River Bank America v. Diller
California Court of Appeal
38 Cal. App. 4th 1400 (1995)
Sanford Diller (defendant) and his wife, Helen Diller, wholly controlled several entities involved in California real estate development. The Dillers’ main development company was Prometheus Development Company, Inc. (Prometheus), which was in the final stages of getting regulatory approval to develop an apartment complex (complex) on land it owned. The Dillers also controlled, through various entities, a limited partnership called Hacienda Gardens Venture (Hacienda), whose primary purpose was to obtain construction loans. The Dillers also controlled Prom XX, a closely held corporation wholly owned by the Diller family trust. Prom XX was a shell company with no substantial assets and existed for the purpose of being a placeholder in the early stages of structuring real estate-development deals. Diller sought to enter into a joint partnership with River Bank America (River Bank) (plaintiff) to develop the complex. Under this structure, Prometheus would be the general partner and River Bank a limited partner of the joint venture. According to Diller, River Bank then demanded that the deal be restructured so that River Bank’s role was that of an issuer of guaranteed loans secured by deeds of trust on the property. According to Diller, River Bank insisted that the developing partnership have Hacienda as the limited partner and Prom XX as the general partner. River Bank would make its loans to Hacienda, and the loans would be guaranteed by the Dillers and Prometheus. River Bank did extensive diligence as to the financial strength of Prometheus and the Dillers but never asked about Prom XX’s financials. The deal was executed according to River Bank’s demands, and the complex was completed. The complex did not generate its expected profit, and Hacienda defaulted. River Bank held a nonjudicial foreclosure sale, but the proceeds were insufficient to cover the outstanding debt. River Bank sued the Dillers and Prometheus as guarantors. At trial, the Dillers argued that River Bank had structured the deal to get around antideficiency rules. The trial court granted River Bank’s motion for summary judgment. The Dillers appealed.
Rule of Law
Holding and Reasoning (Parrilli, J.)
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