JAZ WINS SUMMARY JUDGMENT IN FAVOR OF A COMMERCIAL LENDER AND SHUTS DOWN SHAM GUARANTY DEFENSE ON PREEMPTION GROUNDS

A CALIFORNIA SUPERIOR COURT ISSUED A RULING GRANTING A SECURED LENDER SUMMARY JUDGMENT IN A MULTI-MILLION DOLLAR BREACH OF GUARANTY ACTION IN A LAWSUIT ARISING FROM A DEFAULTED COMMERCIAL LOAN.  THE DECISION IS THE FIRST AND ONLY KNOWN RULING IN CALIFORNIA REGARDING FEDERAL PREEMPTION AND THE SHAM GUARANTY DEFENSE AND HOLDS THAT THE SHAM GUARANTY DEFENSE IS PREEMPTED BY 12 U.S.C. SECTION 1823(E).  THE DECISION WAS ISSUED BY HON. SANDRA MCLEAN IN COASTLINE RE HOLDINGS CORP. V. OROVILLE SELF STORAGE, LLC 

(CASE NO. 15373).  FOR A COPY OF THE DECISION, CLICK HERE.

WHY IS THIS IMPORTANT?  OFTEN TIMES, LENDERS HOLDING GUARANTYS WILL ENCOUNTER THE SHAM GUARANTY DEFENSE, IN WHICH A GUARANTOR ALLEGES THAT THE GUARANTY IS NOT ENFORCEABLE.  THE SHAM GUARANTY DEFENSE IS A FACT-SPECIFIC CREATURE OF CALIFORNIA COMMON LAW AND CAN RESULT IN PROTRACTED LITIGATION AND THE NECESSITY FOR A JURY TRIAL.  THIS DECISION ON PREEMPTION GROUNDS PROVIDES A QUICK-STRIKE METHOD TO SHUT DOWN THE SHAM GUARANTY DEFENSE WITHOUT TRIAL.