20 21 22 23 24 25 26 27 28 66

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