Onions Etc., Inc. et al v. Z & S Fresh, Inc. et al

Filing 959

Order On Objections To Pretrial Order (ECF No. 955 and 956),signed by Magistrate Judge Michael J. Seng on 05/04/2016. (Yu, L)

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1 2 3 4 5 6 7 UNITED STATES DISTRICT COURT 8 EASTERN DISTRICT OF CALIFORNIA 9 10 ONIONS ETC., INC, et al., Plaintiffs, 11 Case No. 1:09-cv-00906-AWI-MJS ORDER ON OBJECTIONS TO PRETRIAL ORDER v. 12 (ECF Nos. 955, 956) 13 Z&S FRESH, INC., et al., 14 Defendants. 15 16 17 18 This matter proceeds on the Fresno Madera Federal Land Bank Association, 19 FCLA‟s ("Land Bank") second amended cross-complaint against Aron and Carrie 20 Margosian (“Margosians”) for breaching their guaranty of a $4.8 million restructure loan. 21 The parties have consented to Magistrate Judge jurisdiction for all purposes in 22 accordance with 28 U.S.C. § 636(b)(1)(B). Trial is set to commence on May 31, 2016. 23 On April 21, 2016, the Court issued its pretrial order. (ECF No. 954.) The parties 24 each filed objections. (ECF No. 955, 956.) The Land Bank responded to the Margosians‟ 25 objections (ECF No. 957), and the Margosians filed a reply (ECF No. 958). 26 I. 27 28 LAND BANK’S OBJECTIONS The Land Bank objects that its Exhibit Number 31 was incorrectly Bates 1 numbered in the pretrial order. (ECF No. 955.) Accordingly, the pretrial order is hereby 2 deemed amended to reflect the correct Bates number range, FMFLB 912-941. 3 II. MARGOSIANS’ OBJECTIONS 4 In the pretrial order, the Court determined that the Margosians‟ affirmative 5 defense of fraud alleges only the equitable defense of fraud in the inducement, and not 6 the defense of fraud in the execution. As such, the Court concluded that the Margosians 7 have no constitutional right to a jury trial on this defense, and the matter therefore was 8 set for a bench trial. The Margosians raise two objections to this determination: first, that 9 they have alleged sufficient facts to raise a dispute of fact as to fraud in the execution, 10 and second, that the Court‟s present ruling is contrary to the Ninth Circuit‟s prior ruling in 11 this case overturning in part the Court‟s ruling on the Land Bank‟s motion for summary 12 judgment. 13 Both of the Margosians contentions are based on a misapplication of the law. 14 The majority of the Margosians‟ argument is dedicated to demonstrating that they 15 “justifiably relied” on 16 representatives. They point to the Ninth Circuit‟s determination that there are disputes of 17 fact as to whether such misrepresentations were made and whether the Margosians 18 justifiably relied on them. The Court agrees that there are disputes of fact regarding 19 these misrepresentations. Indeed, the issue of whether the Margosians justifiably relied 20 on these misrepresentations remains a central issue in this case, and must be 21 determined at trial. However, justifiable reliance is an element of fraud, generally. See 22 Lazar v. Superior Court, 12 Cal. 4th 631, 638 (1996) (fraudulent inducement requires a 23 showing of (a) a misrepresentation, false representation, concealment or nondisclosure; 24 (b) knowledge of falsity; (c) intent to defraud or to induce the party to enter into a 25 contract; (d) justifiable reliance; and (e) resulting damage). It is an element of both fraud 26 in the inducement and fraud in the execution. Id.; 1 Witkin, Summary 10th (2005) 27 Contracts, § 286, p. 315. It is not, as the Margosians appear to assert, a distinguishing alleged fraudulent 28 2 misrepresentations by Land Bank 1 factor between these two types of fraud. 2 The primary issue is whether the Margosians can show that they had no 3 reasonable opportunity to review the guaranty prior to signing it. The California Supreme 4 Court has repeatedly stated that a party who has a reasonable opportunity to know the 5 character and essential terms of a contract, but nonetheless fails to read the contract he 6 or she signs, is precluded from claiming the contract is void for fraud in the execution. 7 Rosenthal v. Great W. Fin. Sec. Corp., 14 Cal. 4th 394, 423 (1996) (citation omitted). 8 Indeed, this point of law is repeated in the very case relied on by the Margosians in their 9 objections, Riverisland Cold Storage, Inc. v. Fresno-Madera Production Credit 10 Association, 55 Cal. 4th 1169, 1183 n.11 (2013) (noting that “negligent failure to 11 acquaint oneself with the contents of a written agreement precludes a finding that the 12 contract is void for fraud in the execution” but declining to decide the extent to which 13 such failure “affects the viability of a claim of fraud in the inducement”). Both this Court 14 and the Ninth Circuit are bound by the determinations of the California Supreme Court 15 on issues of California law. Thus, the Court must reject the Margosians‟ argument that 16 they may pursue a defense of fraud in the execution despite a negligent failure to read 17 the contract. On such facts, only the defense of fraud in the inducement is available. 18 Rosenthal, 14 Cal. 4th at 421. 19 The Court thus turns to the Margosians‟ claim that they have alleged sufficient 20 facts to show they had no reasonable opportunity to review the guaranty prior to 21 signing.1 In this regard, the Margosians claim that the visit from the Land Bank to their 22 home was unexpected and brief. There are facts that could be interpreted to show that 23 the visit lasted only thirteen minutes. Additionally, there are allegations that the Land 24 Bank representatives employed “pressure tactics” that included misleading the 25 Margosians about their true identities, the reason for their visit, and the effect of the 26 27 28 1 The Margosians‟ failed to set forth such facts in their trial plan, despite being ordered to do so. Nevertheless, for the purposes of expediency, the Court will address the merits of the Margosians‟ argument. 3 1 guaranty. 2 These facts are insufficient to show that the Margosians had no reasonable 3 opportunity to read the guaranty. See Rosenthal, 14 Cal. 4th at 424 n.12 (“Some 4 plaintiffs also declare that the GWFSC representative „did not give me any time‟ to read 5 the agreement (Allen), or that they felt „rushed‟ (Carcano) or „pressured‟ (Rosenthal). 6 Without evidence the representative actually took some action or said something to hurry 7 or pressure the prospective client, however, these claims add nothing to plaintiffs' 8 showing.”). They go only to whether the Margosians justifiably relied on the 9 misrepresentations despite having negligently failed to read the guaranty. Such facts 10 support, at most, a claim of fraud in the inducement. 11 Finally, the Court addresses the Margosians‟ incorrect assertion that the Ninth 12 Circuit mandated that their claims be tried to a jury. The Ninth Circuit mandated that the 13 Margosians‟ claims of fraud be resolved by a trier of fact because they could not be 14 resolved as a matter of law. Indeed, the Ninth Circuit expressly noted that a reasonable 15 “judge or jury” could find in favor of the Margosians. Nothing in the Ninth Circuit‟s opinion 16 purported to resolve the question of whether the Margosians‟ claims constituted fraud in 17 the inducement or fraud in the execution, or whether the Margosians had a right to trial 18 by jury. This Court will of course follow the Ninth Circuit‟s mandate to allow the 19 Margosians‟ to present their defense to the trier of fact. In this instance, however, the 20 Court, rather than a jury, will serve as trier of fact. 21 III. REQUEST TO STAY PROCEEDINGS 22 In their objections, the Margosians state that they will seek a writ of mandamus if 23 the Court does not grant them a jury trial on their fraud defense. They ask that the matter 24 be stayed pending resolution of the writ. 25 The Margosians have not yet sought a writ of mandamus. If and when they 26 choose to do so, they may request a stay of the proceedings. The Margosians should 27 note, however, that there is a legal standard that governs such requests, and it is their 28 4 1 burden to show that standard is met. See Nken v. Holder, 556 U.S. 418, 433-34 (2009). 2 Here, the Margosians state only that they will be entitled to a writ should the Ninth 3 Circuit agree that they have a right to trial by jury. This is insufficient justification for a 4 stay. 5 “[T]he power to stay proceedings is incidental to the power inherent in every court 6 to control the disposition of the causes on its docket with economy of time and effort for 7 itself, for counsel, and for litigants.” Landis v. N. Am. Co., 299 U.S. 248, 254 (1936). “A 8 stay is not a matter of right, even if irreparable injury might otherwise result.” Nken, 556 9 U.S. at 427 (citation and internal quotation marks omitted). Instead, it is “an exercise of 10 judicial discretion,” and “the propriety of its issue is dependent upon the circumstances of 11 the particular case.” Id. at 433 (citation and internal quotation and alteration marks 12 omitted). 13 Generally, the factors considered “in determining whether a stay pending petition 14 for writ of mandamus is warranted are the same as a stay pending appeal . . .” Citizens 15 for Responsibility and Ethics in Washington v. Cheney, 580 F. Supp. 2d 168, 177 16 (D.D.C. 2008) (citing Cuomo v. U.S. Nuclear Regulatory Comm'n, 772 F.2d 972, 974 17 (D.C. Cir. 1985)); Powertech Tech. Inc. v. Tessera, Inc., No. C 11-6121 CW, 2013 WL 18 1164966, at *1 (N.D. Cal. Mar. 20, 2013); Durand v. Stephenson, No. 2:09-cv-2038- 19 JAM-CKD, 2012 U.S. Dist. LEXIS 154968, at *2–3 (E.D. Cal. Oct. 29, 2012) (internal 20 quotation marks and citation omitted). “A party seeking a stay must establish that he is 21 likely to succeed on the merits, that he is likely to suffer irreparable harm in the absence 22 of relief, that the balance of equities tip in his favor, and that a stay is in the public 23 interest .” Humane Soc. of U.S. v. Gutierrez, 558 F.3d 896, 896 (9th Cir. 2009). The first 24 two factors of this standard “are the most critical.” Nken, 556 U.S. at 434. Once these 25 factors are satisfied, courts then assess the balance of equities and weigh the public 26 interest. Id. at 435. 27 An alternative to this standard is the “substantial questions” test, which requires 28 5 1 the moving party to demonstrate “serious questions going to the merits and a hardship 2 balance that tips sharply” towards the movant, along with a showing that there is a 3 likelihood of irreparable injury and that the stay is in the public interest. Alliance for the 4 Wild Rockies v. Cottrell, 632 F.3d 1127, 1134-35 (9th Cir. 2011). 5 The Margosians have made no showing in this regard. Accordingly, their request 6 to stay the proceedings will here be denied. 7 IV. 8 CONCLUSION AND ORDER It is HEREBY ORDERED that: 1. The pretrial order is deemed amended to reflect that the Land Bank‟s 9 10 Exhibit Number 31 is Bates numbered FMFLB 912-941; 11 2. The Margosians‟ objections are overruled; and 12 3. The Margosians‟ request to stay the proceedings is denied. 13 14 15 IT IS SO ORDERED. Dated: May 4, 2016 /s/ 16 Michael J. Seng UNITED STATES MAGISTRATE JUDGE 17 18 19 20 21 22 23 24 25 26 27 28 6

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