Opinion
D070626
09-06-2017
D&D GORYOKA, INC. et al., Plaintiffs and Appellants, v. BANK OF SOUTHERN CALIFORNIA, N.A., Defendant and Respondent.
Franklin & Franklin and J. David Franklin for Plaintiffs and Appellants. Mulvaney Barry Beatty Linn & Mayers and Everett George Barry, John Arthur Mayers, Christopher Bennett Ghio for Defendant and Respondent.
NOT TO BE PUBLISHED IN OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115. (Super. Ct. No. 37-2015-00017904-CU-NP-CTL) APPEAL from a judgment of the Superior Court of San Diego County, Joan M. Lewis, Judge. Affirmed. Franklin & Franklin and J. David Franklin for Plaintiffs and Appellants. Mulvaney Barry Beatty Linn & Mayers and Everett George Barry, John Arthur Mayers, Christopher Bennett Ghio for Defendant and Respondent.
Plaintiffs and appellants D&D Goryoka, Inc. (DGI) and its sole shareholders, Amir Goryoka, and Izik Aziz Goryoka, appeal from a judgment of dismissal entered after the trial court sustained without leave to amend the demurrer of defendant and respondent Bank of Southern California, N.A. (Bank) to appellants' complaint for malicious prosecution. In that action, appellants alleged Bank wrongfully maintained a lawsuit against DGI seeking repayment of an $880,000 Small Business Administration (SBA) loan because, after causing a nonjudicial foreclosure to take place, Bank could not obtain a deficiency judgment against DGI due to DGI's status as a co-borrower under SBA regulations. The trial court ruled appellants could not allege Bank lacked probable cause to sue under the so-called interim adverse judgment rule, in which probable cause for purposes of such a claim may be established by certain nonfinal rulings in the underlying lawsuit, including, as here, denial of a defense summary judgment motion, even if the earlier lawsuit ultimately terminates in the prior defendant's favor.
We refer to the individual appellants and other individuals by their first names to avoid confusion.
On appeal, appellants challenge the court's ruling, contending, among other things: (1) Bank lacked probable cause to seek a deficiency judgment against DGI because it knew DGI was a co-borrower of the loan as a matter of law; (2) any presumption of probable cause arising from the denial of appellants' prior summary judgment motion is rebutted by Bank's fraud and unfair conduct in the underlying case; and (3) the interim adverse judgment rule does not apply because appellants neither presented issues of Bank's fraud or perjury nor raised the issue of DGI's status as a co-borrower as a matter of law to the court hearing the summary judgment motion. We affirm the judgment.
FACTUAL AND PROCEDURAL BACKGROUND
The background facts are taken from well-pleaded allegations of the complaint as well as from judicially noticeable facts from exhibits submitted in connection with Bank's demurrer. (Coker v. JPMorgan Chase Bank, N.A. (2016) 62 Cal.4th 667, 671; People ex rel. Harris v. Pac Anchor Transportation, Inc. (2014) 59 Cal.4th 772, 777; Westside Estate Agency, Inc. v. Randall (2016) 6 Cal.App.5th 317, 321.) We disregard contentions, deductions and conclusions of law. (City of Dinuba v. County of Tulare (2007) 41 Cal.4th 859, 865.) We observe that the main premises of appellants' malicious prosecution complaint consist of legal conclusions, namely, that "[DGI] was designated as the 'Operating Company' . . . under the SBA rules and regulations governing the loan" and it "was a borrower [or co-borrower] on the $880,000 loan as a matter of law."
The Underlying Action
In November 2011, Bank filed a verified complaint against DGI, Amir, Izik and others (D&D Goryoka, LLC (LLC), Ghassan Goryoka, and Goryoka, Inc. (GI)) to collect on a $880,000 SBA guaranteed loan Bank had extended to LLC as an eligible passive company to DGI. Bank included a claim for breach of unconditional guaranty agreements executed by Ghassan, Amir, Izik, DGI and GI.
In August 2013, while the lawsuit was pending, Bank initiated a nonjudicial foreclosure sale of the property securing the loan, and put in a winning credit bid to obtain title to it. Thereafter, Bank dismissed LLC from its lawsuit, but proceeded to trial against DGI and the others.
The parties filed cross motions for summary judgment or alternatively summary adjudication of issues. In their motion, DGI, Amir, Izik, LLC, Ghassan and GI argued that GI and DGI "contend that they are the true borrowers in this case, and are not true guarantors of the loan, and therefore, following the nonjudicial foreclosure sale, California's antideficiency statutes preclude [Bank] from recovering any deficiency judgment in this case against said Defendants." They argued LLC was not the true borrower for several reasons, including that Bank relied on DGI's and GI's cash flows to repay the loan, and LLC was merely a shell corporation that contributed no funds toward the property's purchase.
The trial court denied both motions, ruling, "A triable issue of fact exists as to whether the guarantors were the principal obligors."
The matter proceeded to trial, at which the court was to decide whether a valid guaranty contract existed between Bank and Ghassan, Amir, Izik, GI and DGI. Also before it was Ghassan, Amir, Izik, GI and DGI's claims that they were the "true borrowers" and their assertion of the affirmative defense of "sham guaranty." Following trial, the court filed a statement of decision. It rejected the sham guaranty defense, as well as the assertion that Ghassan, Amir, Izik, and GI were the true borrowers on the loan so as to preclude recovery under the guaranties, as unsupported by credible evidence. However, it found as to DGI, there was credible evidence to support the sham guaranty defense and/or its claim it was a true borrower, in that the evidence showed "Bank viewed [DGI] as the principal obligor under a different name." The court entered judgment in Bank's favor against Ghassan, Amir, Izik and GI. The judgment provides that Bank shall "recover nothing" on its complaint against DGI.
The sham guaranty doctrine applies when a lender extracts a personal guaranty from a primary obligor on the debt. (See CADC/RADC Venture 2011-1 LLC v. Bradley (2015) 235 Cal.App.4th 775, 786.)
The judgment was the subject of a prior appeal. (Bank of Southern California, N.A. v. D&D Goryoka, Inc. (Feb. 18, 2016, D068093) [nonpub. opn.].)
The Present Malicious Prosecution Action
In May 2015, DGI, Amir and Izik filed the present malicious prosecution action against Bank. In part, appellants allege that under SBA rules and regulations governing the loan, DGI was an "operating company," and at trial in Bank's underlying action, testimony from Bank employees had established that under the circumstances of the loan (DGI having received loan proceeds as working capital) and these regulations, it was a co-borrower. Appellants allege that while Bank initially had probable cause to sue LLC and DGI to seek the loan's repayment, after Bank caused the nonjudicial foreclosure to take place, under anti-deficiency statutes it could no longer seek a deficiency judgment against any borrower, including DGI, and knew this because it dismissed its action against LLC but continued to prosecute it against DGI, resulting in a judgment in DGI's favor. They allege that after completion of the non-judicial foreclosure sale, Bank lacked probable cause to further pursue the underlying action against DGI.
Bank demurred to the complaint in part on grounds it did not state facts sufficient to state a cause of action for malicious prosecution. It argued appellants could not allege Bank prosecuted the underlying action without probable cause or that it had initiated the action with malice. Bank pointed out the court in the underlying action had denied the defense summary judgment motion on grounds material issues of fact existed with regard to Bank's breach of guaranty action, and specifically whether the remaining defendants in that action, including DGI, were the principal obligors or true borrowers on the loan, thus establishing the existence of probable cause to continue prosecution of the underlying complaint as a matter of law. Bank argued because it established the existence of probable cause, evidence of malice was irrelevant, but that DGI, Amir and Izik did not set forth sufficient allegations of malice in any event.
DGI, Amir and Izik opposed the motion. Among other things, they argued the interim adverse judgment rule did not apply because in moving for summary judgment in the underlying action they did not present the legal theory that DGI was a co-borrower as a matter of law, and thus the trial court did not consider that legal theory when it denied the motion. They also argued that Bank had engaged in fraud in opposing the motion because Bank disputed DGI's evidence that it was a true borrower with regard to the loan and represented to the trial court that DGI was only a guarantor, "conceal[ing]" the fact that having received working capital from the loan proceeds DGI was a co-borrower as a matter of federal law and could not be liable for any deficiency under anti-deficiency laws.
Granting the parties' requests for judicial notice, the trial court sustained the demurrer without leave to amend. It ruled in part that the interim adverse judgment rule applied in view of the trial court's order denying summary judgment in the underlying action, and "[a]s a result, Plaintiffs cannot plead that [Bank] prosecuted the underlying action without probable cause."
DISCUSSION
I. Standard of Review
Our review standard is settled. We assess the allegations of the operative complaint de novo to determine if they allege facts sufficient to state a claim for relief under any legal theory. (Apple Inc. v. Superior Court (2013) 56 Cal.4th 128, 156; Committee for Green Foothills v. Santa Clara County Bd. of Supervisors (2010) 48 Cal.4th 32, 42.) We may consider matters that have been judicially noticed. (Committee for Green Foothills, at p. 42.) "We give the complaint a reasonable interpretation, reading it as a whole and its parts in their context. [Citation.] Further, we treat the demurrer as admitting all material facts properly pleaded, but do not assume the truth of contentions, deductions or conclusions of law." (City of Dinuba v. County of Tulare, supra, 41 Cal.4th at p. 865.) "In order to prevail on appeal from an order sustaining a demurrer, the appellant must affirmatively demonstrate error. Specifically, the appellant must show that the facts pleaded are sufficient to establish every element of a cause of action and overcome all legal grounds on which the trial court sustained the demurrer." (Intengan v. BAC Home Loans Servicing LP (2013) 214 Cal.App.4th 1047, 1052.)
We review the propriety of the court's ruling, not the validity of its legal reasoning (Staniforth v. Judges' Retirement System (2016) 245 Cal.App.4th 1442, 1449; Bains v. Moores (2009) 172 Cal.App.4th 445, 478), and will affirm the judgment if it is correct on any theory. (Hendy v. Losse (1991) 54 Cal.3d 723, 742; Staniforth, at p. 1449.)
II. The Elements of Malicious Prosecution and the Interim Adverse Judgment Rule
To establish a cause of action for malicious prosecution, a plaintiff must prove he was previously sued on a claim initiated or continued by the defendant without probable cause and with malice, and pursued to a termination in his favor. (S.A. v. Maiden (2014) 229 Cal.App.4th 27, 36; Zucchet v. Galardi (2014) 229 Cal.App.4th 1466, 1481.) " '[C]ontinuing an action one discovers to be baseless harms the defendant and burdens the court system just as much as initiating an action known to be baseless from the outset.' " (Paiva v. Nichols (2008) 168 Cal.App.4th 1007, 1029, quoting Zamos v. Stroud (2004) 32 Cal.4th 958, 969.) Thus, an attorney, and in some circumstances the client as well, may be held liable for malicious prosecution for continuing to prosecute a lawsuit when it is discovered to not have an objectively tenable basis because of new facts or a change in the law. (Paiva, at pp. 1029, 1031; Antounian v. Louis Vuitton Malletier (2010) 189 Cal.App.4th 438, 453 (Antounian).)
The existence of probable cause is a legal question for the court's resolution. (Parrish v. Latham & Watkins (2017) 3 Cal.5th 767, 781 (Parrish); see Wilson v. Parker, Covert & Chidester (2002) 28 Cal.4th 811, 817 (Wilson); abrogated by statute on other grounds as stated in Hutton v. Hafif (2007) 150 Cal.App.4th 527, 547-550; Antounian, at p. 448.) Probable cause is determined objectively, and exists if " 'any reasonable attorney would have thought the claim tenable.' " (Wilson, at p. 817; see also Antounian, at p. 448; Paiva v. Nichols, supra, 168 Cal.App.4th at pp. 1018-1019 [probable cause does not depend on the action being meritorious as such, but on it being arguably tenable or not so completely lacking in merit that no reasonable attorney would have thought the claim tenable].) "A [malicious prosecution] claim is unsupported by probable cause only if ' " 'any reasonable attorney would agree [that it is] totally and completely without merit.' " ' " (Parrish, at p. 776; Wilson, at p. 817.)
The probable cause element of a malicious prosecution claim may be established by a principle that has become known as the interim adverse judgment rule. (Parrish, supra, 3 Cal.5th at p. 776; see Antounian, supra, 189 Cal.App.4th at p. 450; Plumley v. Mockett (2008) 164 Cal.App.4th 1031, 1053.) The long established rule is that a trial court judgment or verdict in the plaintiff's favor in the underlying case, unless obtained by means of fraud or perjury, establishes probable cause to bring the underlying action, even though the judgment or verdict is overturned on appeal or by a later trial court ruling. (Parrish, 3 Cal.5th at p. 776; Wilson, supra, 38 Cal.4th at p. 817; Antounian, at p. 450 [underlying victory "conclusively establishes probable cause"]; Plumley, at p. 1052 [same].) The rationale is that claims succeeding after a full and fair adversary hearing on the merits " 'are not so lacking in potential merit that a reasonable attorney or litigant would necessarily have recognized their frivolousness' "; unless the success was procured by certain improper means, the claims "cannot be 'totally and completely without merit.' " (Parrish, at p. 776; Roberts v. Sentry Life Insurance (1999) 76 Cal.App.4th 375, 383.)
The rule extends to denial of a defense motion for summary judgment. (Parrish, supra, 3 Cal.5th at p. 784; Wilson, supra, 28 Cal.4th at p. 819; see also Hart v. Darwish (2017) 12 Cal.App.5th 218; Antounian, supra, 189 Cal.App.4th at p. 450; Roberts v. Sentry Life Insurance, supra, 76 Cal.App.4th at p. 383; accord, Hutton v. Hafif, supra, 150 Cal.App.4th at p. 550 [it is a "well-established rule of law applicable to a malicious prosecution complaint that the denial of a summary judgment motion in the underlying action establishes probable cause to file that lawsuit"].) "Denial of a defense summary judgment motion on grounds that a triable issue exists . . . while falling short of a determination of the merits, establishes that the plaintiff has substantiated, or can substantiate, the elements of his or her cause of action with evidence that, if believed, would justify a favorable verdict. . . . [A] claimant or attorney who is in possession of such evidence has the right to bring the claim, even where it is very doubtful the claim will ultimately prevail." (Wilson, at p. 824.) Summary judgment motions are heard only after full discovery develops the evidence relevant to the claim and thus, are grounded in a dependable evaluation of the facts. (Roberts, at p. 383.) Further, the court denying the motion is impartial. (Ibid.) Thus, denial of such a motion is " 'a reliable indicator that probable cause [was] present' " because just as a trial victory shows the suit was not among the least meritorious of meritless suits, a denial of a summary judgment in an earlier case provides similarly persuasive evidence that a suit does not totally lack merit. (Ibid.) "A trial court's conclusion that issues of material fact remain for trial 'necessarily impl[ies] that the judge finds at least some merit in the claim. The claimant may win, if certain material facts are decided favorably. This finding (unless disregarded) compels [the] conclusion that there is probable cause, because probable cause is lacking only in the total absence of merit.' [Citation.] Giving effect to this conclusion 'serves the policy . . . to discourage dubious malicious prosecution suits.' " (Wilson, at p. 819, quoting Roberts, at pp. 383-384.)
As the California Supreme Court has recently explained (Parrish, supra, 3 Cal.5th at pp. 777-778; see also Wilson, supra, 28 Cal.4th at p. 817), the interim adverse judgment rule is subject to an exception where the underlying victory is obtained by fraud or perjury. (See also Plumley v. Mockett, supra, 164 Cal.App.4th at p. 1053; Roberts v. Sentry Life Insurance, supra, 76 Cal.App.4th at p. 383 ["if denial of summary judgment was induced by materially false facts submitted in opposition, equating denial with probable cause might be wrong"].) " 'Fraud . . . involves the . . . requirement that the [person making representations] knew, or, in the exercise of reasonable diligence should have known, that his representations were false.' " (Parrish, at p. 782.) Perjury requires evidence of a " 'willful statement, under oath, of any material matter which the witness knows to be false.' " (Cabe v. Superior Court (1998) 63 Cal.App.4th 732, 735, quoting People v. Howard (1993) 17 Cal.App.4th 999, 1004.) "While plaintiffs and their attorneys have 'the right to bring a claim they think unlikely to succeed, so long as it is arguably meritorious' [citation], they have no right to mislead a court about the merits of a claim in an attempt to procure a favorable ruling, and such a ruling can provide no reliable indication that the claim was objectively tenable." (Parrish, at p. 778.) This exception requires both " ' "knowing use of false and perjured testimony" ' " and a showing that the interim ruling would not have been made "but for" the use of the false evidence. (Hart v. Darwish, supra, 12 Cal.App.5th at p. 228; see also Antounian, supra, 189 Cal.App.4th at p. 452; Plumley, at p. 1053; Roberts, at p. 384.)
Parrish also points out that the interim adverse judgment rule additionally applies only to rulings regarding the merits of the claim, not those that rest solely on technical or procedural grounds. (Parrish, supra, 3 Cal.5th at p. 778.) We asked the parties to provide supplemental briefing on Parrish and have considered their briefing in addressing application of the interim adverse judgment rule in this case.
Parrish emphasized that in assessing whether the interim adverse judgment rule applies, the focus must be on " 'the facts known to the [litigant]' accused of malicious prosecution. [Citation.] Litigants . . . need not 'attempt to predict how a trier of fact will weigh the competing evidence, [n]or to abandon their claim[s] if they think it likely the evidence will ultimately weigh against them. [Citations.] It follows that if the facts known to the litigant could support a set of inferences that would justify a favorable ruling on the merits, the litigant may rely on them in bringing suit. The interim adverse judgment rule applies even if the court later rules, after the evidence has been subject to adversarial testing, that the inferences have proved false." (Parrish, supra, 3 Cal.5th at p. 782, citing in part Wilson, supra, 28 Cal.4th at p. 822 [observing litigants may have incomplete information at the outset of the case].) Thus, Parrish held there is no additional exception to the interim adverse judgment rule for cases in which litigants inadvertently submit materially false facts in support of their claims. (Ibid.) The court explained no such exception is necessary to address that concern, given the recognition that the rule will not apply to an interim decision shown to have been obtained by fraud or perjury. (Ibid.)
III. Appellants Cannot Allege Bank Lacked Probable Cause to Prosecute its Action
On appeal, appellants contend they sufficiently alleged Bank did not have probable cause to seek a deficiency judgment against DGI due to Bank's knowledge of DGI's legal status under SBA regulations as a co-borrower on the loan. Appellants also acknowledge the underlying summary judgment ruling in Bank's breach of guaranty action and its potential effect under the interim adverse judgment rule on their ability to establish probable cause in the present action. They maintain the rule does not apply, but even if it does, any presumption of probable cause arising from the summary judgment ruling is "rebutted by the fraud and unfair conduct of . . . Bank in the underlying case." (Some capitalization omitted.)
In making this argument, appellants suggest that Bank submitted materially false evidence in opposition to the summary judgment motion. They cite Roberts v. Sentry Life Insurance, in which the Court of Appeal stated that denial of summary judgment should not "irrefutably" establish probable cause, as in cases where "denial of summary judgment was induced by materially false facts submitted in opposition . . . ." (Roberts v. Sentry Life Insurance, supra, 76 Cal.App.4th at p. 384.) But in Parrish, the California Supreme Court characterized the Roberts court's statement as dicta, and concluded that court did not establish a broader exception to the interim adverse judgment rule: "The court in Roberts did not hold . . . that 'materially false facts' prevented application of the interim adverse judgment rule in that case, and thus had no occasion to specify the contours of the exception to which it alluded. Given Wilson's recognition that a litigant may rely on evidence that ultimately fails to persuade a fact finder, the interpretation [of the rule to include a broader 'materially false facts' exception] is not tenable." (Parrish, supra, 3 Cal.5th at p. 783.)
Appellants also suggest—citing Carpenter v. Sibley (1908) 153 Cal. 215—they have alleged or demonstrated unfair conduct on Bank's part that would warrant applying the fraud exception to the interim adverse judgment rule. In Carpenter v. Sibley, the court stated "if it be averred that the conviction was procured by fraud, perjury or subornation of perjury, or other unfair conduct on the part of the defendant, the presumption of probable cause is effectually rebutted." (Id. at p. 218.) However, in Parrish the court rejected reliance on that standard by the plaintiff in that case. It explained that while in Carpenter v. Sibley it had referred to unfair conduct, "[i]n the more than 100 years since we recited that 'general rule' . . . we have cited Carpenter only three times—and never for the proposition that 'unfair conduct' includes inadvertent reliance on factual inferences that turn out to be unsupported at trial." (Parrish, supra, 3 Cal.5th at p. 783.) Here, appellants do not develop any argument based on Carpenter, and like the California Supreme Court, we see no basis to reject application of the interim adverse judgment rule on an unfair conduct standard. A. Appellants Have Not Alleged or Shown the Fraud Exception Applies
Carpenter v. Sibley involved the plaintiff's malicious prosecution action brought after he had been criminally convicted and served 261 days in prison before his case was reversed on appeal and dismissed by the district attorney. (Carpenter v. Sibley, supra, 153 Cal. at p. 217.) The lower court had dismissed the malicious prosecution action after sustaining a general demurrer, but the high court reversed the judgment of dismissal, finding the plaintiff's allegations sufficient to show the judgment had been procured by fraud. (Id. at pp. 217-218.) The plaintiff alleged that a sheriff and others "maliciously and feloniously conspired and agreed to falsely charge and accuse the plaintiff of the crime of subornation of perjury"; "unlawfully procured false evidence to be given before the grand jury of the county, by means of which . . . they caused plaintiff to be wrongfully and unlawfully indicted"; and "made use of the false and perjured evidence . . . and offered and introduced such testimony, which they then and there knew to be false, in evidence at said trial against plaintiff." (Id. at p. 216.) The court said: "Certainly if a man has procured an unjust judgment by the knowing use of false and perjured testimony, he has perpetrated a great private wrong against his adversary. If that judgment is in the form of a judgment of criminal conviction, it would be obnoxious to every one's sense of right and justice to say that because the infamy had been successful to the result of a conviction, the probable cause for the prosecution was thus conclusively established against a man who had thus been doubly wronged." (Id. at p. 218.)
We turn to appellants' contention that the fraud exception to the interim adverse judgment rule precludes the rule's application. On this appeal from a demurrer we must decide whether, viewing appellants' allegations liberally and considering judicially noticeable facts, appellants have alleged, or can allege, facts leading to the conclusion that the trial court's decision denying summary judgment in the underlying action was obtained by fraud or a knowingly false statement under oath. (E.g., White v. Lieberman (2002) 103 Cal.App.4th 210, 219 ["None of the allegations of the complaint leads to the conclusion that Judge Lloyd's decision was obtained through fraud"]; Carpenter v. Sibley, supra, 153 Cal. at p. 218 [applying standard following the sustaining of a general demurrer].) Fraud must be pleaded specifically with facts showing how, when, where, to whom, and by what means representations are tendered; general and conclusory allegations do not suffice. (Tenet Healthsystem Desert, Inc. v. Blue Cross of California (2016) 245 Cal.App.4th 821, 837-838.) And, when a corporate defendant is involved as here, appellants " 'must "allege the names of the persons who made the allegedly fraudulent representations, their authority to speak, to whom they spoke, what they said or wrote, and when it was said or written." ' " (Id. at p. 838.)
Citing both allegations of their malicious prosecution complaint as well as judicially noticed evidence outside their pleadings, appellants argue that "[B]ank repeatedly represented to the Court and counsel for [appellants] that the only borrower on the $880,000 loan was [LLC]. . . . Bank also represented repeatedly that [DGI] was only a guarantor on the $880,000 loan." But as we explain, none of the cited evidence establishes that any Bank representative knowingly submitted materially false information to the trial court or committed perjury. (Parrish, supra, 3 Cal.5th at p. 782 [fraud requires that the person making the representations knows or in the exercise of reasonable diligence should have known the representations were false].) Furthermore, appellants have not demonstrated that the court was induced to deny appellants' summary judgment motion by Bank's knowing use of a materially false statement concerning DGI's co-borrower status.
Appellants first point to the allegations in paragraph Nos. 13, 25, 30, 37 and 91 of Bank's verified complaint alleging or suggesting that DGI was a guarantor. Specifically, in paragraph No. 13 of Bank's verified complaint, Bank alleged in part, "On or about September 7, 2007, in the County of San Diego, State of California, Bank extended financial accommodations to [LLC], as an [eligible passive company] for [DGI] doing business as Yucca Valley Gas & Mini Mart in the original principal amount of $880,000." In paragraph No. 25, Bank alleged DGI "made, executed, and delivered to Bank [an SBA] Unconditional Guaranty pursuant to the terms of which [DGI] unconditionally guaranteed and promised to pay Bank all of [LLC's] indebtedness to Bank . . . ." In paragraph No. 30, Bank alleged LLC "breached the terms of the Note . . . ." In paragraph No. 37, Bank alleged in part LLC "has defaulted on their obligations to Bank based on . . . its failure to make payments under the Loan Documents when due." In paragraph No. 91, Bank alleged that based on LLC's default, it made demand on DGI as a guarantor for payment of the loan according to the terms of the guaranties.
Appellants do not establish that the trial court below relied on these allegations to deny summary judgment. That in itself defeats their attempt to avoid the interim adverse judgment rule, because as stated, they must show the interim ruling would not have been made "but for" the use of the false evidence. (Antounian, supra, 189 Cal.App.4th at p. 452.) But in any event, the referenced allegations state facts concerning the nature of the loan documents and guaranties as well as Bank's collection efforts, and do not represent either that LLC was the "sole" borrower, or that DGI was "only" a guarantor. Appellants have not demonstrated these allegations were false when the Bank made them. Nor can they, as appellants themselves admit that they raised the co-borrower-as-a-matter-of-law defense for the first time at trial.
Appellants also point to portions of the underlying summary judgment minute order in which the court summarized the nature of the action ("This is an action by the bank against the guarantors of a business loan" and, "On the one hand, there was one borrower (an LLC) and each of the guarantors signed separate guaranties") and recounted Bank's legal argument at the summary judgment hearing regarding SBA regulations. We may take judicial notice of the court's ruling and the stated basis for its ruling as long as they are being considered " 'for the nonhearsay purpose of determining the basis' for [its] action." (Hart v. Darwish, supra, 12 Cal.App.5th at p. 225.) But we may not take judicial notice of the truth of its findings. (Ibid.) Here, we cannot accept as judicially noticeable fact that Bank made a particular argument during the summary judgment hearing that guarantors could not have been the principal obligors. Nor will we draw appellants' requested inference: that in view of the court's finding, Bank must have made false statements concerning DGI's or LLC's status. Thus, the court's minute order summarizing Bank's legal position—that SBA regulations would not permit guarantors to be principal obligors—does not demonstrate any Bank representative knowingly made a false material statement about DGI's status.
Even if we were to consider as fact that Bank made such an argument, we would conclude it does not establish the fraud exception. Bank was entitled to present its case in opposition to appellants' summary judgment motion, and, as Parrish makes clear, its taking such positions—even when they ultimately fail to persuade a fact-finder—does not suggest fraud. (Parrish, supra, 3 Cal.5th at p. 783; see also Wilson, supra, 28 Cal.4th at p. 822 ["A litigant or attorney who possesses competent evidence to substantiate a legally cognizable claim for relief does not act tortiously by bringing the claim, even if also aware of evidence that will weigh against the claim," italics added]; Paiva v. Nichols, supra, 168 Cal.App.4th at p. 1027 ["The fact that Paiva presented opposing evidence in an unsuccessful effort to resist the granting of the TRO and preliminary injunction does not give rise to an inference that appellants obtained the interim equitable relief through fraud"].) Bank had a "right to bring a claim [it thought] unlikely to succeed, so long as it [was] arguably meritorious." (Wilson, at p. 822.) That the trial court made certain findings in its summary judgment ruling does not establish that Bank representatives knowingly made false statements in opposing summary judgment.
Appellants further point to Bank's opposing separate statement of material facts responding to fact No. 14, asserting that in it, Bank falsely represented that DGI was a guarantor and that the only borrower was LLC. Appellants argue, "It is clear that [Bank] intentionally hid from the trial judge the fact that under federal law, [DGI] was necessarily a co-borrower on the loan." Bank's opposing separate statement of material fact responding to fact No. 14 recounts the capacities in which LLC and the individuals signed various documents, and appellants have not demonstrated those particular statements are false. Indeed, the exhibits submitted in connection with Bank's demurrer demonstrate the statements about how the parties signed the documents are true.
Bank's opposing separate statement disputed the asserted undisputed material fact that the "true borrowers" were Ghassan, Amir, Izik, GI and DGI. Bank's statement reads: "In fact, Borrower [LLC] executed a Purchase and Sale Agreement and Escrow Instructions, dated July 2, 2007, for the purchase of the 29 Palms Property. . . . Borrower [LLC] admittedly signed the Note, 29 Palms DOT, 29 Palms AOR and other Loan Documents as the 'Borrower.' No other party executed the Loan Documents as 'Borrower.' Defendants/Guarantors [Ghassan], [Amir], [Izik], [DGI], and GI admit that the[y] signed the [guaranties], respectively, each as 'Guarantor.' "
Neither does the malicious prosecution complaint sufficiently allege the fraud exception. Appellants point to their allegations concerning LLC and DGI's status under SBA rules and regulations governing the loan, but those are mere legal conclusions that we disregard. (City of Dinuba v. County of Tulare, supra, 41 Cal.4th at p. 865.) Appellants also point to the allegations concerning certain unidentified Bank employees' trial testimony. We assume those allegations are true. But the allegation that Bank employees testified at trial, following the summary judgment hearing, that DGI was a co-borrower under SBA regulations, does not establish that Bank procured the earlier summary judgment denial by false or perjured statements. In short, these allegations do not demonstrate that particular Bank employees made statements in sworn declarations about DGI that they knew were not true or made other materially false statements that caused the court to deny appellants' summary judgment motion. B. Appellants Cannot Otherwise Show the Interim Adverse Judgment Rule Is Inapplicable
Appellants make other arguments as to why the interim adverse judgment rule is inapplicable, which we address in turn.
First, appellants contend that during the summary judgment proceedings below, they did not present any issue of whether Bank engaged in fraud, perjury, subornation of perjury, or unfair conduct because their counsel was not aware at the time of that hearing that DGI was a co-borrower as a matter of federal law, or that Bank and its employees were aware of this fact. For this proposition, appellants cite Ninth Circuit authority, Hydranautics v. FilmTec Corporation (9th Cir. 2000) 204 F.3d 880, as instructive. But Hydranautics does not assist them. The only issue there was whether an underlying Federal Circuit ruling concerning the objective baselessness of a patent infringement action barred a party's later malicious prosecution suit under collateral estoppel or res judicata. (Id. at p. 885.) The Ninth Circuit held that the patent infringement plaintiff, FilmTec (defendant in the malicious prosecution action), did not show with certainty that the Federal Circuit had determined whether FilmTec committed fraud or perjury in prosecuting its patent or pursuing its infringement claims. (Id. at p. 886.) Thus, neither doctrine barred the malicious prosecution case, in which the malicious prosecution plaintiff (defendant in the underlying action) sought to invoke the fraud exception to the interim adverse judgment rule. (Id. at pp. 886-888.)
Nothing in Hydranautics v. FilmTec Corporation, supra, 204 F.3d 880 suggests that the interim adverse judgment rule is inapplicable—that an order denying summary judgment cannot be used to conclusively demonstrate the existence of probable cause—if the court hearing the summary judgment motion in the underlying action fails to consider or address a claim of fraud or perjury in connection with the motion. Hydranautics did not consider that question. It is true that when a trier of fact in an underlying action is presented with but rejects allegations of fraud or perjury, those allegations cannot be resurrected in a later malicious prosecution action to avoid the interim judgment rule. (Plumley v. Mockett, supra, 164 Cal.App.4th at p. 1054.) "[W]here claims of fraud or perjury are litigated and rejected by a fact finder in an underlying case, those same claims cannot be relied on to establish the absence of probable cause in a subsequent malicious prosecution suit." (Id. at p. 1056.) But as appellants acknowledge, the trial court in the underlying action did not resolve, much less consider, any claim of fraud or perjury in connection with appellants' summary judgment motions. Nor could it have, as it was limited to determining the existence of triable issues of material fact, not the merits of issues. (Flowmaster, Inc. v. Superior Court (1993) 16 Cal.App.4th 1019, 1025.) This proposition does not apply.
Second, appellants contend the interim adverse judgment rule cannot be applied to a claim—DGI's asserted legal status as a co-borrower under SBA regulations or federal law—that was not presented in their summary judgment motion. According to appellants, their malicious prosecution action, based on the theory that DGI is a co-borrower as a matter of law, is not foreclosed by the trial court's summary judgment ruling because the court did not consider that issue in deciding the motion. Appellants do not support this argument on appeal with any legal authority, and for that reason alone we may consider it forfeited. (Cal. Rules of Court, rule 8.204(a)(1)(C); Guthrey v. State of California (1998) 63 Cal.App.4th 1108, 1115-1116 [appellant must affirmatively demonstrate error through reasoned argument and discussion of legal authority]; Benach v. County of Los Angeles (2007) 149 Cal.App.4th 836, 852.)
At oral argument on Bank's demurrer, appellants sought to rely on the principle that a defendant does not escape liability in a later malicious prosecution suit merely because one of several causes of action was prosecuted with probable cause. (See Crowley v. Katleman (1994) 8 Cal.4th 666, 679; Maybe v. Hyatt (1998) 61 Cal.App.4th 581, 593-594.) We fail to see the application of this rule to the interim adverse judgment rule, which grants a presumption of probable cause—a tenable basis for the underlying action—based on a trial court's interim ruling on the merits.
Setting aside forfeiture, we agree with Bank that this argument provides no basis to avoid the interim adverse judgment rule. The ultimate question is whether appellants have sufficiently alleged that after engaging in the nonjudicial foreclosure, Bank or its attorneys discovered there was no legally tenable basis to proceed with the action to recover a deficiency judgment against DGI; that any reasonable attorney would agree the action against DGI was totally and completely without merit. (Wilson, supra, 28 Cal.4th at p. 817.) But Bank has proven on its demurrer that its prior lawsuit was not totally and completely without merit, and thus proceeded with an indication its lawsuit was legally tenable: DGI asserted in its summary judgment motion an affirmative defense that the guaranty it signed was "sham" and that DGI was the true borrower on the loan, and the court found triable issues of fact for a jury to decide as to those matters, a determination that Bank could substantiate its claim against DGI, invoking the interim adverse judgment presumption. (Roberts v. Sentry Life Insurance, supra, 76 Cal.App.4th at p. 383; Hart v. Darwish, supra, 12 Cal.App.5th at pp. 225-226.) That appellants could raise a new theory at trial does not change that result.
Further, we conclude the trial court's summary judgment determination as to the sham guaranty affirmative defense encompassed any theory that DGI was a principal obligor, including the theory that it was a co-borrower as a matter of SBA regulations or federal law. (See LSREF2 Clover Property 4, LLC v. Festival Retail Fund 1, LP (2016) 3 Cal.App.5th 1067, 1075 [sham guaranty doctrine will apply when, inter alia, " 'the guarantor is, in reality, the principal obligor under a different name by operation of trust or corporate law or some other applicable legal principle,' " italics added]; CADC/RADC Venture 2011-1 LLC v. Bradley, supra, 235 Cal.App.4th at pp. 786-787.) Because the court denied appellants' summary judgment motion seeking to demonstrate no triable issues of material fact as to the sham guaranty defense or DGI's borrower status, the interim adverse judgment rule operates to conclusively establish Bank had probable cause to pursue its action against DGI. In sum, the trial court did not err by sustaining Bank's demurrer on grounds appellants' cannot allege that element of malicious prosecution.
IV. Malice
Because we conclude the trial court's underlying summary judgment ruling conclusively establishes Bank's probable cause to continue its action against DGI, we need not address whether appellants adequately alleged, or can allege, the element of malice.
V. Leave to Amend
The trial court sustained Bank's demurrer without leave to amend. It did not abuse its discretion in this regard. "If the court sustained the demurrer without leave to amend, as here, we must decide whether there is a reasonable possibility the plaintiff could cure the defect with an amendment. [Citation.] If we find that an amendment could cure the defect, we conclude that the trial court abused its discretion and we reverse; if not, no abuse of discretion has occurred." (Schifando v. City of Los Angeles (2003) 31 Cal.4th 1074, 1081.) The burden of showing a reasonable possibility that any defect can be cured by amendment rests squarely on the appellant. (Centinela Freeman Emergency Medical Associates v. Health Net of California, Inc. (2016) 1 Cal.5th 994, 1010.) " 'To satisfy that burden on appeal, a plaintiff "must show in what manner he can amend his complaint and how that amendment will change the legal effect of his pleading." [Citation.] . . . The plaintiff must clearly and specifically set forth the "applicable substantive law" [citation] and the legal basis for amendment, i.e., the elements of the cause of action and authority for it. Further, the plaintiff must set forth factual allegations that sufficiently state all required elements of that cause of action.' " (Rossberg v. Bank of America, N.A. (2013) 219 Cal.App.4th 1481, 1491.) Appellants made no attempt to make such a showing either below or on appeal.
DISPOSITION
The judgment is affirmed.
O'ROURKE, J. WE CONCUR: HUFFMAN, Acting P. J. HALLER, J.