A recent secured real property case decision by the Court of Appeal of California’s Third Appellate District in Schmidli v. Pearce establishes a split between appellate districts on whether a 10 or 60 year statute of limitations applies to a lender’s recorded trust deed if the deed’s maturity date of the obligation secured by the trust deed are not stated in the recorded trust deed.

In the case of Nancy A. Schmidli et al. v. Rodney K. Pearce et al. recently decided by California’s Court of Appeal in the Third Appellate District (San Joaquin), the plaintiffs sought to extinguish a lien of deed of trust held by defendants against their property. Schmidli et. al. claimed that the defendants’ lien had expired under a 10-year statute of limitations triggered by defendant’s recording of a notice of default employing as a rationale that the “record” from which to determine the maturity date of the obligation secured by the trust deed included any recorded document that disclosed the debt’s maturity date, including a notice of default.Defendants countered that a 60-year statute of limitations applied if the last date fixed for payment of the debt is not expressly set forth within the recorded trust deed. With this line of reasoning intact, their notice of default did not trigger the 10-year statute, and their lien remained viable under a 60-year statute of limitations.

Two previous appellate decisions addressed this issue and reached different results. Slintak v. Buckeye Retirement Co., L.L.C. LTD. (2006) concluded a notice of default triggered a 10-year statute. Ung v. Koehler (2005) determined a notice of default did not trigger a notice of default where the notice was recorded after the 10-year period had expired and the trust deed failed to provide the maturity date of the debt, and therefore, the 60-year statute applied.

The trial court relied upon Slintak and granted a summary judgment in favor of the plaintiffs. Although the notice of default in this case was recorded before the 10-year period expired, the court concluded that Ung’s precedent was the better reasoned authority, and so reversed the judgment.

Because of this decision, a split between appellate districts on whether a 10 or 60 year statute of limitations applies to a lender’s recorded trust deed against real estate where that trust deed fails to provide for a maturity date of the loan. Although the California legislature has changed the statute to clarify 60 years as the term of maturity in the event that the trust deed failed to state a maturity date and regardless as to whether or not a subsequent notice of default so indicates, a significant number of trust deeds still recorded prior to the change are in existence which must be interpreted based upon the district where recorded unless there is further clarification from the California Supreme Court.

Roni Balint writes for the Law Office of Alan M. Insul. The content contained within this feature is not intended as legal advice and does not constitute an attorney-client relationship. To learn more, contact Los Angeles business attorney and California corporate lawyer, Alan M. Insul by visiting Insullaw.com.

The recent decision by the California Court of Appeal, Berg & Berg Enterprises v. John Boyle et al., a reaffirmation of California earlier Trust Fund doctrine and rejecting the so-called “zone of insolvency” approach of other jurisdictions when defining the scope of when and to what extent to fasten duties owed by boards of directors of near insolvent corporations to its creditors.

The October 29, 2009, decision rendered by the California Court of Appeal, Sixth Appellate District, in the case Berg & Berg Enterprises, LLC versus John Boyle et. al. concluded that Berg failed to plead a cognizable claim for breach of fiduciary duty against the individual directors (John Boyle et. al.) of Pluris Inc. being sued.

The Berg case was born out of a dispute between Berg & Berg, a real estate developer, and Pluris, a Silicon Valley-based start-up company engaged in the business of developing advanced network routers. Pluris dissolved in 2002, a victim of a depressed sector economy as its financing efforts and product development efforts “tanked.” Berg alleged that it became Pluris’s largest creditor when its predecessor-in-interest, MWP, agreed to build and then lease two office buildings in San Jose, California, to Pluris and Pluris allegedly repudiated the lease agreement and subsequently made an assignment of its entire assets for the benefit of its creditors. Berg retaliated initially by attempting to file an involuntary bankruptcy proceeding against Pluris to try to exploit approximately $50 million in net operating losses. When the involuntary bankruptcy proceeding was dismissed, Berg litigated, claiming in state court that Pluris’s directors had breached fiduciary duty, alleging that the directors had failed to conduct a reasonable probe into the proposal to pursue the Berg bankruptcy plan for the intent of preserving the net operating losses. After several additional challenges, the actions were dismissed due to Berg’s “failure to state a cause of action for breach of fiduciary duty” and Berg appealed.

On appeal, Berg raised the theory that directors of a corporation owe a fiduciary duty to the corporate creditors even before the corporation is actually insolvent and merely in the “zone of insolvency” so as to vitiate the normally singular duty owed to shareholders. The rule was originally posted in a Delaware Chancery court in the case of Credit Lyonnais Bank Nederland N.V. v. Pathe Communications Corp., 1991 Del. Ch. Lexis 215 (Del. Ch. Dec. 30, 1991). In rejecting the invitations to expand directors duties before actual insolvency, the court instead reaffirmed California’s “Trust Fund” approach which rejects a fiduciary duty to creditors and merely fasten liability where the assets which otherwise could have been used to satisfy creditors is in some way diverted, dissipated or put at undue risk.

Roni Balint writes for the Law Office of Alan M. Insul. The content contained within this feature is not intended as legal advice and does not constitute an attorney-client relationship. To learn more, contact Los Angeles business attorney and California corporate lawyer, Alan M. Insul by visiting Insullaw.com.