Estate of Anne Lorine Tabuyo-Clonts

Case Number

23PR00162

Case Type

Hearing Date / Time

Tue, 09/10/2024 - 09:00

Nature of Proceedings

Review hearing re: Final Distribution

Tentative Ruling

Probate Notes:

Appearances required.

This hearing was set to consider the following issues:

1. Whether the $15,000 reserve will truly be necessary to satisfy a tax liability of the estate.

2. Whether Vanmar Capital, LLC is the rightful distributee of Kayla Parker’s 50% share of the estate.

After review of all supplements and points of authority filed in this case as of September 4, 2024, the following is noted for the Court at the hearing by issue:

Issue #1

The tax liability of the estate is still unknown.  Filings in this case show the estate has a potential tax bill that has yet to materialize.  Petitioner requested $15,000 for a reserve amount as a result of the anticipated taxes.  It is recommended the Court order a final accounting for the reserve amount, and set that accounting for hearing out six months so the distribution of the reserve amount will be accounted for.

Issue #2

Vanmar Capital, LLC (“VCL ) is not the rightful distributee of Kayla Parker’s 50% share of the estate.  Procedurally, VCL failed to follow the mandatory filing and notice provisions of Probate Code section 11604.5, and admits this in supplement filed August 20, 2024 at page 3, lines 9-10.  Further, the underlying contract terms of the assignment of Kayla Parker to Vanmar Capital, LLC were grossly unreasonable. 

First, the assignment did not comply with the procedural requirements of Probate Code section 11604.5(d).  According to the contract on file, Vanmar Capital, LLC contracted with Kayla Parker on February 28, 2023, but Vanmar Capital, LLC did not file that notice of assignment of interest until September 6, 2023, far past the 30 day requirement outlined in Probate Code section 11604.5(d)(1).  Further, to this day, there is no “declaration or affidavit attesting that the requirements of this section have been satisfied” (Prob. Code, §11604.5(d)(4)), nor can any be timely filed now.

Contrary to VLC’s argument that compliance with the notice and filing requirements of section 11604.5 must only be substantial, the introductory language of subdivision (d) mandates strict compliance. (ibid. [“A written agreement is effective only if all of the following conditions are met.”].)  If those conditions are not met, the Court only has two discretionary choices if the Court finds the lender substantially complied with the notice and filing requirements:

The court may refuse to order distribution under the written agreement, or may order distribution on any terms that the court considers equitable, if the court finds that the transferee for value did not substantially comply with the requirements of this section…

(Prob. Code, §11604.5(h).)  Thus, the Court can either void the contract or reform it under principles of equity.

VLC asks the Court for mercy by exercising the Court’s discretion to confirm the contract terms. The Court should not do so, because the Court lacks the discretion to do so, it is inequitable to do so, and the proposed distribution is grossly unreasonable.

Probate Code section 11604.5 was the result of a legislative compromise to regulate the predatory lending practices of probate loan companies, after significant investigative reporting revealed abuses in the industry.  (David Horton, Andrea Cann Chandrasekher, Probate Lending (2016) 126 Yale L.J. 102, 107.)  The strict filing requirements should not, therefore, be relaxed to accommodate even the most understandable procedural oversights in compliance with the filing requirements.

 

Further, the assignment violates state usury law at minimum, and is grossly unreasonable at maximum.  According to the contract on file, Vanmar Capital, LLC claims a right to ½ of this estate ($99,675.98 after fees and costs), due to a $50,000 loan given to Ms. Parker on February 28, 2023.  This equates to $49,675.98 in realized interest for a 469-day loan, or $105.22 in interest a day, for $38,660.41 in interest a year.  This is a realized interest rate of 116%.  This rate exceeds the usury laws of this state by 106 percentage points, which is objectively both inequitable and “grossly unreasonable” pursuant to Probate Code section 11604.5(h)(1).

Vanmar Capital argues that the usury laws do not apply by citing creatively to authorities in an attempt to confuse the definition of the advance of cash to Kayla Parker.  The gravamen of the agreement memorialized in the contract(s) with Vanmar Capital is that $50,000 was given to Kayla Parker in exchange for the payment of $99,675.98 paid to Vanmar Capital from the distribution owed to her from the Decedent’s estate.  This is literally the payment of funds to A, in exchange for a promise to repay those funds to B, with an additional amount as consideration.  But-for the additional funds, there would be no consideration within the transaction.

Essentially, Vanmar Capital claims that when it gave $50,000 to Kayla Parker, it was a “sale” and not a “loan,” and could not be considered a loan because repayment is not absolute due to the contingency that if Decedent’s estate does not payout to Kayla Parker, she would have no obligation to repay Vanmar Capital the $50,000 she received.  This is not persuasive for several reasons.

One, selective wordsmithing that labels the remote chance a known estate value will not result in the payout of an identifiable sum a “contingency” is disingenuous and academically dishonest, especially when there are no conditions that have to be met before payout is guaranteed, and the only subsequent condition that could nullify the obligation is so remote it basically does not exist.  As pointed out in a recent opinion by the Ninth Circuit:

… obligation to make payments is sufficiently “guaranteed” by the terms of the agreement, such that what appears not to be a “loan” is nonetheless treated like one for the purposes of New York usury law. While the Court of Appeals has not addressed this possibility in the realm of litigation finance, at least one New York state trial court has held that a similar purported non-recourse litigation financing arrangement was a “loan” (and thus subject to usury laws) because the recovery of the underlying plaintiff—and therefore the financier's payment—was “almost guaranteed.” [Citations]. In Echeverria, the plaintiff Echeverria received a $25,000 “advance” from a company called LawCash to pursue his personal injury case, which he agreed to repay “at an interest rate of 3.85% compounded monthly to LawCash from any judgment awarded,” [citations], which the court noted was “an obviously usurious rate,” [citations]. In finding that the finance agreement constituted a loan, the court concluded that:

[T]here was a very low probability that judgment would not be in favor of the plaintiff. It is a strict liability labor law case where the plaintiff is almost guaranteed to recover. There is low, if any risk. This is troubling considering the enormous profits that will be made from the rapidly accruing, extremely high interest rates they are charging.

[Citations]. The court also noted that, just like a bank making a loan, LawCash was able to demand its rate of return. [Citations]. The court then found that because the investment was a “sure thing,” “it is a loan, not an investment with great risk.

(Fast Trak Investment Company, LLC v. Sax, (9th Cir. 2020) 962 F.3d 455, 466.)

The court in the case above relied upon an age old principle stated in the Restatement of Contracts:

If the probability of the occurrence of the contingency on which diminished payment is promised is remote, or if the diminution should the contingency occur is slight as compared with the possible profit to be obtained if the contingency does not occur, the transaction is presumably usurious.

(Restatement (First) of Contracts (1932) § 527, comment a.)

Just as a matter of common sense, a contingency is an event that must occur prior to the springing forth of an obligation by one obliged; in this case Ms. Parker’s obligation to repay.  But even a cursory review of the contract shows Ms. Parker’s obligation to repay was absolute, unless a subsequent condition defeated that obligation to pay the amount owed; the condition subsequent being the estate was not solvent.  This is evident in paragraph 10 of the contract, which contains not a single condition precedent that must occur before Vanmar Capital, LLC is to be paid from the Decedent’s estate.

To be finally precise on this matter, almost every conceivable contrivance that similar probate loan companies have come up with to justify these very real loans, have been refuted by several courts across the nation, and more convincingly, by empirical evidence published in three law review articles that not only collect those cases in this state, but show that the collection rate for these probate ‘loans’ are between 96-100%, at an average interest rate that nearly always exceeds state usury limits.  (See David Horton, Andrea Cann Chandrasekher, Probate Lending (2016) 126 Yale L.J. 102, 130; David Horton, Borrowing in the Shadow of Death: Another Look at Probate Lending (2018) 59 Wm. & Mary L. Rev. 2447; David Horton & Reid K. Weisbord, Probate  Lending: Data from San Francisco (2022) 169 U. PA. L. REV. Online 293.)

Thus, at maximum, the Court should only distribute the original amount Vanmar Capital loaned Kayla Parker.

Appearances:

The court is open to the public for court business. The court is also conducting hearings via Zoom videoconference.

Meeting ID: 160 543 3416

Passcode: 5053334