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Guarantors Defense Law

Helping Guarantors ‘Ride the Tiger’ in Lender Litigation

The Lull in Guarantor Litigation

Posted in Guarantor Litigation

Here at Guarantor’s Defense Law we’ve had little to report, though not of our own accord – simple economic realities have made guarantor litigation a rare matter at the moment. Whenever the economy might tank further – and that’s anyone’s guess – we’ll be ready to tackle cases involving sham guarantees, default negotiations, real estate obligations, writs of attachment by lenders and the like. Hackard Law is always available to defend guarantors, but the current business climate makes for a quiet landscape in guarantor litigation. When things activate, we’ll already be prepared.

Tales from a (Once) Youthful Lawyer: Taken to School

Posted in Legal Representation


My stories are those of a youthful lawyer- all the events cited are from my first five years of practice. My client, opposing counsel and his law firm are only generally referenced. Some particulars are omitted to preserve their anonymity.

Some days are just meant to be memorable. That day in March 1977, three months after I was sworn in as a California lawyer, is one of those days. The day began early. My wife, Lisa, drove me to the airport in our 1975 Volvo so that I could take an early flight to Los Angeles to accomplish my day’s assignment – taking the deposition of a high-level corporate executive. “Same ol,’ same ol.’” Not quite. While I had just accumulated immense experience in sitting through a deposition (two days), I had not yet taken one. That was about to change.

My adversary was a leading business and securities litigator from a well-known and even better regarded international law firm. The deposition was to be at his office, so he was permitted home court advantage against this Sacramento dynamo. My law firm’s non-air-conditioned 1911 office bore little resemblance to the opulence of my opponent’s Beverly Hills lair.

My adversary had gone to Princeton. I’d graduated from Sacramento State. He’d graduated from Yale Law School. I’d graduated from McGeorge School of Law. He’d been representing high-profile international companies for 14 years. I’d been representing the terminated employee of such a company for two days. At first glance (and maybe second, third and fourth) we were not evenly matched. I suppose, to be fair, likening my experience, expertise and knowledge with that of my foe was akin to comparing the mass and power of Scuffy the Tugboat to a Nimitz-class aircraft carrier.

Lawyers for the most part learn about taking depositions by sitting through dozens taken by other people and learning rudimentary skills, the do’s and don’ts, and by watching others perform. Had someone other than my antagonist, the court reporter and a completely chagrined client been watching my performance that March day there would have been a nice compilation of don’ts. Don’t send a fluffy housecat to take down a tiger. Don’t let an un-medicated client watch an embarrassing display of professional mortification.  If you must pull a joke on a very junior associate, do it without having every word forever recorded by a court reporter.

While I mentioned that some days are just meant to be memorable, thankfully not all moments of those days are retained in memory. While all elements of my first deposition are not readily recalled, some are emblazoned in my mind. I think that I asked about five incorrect and unqualified questions before I stopped my scholarly inquisition. I’m sure that my questions did not even approximate the logic and skill of Barney Fife’s jail interrogation of Otis Campbell.

It didn’t take Defendant’s counsel more than thirty seconds to begin his objections to my questions. That immediately irritated me. I was amazed. I didn’t object to any of his questions (of course I had no idea as to how to object to any of his questions).  I couldn’t believe it and I told him so: “You’re objecting to my questions? Then I object to your objections!” He smiled, “You object to my objections?” I responded in the affirmative. I had no idea how to respond otherwise. By that time I had the clarity of Ross Perot’s 1992 running mate – “Who am I? Why am I here?”

Becoming speechless with embarrassment I was able to utter – “No further questions.” I don’t remember going home, but I do remember the after-effects of that day.  I made some commitments to myself. They were a bit like Scarlet O’Hara’s declaration that, “As God as my witness. As God as my witness they’re not going to lick me. I’m going to live through this and when it’s over I’ll never be hungry again . . . .” While my affirmations had neither the drama of post-war Tara nor the orchestral accompaniment of Max Steiner, they did have the searing imprint of humiliation. Such humiliation gave birth to some lessons:

  1. I wanted to be like my opponent. I wanted to be committed to excellence in every case that I was involved in. I wanted to have his confidence and the professional attributes supporting his confidence. I learned more about him – it might have been myth coupled with fact. I was told by some of his compatriots that when junior associates first came to work for him they were asked whether they had fully read the Civil Code, the Evidence Code, and the Code of Civil Procedure. (They of course had not.) He told them to return when they were prepared.
  2. I wanted to get to know him and his firm better. I did this. Within the next few years after my learning experience I associated his firm into some large matters that needed “Big Law” expertise. The association worked well. I still apply some of the principles that I learned from my impressive co-counsel.
  3. I used his code-reading inquiry in engaging with my new associates. While they might not literally read the California codes they readily get the idea that they are supposed to be in a constant quest for excellence.  Those who don’t start and keep up the quest go elsewhere.

The oft repeated aphorism that “good judgment comes from experience and experience from bad judgment” applies well to my first deposition experience. I did learn other things; later I’d beat my well-schooled opponent’s firm in some motion practice (even if it was a battle won prior to losing the war). While pedigree and position count, so do hard work and commitment. I’m generally not intimidated by the status or position of opposing counsel. I think that I’ve faced some of the best – even some of the “Great White Sharks” and come out alive and even advantaged.

I’ve learned that there are fabulous lawyers from the smallest and most obscure law schools, law firms and geographic areas in the country. Not all wisdom, experience and excellence lies on the two coasts. And there are positives that come out of being “taken to school.” You really can learn even though you’ve been beaten badly in a competition. Your opponent, knowingly or unknowingly, has – if you are attentive and observant – taught you how it’s really done.

Litigation: The Battle Plan

Posted in Guarantor Litigation, Legal War Games


Like military conflicts, litigation actions have their own context and particularities. Trust litigation is different from bankruptcy litigation, which is different from real estate litigation. That said, most litigation embraces many more common elements than particularities, in the same way the phenomenon of warfare possesses a certain nature. All litigation starts with a plaintiff’s complaint followed by a defendant’s responsive pleading. Discovery ensues and the long, hard slog toward trial begins.

Litigators, whether representing plaintiffs or defendants, must begin with a plan. The uncertainties of litigation soon give resonance to Robert Burns’ ode “To a Mouse:” “The best laid schemes o’mice an’ men/Often go awry.” Experienced litigators give due counsel to their clients that a litigation plan may not proceed according to plan. In other words, have plenty of contingencies up your sleeve, because you just might need them.

While the practice of civil law is far from the multifaceted terrors of war, litigation variables at times seem just as endless. Venue counts. Statutes count. Case law counts. Judicial temperament, experience, as well as calendar pressures count. Witnesses, their veracity or lack thereof, also count. Documents count. Funding counts. Most importantly, truth and justice should count. Any one of these variables might be the center of gravity for you or your opponent. What it costs to ultimately attain justice and have truth judicially embraced is predictably uncertain.

The genesis for uncertainty in litigation is put well by Mike Tyson – “Everybody has a plan until they get punched in the face.” Litigation, like boxing, engages the mind in battle. A series of blows can hurt, change the course of the contest, or just be a part of an unseemly and painful process. Whether engaged in the periodic drama of litigation or the pain of the boxing ring, it is important to “read punches.” Punch awareness is much less painful when accompanied by a defensive parry. Yet even when an opponent’s punches are telegraphed, they might still be difficult to parry.

In litigation, as in battle, there are really two methods of attack – the direct and indirect. As Sun Tzu’s The Art of War explained, these two in combination give rise to an endless series of maneuvers. Speculating on these maneuvers could also wear us out quickly if we lack the requisite focus for a sustained campaign. Thus was born the concept of zero-based thinking, where the best plan for success, in conquest or defense, is predicated upon the best knowledge you have at the moment.

On the battlefield and in the realm of litigation, plans often go awry. A “punch in the face” is a dramatic accelerator toward chaos and the necessity for adaptation. And plans, whether upset or intact, will give birth to new plans – and such plans, whether direct or indirect – give rise to an ongoing contest for advantage.

Successful litigation is generally fluid and dynamic, and for the strategic-minded attorney can play it out as a chess match rather than another game of checkers. Nonetheless, be ready for a punch in the face; both your flexibility and your preparation will help you to recover, overcome and win.


Some Banks Go Too Far in Lawsuits Against Guarantors

Posted in Guarantor Litigation, Legal Representation


Hackard Law attorneys regularly represent and defend borrowers and guarantors in lender-initiated lawsuits. This litigation often involves the defense of prejudgment attachment proceedings that are ancillary to guarantee and judicial foreclosure actions. We begin the process of representation by a preliminary review of our prospective client’s case and possible defenses to any lender action. A part of this review is securing an understanding of the terms of the loan agreement, promissory note, deed of trust and commercial guaranty that are typically included in commercial real estate loan documentation.  We are regularly asked to review cases rife with the elements of lender-initiated sham guarantees.

The sham guaranty defense in commercial real estate loan litigation is based upon the principle that a borrower cannot also be the guarantor of his own debt. The essence of the defense is that the documents have been structured so that the guarantor has become the de facto borrower – in California a borrower entitled to the unwaivable anti-deficiency protections afforded by statutory and case law.

California law has been trending toward a more expansive protection of de facto borrowers even if they are nominally designated as guarantors in lender documents. These protections are intensively fact-based. Facts that must be addressed in any guarantor defense include whether the borrower functioned as a genuine entity as distinguished from a mere shell. This can easily arise when a borrower is an inter-vivos or living trust and the guarantor is the settlor, trustee and beneficiary of the trust. There are numerous additional inquiries that must be made to gain a full understanding of whether the lender purposely structured the loan transaction to preclude the guarantor from the protections of California’s anti-deficiency laws.

Credibility Counts

Posted in Legal Representation

Universal Pictures

Court or tribunal appearances are a common task for litigators. Such appearances afford the Bench needed opportunities to discern the competence, veracity and credibility of members of the litigation Bar. I was recently reminded of this simple but important fact when reviewing a “Benchguide” for California Judges. The Benchguide section of interest was a brief synopsis of “Judicial Style.” The section noted “there may be as many styles of judging as there are judges.”

The Benchguide advised that Judges who are new to particular proceedings “may wish to spend time with a judicial colleague who has handled . . . (similar) proceedings within the last year. That judge may provide insights into how . . . matters are handled locally (and) who the attorneys are that can be counted on to state the law accurately . . .”[1] (Emphasis added.)

It is worth noting that the very inclusion of the quoted language with regard to accurate statements of the law can lead us to assume that there are other attorneys who can be counted on to be inaccurate in their statement of the law. This is not a credit to the Bar, but it is a reality.

Attorneys are called to “state the law accurately.” California Rule of Professional Conduct 5-200 states that in presenting a matter to a tribunal, an attorney:

  • (A) Shall employ, for the purpose of maintaining the causes confided to the member, such means only as are consistent with truth;
  • (B) Shall not seek to mislead the judge, judicial officer or jury by an artifice or false statement of fact or law;
  • (C) Shall not intentionally misquote to a tribunal the language of a book, statute or decision;
  • (D) Shall not, knowing its invalidity, cite as authority a decision that has been overruled or a statute that has been repealed or declared unconstitutional; and
  • (E) Shall not assert personal knowledge of the facts at issue, except when testifying as a witness. (Emphasis added.)

California Business and Professions Code § 6106 identifies “dishonesty” and “corruption” as acts of an attorney that can constitute “a cause for disbarment or suspension.” There are a number of other statutes, ABA Model Rules and cases that reiterate the need for candor and truth.

I had the privilege of once serving as a research law clerk to a number of Superior Court Judges. It was a role that almost forty years later I still reflect upon and deeply value. It was a role that taught me that Judges really do appreciate candor and truth from the Bar. Judges, in their own chambers, removed from the formality of the courtroom and generously spending some time with their law clerks, would often comment upon the lawyers that appeared before them.  While maintaining the decorum of a Judge there was still ample room for comments noting which lawyers were “great” and which others were habitually misleading.

I can still remember those attorneys who were known for their truth, competence and candor. At the suggestion of the Judges that I served, I watched several of these “great” lawyers try cases. I learned a great deal from just watching. I also learned that Judges valued credibility greatly.

Litigators, even those who rarely go to trial, are continually involved in a law and motion practice that requires appearances before Judges. Such practice includes the frequent filing of a Memorandum of Points & Authorities (“MPA”). MPAs are reviewed by the Court and are part of the process of judicial decision-making.

Each filing, given the Rules of Professional Conduct, should “state the law accurately.”  Litigators know from experience that this is not always the case. It should be and for most of those in the profession of law it is.

Litigators embracing the Rules of Professional Conduct can take note that Judges do take notice of attorneys who “can be counted on to state the law accurately . . .” This is a standard that all attorneys should seek to accomplish. The benefits of a truthful reputation will follow.

In litigation there is no question that preparation and competence are important factors for success. But they are not the only factors. A reputation for truth – for stating “the law accurately” – insures that an argument is given a fair hearing. In short, credibility counts.

[1] Cal. Judges Benchguides, Landlord-Tenant Litigation: Unlawful Detainer, Benchguide 31, Trial (CJER 2013 rev.) § 31.67, p. 31-54 (Cal. Judges Benchguides).


Hackard Law Gets Mention for Best Blog

Posted in Guarantor Litigation, The Human Element

Hackard Law is proud to note that Kevin O’Keefe over at LexBlog has shared some kind words about us in one of his recent roundups:

If you’re looking for the best new blogger to join the LexBlog Network in the past year, Michael Hackard may be it as his first blog, Ponzi Clawbacks, has been outstanding in shedding light on ponzi schemes. Now, Hackard and his firm—Hackard Law—have launched their second publication Guarantors Defense Law. The blog focuses on ‘helping guarantors ‘ride the tiger’ in lender litigation.’

We’re honored for the compliment and look forward to continuing coverage of investment fraud and guarantor litigation issues, and we’d also like to thank all the readers of Ponzi Clawbacks. They’ve not only visited the site to view articles and access documents, but they’ve also given us helpful tips and advice on a number of stories. Their interest and assistance are much appreciated, and for readers of Guarantors Defense Law, we look forward to you accessing a blog that combines knowledge of new developments in the guarantor litigation with quality and a depth of resources.

Banks, Litigation and Sham Guaranties

Posted in Guarantor Litigation

Hasbro Gaming

California has well-settled law that is designed to limit the liability of borrowers of loans secured by real property.  These “anti-deficiency” statutes are the subject of much litigation. Much of this litigation has been spawned by the interplay between borrowers, lenders and guarantors.

It is well established that a borrower cannot also be the guarantor of his/her/or its own debt. A guarantor is one who promises to answer for the debt of another. A “sham guaranty” is a guaranty executed by a party who is already obligated on the guaranteed obligation. California case law supports the proposition that if a trust is the principal borrower, guarantees executed by certain trustors and trustees may be sham guaranties.

In the 1991 Torrey Pines Bank case (Torrey Pines Bank v. Hoffman, 231 Cal. App. 3d 308), a revocable living trust was formed by a husband and wife. The couple designated themselves as trustors (settlors), trustees, and primary beneficiaries of the trust. The living trust became the borrower on a construction loan. The bank also secured guarantees from the husband and wife individually. The loan wasn’t paid, and the bank sued the husband and wife on their guarantees. Such suits, if successful, do not receive the benefits of California’s “anti-deficiency” laws. The husband and wife challenged the enforceability of the guarantees. The California Court of Appeal noted that the trustees were personally liable on contracts entered into on behalf of their trust and determined that the structure of the trust made no significant distinction between the guarantors and the trust (they were the same – trustors, trustees and beneficiaries). The Court found that since the couple was deemed to be the primary obligors, the guaranties were not enforceable against them.

There is case law that requires a little further analysis in cases that might look like the Torrey Pines Bank case fact pattern. The Talbott v. Hustwit case found that a husband and wife who guaranteed a loan for their revocable living trust were true guarantors. Why? The couple was not the trustee of the trust.  Rather, a limited liability company was the trustee, and the husband and wife were secondary, not primary beneficiaries. They were thus not afforded the protections of California’s anti-deficiency statutes.

Recognizing that each case stands on its own, it is still interesting to see a number of banks sue revocable living trusts on borrowings secured by real estate and the trustees of those same living trusts individually as guarantors. We have attached such a case filed as a first amended complaint in January of 2013. While we are not involved in the case, we can see that on its face the bank filed a Judicial Foreclosure action against the trustees of the revocable trust and in turn sued the same trustees individually as guarantors. Without knowing the specific facts in this case (the identity of the living trust’s beneficiaries), it is hard to tell if Torrey Pines Bank v. Hoffman will be directly controlling.

COMPLAINT: Umpqua v. Siino et al


Ethics and Guarantor Litigation

Posted in Guarantor Litigation, The Human Element

Saint Thomas More

I’ve represented numerous borrowers, guarantors and (sometimes) lenders in both negotiations and litigation since the start of the Great Recession (late 2007). It is said that experience should improve judgment. I hope that my experience over the last six years has improved my judgment. With that hope in mind, I’ll share the following observations.

Guarantor litigation is emotional. Guarantors are often shocked that a successful lender initiated lawsuit might result in their bankruptcy (or at least the loss of most of what they own). Lenders are generally not as emotional. While they don’t enjoy the loss of principal, the risks of loss have generally been factored in as part of their overall business. Attorneys’ emotions for both lenders and guarantors can fray. In the worst case, such emotions can spawn bad behavior. I have seen such behavior, and I hope that I have not returned like for like. I’ve also seen extraordinarily gracious behavior from some of our state’s best lawyers – behavior that ultimately benefits their clients.

The California State Bar has paid attention to the decline in civility in the practice of law in California. State Bar Guidelines remind attorneys that

As   officers   of   the   court   with   responsibilities   to   the administration of justice, attorneys have an obligation to be professional  with  clients,  other  parties  and  counsel,  the courts  and  the public.  This obligation includes civility, professional integrity, personal dignity, candor, diligence, respect, courtesy, and cooperation, all of which are essential to the fair administration of justice and conflict resolution.

Neither lenders’ counsel nor the counsel of borrowers/guarantors have “a lock” on civility or incivility in the administration of justice. That said I will make some broad generalizations as to what I have seen with lenders’ counsel over the last few years.

First, “AV” lawyers almost always deserve their reputation for excellence and ethics. Over my career, I have negotiated with and litigated against many “AV” lawyers representing lenders. Many of these “AV” lawyers are partners with California’s largest law firms while others are in solo or small practice groups. A common thread among “AV” lawyers is their general “civility, professional integrity, personal dignity, candor, diligence, respect, courtesy, and cooperation.” Such civility does not compromise clients’ interest; it evidences high respect and esteem for the civil and criminal justice system.

Martindale-Hubbell® Peer Review Ratings are determined as follows:

Legal Ability ratings are based on performance in five key areas, rated on a scale of 1 to 5 (with 1 being the lowest and 5 being the highest). These areas are:

  • Legal Knowledge – Lawyer’s familiarity with the laws governing his/her specific area of practice(s);
  • Analytical Capabilities – Lawyer’s creativity in analyzing legal issues and applying technical knowledge;
  • Judgment – Lawyer’s demonstration of the salient factors that drive the outcome of a given case or issue;
  • Communication Ability – Lawyer’s capability to communicate persuasively and credibly; and
  • Legal Experience – Lawyer’s degree of experience in his/her specific area of practice(s).

The numeric ratings range may coincide with the appropriate Certification Mark:

  • AV Preeminent® (4.5-5.0) – AV Preeminent® is a significant rating accomplishment – a testament to the fact that a lawyer’s peers rank him or her at the highest level of professional excellence.
  • BV Distinguished® (3.0-4.4) – BV Distinguished® is an excellent rating for a lawyer with some experience. A widely respected mark of achievement, it differentiates a lawyer from his or her competition.
  • Rated (1.0-2.9) – The Peer Review Rated designation demonstrates that the lawyer has met the very high criteria of General Ethical Standing.

Since I’ve generally praised those lender lawyers with AV ratings, I’d like to do fair justice to those without Martindale-Hubbell® Peer Review Ratings. Many unrated lawyers have not practiced law long enough or with sufficient scope to have been accorded a rating. To some without ratings, the quest for a rating has likely not been successful and will likely never be successful.

I believe that I’ve encountered some of the best lawyers in our state – a significant number of them that regularly represent lenders. Such lawyers well evidence the best traits set forth in the Martindale-Hubbell® Peer Review Ratings for both legal excellence and ethics.

When I have encountered lawyers of questionable ethics, I can uniformly say that they did not have AV ratings. AV ratings take some time to earn, and not all desire to become part of the process. Unrated lawyers can be equal in skill and ethics to rated lawyers – it is just that the AV rating is a helpful identifier.

While I’ve encountered some of the best lawyers in the state who represent lenders, I must note that I have also encountered some of the worst. The worst are marked by their paucity of legal knowledge and often poor judgment born of inexperience or ignorance. It has been said that “when you’re a hammer, everything looks like a nail.” To the worst it seems that every adversary, whether parties or counsel, should have their professional integrity, personal dignity, candor, diligence and respect questioned. Such lawyers, whether representing guarantors or lenders, are not a credit to the profession.

It is worth ending this note as it began –

As   officers   of   the   court   with   responsibilities   to   the administration of justice, attorneys have an obligation to be professional  with  clients,  other  parties  and  counsel,  the courts  and  the public.  This obligation includes civility, professional integrity, personal dignity, candor, diligence, respect, courtesy, and cooperation, all of which are essential to the fair administration of justice and conflict resolution.

This is a worthy reminder for me, members of my law firm and for all lawyers who practice law.


Posted in Guarantor Litigation, Legal Representation, The Human Element

Soldiers of the US Army 3rd Division celebrate Catholic Mass in 1944 Strasbourg. Photo: dogfacesoldiers.org

Uncertainty over serious matters, whether family, health or financial, can, for those subject to bouts of nervousness, bring on the “jitters.” Jitters can be defined as extreme nervousness and/or edginess. Guarantors often get jitters before and during bank negotiations. I know about jitters – I get them myself. When a client tells me that he woke up at 3:00 a.m. and couldn’t get worry about his legal issues out of his mind – I understand.

Guarantors are often “surprise” litigants. They have often forgotten that they signed guarantees. Reminders of their guarantees often come with lender default letters to borrowers. Such default letters usually spawn a legal check-up. The legal check-up necessarily addresses the nature of guarantor liability, the likelihood of successful negotiation, the likelihood of litigation and the different financial scenarios that can evolve from litigation. Such scenario planning can bring on the “jitters.” The role of the effective advocate often includes that of a guide – a guide familiar with the hostile territory that surrounds guarantor liability.

Knowledge reduces the jitters. The more that you know, the more you can rationally explore options available to reduce risk. Knowledge can also support effective representation. An emotional response akin to crying, “The sky is falling!” leaves little room for rational thought. Jitters in moderation, if jitters can be in moderation, can be helpful in confronting problems. Awareness that fact finding and engaging good counsel are a step to resolution can reduce the uncertainty that comes from imagining the worst.

Helping to deal with the emotional fallout from guarantor disputes should not be an afterthought of legal representation.  Encouraging hope in stressful negotiations and litigation is as important as a strong and powerful team spirit in competitive sports. Attitude counts. Spirit counts. Courage counts. I have shared my faith with more than one client, and most have seemed to appreciate my efforts. Courage is a gift of the Holy Spirit. This gift, also called fortitude, enables a person “to overcome difficulties or to endure pain and suffering with the strength and power infused by God.” 1

Courage – fortitude is a gift to be prayed for (by those who pray) and contemplated by those who don’t. Lender-initiated actions against guarantors are stressful. They are at times tedious. They can surely create an edginess that the guarantor would rather not have. My role becomes that of a guide and of a protector to the extent that I can protect. I do not forget my role as a human being is to reach out to others through understanding and attempting to alleviate their pain.