A California appellate court affirmed summary judgment for a lender in a breach-of-contract action based on a limitation-of-liability provision in the operative loan agreement.
The borrower, CIP Jardinette Holding, LLC, entered into an agreement on an $8.815 million loan with ReadyCap Commercial LLC for a construction project to renovate an apartment building in Hollywood, California. The loan was secured by a deed of trust on the property, and CIP’s manager, Robert Clippinger, signed a guaranty.
The loan agreement contained a warranty that Clippinger would “at all times” be manager of the project unless ReadyCap consented to his removal. The loan agreement also contained a provision limiting the lender’s liability for any loss sustained by CIP unless “such loss was solely caused by the fraud, gross negligence or willful misconduct of Lender.”
A dispute arose when other investors in the project, Ratel Investments, LP and Ratel Hollywood, LP, suspected that Clippinger was misappropriating funds and causing the project to stall. The Ratel entities initiated the process of removing Clippinger as CIP’s manager. ReadyCap issued a notice of default giving CIP 30 days to cure by obtaining consent for Clippinger’s removal, but CIP did not cure and Clippinger was removed as manager. ReadyCap transferred the loan to RCMF 2018-FL2 Marathon Street, LLC, which foreclosed on the property. CIP filed a cross-claim for breach of contract.
Before the trial court, RCMF moved for summary judgment on CIP’s cross-claim based on a provision of the loan agreement limiting RCMF’s liability to losses “solely caused by the fraud, gross negligence or willful misconduct of Lender.” The trial court granted the motion.
On appeal, the California Court of Appeal affirmed. The court first held that the limitation-of-liability provision was valid and enforceable, reasoning that section 1668 of the California Civil Code allows for contractual parties to exempt themselves from liability for ordinary negligence and breach of contract and that no public interest consideration precluded enforcement of the provision because CIP and ReadyCap were sophisticated parties.
Turning to the merits, the court held that CIP did not show that the lender engaged in fraud, gross negligence, or willful misconduct. Although CIP argued that ReadyCap engaged in such misconduct by declaring CIP in default under the loan agreement by removing Clippinger without the lender’s consent, the court rejected CIP’s argument, characterizing it as a mere difference of interpretation of the terms of the loan agreement.
The case is CIP Jardinette Holding, LLC v. RCMF 2018-FL2 Marathon Street, LLC, No. B332376 (Cal. App. 2d Dist., Div. 2 Sept. 25, 2025). CIP is represented by Susman Godfrey LLP. RCMF is represented by Bryan Cave Leighton Paisner LLP. The opinion can be found here.
