Breach of contract suit against Columbia Property Capital remanded to state court

By Scott Holland | May 8, 2019

SAN DIEGO – A federal judge remanded a portion of a breach of contract suit over five promissory notes to a state court.

Judge Thomas Whelan of the U.S. District Court for the Southern District of California issued an opinion April 22 in a suit pitting plaintiffs Joral, Loren and Marla Schmalle and JM Funding against Columbia Property Capital, J6 Developments and Patricia Prudhomme, representing the estate of Guy Prudhomme, who was CPC’s chief executive officer and sole owner. Patricia Prudhomme is a managing member of J6, a rebranded version of CPC, according to Whelan.

The ruling states each of the plaintiffs made individual loans to CPC; Joral made two. All five were executed by signing two promissory notes and one personal guarantee. According to Whelan, Guy Prudhomme requested and received several extensions on the loans as they became due between February 2016 and May 2017, when a neighbor shot and killed him over a property dispute.

The plaintiffs filed their lawsuit in San Diego Superior Court on July 23, 2018, after several attempts to get the loans paid. On Sept. 25, J6 was found in default. On Oct. 26, the defendants removed the action to federal court because although plaintiffs live in California, the defendants live near Washington, D.C., and the amount in controversy exceeded $75,000.

In arguing against a remand, the defendants said the promissory notes and personal guarantees shouldn’t be allowed as evidence, but Whelan disagreed, noting the plaintiffs properly introduced the information.

The defendants also objected to the documents because each plaintiff had one promissory note with loan terms and a second that had legal terms, including which forum would be appropriate for litigation. But Whelan said the defendants failed to establish one note negates the content of the other.

“Moreover, the two documents appear from their content to be complementary as the terms of neither overlap nor conflict, and the dates printed on each either match or are within one day of the other,” Whelan wrote. “Therefore, the court finds the forum-selection clauses apply to this action.”

Whelan also said the notes that contain a forum-selection clause all stipulate “that all actions … shall be tried in the Superior Court of California.” Though the defendants argued that language was permissive, Whelan said it was “mandatory and cannot be interpreted to allow for the action to be tried in other forums.”

Had the notes use the phrase “shall be triable” instead of “shall be tried,” Whelan reasoned, the defendants’ argument might have held sway. He further rejected defendants’ contention the clauses needed to include a selected venue to be valid.

“The forum-selection clause in this case is mandatory standing on its own,” Whelan wrote. “No venue-selection clause is required to aid in its interpretation. Nor is the absence of a venue-selection clause able to diminish the fact that jurisdiction is mandatory.”

Since CPC was a party to the transaction and loan documents with the forum-selection clause, its litigation must be tried in California, Whelan said. However, neither Guy Prudhomme nor his estate were party to those promissory notes, and so Whelan said it is proper to keep those claims in federal court. He also said J6 is not subject to successor liability relative to CPC, so claims affecting it also will stay in federal court.

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