October 13, 2016
Authored by: Bryan Cave Leighton Paisner
Bryan Cave LLP recently served as counsel for amicus curiae California Bankers Association (“CBA”) and helped score a victory in an important California appellate case of great interest to the banking industry, LSREF2 Clover Property 4 LLC v. Festival Retail Fund 1 357 N. Beverly Drive LP (Second District, California Court of Appeal case number B259937).
The trial court had ruled that the guarantor of a commercial loan was excused from performance on the grounds that the guaranty was a “sham,” structured by the lender to circumvent California’s anti-deficiency laws. The guarantor essentially argued that there was no legal separation between it and the borrower because it was the borrower’s “alter ego,” and as support they identified evidence that the two entities failed to observe basic corporate formalities. According to the guarantor, it should be excused from its obligations because it was essentially the same as the borrower, and thus protected by California’s anti-deficiency laws.
In its amicus brief, the CBA raised two principal arguments, both of which were adopted by the court of appeal in its published opinion reversing the trial court’s judgment in favor of the guarantor Festival Fund.